<PAGE> 1
As Filed with the Securities and Exchange Commission on ____________
Registration Nos. 2-86931
811-3907
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 18 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 19 |X|
(Check appropriate box or boxes)
THE EMPIRE BUILDER TAX FREE BOND FUND
(Exact name of Registrant as specified in charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number, including Area Code: (800) 847-5886
Ellen F. Stoutamire, Esq.
The Empire Builder Tax Free Bond Fund
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
with a copy to:
John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (a)(i)
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on (date) pursuant to paragraph (a)(ii) of rule 485
[ X ] 60 days after filing pursuant to paragraph (a)(i)
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
<PAGE> 2
DRAFT 3
THE EMPIRE BUILDER TAX FREE BOND FUND
================================================================================
----------
Prospectus
----------
June 28, 1999
The Empire Builder Tax Free Bond Fund
Premier Class
Builder Class
- ----------------------------------
Questions?
Call 1-800-847-5886
or your investment representative.
- ----------------------------------
The Securities and Exchange Commission
has not approved the shares described
in this prospectus or determined whether
this prospectus is accurate or complete.
Any representation to the contrary is a
criminal offense.
================================================================================
<PAGE> 3
TABLE OF CONTENTS
Carefully review this important section, which summarizes the Fund's investment
strategies, risks, past performance, and fees.
RISK/RETURN SUMMARY AND FUND EXPENSES
3
================================================================================
Review this section for more information on investment strategies and their
risks.
INVESTMENT GOAL, STRATEGIES AND RISKS
7
================================================================================
Review this section for details on the people and organizations who oversee the
Fund.
FUND MANAGEMENT
11 The Investment Adviser
11 Portfolio Manager
================================================================================
Review this section for details on how shares are valued, how to purchase, sell
and exchange shares, related charges and payments of dividends and
distributions.
SHAREHOLDER INFORMATION
12 Summary of Features
13 Pricing of Fund Shares
13 Purchasing and Adding to Your Shares
16 Selling Your Shares
18 General Policies on Selling Shares
20 Exchanging Your Shares
20 Dividends, Distributions and Taxes
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FINANCIAL HIGHLIGHTS
22
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BACK COVER
23 Where to learn more about this Fund
2
<PAGE> 4
RISK/RETURN SUMMARY AND FUND EXPENSES
================================================================================
RISK/RETURN SUMMARY OF THE EMPIRE BUILDER TAX FREE BOND FUND
INVESTMENT GOAL
To seek as high a level of current income exempt from federal, New York State
and New York City personal income taxes as it can while preserving its capital.
The Fund is a New York municipal bond fund. The Fund may or may not achieve its
goal.
MAIN INVESTMENT STRATEGIES
The Fund invests mainly in New York Tax Exempt Bonds. New York Tax Exempt Bonds
are
- - debt obligations issued by the State of New York and its political
subdivisions, or other governmental authorities, such as U.S. possessions
like Puerto Rico, Guam, and the Virgin Islands.
- - the interest from which is exempt from both federal income tax and New York
State and City personal income taxes (other than alternative minimum tax).
At least 90% of the Fund's income distributions will be exempt from federal, New
York State and City personal income taxes, including alternative minimum tax,
during normal market conditions.
CREDIT STRATEGY. The Fund will only invest in New York Tax Exempt Bonds which
are of investment grade quality. Also, no more than 50% of the Fund's assets
will be invested in New York Tax Exempt Bonds which are rated in the lowest
investment grade rating. Some of the New York Tax Exempt Bonds may not be rated;
they will be of investment grade quality in the Adviser's opinion.
MATURITY STRATEGY. The Fund will vary its maturity strategy depending on market
conditions. However, its average maturity is expected to be between 10-20 years
under normal market conditions.
3
<PAGE> 5
RISK/RETURN SUMMARY - CONTINUED
- -------------------
MAIN INVESTMENT RISKS
The value of the Fund's investments will go up and down with market conditions,
and so will the value of your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could underperform other investments.
NONDIVERSIFICATION/NEW YORK CONCENTRATION. The Fund is nondiversified, so it
will probably hold shares of fewer issuers than a diversified fund. Therefore, a
default or a credit downgrade of any single issuer will have a greater impact on
the Fund. The performance of the Fund is likely to be especially affected by
factors pertaining to the New York economy and to New York governmental entities
in particular. Therefore, Fund shares could fluctuate more in value than shares
of a national municipal portfolio.
INTEREST RATE RISK. The Fund invests in debt securities, which are subject to
market risk and to credit risk. Market risk is the risk of decline in market
value in response to variation in interest rates, and credit risk is the risk
that the issuer may not make payments. When interest rates rise, the value of
bonds like those held by the Fund generally falls. The longer the maturity of a
security, the more its value will tend to decline when interest rates rise.
WHO MAY WANT TO INVEST?
Consider investing in the Fund if you are seeking:
[_] REGULAR MONTHLY TAX-FREE DIVIDENDS;
[_] TO REDUCE TAXES ON INVESTMENT INCOME;
[_] A LONG-TERM GOAL SUCH AS RETIREMENT.
This Fund will not be appropriate for anyone:
[_] INVESTING THROUGH A TAX-EXEMPT RETIREMENT PLAN;
[_] PURSUING AN AGGRESSIVE HIGH GROWTH INVESTMENT STRATEGY; OR
[_] SEEKING TO AVOID MARKET FLUCTUATION IN SHARE PRICE.
The Fund is not intended as a complete investment program.
4
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES
- -------------------------------------
The chart and table on this page show how the Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
Fund's yearly performance over ten years to demonstrate that the Fund's value
varied at different times. The table below it compares the Fund's performance
over time to that of the Lehman Municipal Bond Index, a widely recognized,
unmanaged index of municipal bonds.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31/98(1)
BUILDER CLASS
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
7.59% 5.56% 10.98% 8.74% 12.23% -4.49% 14.59% 3.23% 7.96% 4.94%
</TABLE>
The bar chart above does not reflect the impact of any applicable account fees
which would reduce returns. The returns shown in the bar chart are for Builder
Class shares. Of course, past performance does not indicate how the Fund will
perform in the future.
The table assumes shareholders redeem all their Fund shares at the end of the
period indicated.
- --------------------------------------------------------------------------------
Best quarter: Q4 1985 7.86%
Worst quarter: Q1 1994 4.87%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998*)
Fund or Class Past Year Past 5 Years Past 10 Years Since Inception
Inception
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PREMIER CLASS 4/15/96 5.26% N/A N/A 6.92%
-----------------------------------------------------------------------
BUILDER CLASS 6/1/84 4.94% 5.06% 7.01% 8.71%
-----------------------------------------------------------------------
LEHMAN MUNICIPAL 8.16% (4/15/96)
BOND INDEX 6.48% 6.23% 8.22% 9.60% (6/1/84)
-----------------------------------------------------------------------
</TABLE>
(*)For current performance information, including the Fund's 30-day yield and
tax equivalent yield, call 1-800-847-5886.
- ------------------
(1) Both charts assume reinvestment of dividends and distributions.
5
<PAGE> 7
RISK/RETURN SUMMARY AND FUND EXPENSES - CONTINUED
- -------------------------------------
FEES AND EXPENSES
- -----------------
As an investor in the Fund, you will pay the following fees and expenses.
Shareholder transaction fees are paid from your account. Annual Fund operating
expenses are paid out of Fund assets, and are reflected in the share price.
<TABLE>
<CAPTION>
Shareholder Transaction PREMIER BUILDER
Expenses (fees paid by you directly) CLASS CLASS
<S> <C> <C>
Maximum sales charge (load)
on purchases None None
- ----------------------------------------------------------------------
Exchange Fee $5.00 None
Annual Fund Operating Expenses
(fees paid from Fund assets)
- ----------------------------------------------------------------------
Advisory Fee .39% .39%
- ----------------------------------------------------------------------
Administration Fee .19% .19%
- ----------------------------------------------------------------------
Other Expenses 24% .53%
- ----------------------------------------------------------------------
Total Annual Fund
Operating Expenses .82% 1.11%
- ----------------------------------------------------------------------
</TABLE>
EXPENSE EXAMPLE
Use this example to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
1 3 5 10
PREMIER CLASS YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
$84 $262 $456 $1,015
- ------------------------------------------------------------------------
BUILDER CLASS $113 $353 $612 $1,353
- ------------------------------------------------------------------------
</TABLE>
6
<PAGE> 8
INVESTMENT GOAL, STRATEGIES AND RISKS
================================================================================
THE EMPIRE BUILDER TAX FREE BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
The Fund seeks as high a level of current income exempt from federal income tax
in New York State and City personal income taxes as the Adviser believes is
consistent with preservation of capital. If it can preserve capital at the same
time, the Fund will also try to achieve capital appreciation. The Fund has a
fundamental policy that, under normal market conditions, at least
- 90% of its income distributions will consist of interest income on New York
Tax Exempt Bonds whose income is federal and New York State and City tax
exempt and not subject to alternative minimum tax.
- Up to the remaining 10% of its income distributions may consist of
- interest income on AMT Bonds, which are New York Tax Exempt Bonds
whose income is subject to ALTERNATIVE MINIMUM TAX, and
- interest income on investments other than New York Tax Exempt Bonds,
which may be FULLY TAXABLE.
However, although the Fund retains the freedom to invest to a limited extent in
AMT Bonds and taxable investments, it has not done so over the past ten years
and does not currently anticipate any change in its practice of avoiding such
investments.
MAIN INVESTMENT STRATEGIES AND RISKS
The Fund invests mainly in New York Tax Exempt Bonds. New York law exempts Fund
distributions derived from interest on New York Tax Exempt Bonds from New York
State and City personal income taxes. During the Fund's fiscal year ended
February 28, 1999, 100 % of the Fund's income distributions were exempt from
federal income tax and New York State and City personal income taxes. None of
the Fund's income distributions for that year were derived from AMT Bonds.
CREDIT STRATEGY. The Fund will only buy New York Tax Exempt Bonds if they are
investment grade quality. At the time of purchase, rated bonds will be rated not
lower than the four highest grades assigned by both Moody's (Aaa, Aa, A or Baa)
and Standard & Poor's (AAA, AA, A or BBB). Unrated bonds will be of comparable
quality in the Adviser's opinion. The Fund will not invest more than 50% of its
total assets in New York Tax Exempt Bonds that are rated in the lowest
investment grade rating or of comparable quality. Bonds rated in the lowest
investment grade rating have some speculative characteristics. A description of
the Moody's and S&P ratings of bonds and commercial paper of a quality eligible
for purchase by the Fund is included in the SAI. Bonds rated in the lowest
investment grade are considered medium grade obligations. The amount of
information available about the financial condition of an issuer of New York Tax
Exempt Bonds is generally considerably less than the amount of information made
available by publicly held companies.
7
<PAGE> 9
MATURITY STRATEGY. The Fund will vary its maturity strategy depending on market
conditions. However, its average maturity is generally expected to be between
10-20 years under normal market conditions.
MAIN INVESTMENTS OF THE FUND
NEW YORK TAX EXEMPT BONDS ARE
- - debt obligations issued by the State of New York and its political
subdivisions, or certain other governmental authorities such as U.S.
possessions like Puerto Rico, Guam and the Virgin Islands
- - the interest from which is exempt from both federal income tax and New York
State and City personal income taxes
- - Some New York Tax Exempt Bonds, however, generate interest which is subject
to alternative minimum tax. They are called AMT Bonds.
New York Tax Exempt Bonds are issued to obtain funds for various public
purposes, such as
- - the construction of public facilities,
- - the payment of general operating expenses,
- - the refunding of outstanding debts, or
- - the lending of funds to public or private institutions for the construction
of housing, educational or medical facilities.
They may also include industrial development bonds and private activity bonds
issued by public authorities to finance privately owned or operated facilities.
Such bonds may be AMT Bonds. The Fund generally avoids purchasing AMT Bonds,
although it retains the freedom to do so to a limited extent.
MAIN RISKS OF INVESTING IN THE FUND
INTEREST RATE RISK. The Fund's investments will go up and down in value as the
general level of interest rates changes. When interest rates fall, the values of
bonds like those held by the Fund generally rise. On the other hand, when
interest rates go up, the values of such bonds generally fall. The longer the
maturity of a security, the more its value will go up and down in response to
interest rate changes. Changes in the credit ratings of obligations and in the
ability of an issuer to make payments will also affect the value of these
investments. The value of the Fund's shares varies along with the value of its
investments.
EFFECT OF CREDIT STRATEGY ON YIELD AND TOTAL RETURN. The Fund seeks to preserve
capital, and the portion of the Fund's assets that may be invested in
lower-rated bonds is limited compared with some other New York municipal bond
funds. The higher risk of lower-rated bonds is normally accompanied by higher
yields and anticipated total returns than higher-rated bonds. The Fund's yield
and total return may therefore be significantly lower than that of those other
New York municipal bond funds which invest more of their assets in lower-rated
bonds.
SPECIAL RISKS OF NEW YORK TAX EXEMPT BONDS. Most issuers of New York Tax Exempt
Bonds are located in New York, so the performance of the Fund will be especially
affected by the condition of the New York economy. As a result, the value of the
Fund's shares could fluctuate more than the value of shares of a national
municipal bond fund. State and local
8
<PAGE> 10
governments and political subdivisions rely on tax and other revenues to make
payments on their bonds. Tax and other revenues will be affected by the state of
the local economy, the political climate and local population trends.
Constitutional or statutory restrictions may also limit issuers' power to raise
revenues or increase taxes. Decreases in the amount of federal, state or local
aid to issuers can lower the credit quality of their bonds. Revenue bonds depend
for payment on the revenues of the facility or specific revenue source which is
paying off the bonds. Those revenues will be affected by economic, political and
demographic conditions. Any default or credit downgrade of an issuer of New York
Tax Exempt Bonds would lower the market value and marketability of its
obligations. A downgrade or default by one issuer of New York Tax Exempt Bonds,
by influencing general market sentiment, could lead to a lowering of the values
of other New York Tax Exempt Bonds as well.
OTHER INFORMATION ABOUT THE FUND'S
INVESTMENT TECHNIQUES AND POLICIES
CHANGE IN POLICY. The Trustees may change the investment goal of the Fund or any
policy not specifically described in this prospectus or in the SAI as
fundamental without a shareholder vote.
TEMPORARY DEFENSIVE POSITIONS. The Fund may also invest in taxable debt
obligations on a temporary defensive basis due to market conditions. If it does,
more than 10% of the Fund's income distributions could be subject to federal
and/or New York State and City personal income taxes. Such taxable obligations
may include obligations of the U.S. government, its agencies or
instrumentalities, other investment grade debt securities, commercial paper
rated in the highest two grades by either Moody's or Standard & Poor's,
certificates of deposit and bankers' acceptances of banks having deposits in
excess of $2 billion, and repurchase agreements with respect to any of the
foregoing investments. The Fund may also hold its assets in other cash
equivalents or in cash. The use of such defensive positions may lower return and
will increase the percentage of the Fund's distributions which are taxable.
PORTFOLIO TURNOVER. In periods of rapidly fluctuating interest rates, the Fund
may engage in active and frequent trading. Sometimes, the Fund may also trade
securities for the purpose of seeking short-term profits based on its belief as
to the direction of interest rates. The Fund may also trade in response to
changes in the creditworthiness of issuers, or to take advantage of short-term
disparities in market values or yields among comparable bonds. A change in the
securities held by the Fund is known as "portfolio turnover." Portfolio turnover
generally involves some expense to the Fund, including dealer mark-ups and other
transaction costs, and therefore affects Fund performance. If sales create net
realized capital gains, shareholders will have to pay income tax on those gains.
See "Dividends, Distributions and Taxes." The Fund's portfolio turnover rate may
be higher than that of similar mutual funds.
YEAR 2000 RISKS. Like other funds and business organizations around the world,
the Fund could be adversely affected if the computer systems used by the Adviser
and the Fund's other service providers do not properly process and calculate
date-related information for the Year 2000 and beyond. In addition, Year 2000
issues may adversely affect issuers of bonds in which the Fund invests where,
for example, such issuers incur substantial costs to address Year 2000 issues
which may affect their credit quality or suffer declines in revenue or other
adverse effects caused by the failure to adequately or timely do so. The Fund
has very little ability to influence the Year 2000 preparations of the issuers
of the securities which it holds in its portfolio or which it may propose to
purchase.
9
<PAGE> 11
The Fund has been assured that the Adviser and the Fund's other service
providers (i.e., Administrator, Transfer Agent, Fund Accounting Agent, Custodian
and Distributor) have developed and are implementing clearly defined and
documented plans intended to minimize risks to services critical to the Fund's
operations associated with Year 2000 issues. Internal efforts include a
commitment to dedicate adequate staff and funding to identify and remedy Year
2000 issues, and specific actions such as inventorying software systems,
determining inventory items that may not function properly after December 31,
1999, reprogramming or replacing such systems, and retesting for Year 2000
readiness. The Adviser and service providers are likewise seeking assurances
from their respective vendors and suppliers that such entities are addressing
any Year 2000 issues, and each provider intends to engage, where appropriate, in
private and industry or "streetwide" interface testing of systems for Year 2000
readiness.
In the event that any systems upon which the Fund is dependent are not Year 2000
ready by December 31, 1999, administrative errors and account maintenance
failures would likely occur. While the ultimate costs or consequences of
incomplete or untimely resolution of Year 2000 issues by the Adviser or the
Fund's service providers cannot be accurately assessed at this time, the Fund
currently has no reason to believe that the Year 2000 plans of the Adviser and
the Fund's service providers will not be completed by December 31, 1999, or that
the anticipated costs associated with full implementation of their plans will
have a material adverse impact on either their business operations or financial
condition of those of the Fund. The Fund and the Adviser will continue to
closely monitor developments relating to this issue, including development by
the Adviser and the Fund's service providers of contingency plans for providing
back-up computer services in the event of a systems failure or the inability of
any provider to achieve Year 2000 readiness. However, there is no way to be sure
that these steps will be sufficient to avoid any adverse impact on the Fund.
10
<PAGE> 12
FUND MANAGEMENT
================================================================================
THE INVESTMENT ADVISER
Glickenhaus & Co., (Glickenhaus or the "Adviser"), 6 East 43rd Street, New York,
NY 10017 is the adviser for the Funds. Glickenhaus & Co., which was founded in
1961, has approximately $4.3 billion under investment management as of December
31, 1998, including approximately $289 million of municipal securities. Seth M.
Glickenhaus, a general partner of the Adviser and the President of the Fund, is
a controlling person of the Adviser. Glickenhaus makes the day-to-day investment
decisions and continuously reviews, supervises and administers the Funds'
investment programs.
For these advisory services during the fiscal year ended February 28, 1999, the
Fund paid Glickenhaus a fee equal to .39% of the Fund's average net assets.
PORTFOLIO MANAGER
James R. Vaccacio, Portfolio Manager, is primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Vaccacio joined the Adviser
as Manager of Municipal Trading in 1977. He assumed responsibility for managing
the Fund's portfolio in 1988.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
11
<PAGE> 13
SHAREHOLDER INFORMATION
================================================================================
SUMMARY OF FEATURES
The following chart is a summary of features for both the Builder Class and the
Premier Class of the Fund. The following pages provide more detail on each of
these features.
<TABLE>
<CAPTION>
Feature Builder Class Premier Class
- ------- ------------- -------------
<S> <C> <C>
Goal Convenience Higher Yield
Sales Charge None None
Minimum Initial Investment $1,000 $20,000
Additional Investments $100 minimum $100 minimum
Checkwriting No charge $5 initial/$1 per check
$500 minimum check $5,000 minimum check
Class Exchanges Free to Premier $5 to Builder
Auto Investing $100 minimum $100 minimum
(after initial investment)
Auto Withdrawal No charge Not available
$5,000 minimum balance
Direct Deposit No charge Not available
Historical Account Information Free $5 per request
Reinvestment from Free Free
Glickenhaus Sponsored Unit
Investment Trusts
</TABLE>
12
<PAGE> 14
PRICING OF FUND SHARES
- ----------------------
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
TOTAL ASSETS - LIABILITIES
--------------------------
Number of Shares
Outstanding
You can find the Fund's NAV daily in The Wall Street Journal and other
newspapers.
OTHER FUNDS
Per share net asset value (NAV) for the Fund is determined and its shares are
priced at the close of regular trading on the New York Stock Exchange, normally
at 4:00 p.m. Eastern time. Shares are not priced on days the Exchange is closed
for trading.
Your order for purchase, sale or exchange of shares is priced at the
next NAV calculated after your order is accepted by the Fund. This
is what is known as the offering price.
Assets are valued daily at their current market value, in the case of New York
Tax Exempt Bonds as determined by an independent pricing service approved by the
Trustees. Assets for which neither current pricing service quotations nor market
quotations are available are valued in good faith at fair value under procedures
approved by the Fund's Trustees.
PURCHASING AND ADDING TO YOUR SHARES
- ------------------------------------
You may purchase the Fund through the Transfer Agent or through a participating
dealer which may charge additional fees and may require higher minimum
investments or impose other limitations on buying and selling shares. If you
purchase shares through a participating dealer, the dealer is responsible for
transmitting orders by close of business and may have an earlier cut-off time
for purchase and sale requests. Consult your dealer or institution for specific
information.
<TABLE>
<CAPTION>
MINIMUM
ACCOUNT TYPE MINIMUM SUBSEQUENT INVESTMENT(*)/
INITIAL INVESTMENT(*) AUTOMATIC INVESTMENT PLAN(**)
<S> <C> <C>
PREMIER CLASS $20,000 $100
BUILDER CLASS $ 1,000 $100
- --------------------------------------------------------------------------------
</TABLE>
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party or foreign checks are not accepted.
The Fund may waive its minimum purchase requirement and the Distributor may
reject a purchase order if it considers it in the best interest of the Fund and
its shareholders.
(*) The minimum initial and subsequent amounts do not apply to automatic
investments into the Fund of distributions from the Empire State Municipal
Exempt Trust, Empire Guaranteed Series and Empire Maximums AMT Series A - the
unit investment trusts sponsored by the Adviser.
(**) You must send a check with your application for the required minimum
investments to initially open the account ($20,000 for Premier and $1,000 for
Builder). The minimum Automatic Investment Plan amounts will apply to subsequent
investments.
13
<PAGE> 15
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
- ------------------------------------
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY MAIL
If purchasing through your dealer or broker, simply tell your dealer or broker
that you wish to purchase shares of the Funds and he or she will take care of
the necessary documentation. For all other purchases, follow the instructions
below.
Initial Investment:*
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "The Empire Builder Tax
Free Bond Fund."
3. Mail to: The Empire Builder Tax Free Bond Fund, P.O. Box 182486, Columbus,
OH 43218-2486
*Special procedures apply if you prefer to fax your application. Call the Fund
at 1-800-847-5886 for specific instructions.
Subsequent Investment:
1. Use the investment slip attached to your account statement, or, if
unavailable,
2. Include the following information:
- The Empire Builder Tax Free Bond Fund
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: The Empire Builder Tax Free Bond Fund, P.O. Box 182486, Columbus,
OH 43218-2486
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments, and
send to: The Empire Builder Tax Free Bond Fund,
c/o BISYS Fund Services,
Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-800-847-5886. Your account can generally be set up for electronic purchases
within 10 business days.
Call 1-800-847-5886 to arrange a transfer from your bank account.
14
<PAGE> 16
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
- ------------------------------------
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, the transaction is made
through the Automated Clearing House (ACH) and may take up to eight business
days to clear. There is generally no fee for ACH transactions.
- --------------------------------------------------------------------------------
BY WIRE TRANSFER
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment:
Call the Fund at 1-800-847-5886 for fax instructions and to request a
confirmation number. Follow the instructions below after receiving your
confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Huntington National Bank
Routing Number: ABA #044000024
A/C 01899607532
Include:
Your name
Your Fund account number
Your confirmation number
After instructing your bank to wire the funds, call 800-847-5886 to advise us of
the amount being transferred and the name of your bank
- --------------------------------------------------------------------------------
You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time with
60 days' notice.
- --------------------------------------------------------------------------------
15
<PAGE> 17
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
- ------------------------------------
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Fund from your bank account, through
payroll deduction or from your federal employment, Social Security or other
regular government checks. Automatic investments can be as little as $100 for
the Builder Class and $100 for the Premier Class, once you've invested the
minimum initial amount required to open the account.
To invest regularly from your bank account:
- Complete the Automatic Investment Program portion on your Account
Application. Make sure you note:
* Your bank name, address and account number
* The amount you wish to invest automatically (minimum $25)
* How often you want to invest (every month, 4 times a year, twice a
year or once a year)
- Attach a voided personal check.
DIRECT DEPOSIT OF FUND DIVIDENDS
By selecting the appropriate box in the Account Application, you can elect to
receive your Builder Class distributions in cash (check) or have distributions
(capital gains and dividends) from the Fund automatically deposited into your
bank account. This feature is not available for Premier Class accounts. The Fund
may modify or terminate this option without notice. You can change or terminate
your participation in this option at any time.
- --------------------------------------------------------------------------------
SELLING YOUR SHARES
- -------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
- --------------------------------------------------------------------------------
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your dealer or broker, ask him or her for
redemption procedures. The request must be received by the Transfer Agent before
4:00 p.m. Eastern time to receive that day's price. Your dealer or broker may
have transaction minimums and/or transaction times which will affect your
redemption. For all other sales transactions, follow the instructions below.
16
<PAGE> 18
SELLING YOUR SHARES - CONTINUED
- -------------------
By telephone Call 1-800-847-5886 with instructions on how you
(unless you have declined wish to receive your funds (mail, wire, electronic
telephone sales transfer). (See "General Policies on Selling Shares--
privileges) Verifying Telephone Redemptions" below)
- --------------------------------------------------------------------------------
By mail 1. Call 1-800-847-5886 to request redemption forms
or write a letter of instruction indicating:
- Fund name, share class, account number, social
security number and account registration
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to:
The Empire Builder Tax Free Bond Fund
PO Box 182486
Columbus, OH 43218-2486
- --------------------------------------------------------------------------------
By overnight service See instruction 1 above, and
(See "General Policies on Send to:
Selling Shares-- The Empire Builder Tax Free Bond Fund
Redemptions in Writing co/BISYS Fund Services
Required" below) Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
- --------------------------------------------------------------------------------
Wire transfer Call 1-800-847-5886 to request a wire transfer.
You must elect this option If you call by 4 p.m. Eastern time, your payment will
on your application. normally be wired to your bank on the next business
day.
The Fund may charge a
wire transfer fee.
Note: Your financial
institution may also
charge a separate fee.
- --------------------------------------------------------------------------------
Electronic Redemptions Call 1-800-847-5886 to request an electronic
redemption.
Your bank must If you call by 4 p.m. Eastern time, the NAV of your
participate in the shares will normally be determined on the same day
Automated Clearing and the proceeds credited within 8 business days.
House (ACH) and must
be a U.S. bank.
Your bank may charge for
this service.
- --------------------------------------------------------------------------------
17
<PAGE> 19
SELLING YOUR SHARES - CONTINUED
AUTOMATIC WITHDRAWAL PLAN - BUILDER CLASS ONLY
You can receive automatic payments from your Builder Class account on a monthly,
quarterly, semi-annual or annual basis. The minimum withdrawal is $25.
Shareholders may not maintain an Automatic Withdrawal Plan and utilize the check
writing privilege (see below) at the same time. To activate this
feature:
- - Make sure you've checked the appropriate box on the Account Application, or
call 1-800-847-5886.
- - Your account must have a value of $5,000 or more to start withdrawals.
REDEMPTION BY CHECK WRITING
For the Builder Class, shareholders may write checks on their accounts, with a
minimum check size of $500. There is no charge for this service.
For the Premier Class, shareholders may write checks on their accounts, with a
minimum check size of $5,000. The charge for this service is $5 to activate the
check writing feature, and $1 for each check written.
To obtain checks, complete the signature card section of the Account Application
or contact the Fund to obtain a signature card. Dividends and distributions will
continue to be paid up to the day the check is presented for payment. The check
writing feature may be modified or terminated upon 30 days' written notice. You
may not close your Fund account by writing a check.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing if your request requires a signature
guarantee. Such requests would include each of the following:
- Redemptions over $25,000
- Your account registration or the name(s) on your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration
A signature guarantee can be obtained from a financial institution, such as
a bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock
Exchange Signature Program) or SEMP (Stock Exchanges Medallion Program).
Members are subject to dollar limitations which must be considered when
requesting their guarantee. The Transfer Agent may reject any signature
guarantee if it believes the transaction would otherwise be improper.
18
<PAGE> 20
GENERAL POLICIES ON SELLING SHARES - CONTINUED
- ----------------------------------
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Unless you have
specifically indicated on your application that you do not want the telephone
redemption feature, you may be responsible for any fraudulent telephone orders
which are not detected by the use of reasonable precautions.
REDEMPTIONS WITHIN 10 BUSINESS DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the check has cleared (which may require up to 10 business
days). You can avoid this delay by purchasing shares with a certified check or a
federal funds wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
CLOSING OR EXCHANGE OF SMALL ACCOUNTS
If your Premier Class account falls below $20,000 as a result of redemptions,
the Fund may ask you to increase your balance. If it is still below $20,000 two
months after the request, the Fund will convert your account from Premier Class
to Builder Class shares.
If your Builder Class account falls below 20 shares, the Fund may, after giving
you at least 60 days' written notice, close your account and send you the
proceeds.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the Fund.
19
<PAGE> 21
EXCHANGING YOUR SHARES
- ----------------------
Builder Class shareholders who meet the minimum account size for the Premier
Class can exchange their Builder Class shares for Premier Class shares free of
charge. (see "Notes" below).
Exchanges from one Class to another do not result in the recognition of capital
gains or losses for federal income tax purposes.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to The Empire Builder Tax
Free Bond Fund, PO Box 182486, Columbus OH 43218-2486, or by calling 1-800-
847-5886.
Please provide the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Class from which the exchange is to be made
- The name of the Class into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
- --------------------------------------------------------------------------------
NOTES ON EXCHANGES
- - The registration and tax identification numbers of the two accounts must be
identical.
- - The Exchange Privilege may be changed or eliminated at any time upon 60
days' notice to shareholders.
- - Premier Class shareholders who elect to exchange their shares for Builder
Class shares are charged a fee of $5 for each exchange.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- ----------------------------------
Any income the Fund receives in the form of interest or dividends is paid out,
less expenses, to its shareholders as dividends. The Fund declares all of its
net investment income as distribution on each business day. Net investment
income on the Fund is paid monthly. Any capital gains for the Fund are
distributed at least annually.
You can choose from three distribution options:
- - Reinvest all distributions in additional Fund shares
- - Receive net investment income in cash while reinvesting capital gains
distributions in Fund shares
- - Receive all distributions in cash
All dividends and distributions will be automatically reinvested at net asset
value unless you request otherwise. There are no sales charges for reinvested
distributions. Dividends are higher for Premier Class shares than for Builder
Class, because Premier Class shares have lower expenses. Builder Class
shareholders may elect to have their dividends and distributions automatically
deposited directly in their bank accounts. Call 1-800-847-5886 for an
authorization form.
20
<PAGE> 22
DIVIDENDS, DISTRIBUTIONS AND TAXES - CONTINUED
- ----------------------------------
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE OWNED
YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME
OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A DISTRIBUTION.
An exchange of shares between the classes is not taxable.
The Fund intends to pay "exempt-interest dividends," which means you should not
have to pay federal and New York State or City income tax on this investment
income but it may be subject to the federal alternative minimum tax. However, if
you receive social security or other benefits, you should consult your tax
advisor to determine what effect your investment in the Fund may have on the
federal taxation of your benefits. If the Fund distributes any interest earned
on taxable obligations, as well as any net short-term capital gains, these are
taxable as ordinary income. Long-term capital gains designated by the Fund as
such will be taxable generally at a 20% rate for noncorporate shareholders.
Taxes on capital gains by the Fund will vary with the length of time the Fund
has held the security - not how long you have had your money invested in the
Fund.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year. Dividends and distributions are
treated in the same manner for federal income tax purposes whether you receive
them in cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
- --------------------------------------------------------------------------------
Avoid 31% Tax Withholding
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified Taxpayer Identification Number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
- --------------------------------------------------------------------------------
Foreign shareholders may be subject to special withholding requirements. Consult
your tax adviser about the federal, state and local tax consequences in your
particular circumstances.
21
<PAGE> 23
FINANCIAL HIGHLIGHTS
================================================================================
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUND'S
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS. CERTAIN INFORMATION REFLECTS
FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLE
REPRESENT THE RATE THAT YOU WOULD HAVE EARNED ON AN INVESTMENT IN THE FUND
(ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THIS INFORMATION HAS
BEEN AUDITED BY PRICEWATERHOUSECOOPERS LLP, WHOSE REPORT, ALONG WITH THE FUND'S
FINANCIAL STATEMENTS, ARE INCLUDED IN THE ANNUAL REPORT, WHICH IS AVAILABLE UPON
REQUEST.
THE EMPIRE BUILDER TAX FREE BOND FUND FINANCIAL HIGHLIGHTS [TO BE INSERTED FROM
ANNUAL REPORT.]
22
<PAGE> 24
FOR MORE INFORMATION
For more information about the Fund, the following documents are available free
upon request:
ANNUAL AND SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund, including its operations and investment policies. It
is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF THE ANNUAL AND SEMI-ANNUAL REPORTS AND THE SAI, OR
REQUEST OTHER INFORMATION AND DISCUSS YOUR QUESTIONS ABOUT THE EMPIRE BUILDER
TAX FREE BOND FUND BY CONTACTING A PARTICIPATING DEALER THAT SELLS THE FUND, OR
BY CONTACTING:
THE EMPIRE BUILDER TAX FREE BOND FUND
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-847-5886 (8:00 A.M. - 9:00 P.M. EASTERN TIME)
- --------------------------------------------------------------------------------
You can review the Fund's Annual and Semi-Annual Reports and SAI at the Public
Reference Room of the Securities and Exchange Commission. You can get text-only
copies:
- For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- Free from the Commission's Website at http://www.sec.gov.
(Investment Company Act file no. 811-3907)
23
<PAGE> 25
MARKED
DRAFT 3
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Additional Information
June 28, 1999
This Statement of Additional Information contains material which may be
of interest to investors but which is not included in the Prospectus of The
Empire Builder Tax Free Bond Fund. This Statement is not a Prospectus and is
authorized for distribution only when it accompanies or follows delivery of the
Prospectus of the Fund dated June 28, 1999, as supplemented from time to time.
This Statement should be read in conjunction with the Prospectus. Certain
disclosure is incorporated into this Statement of Additional Information from
the Fund's Annual Report. Investors may obtain a free copy of the Prospectus
and/or Annual Report from BISYS Fund Services, 3435 Stelzer Road, Columbus, OH
43219 or telephone 1-800-847-5886.
Table of Contents
Page
Definitions.................................................2
Fund History................................................2
Investment Goal and Policies of the Fund....................2
Investment Restrictions of the Fund........................10
Management of the Fund.....................................13
Determination of Net Asset Value...........................17
Fund Performance...........................................18
Purchase of Shares.........................................20
Investment Programs........................................21
Taxes......................................................24
Automatic Withdrawal Program...............................26
Shareholder Liability......................................26
Shareholder Voting.........................................26
Independent Accountants....................................27
Financial Statements.......................................27
Custodian..................................................27
Investment Ratings.................................Appendix A
<PAGE> 26
DEFINITIONS
The "Fund" The Empire Builder Tax Free Bond Fund
The "Adviser" or the "Distributor" Glickenhaus & Co., the Fund's Adviser
and Principal Underwriter
The "Administrator" BISYS Fund Services Ohio, Inc.
the Fund's Administrator
The "Transfer Agent" or "Fund BISYS Fund Services Ohio Inc.
Accounting Agent"
The "SEC" The Securities and Exchange Commission
FUND HISTORY
The Fund was organized as a Massachusetts business trust on September
30, 1983. A copy of the Fund's Amended and Restated Agreement and Declaration of
Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts.
The Fund is a no-load, open-end, non-diversified management investment
company with an unlimited number of authorized shares of beneficial interest
which may, without shareholder approval, be divided into an unlimited number of
series or classes of such shares. Shares of different series or classes can bear
different levels of expenses. The Fund's shares are not presently divided into
series. The Fund's shares are, however, currently divided into two classes, the
Premier Class and the Builder Class. The two classes bear all Fund expenses pro
rata based on the aggregate net asset value of the outstanding shares of the two
classes, except that transfer agency costs are allocated between the two classes
based on the number of shareholder accounts in each class.
INVESTMENT GOAL AND POLICIES OF THE FUND
The Fund's investment goal and its investment policies are described in
the Prospectus. The investment goal of the Fund is to seek as high a level of
current income exempt from federal income tax and New York State and City
personal income taxes as the Adviser believes to be consistent with the
preservation of capital. This Statement contains additional information about
those policies and about certain miscellaneous investment practices in which the
Fund may engage. The Fund is also subject to certain investment restrictions
described below.
NEW YORK TAX EXEMPT BONDS
As used in this Statement of Additional Information, the term "New York
Tax Exempt Bonds" refers to debt securities the interest from which is, in the
opinion of bond counsel, exempt from federal income tax and New York State and
City personal income taxes (other than the possible incidence of any alternative
minimum tax). New York Tax Exempt Bonds consist primarily of bonds of The State
of New York, its political subdivisions (for example, counties, cities, towns,
villages, districts and authorities) issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
certain New York Tax Exempt Bonds may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses, or obtaining funds
to lend to public or private institutions for the construction of facilities
such as educational, hospital and housing facilities. In addition, certain types
of industrial development bonds and private
2
<PAGE> 27
activity bonds have been or may be issued by public authorities or on behalf of
state or local governmental units to finance privately operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Other types of industrial development and
private activity bonds are used to finance the construction, equipment, repair
or improvement of privately-operated industrial or commercial facilities.
Industrial development bonds and private activity bonds are included within the
term New York Tax Exempt Bonds if the interest paid thereon is, in the opinion
of bond counsel, exempt from federal income tax and New York State and City
personal income taxes (other than the possible incidence of any alternative
minimum tax). The Fund may invest more than 25% of the value of its total assets
in such bonds, but not more than 25% in bonds backed by nongovernmental users in
any one industry (see "Investment Restrictions of the Fund"). However, as
described in the Prospectus under "Distributions and Taxes," the income from
certain private activity bonds is an item of tax preference for purposes of the
federal alternative minimum tax, and it is a fundamental policy of the Fund that
distributions from interest income on such private activity bonds, together with
distributions of interest income on investments other than New York Tax Exempt
Bonds, will normally not exceed 10% of the total amount of the Fund's income
distributions.
In addition, the term "New York Tax Exempt Bonds" includes debt
obligations issued by other governmental entities (for example, U.S.
possessions, such as Puerto Rico, Guam and the Virgin Islands) if such debt
obligations generate interest income which is exempt from federal income tax and
New York State and City personal income taxes (other than any alternative
minimum taxes).
New York Tax Exempt Bonds purchased by the Fund will be of "investment
grade" quality. This means that at the time of purchase, the bonds will be rated
not lower than the four highest grades assigned by both Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) and Standard & Poor's Corporation
("S&P") (AAA, AA, A or BBB) or will be unrated securities which the Adviser
determines are of comparable quality. The Fund will not invest more than 50% of
its total assets in New York Tax Exempt Bonds that are rated Baa by Moody's or
BBB by S&P at the time of purchase or that, if unrated, are determined by the
Adviser to be of comparable quality. Securities rated Baa or BBB (and comparable
unrated securities) have some speculative characteristics; unfavorable changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity of the issuer of these securities to make principal and
interest payments than is the case with higher quality securities. (A
description of the four highest grades of debt securities and the highest grade
of commercial paper of Moody's and of S&P is included in this SAI. Bonds rated
Baa by Moody's are considered medium grade obligations, the security for payment
of interest and principal being currently considered adequate, but certain
protective elements may be lacking over any great length of time. S&P's
description of BBB bonds is similar.) It should be noted that the amount of
information about the financial condition of an issuer of New York Tax Exempt
Bonds may not be as extensive as that which is made available by corporations
whose securities are publicly traded.
The value of the Fund's investments will change as the general level of
interest rates fluctuates. During periods of falling interest rates, the values
of fixed-income securities, such as New York Tax Exempt Bonds, generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes in the credit ratings of obligations and
in the ability of an issuer to make payments of interest and principal will also
affect the value of these investments. The value of the Fund's shares will
fluctuate with the value of its investments.
Because preservation of capital is part of the Fund's investment
objective, and the portion of the Fund's assets that may be invested in
securities rated below A (and comparable unrated securities) is limited, the
Fund's yield and total return may be significantly lower than that of many other
New York Tax Exempt Bond Funds during any particular period or over extended
periods. For temporary purposes (such as pending new investments) or liquidity
purposes (such as to meet repurchase or redemption obligations or to pay
expenses), the Fund may invest in taxable obligations, provided that not more
than 10% of the Fund's income distributions are subject to federal income tax
and/or New York State and City personal income taxes. The Fund may also invest
in taxable obligations on a temporary defensive basis due to market conditions,
when more than 10% of the Fund's income distributions could be subject to
federal income tax and/or New York State and City personal income taxes. Such
taxable
3
<PAGE> 28
obligations may include obligations of the U.S. government, its agencies or
instrumentalities, other debt securities rated within the four highest grades by
either Moody's or S&P, commercial paper rated in the highest two grades by
either of such rating services, certificates of deposit and bankers' acceptances
of banks having deposits in excess of $2 billion, and repurchase agreements with
respect to any of the foregoing investments. The Fund may also hold its assets
in other cash equivalents or in cash.
CLASSIFICATIONS OF NEW YORK TAX EXEMPT BONDS. The two principal
classifications of New York Tax Exempt Bonds are general obligation and revenue
bonds. General obligation bonds involve the credit of an issuer possessing
taxing power and are payable from the issuer's general unrestricted revenues.
The characteristics and methods of enforcement of general obligation bonds vary
according to the law applicable to the particular issuer. Revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or a specific revenue source and generally not from the unlimited
revenues of the issuer. Industrial development bonds and private activity bonds
are in most cases revenue bonds, and depend heavily on the creditworthiness of
the user of the facilities.
SPECIAL CONSIDERATIONS CONCERNING NEW YORK TAX EXEMPT BONDS. Since the
Fund invests primarily in New York Tax Exempt Bonds, the performance of the Fund
may be especially affected by factors pertaining to the New York economy and
other factors specifically affecting the ability of issuers of New York Tax
Exempt Bonds to meet their obligations. As a result, the value of the Fund's
shares may fluctuate more widely than the value of shares of a portfolio
investing in securities relating to a number of different states. The ability of
state or local governments and political subdivisions to meet their obligations
will depend primarily on the availability of tax and other revenues to them and
on their fiscal conditions generally. The amounts of tax and other revenues
available to issuers of New York Tax Exempt Bonds may be affected from time to
time by economic, political and demographic conditions. In addition,
constitutional or statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of federal, state and local aid to
issuers of New York Tax Exempt Bonds may also affect their ability to meet their
obligations. Payments of principal and interest on revenue bonds will depend on
the economic condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be affected by economic,
political and demographic conditions in New York or a particular locality. Any
reduction in the actual or perceived ability of an issuer of New York Tax Exempt
Bonds to meet its obligations (including a reduction in the rating of its
outstanding securities) would likely affect adversely the market value and
marketability of its obligations and could affect adversely the values of other
New York Tax Exempt Bonds as well.
There are, of course, variations in the credit quality of New York Tax
Exempt Bonds, both within a particular classification and between
classifications, depending on numerous factors (see Appendix A).
YIELDS. The yields on New York Tax Exempt Bonds are dependent on a
variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the New York Tax Exempt Bond
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The ratings of Moody's and Standard & Poor's represent
their opinions as to the quality of the New York Tax Exempt Bonds which they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, New York Tax Exempt
Bonds with the same maturity, interest rate and rating may have different yields
while New York Tax Exempt Bonds of the same maturity and interest rates with
different ratings may have the same yield. Subsequent to its purchase by the
Fund, an issue of New York Tax Exempt Bonds or other investment may cease to be
rated or the rating may be reduced below the minimum rating required for
purchase by the Fund. Neither event will require the elimination of an
investment from the Fund's portfolio, but the Adviser will consider such an
event as part of its normal, ongoing review of all the Fund's portfolio
securities.
"MORAL OBLIGATION" BONDS. The Fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a moral
commitment of an entity other than the issuer, unless the credit of the issuer
itself, without regard to the "moral obligation," meets the investment criteria
established for investments by the Fund.
4
<PAGE> 29
ADDITIONAL RISKS. Securities in which the Fund may invest, including
New York Tax Exempt Bonds, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or the New York legislature extending the time for payment of principal
or interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of issuers to meet their obligations for
the payment of interest and principal on their New York Tax Exempt Bonds may be
materially affected or that their obligations may be found to be invalid and
unenforceable.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on debt obligations issued by states and their political subdivisions
and similar proposals may be introduced in the future. If such a proposal were
enacted, the availability of New York Tax Exempt Bonds for investment by the
Fund and the value of the Fund's portfolio could be materially affected, in
which event the Fund would reevaluate its investment objective and policies and
consider changes in the structure of the Fund or dissolution.
HEDGING ACTIVITIES
GENERAL CHARACTERISTICS OF FUTURES CONTRACTS. The Fund may purchase and
sell financial futures contracts and related options in order to hedge against a
change in the values of securities that the Fund owns or expects to purchase.
A futures contract sale generally creates an obligation by the seller
to deliver the type of financial instrument called for in the contract in a
specified delivery month for a stated price. (As described below, however, index
futures contracts do not require actual delivery of the securities making up an
index.) A futures contract purchase creates an obligation by the purchaser to
take delivery of the underlying financial instrument in a specified delivery
month at a stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until at or near that date.
The determination is made in accordance with the rules of the exchange on which
the futures contract sale or purchase was made. Futures contracts are traded
only on commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission, and must
be executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market.
Although most futures contracts by their terms call for actual delivery
or acceptance of commodities or securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity and with the same delivery date. If the price of the initial sale of
the futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. Similarly, the closing out of a futures contract purchase is effected by
the purchaser entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the purchaser realizes a gain, and if the
purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
When the Fund purchases or sells a futures contract, it is required to deposit
with the Fund's custodian an amount of cash and/or securities. This amount is
known as "initial margin." Initial margin is similar to a performance bond or
good faith deposit that is returned to the Fund upon termination of the
contract, assuming the Fund satisfies its contractual obligations.
Subsequent payments to and from the broker involved in the transaction
occur on a daily basis in a process known as "marking to market." These payments
are called "variation margin" and are made as the value of the futures contract
fluctuates. For example, when the Fund has purchased a futures contract and the
price of the underlying index or security has risen, that position may have
increased in value, in which event the Fund would receive from the broker a
variation margin payment equal to that increase in value. Conversely, when the
Fund has purchased a futures contract and the price of the underlying index or
security has declined, the position may be less valuable, in which event the
Fund would be required to make a variation margin payment to the broker.
5
<PAGE> 30
When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
The Fund may purchase and sell financial futures contracts, options on
such futures contracts and options on securities indexes to hedge against
changes in the values of New York Tax Exempt Bonds the Fund owns or expects to
purchase.
The Fund may purchase and sell futures contracts on this Index (or any
other tax-exempt bond index approved for trading by the Commodity Futures
Trading Commission) to hedge against general changes in market values of New
York Tax Exempt Bonds which the Fund owns or expects to purchase. For example,
if the Adviser expected interest rates to increase, the Fund might sell futures
contracts on an index. If rates did increase, the value of New York Tax Exempt
Bonds held by the Fund would decline, but this decline would usually, but not
necessarily, be offset in whole or in part by an increase in the value of the
Fund's position in futures contracts. If, on the other hand, the Fund had cash
reserves and short-term investments pending anticipated investment in New York
Tax Exempt Bonds, and the Adviser expected interest rates to decline, the Fund
might purchase futures contracts on an index. The Fund could thus take advantage
of the anticipated rise in the values of New York Tax Exempt Bonds without
actually buying them until the market had stabilized.
The Fund may also purchase and sell, subject to the limitations set
forth in the Prospectus, futures and options on U.S. Treasury securities
("Treasury Futures") in order to hedge against interest rate changes or other
general changes in market values which would be expected to affect the value of
the New York Tax Exempt Bonds which the Fund owns or expects to purchase.
Changes in value in Treasury Futures resulting from interest rate changes or
other general market conditions may not be as closely correlated with the value
of New York Tax Exempt bonds as changes in value of the Index. However, Treasury
Futures generally offer greater liquidity than futures contracts on the Index,
which reduces the risk that the Fund will not be able to liquidate a position in
a futures contract, and may also make Treasury Futures a more effective hedging
tool than futures on the Index in some market conditions.
The Fund will not purchase or sell futures contracts or purchase or
sell related options or index options if, as a result, the sum of initial margin
deposits on the Fund's existing futures contracts and related options plus
premiums paid for outstanding options purchased by the Fund would exceed 5% of
the Fund's net assets.
The successful use of futures and related options and of index options
will usually depend on the Adviser's ability to forecast interest rate movements
correctly. The Fund's ability to hedge its portfolio positions through these
transactions also depends on the degree of correlation between the index
underlying the futures and options purchased and sold by the Fund and the New
York Tax Exempt Bonds which are the subject of the hedge. The successful use of
futures and options also depends on the availability of a liquid secondary
market to enable the Fund to close its positions on a timely basis. In the case
of options purchased by the Fund, the risk of loss is limited to the premium
paid, whereas in the case of options written by the Fund and in the case of a
purchase or sale of futures contract, the risk of loss is limited only to the
extent that increases in the value of the Fund's investment in securities during
the period of the futures contract may offset losses on the futures contract
over the same period.
Income derived by the Fund from options and futures transactions will
not be exempt from federal income tax or New York State or City personal income
taxes.
INDEX FUTURES CONTRACTS AND OPTIONS. An index futures contract is a
contract to buy or sell units of a specified index at a specified future date at
a price agreed upon when the contract is made. Entering into a contract to buy
units of an index is commonly referred to as buying a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is based on the current value of the index. For example, the Municipal Bond
Index futures contract currently traded on the Chicago Board of Trade is based
on The Bond Buyer Municipal Bond Index (the "Index"). The Index is composed of
40 high quality tax-exempt bonds and is intended to represent a numerical
measure of market performance for long-term tax-exempt bonds. The Index assigns
relative weightings to the tax-exempt bonds
6
<PAGE> 31
included in the Index, and the Index fluctuates with changes in the market
values of those bonds. The Municipal Bond Index futures contract trades in units
equal to $1,000 times the value of the Index. Unlike futures contracts relating
to a single specific security, which require the actual delivery of the
underlying security at a future date, no delivery of the actual bonds making up
the index will take place under an index futures contract. Instead, settlement
in cash must occur upon the termination of the contract, with the settlement
being based on the difference between the contract price and the actual level of
the Index at the expiration of the contract. For example, if the Fund enters
into a futures contract to buy 50 units of the Index at a specified future date
at a value of 90 and the value of the Index is 95 on that future date, the Fund
will gain $250,000 (50 units times a gain of 5 times $1000). If the Fund enters
into a futures contract to sell 50 units of the Index at a specified future date
at a value of 90 and the value of the Index is 95 on that future date, the Fund
will lose $250,000 (50 units times a loss of 5 times $1000).
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right in
return for the premium paid to assume a position in an index futures contract (a
long position if the option is a call and a short position if the option is a
put), rather than to purchase or sell the specific securities, at the specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the index futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account maintained with respect to the
option, which represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or is less than
(in the case of a put) the exercise price of the option on the index futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made on the expiration
date entirely in cash based on the difference between the exercise price of the
option and the closing level of the index on which the futures contracts are
based. Purchasers of options who fail to exercise their options prior to
expiration suffer a loss of the premium paid.
As an alternative to purchasing call and put options on an index
futures contract, the Fund may purchase and sell call and put options on the
underlying indices themselves to the extent that such options are traded on
national securities exchanges. Such options would be used in a manner similar to
the use of options on index futures contracts.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
- -- HEDGING RISKS. There are several risks in connection with the use by the Fund
of futures contracts and related options as a hedging device. One risk arises in
connection with the use of index futures contracts and options because of the
imperfect correlation between movements in the prices of the index futures
contracts and movements in the prices of the securities that are the subject of
the hedge. The Adviser will, however, attempt to reduce this risk by purchasing
and selling, to the extent possible, futures contracts and related options on
indices the movements of which are, in its judgment, likely to correlate closely
with movements in the prices of the Fund's portfolio securities sought to be
hedged. In addition to the degree of correlation to the prices of the Fund's
portfolio securities, the Adviser will also consider the liquidity of the market
in which the applicable futures contract is traded.
Successful use of index futures contracts and related options by the
Fund for hedging purposes is also subject to the Adviser's ability to predict
correctly movements in the direction of the market. It is possible that, where
the Fund has purchased put options on index futures contracts to hedge its
portfolio against a decline in the market, the index on which the puts are
purchased may advance and the value of securities held in the Fund's portfolio
may decline. If this occurred, the Fund would lose money on the put options and
also experience a decline in value of its portfolio securities. In addition, the
prices of index futures and related options may not correlate perfectly with
movements in the underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit requirements.
Such requirements may cause investors to close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, the margin requirements in the futures market
are less onerous than margin requirements in the securities market in general,
and as a result the futures market may attract more speculators than the
securities market does. Increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion, even a correct forecast of general market trends by the
Adviser may still not result in a successful hedging transaction over a short
time period. However, while this could occur to a certain degree, the Adviser
believes that over time the value of the Fund's portfolio will tend to move in
the same direction
7
<PAGE> 32
as the market indices which are intended to correlate with the price movements
of the portfolio securities sought to be hedged.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss to the Fund
when the purchase or sale of a futures contract would not, such as when there is
no movement in the prices of the underlying securities or index. The writing of
an option on a futures contract involves risks similar to those risks relating
to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
LIQUIDITY RISKS. To reduce or eliminate a hedge position held by the
Fund, the Fund may seek to close out a position. The ability to establish and
close out positions will be subject to the maintenance of a liquid secondary
market. There can be no assurance that this market will exist when the Fund
seeks to close a position. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
MISCELLANEOUS INVESTMENT PRACTICES
FORWARD COMMITMENTS. New issues of New York Tax Exempt Bonds and other
debt securities are often purchased on a "when issued" or delayed delivery
basis, with delivery and payment for the securities normally taking place 15 to
45 days after the date of the transaction. The payment obligation and the
interest rate that will be received on the securities are each fixed at the time
the buyer enters into the commitment. The Fund may enter into such "forward
commitments" if it holds, and maintains until the settlement date in a
segregated account with the Fund's custodian, certain liquid obligations in an
amount sufficient to meet the purchase price at all times. When the time comes
to pay for when issued securities, the Fund will meet its obligations from its
then available cash flow, from sale of the securities held in the segregated
account or sale of other securities, or, although it would not ordinarily expect
to do so, from sale of the when issued securities themselves (which may have a
market value greater or less than the Fund's payment obligation). Forward
commitments may be considered securities in themselves. They involve a risk of
loss if the value of the New York Tax Exempt Bond or other security to be
purchased declines prior to the settlement date; and because such risk is in
addition to the risk of decline in value of the Fund's other assets, forward
commitments may involve a form of leveraging. Although the Fund will generally
enter into forward commitments with the intention of acquiring New York Tax
Exempt Bonds or other securities for its portfolio, the Fund may dispose of a
commitment prior to settlement if the Adviser deems it appropriate to do so.
The Fund may realize short-term profits or losses upon the sale of forward
commitments.
TAXABLE INVESTMENTS. The Fund may invest in taxable obligations
temporarily, such as pending new investments, or when it needs to keep its
assets particularly liquid, such as to meet repurchase or redemption obligations
or to pay expenses. However, not more than 10% of the Fund's income
distributions may be subject to federal income tax and/or New York State and
City personal income taxes under normal market conditions.
8
<PAGE> 33
FUTURES AND OPTIONS AND TREASURY FUTURES. The Fund may purchase and
sell financial futures contracts, options on such futures contracts and options
on securities indexes to hedge against changes in the values of New York Tax
Exempt Bonds the Fund owns or expects to purchase. The Fund may also purchase
and sell futures and options on U.S. Treasury securities in order to hedge
against interest rate changes or other general changes in market values which
would be expected to affect the value of the New York Tax Exempt Bonds which the
Fund owns or expects to purchase. Changes in value in Treasury Futures resulting
from interest rate changes or other general market conditions may not be as
closely correlated with the value of New York Tax Exempt Bonds as changes in
value of The Bond Buyer Municipal Bond Index. The Fund will not purchase or sell
futures contracts or purchase or sell related options or index options if, as a
result, the sum of initial margin deposits on the Fund's existing futures
contracts and related options plus premiums paid for outstanding options
purchased by the Fund would exceed 5% of the Fund's net assets.
PORTFOLIO TURNOVER. Portfolio transactions will be undertaken
principally to accomplish the Fund's objective in relation to anticipated
movements in the general level of interest rates, but the Fund may also engage
in short-term trading consistent with its objective. The Fund's portfolio
turnover in 1999 was 174% and in 1998 201%, due to changes in market conditions.
Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and another
purchased at approximately the same time to take advantage of what the Adviser
believes to be a temporary disparity in the normal yield relationship between
the two securities. The Adviser believes that, in general, the secondary market
for New York Tax Exempt Bonds is less liquid than that for taxable fixed-income
securities. Accordingly, the ability of the Fund to make purchases and sales of
securities in the foregoing manner may, at any particular time and with respect
to any particular securities, be limited. Yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, due to such factors as changes in the
overall demand for or supply of various types of New York Tax Exempt Bonds or
changes in the investment objectives of investors.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with registered broker/dealers and with U.S. commercial banks with respect to
not more than 10% of the value of its total assets (taken at current value)
except when investing for temporary defensive purposes during times of adverse
market conditions. A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively short period (usually not more than
one week) subject to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The seller's obligations are secured by collateral (which is
marked to market on a daily basis) having a market value not less than the value
of the securities purchased by the Fund plus accrued interest. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and losses
including (a) possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto, (b) possible sub-normal
levels of income during this period and (c) expenses of enforcing its rights. If
a repurchase agreement is treated as a securities loan, the Fund will not have
title to the collateral. Although the Fund may enter into repurchase agreements
with respect to any securities which it may acquire consistent with its
investment policies and restrictions, it is the Fund's present intention to
enter into repurchase agreements only with respect to obligations of the U.S.
government or its agencies or instrumentalities.
-------------
Except as described below under "Investment Restrictions of the Fund"
and except for (1) the policy that under normal market conditions at least 90%
of the Fund's income distributions will be exempt from federal income tax and
New York State and City personal income taxes and (2) the policy that Fund
distributions from interest income on "private activity bonds" the income from
which is an item of tax preference for purposes of the federal alternative
minimum tax for individuals, together with distributions of interest income on
investments other than New York Tax Exempt Bonds, will not normally exceed 10%
of the total amount of the Fund's income distributions, the investment policies
described in the Prospectus and in this Statement are not fundamental and the
9
<PAGE> 34
Trustees may change such policies without an affirmative vote of a "majority of
the outstanding voting securities" of the Fund, as defined below. As a matter of
policy, the Trustees would not change the Fund's investment objective without
such a vote.
INVESTMENT RESTRICTIONS OF THE FUND
As fundamental investment restrictions, which may not be changed
without a vote of a majority of the outstanding voting securities of the Fund,
the Fund will not:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed) at the time the borrowing is made, and then only from
banks as a temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes. (Such borrowings will be repaid before any additional
investments are made.)
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 10% of the value of its total assets (taken at the
lower of cost or current value) and then only to secure borrowings
permitted by restriction (1) above. For the purposes of this
restriction, collateral arrangements with respect to margin for
financial futures (including securities index futures) contracts,
options on such futures contracts and options on securities indexes are
not deemed to be pledges of assets.
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities, but it may make margin payments in connection with
financial futures (including securities index futures) contracts,
options on such futures contracts or options on securities indexes.
(4) Make short sales of securities or maintain a short
position for the account of the Fund unless at all times when a short
position is open it owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as,
and equal in amount to, the securities sold short.
(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) Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real
estate.
(7) Purchase or sell commodities or commodity contracts,
except financial futures (including securities index futures) contracts
and related options.
(8) Make loans, except by purchase of debt obligations in
which the Fund may invest consistent with its investment policies, and
through repurchase agreements.
(9) Invest in securities of any issuer if, to the knowledge of
the Fund, officers and Trustees of the Fund or officers and directors
of the Adviser who beneficially own more than 1/2 of 1% of the
securities of that issuer together own more than 5%.
(10) Invest in the securities of any issuer if, immediately
after such investment, more than 5% of the value of the total assets of
the Fund taken at current value would be invested in the securities of
such issuer; provided that this limitation does not apply either to
obligations issued or guaranteed as to interest and principal by the
U.S. government or its agencies or instrumentalities or to New York Tax
Exempt Bonds.
10
<PAGE> 35
(11) Purchase securities restricted as to resale, if, as a
result, such investments would exceed 5% of the value of the Fund's net
assets.
(12) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities or New York Tax Exempt
Bonds, except obligations backed only by the assets and revenues of
nongovernmental users) if as a result of such purchases more than 25%
of the value of the Fund's total assets would be invested in any one
industry.
(13) Acquire more than 10% of the voting securities of any
issuer.
(14) Issue any class of securities which is senior to the
Fund's shares of beneficial interest except to the extent that
borrowings permitted by investment restriction (1) are deemed to
involve the issuance of such securities.
(15) Invest in (a) securities which in the opinion of the
Fund's investment adviser at the time of such investment are not
readily marketable, (b) securities the disposition of which is
restricted under federal securities laws (as described in fundamental
restriction 11 above) and (c) repurchase agreements maturing in more
than seven days, if, as a result, more than 10% of the Fund's total
assets (taken at current value) would be invested in the aggregate in
securities described in (a), (b) and (c) above.
It is contrary to the Fund's present policy, which may be changed
without shareholder approval, to:
(1) Invest in the securities of other investment companies,
except shares of other open-end management investment companies
purchased on a no-load basis or by purchases in the open market
involving only customary brokers' commissions or in connection with a
merger, consolidation or similar transaction. (Under the Investment
Company Act of 1940, the Fund generally may not (a) invest more than
10% of its total assets (taken at current value) in such securities;
(b) own securities of any one investment company having a value in
excess of 5% of the Fund's total assets (taken at current value); or
(c) own more than 3% of the outstanding voting stock of any one
investment company.)
(2) Purchase options or puts, calls, straddles, spreads or
combinations thereof, except that the Fund may buy and sell call and
put options on financial futures (including securities index futures)
contracts and on securities indexes; in connection with the purchase of
fixed-income securities, however, the Fund may acquire attached
warrants or other rights to subscribe for securities of companies
issuing such fixed-income securities or securities of parents or
subsidiaries of such companies. (The Fund's investment policies do not
currently permit it to exercise warrants or rights with respect to
equity securities.)
(3) Invest in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in
operation for less than three years, and, as a result of the
investment, the aggregate of such investments would exceed 5% of the
value of the Fund's total assets; provided, however, that this
restriction shall not apply to any obligation of the United States or
its agencies or for the payment of which is pledged the faith, credit
and taxing power of any person authorized to issue New York Tax Exempt
Bonds.
(4) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(5) Purchase or sell futures contracts or purchase or sell
related options or index options if, as a result, the sum of initial
margin deposits on the Fund's existing futures contracts and related
options plus premiums paid for outstanding options purchased by the
Fund would exceed 5% of the Fund's net assets.
------------
11
<PAGE> 36
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
As provided in the Investment Company Act of 1940, 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 present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
12
<PAGE> 37
MANAGEMENT OF THE FUND
The Trustees of the Fund are responsible under the terms of its
Agreement and Declaration of Trust, which is governed by Massachusetts law, for
overseeing the conduct of the Fund's business. The following table shows
information concerning the Trustees and principal officers of the Fund,
including their principal occupation for at least the past 5 years.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AGE WITH THE FUND DURING PAST 5 YEARS
<S> <C> <C>
Seth M. Glickenhaus* (85) Trustee, Chairman of Senior Partner of Glickenhaus & Co.
6 East 43rd Street the Board and President
New York, New York 10017 of the Fund
Edward A. Falkenberg (58) Trustee Principal, ACME Real Estate;
23 Oak Lane Trustee, Burke Rehabilitation
Scarsdale, New York 10583 Hospital and Milford School;
formerly, Vice President
and Controller, Joseph E.
Seagram & Sons, Inc.;
Controller Seagram Company Ltd
Edward A. Kuczmarski (49) Trustee Director of New York Daily
477 Madison Avenue, 10th Floor Tax-Free Income Fund, Inc.;
New York, New York 10022 Certified Public Accountant
and Partner, Hays & Company
Elizabeth B. Newell (58) Trustee Director of New York Daily
130 East End Avenue Tax-Free Income Fund, Inc.;
Apartment 1C Trustee, International Preschools
New York, New York 10028
John P. Steines (50) Trustee Director of New York Daily
40 Washington Square South Tax-Free Income Fund, Inc.;
New York, New York 10012 Professor of Law, New York
University School of Law
Michael J. Lynch (36) Senior Vice President Director, Unit Trust Department
6 East 43rd Street Glickenhaus & Co.; formerly
New York, New York 10017 Divisional Vice President/Desk
Supervisor, Unit Investment
Trust PaineWebber
Frank M. Deutchki (45) Vice President Vice President, Tax &
3435 Stelzer Road Financial Services,
Columbus, OH 43219 BISYS Fund Services;
formerly, Vice President and
Audit Director at Mutual
Funds Service Company
Georgette L. Horton (33) Vice President Director, Client Services
90 Park Avenue BISYS Fund Services;
10th Floor formerly, Assistant Vice President
New York, New York 10016 Regional Sales for PaineWebber;
</TABLE>
13
<PAGE> 38
<TABLE>
<S> <C> <C>
Portfolio Management Assistant
for Eaton Vance Management
Gary Tenkman (29) Assistant Treasurer Director ,
3435 Stelzer Road Tax & Financial Services,
Columbus, OH 43219 BISYS Fund Services; formerly
Audit Manager for Ernst & Young
LLP.
Ellen F. Stoutamire (50) Secretary Vice President, Legal Services,
3435 Stelzer Road BISYS Fund Services; formerly
Columbus, OH 43219 Associate Counsel for Franklin
Templeton Mutual Funds;
Vice President and General
Counsel for Pioneer Western
Corporation
</TABLE>
- -----------------
* Trustee who is an "interested person" of the Fund as that term is defined in
the Investment Company Act of 1940.
DIRECTOR COMPENSATION
The following table shows the compensation paid by the Fund to the
Trustees for fiscal year ended February 28, 1999
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
NAME OF TRUSTEE FROM THE FUND
--------------- ------------------------
<S> <C> <C>
Seth M. Glickenhaus $0
Edward Falkenberg $5,500.00
Edward A. Kuczmarski $5,500.00
Elizabeth B. Newell $5,500.00
John P. Steines $5,500.00
</TABLE>
Trustees of the Fund not affiliated with the Adviser or BISYS Fund
Services receive an annual fee of $3,000, and an additional fee of $500 for each
Trustees' meeting attended. Trustees who are not interested persons of the Fund
and who serve on committees of the Trustees receive additional fees for
attendance at committee meetings. The Fund provides no pension or retirement
benefits to its Trustees or former Trustees. As of _____________________ to the
knowledge of the Administrator, the Officers and the Trustees of the Fund, as a
group, own less than 1% of the outstanding voting shares of the Fund.
14
<PAGE> 39
Messrs. Glickenhaus, Deutchki, Tenkman, and Lynch and Mmes. Horton, and
Stoutamire as partners, officers, employees or shareholders of the Adviser or
the Administrator, will benefit indirectly from the fees paid by the Fund to the
Adviser or the Administrator.
INVESTMENT ADVISER
Glickenhaus & Co. (the "Adviser") was founded in 1961 by Seth M.
Glickenhaus, who is Chairman of the Board and President of the Fund and a
controlling person of the Adviser. The Adviser managed approximately $4.3
billion of equity and fixed-income securities as of December 31, 1998, and acts
as a securities broker-dealer and as sponsor of Empire State Municipal Exempt
Trust, Empire Guaranteed Services and Empire Maximus AMT Series A, which are
unit investment trusts.
The Adviser serves as the Fund's investment adviser pursuant to an
Investment Advisory Agreement with the Fund dated as of July 1, 1988. Pursuant
to the Investment Advisory Agreement, the Adviser provides investment research,
advice and supervision to the Fund and is responsible for formulating a
continuous program for investment of the Fund's assets, subject to the general
supervision of the Fund's Trustees. The Adviser places orders for all purchases
and sales of the Fund's portfolio securities. The Adviser also compensates its
own partners and employees who serve as trustees or officers of the Fund.
The compensation payable to the Adviser under the Investment Advisory
Agreement is a monthly fee based on the average net asset value of the Fund,
determined at the close of each business day during the month, at the following
annual rates: 0.4% of the first $100,000,000 of average daily net asset value
and 0.3333% of any excess of average daily net assets over $100,000,000. The
Adviser's compensation under the Investment Advisory Agreement is subject to
reduction to the extent that in any year the Fund's expenses, including the
Adviser's fee, exceed 1.5% of the Fund's average annual net assets.
The Fund pays all expenses not assumed by the Adviser, including,
without limitation, auditing, legal, pricing of portfolio securities, custodial,
shareholder servicing, shareholder reporting, registration and blue sky
expenses.
As indicated under "Portfolio Transactions," the Adviser may place Fund
portfolio transactions with broker/dealers who furnish the Adviser, without cost
to the Adviser, certain research, statistical and quotation services of value to
the Adviser and its affiliates in advising the Fund and other clients. In so
doing, the Adviser may cause the Fund to pay greater brokerage commissions than
it might otherwise pay. See "Portfolio Transactions."
The Investment Advisory Agreement provides that the Adviser shall not
be subject to any liability to the Fund or to any shareholder of the Fund for
any act or omission in the course of or connected with rendering services
thereunder in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties on the part of the Adviser.
The Investment Advisory Agreement may be terminated without penalty by
vote of the Trustees or the shareholders of the Fund, or by the Adviser, on not
less than 60 days' written notice. It may be amended only with a vote of the
shareholders of the Fund. The Agreement also terminates without payment of any
penalty in the event of its assignment, as such term is defined in the
Investment Company Act of 1940. The Agreement provides that it will continue in
effect only so long as such continuance is approved at least annually by vote of
either the Trustees or the shareholders and, in either case, by a majority of
the Trustees who are not "interested persons" of the Adviser or the Fund cast in
person at a meeting called for such purpose. In each of the foregoing cases, the
vote of the shareholders required is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment Company Act of 1940.
For the fiscal years ended, February 28, 1997, February 28, 1998 and
February 28, 1999 the Fund paid the Adviser $458,454, $464,929 and $473,511
respectively, in fees.
15
<PAGE> 40
VOLUNTARY EXPENSE LIMITATION. The Adviser has voluntarily agreed, until
further notice to the Fund, to limit the total expenses of each class of the
Fund to the annual rate of 1.5% of the Fund's average net assets of such class.
In the event the Adviser terminates its voluntary agreement, the Fund's
Prospectus will be supplemented.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the Fund and for the
other investment advisory clients of the Adviser are made with a view to
achieving their respective investment objectives. Investment decisions are the
product of many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also happens that
two or more clients simultaneously buy or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the opinion of
the Adviser is equitable to each and in accordance with the amount being
purchased or sold by them. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES. It is anticipated that most purchases
and sales of portfolio investments will be with underwriters of or dealers in
New York Tax Exempt Bonds and other tax-exempt securities, acting as principal.
Accordingly, it is not anticipated that the Fund will pay significant brokerage
commissions. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, where most of the Fund's portfolio
transactions will be effected, but the price paid by the Fund usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by the Fund includes a disclosed, fixed commission or discount
retained by the underwriters or dealer.
The Adviser will place all orders for the purchase and sale of
portfolio securities for the Fund and will buy and sell securities for the Fund
through a substantial number of dealers. In so doing, the Adviser will use its
best efforts to obtain for the Fund the most favorable price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, the Adviser, having in mind the Fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the dealer
involved and the quality of service rendered by the dealer in other
transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical and quotation services from dealers that
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, the Adviser will receive research, statistical and quotation
services from many dealers with which the Adviser places the Fund's portfolio
transactions. These services, which in some instances may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services are of value to
the Adviser in advising various of its clients (including the Fund), although
not all of these services are necessarily useful and of value in managing the
Fund. The management fee paid by the Fund is not reduced because the Adviser
receives such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
and by the Investment Advisory Agreement, the Adviser may cause the Fund to pay
a dealer which provides "brokerage and research services" (as defined in such
Act) to the Adviser an amount of disclosed commission for effecting a securities
transaction for the Fund in excess of the commission which another dealer would
have charged for effecting that transaction. The Adviser's authority to cause
the Fund to pay any such greater commissions is subject to such policies as the
Trustees may adopt from time to time.
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<PAGE> 41
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
dealers to execute portfolio transactions for the Fund.
Pursuant to conditions set forth in rules of the SEC, the Fund may
purchase securities from an underwriting syndicate of which the Adviser is a
member (but not from the Adviser itself). Such conditions relate to the price
and amount of the securities purchased, the commission or spread paid, and the
quality of the issuer. The rules further require that such purchases take place
in accordance with procedures adopted and reviewed periodically by the Trustees,
particularly those Trustees who are not "interested persons" of the Fund.
In addition, subject to the provisions of the Investment Company Act of
1940 and to policies of the Trustees adopted from time to time, the Adviser may
also act as agent in connection with the purchase and sale of portfolio
securities which are not effected on a stock exchange. Under such circumstances,
the Adviser would receive and retain a commission from the Fund for its
services.
During the fiscal years ended February 28, 1997, February 28, 1998 and
February 28, 1999 the Fund paid no brokerage commissions.
PRINCIPAL UNDERWRITER
Glickenhaus & Co., 6 East 43rd Street, New York, NY 10017, is the
principal underwriter of shares of the Fund, which are continuously offered. The
Distributor is not obligated to sell any specific amount of shares of the Fund
and will purchase shares for resale only against orders for shares. The Fund
pays the cost of typesetting for its prospectuses and the cost of printing and
mailing prospectuses sent to existing shareholders. The Distributor pays the
cost of printing and distributing all other prospectuses. Since January 1995,
shares of the Fund have been offered on a no-load basis.
ADMINISTRATOR AND FUND ACCOUNTING AGENT
Pursuant to an Administration Agreement dated as of October 1, 1996,
the Administrator provides various administrative services and personnel
necessary for the operations of the Fund. For providing such services and
personnel, the Administrator receives a monthly fee, based on the average net
asset value of the Fund, calculated daily, at the following rates: 0.2% of the
first $100,000,000 of the Fund's average net assets and 0.14% of any excess of
Fund average net assets over $100,000,000. For the fiscal years ended February
28, 1997, February 28, 1998 and February 28, 1999 respectively, the Fund paid
the Administrator and its predecessor Furman Selz, LLC $228,434, $227,275 and
$230,879 in fees under the Administration Agreement (or a predecessor
agreement).
The Fund Accounting Agent provides the Fund with certain accounting and
related services, pursuant to a Fund Accounting Agreement dated as of October 1,
1996. For its services under the Fund Accounting Agreement, the Fund Accounting
Agent receives from the Fund a monthly fee of $2,500 plus reimbursement for out
of pocket expenses. For the fiscal years ended February 28, 1997, February 28,
1998 and February 28, 1999 the Fund paid the Fund Accounting Agent and its
predecessor Furman Selz, LLC $42,592, $45,145 and $32,825 respectively, in fees
and expenses under the Fund Accounting Agreement (or a predecessor agreement).
TRANSFER AGENT
BISYS Fund Services Ohio, Inc. Since April 15, 1996, the Fund's shares
have been divided into two classes: the Premier Class and the Builder Class. The
transfer agency fees associated with each Class are allocated to that Class. The
transfer agency fee is a specified dollar amount per shareholder account and is
the same for each Class. Since the average size of Premier Class accounts is
higher than for Builder Class accounts, the Premier Class bears lower transfer
agency fees as a percentage of the aggregate net assets of the class.
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<PAGE> 42
DETERMINATION OF NET ASSET VALUE
Net asset value per share of the Fund will be determined once on each
day on which the New York Stock Exchange is open, as of the close of regular
trading on the Exchange (normally 4:00 p.m. Eastern time), and on any other day
on which there is sufficient trading in the Fund's portfolio securities to
affect the net asset value of shares of the Fund, if shares of the Fund are
either sold or repurchased or redeemed on such day, in the following manner: Tax
exempt securities (including New York Tax Exempt Bonds) will be stated on the
basis of valuations provided by an independent pricing service, approved by the
Trustees, which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. At the date of
this Statement of Additional Information, this service is furnished by one of
the following independent pricing agents: Muller Data Corporation, Kenney S&P,
Merrill Lynch, Reuters, Bloomberg. The Fund believes that reliable market
quotations are generally not readily available for purposes of valuing tax
exempt securities. As a result, depending on the particular tax exempt
securities owned by the Fund, it is likely that most of the valuations for such
securities will be based upon fair value determined under the foregoing
procedures, which have been approved by the Trustees. Tax exempt and non tax
exempt securities for which market quotations are readily available will be
stated at market value, which is currently determined using the last reported
sale price, or, if no sales are reported -- as in the case of most securities
traded over-the-counter -- the last reported bid price, except that U.S.
government securities will be stated at the mean between the last reported bid
and asked prices. Short-term notes having remaining maturities of 60 days or
less will be stated at amortized cost, which approximates market. All other
securities and other assets will be valued at fair value using methods approved
in good faith by the Trustees. Liabilities will be deducted from the total, and
the resulting amount will be divided by the number of shares outstanding.
The Fund will not calculate net asset value on certain holidays
including New Year's Day, Martin Luther King Jr.'s Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Generally, trading in certain securities, such as tax exempt
securities, corporate bonds, U.S. government securities and money market
instruments, is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
determining the net asset value of the Fund's shares are computed as of such
times. Occasionally, events affecting the value of such securities may occur
between such times and the close of the Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair market value as determined in good faith under
procedures approved by the Trustees.
FUND PERFORMANCE
TOTAL RETURN. As summarized in the Prospectus, total return is a
measure of the change in value of an investment in a class of shares of the Fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in the shares of the same class
rather than paid to the investor in cash. A Fund's average annual total return
is determined by finding the average annual compounded rates of return over 1, 5
and 10 year periods (or, if shorter, the period since inception of the Fund)
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes that all dividends and distributions
are reinvested when paid. The quotation assumes a complete redemption at the end
of each 1, 5 and 10 year period (or, if shorter, the period since inception of
the Fund) and the deduction of all applicable Fund expenses on an annual basis.
Average annual total return is calculated according to the following formula:
n
P ( l + T ) = ERV
where: P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
18
<PAGE> 43
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
Total return may be stated with or without giving effect to any expense
limitations in effect for the Fund. Because of the lower expense ratio of the
Premier Class, the Premier Class will generally have a higher total return than
the Builder Class.
The following tables set forth the average annual total returns for
each class of shares of the Fund for certain time periods ended February 28,
1999.
<TABLE>
The Empire Builder Tax Free Bond Fund - Builder Class
-----------------------------------------------------
<S> <C>
One Year................................... 4.87%
Five Years................................. 5.37%
Ten Years.................................. 7.00%
</TABLE>
<TABLE>
<CAPTION>
The Empire Builder Tax Free Bond Fund - Premier Class
-----------------------------------------------------
<S> <C>
One Year................................... 5.17%
Since Inception (April 15, 1996)........... 6.71%
</TABLE>
YIELD AND TAX-EQUIVALENT YIELD. In addition to total return, Fund may
quote performance in terms of a 30-day yield for each class of shares. The yield
figures provided will be calculated according to a formula prescribed by the
Securities and Exchange Commission and can be expressed as follows:
6
YIELD = 2 [ ( A - B + 1 ) - 1 ]
-------
cd
where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of any 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.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market value of the debt obligations.
Under this formula, interest earned on debt obligations for purposes of
"a" above, is calculated by (1) computing the yield to maturity of each
obligation held by a Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), (2) dividing that figure by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation in the Fund's portfolio (assuming a month of 30 days) and (3)
computing the total of the interest earned on all debt obligations during the
30-day or one month period. Undeclared earned income, computed in accordance
with generally accepted accounting principles, may be subtracted from the
maximum offering price calculation required pursuant to "d" above.
Each class's yield will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the class. These factors, possible differences in the methods used in
calculating yield (in the case of investment vehicles that are not registered
investment companies) and the tax exempt status of distributions should be
considered when comparing the Fund's yields to yields published for other
investment companies and other investment vehicles. Yields should also be
considered relative to changes in the
19
<PAGE> 44
value of the Fund's shares and to the relative risks associated with the
investment objective and policies of the Fund. Yields may be stated with or
without giving effect to any expense limitations in effect for the Fund.
The Fund may also advertise a tax-equivalent yield for each class,
calculated as described above except that, for any given tax bracket, net
investment income will be calculated using as gross investment income an amount
equal to the sum of (i) the tax-exempt income of the Fund divided by the
difference between 1 and the effective federal, federal and state or federal,
state and local income tax rate for taxpayers in that tax bracket plus (ii) any
taxable income of the Fund. Because of the lower expense ratio of the Premier
Class, the Premier Class will generally have a higher yield than the Builder
Class.
Based on the foregoing calculations, the 30-day yield and
tax-equivalent yield for the Builder Class of the Fund were 4.25% and 7.93%,
respectively, for the period ended February 28, 1999. The 30-day yield and
tax-equivalent yield for the Premier Class of the Fund were 4.50% and 8.40%,
respectively, for the period ended February 28, 1999. The tax-equivalent yield
is based upon the combined city, state and federal tax marginal rate assumption
of 46.4%. This rate takes into account the deductibility of state and local
taxes for federal income tax purposes, but not any limitations on the
deductible.
COMPARISONS. From time to time, in advertising and marketing
literature, in connection with communicating its performance to current or
prospective shareholders, the Fund may compare its performance to the
performance of various indexes. The indexes used may include, but are not
limited to, Lehman Brothers Municipal Bond Index, Bloomberg, Bond Buyer 40 and
other bond or equity indexes. Since there are different methods of calculating
performance, investors should consider the effects of the methods used to
calculate performance when comparing performance of the Fund with performance
quoted with respect to other investment companies or types of investments.
The Fund's performance may also be compared to the performance of broad
groups of mutual funds with similar investment goals, as tracked by independent
organizations such as Investment Company Data, Inc., Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc., Morningstar, Inc. and Value Line Mutual
Fund Survey. When these organizations' tracking results are used, the Fund will
be compared to the appropriate fund category, according to fund objective and
portfolio holdings.
The Fund may also be compared to funds with similar volatility, as
measured statistically by independent organizations. The statistical measures
known as beta and standard deviation may be used for measuring the Fund's
relative risk. Beta is a measure of the volatility of the value of a Fund share
in relation to the volatility of a market index of securities. The value
assigned to the market index is 1.00. A fund with a beta of 1.20 during a
specified period experienced net asset value fluctuation 20% greater than the
price fluctuation of the index during the same period, and was therefore 1.20
times as volatile as the index. Conversely, a fund with a beta of 0.80 was only
80% as volatile as the index. Standard deviation measures the Fund's short-term
fluctuations in share value independent of the market. A fund with a high
standard deviation fluctuated more in share value than one with a low standard
deviation. Beta and standard deviation are measures of price volatility during a
specified past period, and should not be regarded as predictions of future
volatility.
The Fund may also compare its performance against the U.S. Bureau of
Labor Statistics Consumer Price Index, which is a statistical measure of changes
over time in the prices of goods and services in major U.S. household
expenditure groups.
GENERAL. At any time in the future, yields and total return may be
higher or lower than past yields and total return and there can be no assurance
that past results will continue.
Investors in the Fund are specifically advised that share prices,
expressed as the net asset value per share, will vary just as yields will vary.
An investor's focus on the yield of the Fund to the exclusion of the
consideration of the share price of the Fund may result in the investor's
misunderstanding the total return he or she may derive from the Fund.
20
<PAGE> 45
PURCHASE OF SHARES
The Prospectus contains a general description of how investors may buy
shares of the Fund. This Statement of Additional Information contains additional
information which may be of interest to investors. The Fund may suspend the sale
of shares at any time and may refuse any order to purchase shares.
The Fund's shares may be purchased from broker/dealers who are members
of the National Association of Securities Dealers, Inc. and have sales
agreements with the Distributor ("Qualified Dealers") in states where shares are
qualified for offer and sale. The price of shares to the investor is the net
asset value for the relevant class of shares next determined after acceptance of
an order by the Transfer Agent. The net asset value of each class is computed
once daily on each day that the New York Stock Exchange is open as of the close
of regular trading (the "closing time") on the Exchange. At the date of this
Statement of Additional Information, the close of regular trading is normally
4:00 p.m., Eastern time, but this time may be changed. The net asset values so
determined become effective at the New York Stock Exchange closing time. Orders
for shares of the Fund received by Qualified Dealers prior to the New York Stock
Exchange closing time are confirmed by the Transfer Agent at the relevant net
asset value determined as at such closing time, provided the order is received
and accepted by the Transfer Agent prior to its close of business. It is the
responsibility of the dealer to transmit such orders so that they will be
received by the Transfer Agent prior to its close of business at 4:00 p.m.
Eastern time. Orders received by Qualified Dealers subsequent to the New York
Stock Exchange closing time will be confirmed at the relevant net asset value
determined as at the closing time on the next day the New York Stock Exchange is
open. The Distributor will purchase shares from the Fund at net asset value and
sell them to Qualified Dealers.
The two classes of shares offer different services and features.
Premier Class shares bear lower transfer agency costs (as a percentage of
average net assets), and therefore generate a higher investment return.
Shareholders should choose between the two classes based upon whether they meet
the higher minimum account size for the Premier Class, or whether they desire
the benefits of the additional services and features associated with the Builder
Class.
If the balance in a shareholder's account is less than an amount set by
the Trustees (currently 20 shares in the Builder Class), the Fund may close the
account involuntarily and send the proceeds to the shareholder. A shareholder
will receive at least 60 days' written notice before an account is closed
(during which time he can avoid termination by increasing his share ownership
above the minimum). The Fund may also redeem shares in an account in excess of
an amount set from time to time by the Trustees. In the event such a maximum
account size is adopted in the future, the Fund's Prospectus will be
supplemented to describe it.
EXPENSES. Each class of shares bears the transfer agency costs
associated with that class of shares. In addition, Premier Class shareholders
bear certain charges for the check writing service, exchanges and historical
account information, as explained above. All expenses of the Fund other than
transfer agency costs are borne by the Fund as a whole and are not allocated
separately to the two classes of shares.
INVESTMENT PROGRAMS
INVESTMENT ACCOUNT. When a shareholder makes an initial investment in
the Fund, an open account (hereinafter referred to as an "Investment Account")
will be established for him, her or it on the books of the Fund by the
Administrator.
For the Builder Class, the minimum investment to open an account is
$1,000. The minimum for additional investments in an account is $100. However,
these investment minimums do not apply to automatic investment into the Fund of
distributions from the unit investment trusts described below (see "Unit
Investment Trusts").
For the Premier Class, the minimum investment to open an account is
$20,000. The minimum for additional investments is $5,000, except that (1) the
$5,000 minimum does not apply to automatic investments into the Fund of
distributions from the unit investment trusts described below (see "Unit
Investment Trusts"), and (2) the minimum amount under the Automatic Investment
Program (see below) is $100. If the balance in a
21
<PAGE> 46
Premier Class shareholder's account falls below $20,000 as a result of
redemptions from the account, the shareholder will be notified and will have two
months within which to bring the account size back to $20,000. If the
shareholder does not do so, the Fund will convert the shareholder's account from
Premier Class to Builder Class shares.
All purchases by mail will be made at the relevant net asset
value determined as of the close of regular trading on the New York Stock
Exchange on the day of receipt by the Transfer Agent (if such day is a trading
day, or, if not, on the first trading day thereafter). The shares are sold to
the shareholder by the dealer, for whom the Transfer Agent acts as agent.
Purchases other than by mail will be made at the relevant net asset value next
determined after receipt of the order, as described under "Purchase of Shares."
By opening an Investment Account, the shareholder authorizes
the Fund to hold his shares on "deposit" with the Transfer Agent. Shares held in
an Investment Account may be redeemed as described under "Repurchase and
Redemption of Shares." Each time shares are credited to or withdrawn from an
Investment Account (except pursuant to an investment plan, or in connection with
certain automatic investments or reinvestments in the Fund, as described below),
the shareholder receives a statement showing the current transaction, prior
transactions in the account during the calendar year to date and the current
number of shares held therein. When shares are invested pursuant to an
investment plan, the shareholder receives a statement within five business days
following such transaction. Shareholders who have elected to have their
distributions of net interest income from the Fund automatically reinvested in
shares of the Fund, and shareholders of certain unit investment trusts who have
elected to have distributions from such trusts automatically invested in shares
of the Fund (see "Unit Investment Trusts" below), will receive a single
quarterly statement confirming the amount of these automatic investments and
reinvestments in the Fund during the quarter. At the end of each year a complete
annual statement of share transactions is mailed to each shareholder.
Unless otherwise indicated in writing by the shareholder, all income
dividends on the dividend payment date and any distributions of capital gains on
the record date are credited to the Investment Account in additional shares of
the same class on the basis of the closing net asset value for that class on
such respective dates. However, the shareholder may instead elect to receive
distributions of income dividends in cash and capital gain distributions in
additional shares of the same class, reinvested at the relevant net asset value
on the record date, or to receive both dividends and capital gain distributions
in cash. A shareholder may change this distribution option at any time by
written notification to the Transfer Agent. The change will be effective for the
next distribution provided it is received prior to the record date for that
distribution.
The provisions applicable to Investment Accounts may be amended without
penalty by the Fund on 30 days' prior written notice to the shareholders. An
Investment Account does not assure a profit or offer protection against
depreciation in declining markets.
AUTOMATIC INVESTMENT PROGRAM. Voluntary monthly investments of at least
$100 may be made automatically by pre-authorized withdrawals from your bank
checking account. Please call 1-800-847-5886 for more information about how to
establish an automatic investment program.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. Purchases of shares of
either class may be made by reinvestment of dividends and capital gains
distributions paid by the Fund on shares of that class. These purchases are made
for you by the Fund at net asset value for your class of shares.
REDEMPTION OF SHARES. Redemption or repurchase of shares is a taxable
event and gain or loss must be recognized. However, to the extent that any
shares are sold at a loss and the proceeds are reinvested in shares of the Fund,
some or all of the loss will not be allowed as a deduction, depending upon the
percentage of the proceeds reinvested.
You can redeem your shares to the Fund on any day the New York Stock
Exchange is open, either directly to the Fund (by sending a letter) or through
your investment dealer. The Fund will redeem only shares for which it has
received payment.
22
<PAGE> 47
The Fund generally sends you payment for your shares the next business
day. However, if shares are redeemed through an investment dealer, payment is
made to that dealer. When you redeem shares, you may realize a capital gain or
loss depending on the difference between what you paid for your shares and what
you received for them.
For your protection and to protect shareholder accounts, the Fund and
its Transfer Agent from fraud, if shares to be redeemed have a value of $25,000
or more, signature guarantees are required to enable the Transfer Agent to
verify the identity of the person who has authorized a redemption from an
account.
The Transfer Agent usually requires additional documentation to sell
shares registered in the name of a corporation, agent or fiduciary, or if you
are a surviving joint owner. Contact the Transfer Agent at telephone number
1-800-847-5886 for details.
Shareholders wishing to redeem shares by drawing checks on their
accounts must first complete the signature card (and resolution, if the
shareholder is not an individual) provided with the application. Upon receiving
the properly completed application, card and resolution, the Transfer Agent will
provide you with checks drawn on Huntington National Bank. These checks may be
made payable to the order of any person in the amount of $500 or more for the
Builder Class and $5,000 or more for the Premier Class. When a check is
presented for payment, a sufficient number of full and fractional shares in your
account will be redeemed to cover the amount of the check.
Shareholders utilizing checks will be subject to Huntington National
Bank's rules governing checking accounts. You should make sure that there are
sufficient shares in your account to cover the amount of any check drawn, since
the net asset value of shares will fluctuate. If insufficient shares are in the
account, the check will be returned marked "insufficient funds" and no shares
will be redeemed. It is not possible to determine in advance the total value of
the entire account, because dividends declared on shares held in the account or
prior redemptions and possible changes in net asset value may cause the account
to change in amount.
You may elect to redeem shares by telephoning a redemption request
through a participating investment dealer. Your dealer must receive your request
before the close of regular trading on the New York Stock Exchange and transmit
it to the Transfer Agent before 4:00 p.m. Eastern time to receive that day's
price. Your dealer will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge for its services.
Other Redemption Information: Requests must include the following
documentation: (a) a letter of instruction, if required, signed by all
registered owners of the shares in the exact names in which they are registered;
(b) any required signature guarantees (see "Signature Guarantees" below); and
(c) other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.
Signature Guarantees: To protect shareholder accounts, the Fund and the
Transfer Agent from fraud, signature guarantees are required to enable the Fund
to verify the identity of the person who has authorized a redemption from an
account. Further documentation, such as copies of corporate resolutions and
instruments of authority, may be requested from corporations, administrators,
executors, personal representatives, trustees or custodians to evidence the
authority of the person or entity making the redemption request. Stock power
forms are available from your investment dealer, the Transfer Agent and many
commercial banks. Shareholders may contact the Transfer Agent at 1-800-857-5886
for further details.
UNIT INVESTMENT TRUSTS. Certificate holders of unit investment trusts
sponsored by the Adviser may arrange to have their distributions from such unit
investment trusts automatically invested in shares of the Fund. Contact the
Adviser for information.
23
<PAGE> 48
TAXES
The Prospectus describes generally the tax treatment of distributions
by the Fund. This section of the Statement includes additional information
concerning federal income tax and New York personal income taxes.
The Fund has qualified and intends to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code") and intends to
take all other action required to ensure that no federal income taxes will be
payable by the Fund and that the Fund may pay "exempt-interest dividends." Among
other requirements, this means that at the end of each fiscal quarter, at least
50% of the value of the Fund's total assets must be invested in obligations
exempt from federal income tax. If the Fund meets these requirements, its net
interest income on obligations exempt from federal income tax, when distributed
to shareholders and designated by the Fund as exempt-interest dividends, is
exempt from federal income tax in the hands of the Fund's shareholders. The
Fund's present policy is to designate exempt-interest dividends annually. Under
the Code, interest on indebtedness incurred or continued to purchase or carry
shares of an investment company paying exempt-interest dividends, such as the
Fund, will not be deductible by the investor for federal income tax purposes in
proportion to the percentage that the Fund's distributions exempt from federal
income tax bears to all distributions excluding distributions from long-term
capital gains. Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisers before purchasing Fund
shares.
If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to shareholders as ordinary
income. In addition, the Fund could be required to recognize unrealized gains,
pay substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded special tax
treatment.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from the prior year. The Fund intends to make distributions sufficient
to avoid imposition of the excise tax. Distributions declared and payable to
shareholders of record on a date in October, November, or December and paid by
the Fund during the following January will be treated for federal tax purposes
as paid by the Fund and received by shareholders on December 31 of the year in
which declared.
The receipt of exempt-interest dividends may affect the portion, if
any, of an individual shareholder's Social Security and Railroad Retirement
benefits that will be includable in gross income subject to Federal income tax.
Up to 50% of Social Security and Railroad Retirement benefits may be included in
gross income in cases where the recipient's combined income, consisting of
adjusted gross income (with certain adjustments), tax exempt interest income and
one-half of any Social Security and Railroad Retirement benefits, exceeds a base
amount ($25,000 for a single individual and $32,000 for individuals filing a
joint return) and up to 85% of Social Security and Railroad Retirement benefits
may be included in gross income in cases where the recipient's combined income
(as described above) exceeds a higher base amount ($34,000 for a single
individual and $44,000 for individuals filing a joint return). Individual
shareholders receiving Social Security or Railroad Retirement benefits should
consult their tax advisers.
The Fund must also meet certain other requirements to qualify as a
regulated investment company under the Code. At the end of each fiscal quarter
and with respect to at least 50% of its total assets (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer (except
U.S. government obligations) and (2) the Fund may not own more than 10% of the
outstanding voting securities of any one issuer. (By comparison, a "diversified"
investment company must at all times satisfy those two conditions with respect
to 75% of the value of its total assets.) Since New York Tax Exempt Bonds are
not voting securities, the only effective limitation with respect to 50% of the
Fund's assets is that the Fund not invest more than 5% of its total assets
included among such
24
<PAGE> 49
50% in the securities of a single issuer. Also, at the end of each fiscal tax
quarter not more than 25% of the Fund's total assets may be invested in the
securities of any one issuer. Because of the relatively small number of issuers
of investment-grade New York Tax Exempt Bonds, the Fund may use this ability as
a non-diversified fund to concentrate its assets in the securities of a few
issuers which the Adviser deems to be attractive investments, rather than invest
in a larger number of securities merely to satisfy diversification requirements.
While the Adviser believes that this ability to concentrate the investments of
the Fund in particular issuers is an advantage when investing in New York Tax
Exempt Bonds, such concentration involves an increased risk of loss to the Fund
should an issuer be unable to make interest or principal payments or should the
market value of such securities decline. There is no assurance that the Fund
will be able to meet its investment objective.
Distributions paid from the Fund's investment income, other than
exempt-interest dividends, and from any net realized short-term capital gains
will be taxable to shareholders as ordinary income, whether received in cash or
in additional shares. Since none of the Fund's income will consist of corporate
dividends, the dividends-received deduction for corporations will not be
applicable to taxable distributions by the Fund. Distributions paid from net
realized long-term capital gains (i.e., gains on securities held for more than
one year) are taxable as long-term capital gains for federal income tax purposes
(generally at a 20% rate for noncorporate shareholders), whether received in
cash or shares, regardless of how long a shareholder has held the shares.
The Fund will be required to withhold and remit to the U.S. Treasury
31% of all dividend income earned by any shareholder account for which an
incorrect or no taxpayer identification number has been provided or where the
Fund is notified that the shareholder has under-reported income in the past (or
the shareholder fails to certify that he is not subject to such withholding). In
addition, the Fund will be required to withhold and remit to the U.S. Treasury
31% of the amount of the proceeds of any redemption of shares from a shareholder
account for which an incorrect or no taxpayer identification number has been
provided.
Dividends and distributions on a Fund's shares are generally
subject to federal income tax as described herein to the extent they do not
exceed the Fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when a Fund's net asset value reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required
to be distributed even when a Fund's net asset value also reflects unrealized
losses. After the end of each calendar year, shareholders will receive
information as to the tax status of distributions made by the Fund during such
calendar year.
New York law provides that, to the extent distributions by a regulated
investment company are derived from interest on debt obligations issued by the
State of New York or its political subdivisions or certain other governmental
entities (for example, the Commonwealth of Puerto Rico, the United States Virgin
Islands or Guam), the interest on which was excludable from gross income for
purposes of both federal income taxation and New York State or City personal
income taxation (New York Tax Exempt Bonds) and designated as such, such
distributions shall be exempt from New York State and City personal income
taxes. For New York State and City personal income tax purposes, distributions
derived from investments other than New York Tax Exempt Bonds and distributions
from any net short-term capital gains will be taxable as ordinary income,
whether paid in cash or reinvested in additional shares. For New York State and
City personal income tax purposes, distributions of net long-term capital gains
will be taxable at the same rate as ordinary income, whether received in cash or
shares through the reinvestment of distributions.
The foregoing relates to federal income taxation and to New York State
and City personal income taxation as in effect as of the date of this Statement.
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to New York State franchise taxes and
to the New York City General Corporation Tax if received by a corporation
subject to those taxes, to state taxes in states other than New York and
25
<PAGE> 50
to local taxes in cities other than New York City. Investors may wish to consult
their own tax advisers regarding the treatment of distributions by the Fund.
The Fund is organized as a Massachusetts business trust. Under current
law, so long as it qualifies as a "regulated investment company" under the Code,
the Fund itself is not liable for any income or franchise tax in The
Commonwealth of Massachusetts.
AUTOMATIC WITHDRAWAL PROGRAM FOR BUILDER CLASS SHARES
An investor who owns or buys Builder Class shares valued at $5,000 or
more at net asset value may open a Withdrawal Plan and have a designated sum of
money paid monthly (or quarterly) to the investor or another person. Shares are
deposited in a Plan account and all distributions are reinvested in additional
Builder Class shares at net asset value (except where the Plan is utilized in
connection with a charitable remainder trust). Shares in a Plan account are then
redeemed at net asset value to make each withdrawal payment. Redemptions for the
purpose of withdrawals are made on the first business day of the month at that
day's closing net asset value, and checks are mailed on the second business day
of the month. Payment will be made to any person the investor designates;
however, if the shares are registered in the name of a trustee or other
fiduciary, payment will be made only to the fiduciary, except in the case of a
profit-sharing or pension plan where payment will be made to the designee. As
withdrawal payments may include a return of principal, they cannot be considered
a guaranteed annuity or actual yield of income to the investor. The redemption
of shares in connection with a Withdrawal Plan may result in a gain or loss for
tax purposes. Continued withdrawals in excess of income will reduce and possibly
exhaust vested principal, especially in the event of a market decline. The cost
of administering these Plans for the benefit of those shareholders participating
in them is borne by the Fund as an expense of all Builder Class shareholders.
The Fund or the Distributor may terminate or change the terms of the Withdrawal
Plan at any time. The Withdrawal Plan is fully voluntary and may be terminated
by the shareholder at any time without the imposition by the Fund of any
penalty.
Since the Withdrawal Plan may involve invasion of capital, investors
should consider carefully with their own financial advisers whether the Plan and
the specified amounts to be withdrawn are appropriate in their circumstances.
The Fund makes no recommendations or representations in this regard.
The Withdrawal Plan is not available to shareholders who use
the Fund's check writing privilege (which is described in the Prospectus).
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Fund's Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of Fund property for all loss and expense of
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund would be unable to meet
its obligations.
SHAREHOLDER VOTING
Each share has one vote, with fractional shares voting proportionally.
The Fund does not hold regular annual shareholders' meetings, although special
meetings may be called from time to time. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net assets of the Fund.
26
<PAGE> 51
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, located at 100 East Broad Street, Columbus,
Ohio 43215, are the Fund's independent accountants, providing audit services,
tax return preparation services and assistance and consultation with review of
SEC filings.
FINANCIAL STATEMENTS
The financial highlights in the Prospectus and the audited financial
statements appearing in the most current fiscal year Annual Report to
Shareholders (which are incorporated herein by reference to the extent set forth
in the following sentence), have been so included (or incorporated) in reliance
upon the report of PricewaterhouseCoopers LLP, given on the authority of said
firm as experts in auditing and accounting. Such Annual Report is incorporated
herein by reference. Copies of the Annual Report are available upon request and
without charge.
CUSTODIAN
Investors Fiduciary Trust Company (the "Custodian"), located at 127
West 10th Street, Kansas City, Missouri 64105, serves as custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and controlling
the Fund's cash and securities, handling the receipt and delivery of securities
and collecting interest and dividends on the Fund's investments. The Custodian
does not determine the investment policies of the Fund or decide which
securities the Fund will buy or sell.
27
<PAGE> 52
APPENDIX A
INVESTMENT RATINGS
RATINGS OF TAX EXEMPT BONDS.
The four highest ratings of Moody's for tax exempt securities are Aaa,
Aa, A and Baa. Tax exempt securities rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to tax exempt securities which are of
"high quality by all standards", but as to which margins of protection or other
elements make long-term risks appear somewhat larger than for Aaa rated tax
exempt securities. The Aaa and Aa rated tax exempt securities comprise what are
generally known as "high grade bonds." Tax exempt securities which are rated A
by Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations." Factors giving security to principal and
interest of A rated tax exempt securities are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Tax exempt securities rated Baa are considered as "medium grade"
obligations. 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 tax exempt securities lack outstanding investment
characteristics and in fact have speculative characteristics as well. Those
securities in the A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols A1 and Baa1. Other A and Baa
securities comprise the balance of their respective groups. These rankings (1)
designate the securities which offer the maximum in security within their
quality group, (2) designate securities which can be bought for possible
upgrading in quality and (3) additionally afford the investor an opportunity to
gauge more precisely the relative attractiveness of offerings in the market
place.
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 differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in bond risk are of lesser importance in the short run. Loans bearing
the MIG 1 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. Loans bearing the MIG
2 designation are of high quality, with margins of protection ample although not
so large as in the preceding group.
The four highest ratings of Standard & Poor's for tax exempt securities
are AAA, AA, A and BBB. Tax exempt securities rated AAA bear the highest rating
assigned by Standard & Poor's to a debt obligation and indicate an extremely
strong capacity to pay principal and interest. Tax exempt securities rated AA
also qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from AAA
issues only in small degree. Securities rated A have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions. The BBB
rating, which is the lowest "investment grade" security rating by Standard &
Poor's, indicates an adequate capacity to pay principal and interest. Whereas
they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for securities in this category than for
securities in the A category.
RATINGS OF CORPORATE OBLIGATIONS.
The Moody's corporate obligations ratings of Aaa, Aa, A and Baa and the
Standard & Poor's corporate obligations ratings of AAA, AA, A and BBB do not
differ materially from those set forth above for tax exempt securities.
RATINGS OF COMMERCIAL PAPER.
The commercial paper ratings of A-1 by Standard & Poor's and Prime-1 by
Moody's are the highest commercial paper ratings of the respective agencies. The
issuer's earnings, quality of long-term debt, management and industry position
are among the factors considered in assigning such ratings.
A-1
<PAGE> 53
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Of Exhibit
------ ----------------------
<S> <C>
(a) Amended and Restated Agreement and Declaration of Trust dated March 5, 1996
(b) By-laws
(c) Not Applicable
(d) Investment Advisory Agreement dated July 1, 1988
(e) Distributor's Contract dated September 19, 1990
(f) Not Applicable
(g)(1) Custody Agreement dated February 2, 1992
(g)(2) Custodian Procedural Agreement dated March 18, 1992
(h)(1) Transfer Agency Agreement dated June 1, 1999*
(h)(2) Administration Agreement dated June 1, 1999*
(h)(3) Fund Accounting Agreement dated June 1, 1999*
(h)(4) Shareholder Services Agreement dated September 7, 1997
(i) Opinion and Consent of Counsel to the Registrant*
(j) Consent of PricewaterhouseCoopers LLP (Independent Auditors)
(k) None
(l) Initial Capital Agreement
(m) Not Applicable
(n) Financial Data Schedules
(o) Plan Pursuant to Rule 18f-3 dated September 11, 1995
(p) Powers of Attorney, incorporated herein by reference
to Exhibit 19 to Post-Effective Amendment No. 16 to the
Registration Statement, filed June 30, 1997.
</TABLE>
*To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
The Fund's Agreement and Declaration of Trust provides that the Fund
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Fund, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Fund or that such indemnification would relieve any officer or Trustee of any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties. The Fund, at
its expense, will provide liability insurance for the benefit of its Trustees
and officers.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Glickenhaus & Co., the Registrant's investment adviser (the "Adviser"),
is a registered investment adviser and broker-dealer and is a sponsor of The
Empire State Municipal Exempt Trust, Empire Guaranteed Series and Empire Maximus
AMT Series A, which are unit investment trusts.
Set forth below is a description of any other business, profession,
vocation or employment of a substantial nature in which each general partner of
the Adviser is or has been, at any time during the past two fiscal years,
engaged for his own account or in the capacity of director, officer, employee,
partner or trustee:
<TABLE>
<CAPTION>
NAME POSITION WITH ADVISER OTHER BUSINESS
<S> <C> <C>
Alfred Feinman General Partner None
</TABLE>
Page C-1
<PAGE> 54
<TABLE>
<S> <C> <C>
Seth M. Glickenhaus General Partner President and Trustee of the Registrant
James Glickenhaus General Partner None
</TABLE>
The address for each of the individuals listed above is Glickenhaus &
Co., 6 East 43rd Street, New York, New York 10017.
ITEM 27. PRINCIPAL UNDERWRITER
(a), (b) Glickenhaus & Co., the Registrant's adviser, also acts as the
Registrant's principal underwriter and does not serve as the principal
underwriter for any other investment company. For information about Glickenhaus
& Co. and its general partners, see Item 26 above.
(c) The Registrant has no principal underwriter which is not an
affiliated person of the Registrant or an affiliated person of such an
affiliated person.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Registrant's accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are in the
physical possession of the following:
Registrant
----------
31a-1(b)(2)(C)
31a-1(b) 4, 5, 6, 9, 10 and 11
31a-2(a) 1 and 2
BISYS Fund Services
3435 Stelzer Road, Columbus, Ohio 43219
----------------------------------------
31a-1(a)
31a-1(b) 1, 8 and 12
31a-1(b)(2)A, B and D
31a-2(a) 1 and 2
31a-2(c)
Glickenhaus & Co.
6 E. 43Rd Street, New York, New York 10169
-------------------------------------------
31a-1(b) 10
31a-1(f)
31a-2(e)
31a-1(d)
31a-2(c)
31a-2(e)
Not Applicable
--------------
31a-1(b) 3 and 7
31a-1(c)
31a-1(e)
31a-2(b)
31a-2(d)
ITEM 29. MANAGEMENT SERVICES
None.
Page C-2
<PAGE> 55
ITEM 30. UNDERTAKINGS
None.
NOTICE
A copy of the Amended and Restated Agreement and Declaration of Trust
of The Empire Builder Tax Free Bond Fund is on file with the Secretary of The
Commonwealth of Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Registrant by an officer of the Registrant as an
officer and not individually and that the obligations of or arising out of this
instrument are not binding upon any of the Trustees or shareholders individually
but are binding only upon the assets and property of the Registrant.
Page C-3
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 18 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Columbus, in the State of Ohio on the 20th day of April, 1999.
THE EMPIRE BUILDER TAX FREE BOND FUND
By: SETH M. GLICKENHAUS*
-----------------------------------------
Seth M. Glickenhaus, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 18 to the Registration Statement of The Empire
Builder Tax Free Bond Fund has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
SETH M. GLICKENHAUS* Trustee, President, Principal April 20, 1999
- ----------------------------------------- Executive Officer
Seth M. Glickenhaus
/s/ GARY TENKMAN Assistant Treasurer, Principal Financial and April 20, 1999
- ----------------------------------------- Accounting Officer
Gary Tenkman
EDWARD FALKENBERG* Trustee April 20, 1999
- -----------------------------------------
Edward Falkenberg
EDWARD A. KUCZMARSKI* Trustee April 20, 1999
- -----------------------------------------
Edward A. Kuczmarski
ELIZABETH B. NEWELL* Trustee April 20, 1999
- -----------------------------------------
Elizabeth B. Newell
JOHN P. STEINES* Trustee April 20, 1999
- -----------------------------------------
John P. Steines
</TABLE>
*By: /s/ FRANK M. DEUTCHKI
-----------------------------------------
Frank M. Deutchki
Attorney-in-Fact
<PAGE> 57
THE EMPIRE BUILDER TAX FREE BOND FUND
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
DESCRIPTION OF EXHIBIT EXHIBIT REFERENCE
- ---------------------- -----------------
<S> <C>
Amended and Restated Agreement and Declaration of Trust dated March 5, 1996 .............(a)
By-laws .................................................................................(b)
Investment Advisory Agreement dated July 1, 1988.........................................(d)
Distributor's Contract dated September 19, 1990 .........................................(e)
Custody Agreement dated February 2, 1992 .............................................(g)(1)
Custodian Procedural Agreement dated March 18, 1992 ..................................(g)(2)
Transfer Agency Agreement dated June 1, 1999* ........................................(h)(1)
Administration Agreement dated June 1, 1999* .........................................(h)(2)
Fund Accounting Agreement dated June 1, 1999* ........................................(h)(3)
Shareholder Services Agreement dated September 7, 1997 ...............................(h)(4)
Opinion and Consent of Counsel to the Registrant* .......................................(i)
Consent of PricewaterhouseCoopers LLP (Independent Auditors).............................(j)
Initial Capital Agreement ...............................................................(l)
Financial Data Schedules.................................................................(n)
Plan Pursuant to Rule 18f-3 dated September 11, 1995 ...................................(o)
</TABLE>
*To be filed by amendment.
<PAGE> 1
EXHIBIT (A)
THE EMPIRE BUILDER TAX FREE BOND FUND
(ORIGINALLY ITB EMPIRE TAX FREE INCOME FUND)
AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
MARCH 5, 1996
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, the
30th day of September, 1983, amended and restated this 5th day of March, 1996,
by the Trustees hereunder, and by the holders of shares of beneficial interest
issued hereunder as hereinafter provided.
WITNESSETH:
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts voluntary association with
transferable shares in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets, which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.
I.
NAME AND DEFINITIONS
NAME
A. This Trust shall be known as "The Empire Builder Tax Free Bond Fund,"
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
-1-
<PAGE> 2
DEFINITIONS
B. Whenever used herein, unless otherwise required by the context or
specifically provided:
1. The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as amended
from time to time;
2. "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article IV;
3. "Shares" means the equal proportionate transferable
units of interest into which the beneficial interest in the Trust
shall be divided from time to time or, if more than one series or
class of Shares is authorized by the Trustees, the equal
proportionate transferable units into which each series or class of
Shares shall be divided from time to time;
4. "Shareholder" means a record owner of Shares;
5. The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from
time to time;
6. The terms "Affiliated Person," "Assignment,"
"Commission," "Interested Person," "Principal Underwriter" and
"Majority Shareholder Vote" (the 67% or 50% requirement of the third
sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) shall have the meanings given them in the 1940 Act;
7. "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
8. "Bylaws" shall mean the Bylaws of the Trust as amended
from time to time;
9. The term "series" or "series of Shares" refers to
series of Shares established and designated under or in accordance
with the provisions of Article III, Section 1 hereof; and
10. The term "class" or "class of Shares" refers to the
division of Shares representing any series into two or more classes
as provided in Article III, Section 1 hereof.
II.
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a managed investment
primarily in securities and debt instruments.
III.
<PAGE> 3
SHARES
DIVISION OF BENEFICIAL INTEREST
A. The Shares of the Trust shall be issued in one or more series as the
Trustees may, without shareholder approval, authorize. Each series shall be
preferred over all other series in respect of the assets allocated to that
series. The beneficial interest in each series shall at all times be divided
into Shares, without par value, each of which shall, unless the Trustees shall
have divided the series into two or more classes of Shares pursuant to the
immediately following sentence, represent an equal proportionate interest in the
series with each other Share of the same series, none having priority or
preference over another. The Trustees may, without Shareholder approval, divide
the Shares of any series into two or more classes, Shares of each such class
having such preferences and special or relative rights and privileges (including
conversion rights, if any) as the Trustees may determine. The number of Shares
authorized shall be unlimited. The Trustees may from time to time divide or
combine the Shares of any series or class into a greater or lesser number
without thereby changing the proportionate beneficial interests in the series or
class.
OWNERSHIP OF SHARES
B. The ownership of Shares shall be recorded on the books of the Trust
or a transfer or similar agent. No certificates certifying the ownership of
Shares shall be issued except as the Trustees may otherwise determine from time
to time. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the transfer of Shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar agent,
as the case may be, shall be conclusive as to who are the Shareholders of each
series and as to the number of Shares of each series held from time to time by
each Shareholder.
INVESTMENT IN THE TRUST
C. The Trustees shall accept investments in the Trust from such persons
and on such terms and for such consideration, which may consist of cash or
tangible or intangible property or a combination thereof, as they from time to
time authorize.
All consideration received by the Trust for the issue or sale of Shares
of each series, together with all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to the
series of Shares with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust and are herein referred to as "assets of"
such series.
NO PREEMPTIVE RIGHTS
D. Shareholders shall have no preemptive or other right to subscribe to
any additional Shares or other securities issued by the Trust.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
E. Shares shall be deemed to be personal property giving only the rights
provided in this instrument. Every Shareholder by virtue of having become a
Shareholder shall be held to have expressly assented and agreed to the terms
hereof and to have become a party hereto. The death of a Shareholder during the
continuance of the
<PAGE> 4
Trust shall not operate to terminate the same nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the rights of said
decedent under this Trust. Ownership of Shares shall not entitle the Shareholder
to any title in or to the whole or any part of the Trust property or right to
call for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust shall have any
power to bind personally any Shareholder, nor except as specifically provided
herein to call upon any Shareholder for the payment of any sum of money or
assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay.
IV.
THE TRUSTEES
ELECTION
A. The number of Trustees shall be fixed by the Trustees, except that
there shall be not less than three Trustees. Any vacancies occurring in the
Board of Trustees may be filled by the Trustees if, immediately after filling
any such vacancy, at least two-thirds of the Trustees then holding office shall
have been elected to such office by the Shareholders. In the event that at any
time less than a majority of the Trustees then holding office were elected to
such office by the Shareholders, the Trustees shall call a meeting of the
Shareholders for the purpose of electing Trustees. Each Trustee elected by the
Shareholders or by the Trustees shall serve until the next meeting of
Shareholders and until the election and qualification of his or her successor,
or until he or she sooner dies, resigns or is removed. No person shall serve as
Trustee after the holders of record of not less than two-thirds of the
outstanding Shares have declared that such Trustee be removed from that office
either by declaration in writing filed with the Trust's secretary or by votes
cast in person or by proxy at a meeting called for the purpose.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
B. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
POWERS
C. Subject to the provisions of this Declaration of Trust, the business
of the Trust shall be managed by the Trustees, and they shall have all powers
necessary or convenient to carry out that responsibility. Without limiting the
foregoing, the Trustees may adopt Bylaws not inconsistent with this Declaration
of Trust providing for the conduct of the business of the Trust and may amend
and repeal them to the extent that such Bylaws do not reserve that right to the
Shareholders; they may fill vacancies in or add to their number, and may elect
and remove such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; they
may employ one or more custodians of the assets of the Trust and may authorize
such custodians to employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of securities, retain a
transfer agent or a Shareholder servicing agent, or both, provide for the
distribution of Shares by the Trust, through one or more principal underwriters
or otherwise, set record dates for the determination of Shareholders with
respect to various matters, and in general delegate such authority as they
consider desirable to any officer of the Trust, to any committee of the Trustees
and to any agent or employee of the Trust or to any such custodian or
underwriter.
<PAGE> 5
Without limiting the foregoing, the Trustees shall have power and
authority:
1. To invest and reinvest cash, and to hold cash uninvested;
2. To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust;
3. To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities, or property; and to execute
and deliver proxies or powers of attorney to such person or persons as
the Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;
4. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities;
5. To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in
the name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depositary or a nominee or nominees or otherwise;
6. To allocate assets, liabilities and expenses of the Trust to a
particular series of Shares or to apportion the same among two or more
series, provided that any liabilities or expenses incurred by a
particular series of Shares shall be payable solely out of the assets of
that series; and to the extent necessary or appropriate to give effect to
the preferences and special or relative rights and privileges of any
classes of Shares, to allocate assets, liabilities, income and expenses
of a series to a particular class of Shares of that series or to
apportion the same among two or more classes of Shares of that series;
7. To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer, any
security of which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect to
any security held in the Trust;
8. To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to, any
such committee, depositary or trustee, and to delegate to them such power
and authority with relation to any security (whether or not so deposited
or transferred) as the Trustees shall deem proper, and to agree to pay,
and to pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Trustees shall deem proper;
9. To compromise, arbitrate or otherwise adjust claims in favor
of or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
10. To enter into joint ventures, general or limited partnerships
and any other combinations or associations;
11. To borrow funds;
12. To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof; and to mortgage and
pledge the Trust property or any part thereof to secure any of or all
such obligations;
<PAGE> 6
13. To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of
the business, including without limitation, insurance policies insuring
the assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or managers,
principal underwriters, or independent contractors of the Trust
individually against all claims and liabilities of every nature arising
by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any
such person as Shareholder, Trustee, officer, employee, agent, investment
adviser or manager, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability; and
14. To pay pensions for faithful service, as deemed appropriate by
the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including
the purchasing of life insurance and annuity contacts as a means of
providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees. Except as otherwise
provided herein or from time to time in the Bylaws, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), within or without Massachusetts, including
any meeting held by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at a meeting, or by written consents of a majority of the
Trustees then in office.
PAYMENT OF EXPENSES BY TRUST
D. The Trustees are authorized to pay or to cause to be paid out of the
principal or income of the Trust, or partly out of principal and partly out of
income, as they deem fair, all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with the Trust, or in connection with the
management thereof, including, but not limited to, the Trustees' compensation
and such expenses and charges for the services of the Trust's officers,
employees, investment adviser or manager, principal underwriter, auditor,
counsel, custodian, transfer agent, Shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with a particular series of Shares shall be payable solely out of the assets of
that series.
OWNERSHIP OF ASSETS OF THE TRUST
E. Title to all of the assets of each series of Shares and of the Trust
shall at all times be considered as vested in the Trustees.
ADVISORY, MANAGEMENT AND DISTRIBUTION
F. Subject to a favorable Majority Shareholder Vote, the Trustees may,
at any time and from time to time, contract for exclusive or nonexclusive
advisory and/or management services with any corporation, trust, association or
other organization (the "Manager"), every such contract to comply with such
requirements and
<PAGE> 7
restrictions as may be set forth in the Bylaws; and any such contract may
authorize the delegation of some or all of the functions of the Manager
thereunder to any Sub-Adviser and may contain such other terms interpretive of
or in addition to said requirements and restrictions as the Trustees may
determine, including, without limitation, authority to determine from time to
time what investments shall be purchased, held, sold or exchanged and what
portion, if any, of the assets of the Trust shall be held uninvested and to make
changes in the Trust's investments. The Trustees may also, at any time and from
time to time, contract with the Manager or any other corporation, trust,
association or other organization, appointing it exclusive or nonexclusive
distributor or principal underwriter for the Shares, every such contract to
comply with such requirements and restrictions as may be set forth in the
Bylaws; and any such contract may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's
contract, or transfer, Shareholder servicing or other agency contract may
have been or may hereafter be made, or that any such organization, or any
parent or affiliate thereof, is a Shareholder or has an interest in the
Trust, or that
(ii) any corporation, trust, association or other organization
with which an advisory or management contract or principal underwriter's
or distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to the Trust
or its Shareholders.
V.
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
A. The Shareholders shall have power to vote only (i) for the election
of Trustees as provided in Article IV, Section 1, (ii) with respect to any
Manager or Sub-Adviser as provided in Article IV, Section 6, (iii) with respect
to any termination of this Trust to the extent and as provided in Article IX,
Section 4, (iv) with respect to any amendment of this Declaration of Trust to
the extent and as provided in Article IX, Section 7, (v) to the same extent as
the stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vi) with respect to such additional matters relating to the Trust as may be
required by this Declaration of Trust, the Bylaws or any registration of the
Trust with the Commission (or any successor agency)
<PAGE> 8
or any state, or as the Trustees may consider necessary or desirable. Each whole
Share shall be entitled to one vote as to any matter on which it is entitled to
vote and each fractional Share shall be entitled to a proportionate fractional
vote. On any matter submitted to a vote of Shareholders all Shares of the Trust
then entitled to vote shall, except as otherwise provided in the Bylaws, be
voted in the aggregate as a single class without regard to series or classes of
Shares, except (1) when required by the 1940 Act, Shares shall be voted by
individual series, in which event, unless otherwise required by the 1940 Act, a
vote of Shareholders of all Shares of the Trust, irrespective of series, shall
not be required; and (2) when the Trustees have determined that the matter
affects only the interests of one or more series or classes, then only
Shareholders of such series or classes shall be entitled to vote thereon. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy. A proxy with respect to Shares held in the name of two or
more persons shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or prior to its
exercise and the burden of proving invalidity shall rest on the challenger.
Until Shares of any series or class are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, this Declaration
of Trust or the Bylaws to be taken by Shareholders as to such series or class.
VOTING POWER AND MEETINGS
B. Meetings of Shareholders of the Trust or of any series or classes may
be called by the Trustees or such other person or persons as may be specified in
the Bylaws and held from time to time for the purpose of taking action upon any
matter requiring the vote or the authority of the Shareholders of the Trust or
such series or classes as herein provided or upon any other matter deemed by the
Trustees to be necessary or desirable. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. If the Trustees
shall fail to call or give notice of any meeting of Shareholders for a period of
30 days after written application by Shareholders holding at least 10% of the
Shares then outstanding requesting a meeting to be called for a purpose
requiring action by the Shareholders as provided herein or in the Bylaws, then
Shareholders holding at least 10% of the Shares then outstanding may call and
give notice of such meeting, and thereupon the meeting shall be held in the
manner provided for herein in case of call thereof by the Trustees.
QUORUM AND REQUIRED VOTE
C. A majority of Shares entitled to vote shall be a quorum for the
transaction of business at a Shareholders' meeting, except that where any
provision of law or of this Declaration of Trust permits or requires that
holders of any series or class shall vote as a series or class, then a majority
of the aggregate number of Shares of that series or class entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
series or class. Any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by any provision of this Declaration of
Trust or the Bylaws, a majority of the Shares voted shall decide any questions
and a plurality shall elect a Trustee, provided that where any provision of law
or of this Declaration of Trust permits or requires that the holders of any
series or class shall vote as a series or class, then a majority of the Shares
of that series or class voted on the matter shall decide that matter insofar as
that series or class is concerned.
<PAGE> 9
ACTION BY WRITTEN CONSENT
D. Any action taken by Shareholders may be taken without a meeting if a
majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of this
Declaration of Trust or the Bylaws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ADDITIONAL PROVISIONS
E. The Bylaws may include further provisions of Shareholders' votes and
meetings and related matters.
VI.
DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES
DISTRIBUTIONS
A. The Trustees may each year, or more frequently if they so determine,
distribute to the Shareholders of each series such income and capital gains,
accrued or realized, as the Trustees may determine, after providing for actual
and accrued expenses and liabilities (including such reserves as the Trustees
may establish) determined in accordance with good accounting practices. The
Trustees shall have full discretion to determine which items shall be treated as
income and which items as capital and their determination shall be binding upon
the Shareholders. Distributions of each year's income of each series shall be
distributed pro rata to Shareholders in proportion to the number of Shares of
each series held by each of them, except to the extent otherwise required or
permitted by the preferences and special or relative rights and privileges of
any classes of Shares of that series, and any distribution to the Shareholders
of a particular class of Shares of that Series shall be made to such
Shareholders pro rata in proportion to the number of Shares of such class held
by each of them. Such distributions shall be made in cash or Shares or a
combination thereof as determined by the Trustees. Any such distribution paid in
Shares will be paid at the net asset value thereof as determined in accordance
with the Bylaws.
REDEMPTIONS AND REPURCHASES
B. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the Bylaws.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made. The obligation set forth
in this Section 2 is subject to the provision that in the event that any time
the New York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Commission, during periods when
trading on the Exchange is restricted or during any emergency which makes it
impractical for the Trust to dispose of its investments or to determine fairly
the value of its net assets, or during any other period permitted by order of
the Commission for the protection of investors, such obligation may be suspended
or postponed by the Trustees. The Trust may also purchase or repurchase Shares
at a price not exceeding the net asset value of such Shares in effect when the
purchase or repurchase or any contract to purchase or repurchase is made.
REDEMPTIONS AT THE OPTION OF THE TRUST
<PAGE> 10
C. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with the Bylaws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular series or class of Shares equal to
or in excess of a percentage of the outstanding Shares of that series or class
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or of any series or class or the aggregate net asset value of the Trust or
of any series or class determined from time to time by the Trustees.
VII.
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
COMPENSATION
A. The Trustees as such shall be entitled to reasonable compensation
from the Trust; they may fix the amount of their compensation. Nothing herein
shall in any way prevent the employment of any Trustee for advisory, management,
legal, accounting, investment banking or other services and payment for the same
by the Trust.
LIMITATION OF LIABILITY
B. The Trustees shall not be responsible or liable in any event for any
neglect or wrongdoing of any officer, agent, employee, manager or principal
underwriter of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee, but nothing herein contained shall protect any
Trustee against any liability to which he or she would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
VIII.
<PAGE> 11
INDEMNIFICATION
TRUSTEES, OFFICERS, ETC.
A. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding (a) not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or (b)
to be liable to the Trust or its Shareholders by reason of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including counsel fees so
incurred by any such Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties), shall be paid from time
to time by the Trust in advance of the final disposition of any such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Trust if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article, provided, however, that either (a) such Covered Person shall have
provided appropriate security for such undertaking, (b) the Trust shall be
insured against losses arising from any such advance payments or (c) either a
majority of the disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a full trial type
inquiry) that there is reason to believe that such Covered Person will be found
entitled to indemnification under this Article.
<PAGE> 12
COMPROMISE PAYMENT
B. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication by a court,
or by any other body before which the proceeding was brought, that such Covered
Person either (a) did not act in good faith in the reasonable belief that his
action was in the best interests of the Trust or (b) is liable to the Trust or
its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved as in the best interests of
the Trust, after notice that it involves such indemnification, by at least a
majority of the disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office act on the matter) upon a
determination, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that such Covered Person acted in good faith in the
reasonable belief that his action was in the best interests of the Trust and is
not liable to the Trust or its Shareholders by reasons of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office, or (b) there has been obtained an opinion in
writing of independent legal counsel, based upon a review of readily available
facts (as opposed to a full trial type inquiry) to the effect that such Covered
Person appears to have acted in good faith in the reasonable belief that his
action was in the best interests of the Trust and that such indemnification
would not protect such Person against any liability to the Trust to which he
would otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered Person in accordance
with this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in the best
interests of the Trust or to have been liable to the Trust or its Shareholders
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
INDEMNIFICATION NOT EXCLUSIVE
C. The right of indemnification hereby provided shall not be exclusive
of or affect any other rights to which such Covered Person may be entitled. As
used in this Article VIII, the term "Covered Person" shall include such person's
heirs, executors and administrators and a "disinterested Trustee" is a Trustee
who is not an "interested person" of the Trust as defined in Section 2(a)(19) of
the Investment Company Act of 1940, as amended, (or who has been exempted from
being an "interested person" by any rule, regulation or order of the Commission)
and against whom none of such actions, suits or other proceedings or another
action, suit or other proceeding on the same or similar grounds is then or has
been pending. Nothing contained in this Article shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees or
officers, and other persons may be entitled by contract or otherwise under law,
nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person.
SHAREHOLDERS
D. In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
IX.
MISCELLANEOUS
<PAGE> 13
TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
A. All persons extending credit to, contracting with or having any claim
against the Trust or a particular series of Shares shall look only to the assets
of the Trust or the assets of that particular series of Shares for payment under
such credit, contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Declaration of
Trust shall protect any Trustee against any liability to which such Trustee
would otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officer or officers shall give notice that
this Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustee or Trustees or as officers or officer
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustee or Trustees or officer or officers or Shareholder or
Shareholders individually.
TRUSTEES' GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
B. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES
C. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
DURATION AND TERMINATION OF TRUST
D. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least 66 % of the Shares entitled to vote or by the
Trustees by written notice to the Shareholders. Any series of Shares, or any
class of shares of any series, may be terminated at any time by vote of
Shareholders holding at least 66 % of the Shares of such series (or class, as
the case may be) entitled to vote or by the Trustees by written notice to the
Shareholders of such series (or class).
Upon termination of the Trust or of any one or more series or classes of
Shares, after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular series or class as may be determined by
<PAGE> 14
the Trustees, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets to distributable form in cash
or shares or other securities, or any combination thereof, and distribute the
proceeds to the Shareholders of the series or class involved, ratably according
to the number of Shares of such series or class held by the several Shareholders
of such series or class on the date of termination, except to the extent
otherwise required or permitted by the preferences and special or relative
rights and privileges of any classes of Shares of that series, provided that any
distribution to the Shareholders of a particular class of Shares of a series
shall be made to such Shareholders pro rata in proportion to the number of
Shares of such class held by each of them.
FILING OF COPIES, REFERENCES, HEADINGS
E. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of The Commonwealth of Massachusetts and
with the Boston City Clerk, as well as any other governmental office where such
filing may from time to time be required. Anyone dealing with the Trust may rely
on a certificate by an officer of the Trust as to whether or not any such
amendments have been made and as to any matters in connection with the Trust
hereunder, and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such amendment, references to
this instrument, and all expressions like "herein," "hereof" and "hereunder"
shall be deemed to refer to this instrument as amended or affected by any such
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.
APPLICABLE LAW
F. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
AMENDMENTS
G. This Declaration of Trust may be amended at any time by an instrument
in writing signed by a majority of the then Trustees when authorized to do so by
vote of Shareholders holding a majority of the Shares entitled to vote, except
that an amendment which shall affect the holders of one or more series or
classes of Shares but not the holders of all outstanding series and classes
shall be authorized by vote of the Shareholders holding a majority of the Shares
entitled to vote of each series and class affected and no vote of Shareholders
of a series or class not affected shall be required. Amendments having the
purpose of changing the name of the Trust or of supplying any omission, curing
any ambiguity or curing, correcting or supplementing any defective or
inconsistent provision contained herein shall not require authorization by
Shareholder vote.
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have hereunto set their hand and seal
for themselves and their assigns, as of the day and year first above written.
- ------------------------------------ --------------------------------
Seth M. Glickenhaus Milton R. Neaman
EDWARD FALKENBERG ELIZABETH B. NEWELL
- ------------------------------------ ---------------------------------
Edward Falkenberg Elizabeth B. Newell
EDWARD A. KUCZMARSKI JOHN P. STEINES
- ------------------------------------ ---------------------------------
Edward A. Kuczmarski John P. Steines
STATE OF NEW YORK
March 5, 1996
New York, ss.
Then personally appeared the above-named Trustees and acknowledged the
foregoing instrument to be his or her free act and deed, before me,
THERESA DONOVAN
---------------
Notary Public
My commission expires: September 17, 1996
<PAGE> 1
Exhibit (b)
AS AMENDED AT 12/14/83
BYLAWS
OF
INVESTMENT TRUST OF BOSTON - NEW YORK TAX FREE INCOME FUND
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall be subject to
the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Investment Trust of Boston - New York Tax Free
Income Fund, the Massachusetts business trust established by the Declaration of
Trust (the "Trust").
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust shall
be located in Boston, Massachusetts.
ARTICLE 2
Meeting of Trustees
2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may from time
to time determine, provided that notice of the first regular meeting following
any such determination shall be given to absent Trustees. A regular meeting of
the Trustees may be held without call or notice immediately after and at the
same place as the annual meeting of the shareholders.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at any
time and at any place designated in the call of the meeting when called by the
Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3 NOTICE. It shall be sufficient notice to the Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustees at his or
her usual or last known business or residence address or to give notice to him
or her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before the meeting, is filed with the records of
the meeting, or to any Trustee who attends the meeting without protesting prior
thereto or at its commencement the lack
<PAGE> 2
of notice to him or her. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
2.4 QUORUM. At any meeting of the Trustees a majority of the Trustees then
in office shall constitute a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further notice.
ARTICLE 3
Officers
3.1 ENUMERATION: QUALIFICATION. The officers of the Trust shall be a
Chairman of the Trustees, a President, a Treasurer, a Clerk, and such other
officers, if any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from time to time
may in their discretion appoint. The Chairman of the Trustees shall be a
Trustee and may but need not be a shareholder; and any other officer may but
not need be a Trustee or a shareholder. Any two or more offices may be held by
the same person.
3.2 ELECTION. The Chairman of the Trustees, the President, the Treasurer,
and the Clerk shall be elected annually by the Trustees at their first meeting
following the annual meeting of shareholders. Other officers, if any, may be
elected or appointed by the Trustees at said meeting or at any other time.
Vacancies in any office may be filled at any time.
3.3 TENURE. The Chairman of the Trustees, the President, the Treasurer and
the Clerk shall hold office until the first meeting of the Trustees following
the next annual meeting of shareholders and until their respective successors
are chosen and qualified, or in each case until he or she sooner dies, resigns,
is removed or becomes disqualified. Each other officer shall hold office and
each agent shall retain authority at the pleasure of the Trustees.
3.4 POWERS. Subject to the other provisions of these Bylaws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to the
office occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise provide, the
Chairman of the Trustees or, if there is none or in the absence of the
Chairman, the President shall preside at all meetings of the shareholders and
of the Trustees. The President shall be the chief executive officer.
3.6 TREASURER. The Treasurer shall be the chief financial and accounting
officer of the Trust, and shall, subject to the provisions of the Declaration
of Trust and to any arrangement made by the Trustees with a custodian,
investment adviser or manager, or transfer, shareholder
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<PAGE> 3
servicing or similar agent, be in charge of the valuable papers, books of
account and accounting records of the Trust, and shall have such other duties
and powers as may be designated from time to time by the Trustees or by the
President.
3.7 CLERK. The Clerk shall record all proceedings of the shareholders and
the Trustees in books to be kept therefor, which books or a copy thereof shall
be kept at the principal office of the Trust. In the absence of the Clerk from
any meeting of the shareholders or Trustees, an assistant clerk, or if there be
none or if he or she is absent, a temporary clerk chosen at such meeting shall
record the proceedings thereof in the aforesaid books.
3.8 RESIGNATIONS AND REMOVALS. Any Trustee or officer may resign at any
time by written instrument signed by him or her and delivered to the Chairman,
the President or to the Clerk or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. The Trustees may remove any officer elected by them with or without
cause. Except to the extent expressly provided in a written agreement with the
Trust, no Trustee or officer resigning and no officer removed shall have any
right to any compensation for any period following his or her resignation or
removal, or any right to damages on account of such removal.
ARTICLE 4
Committees
4.1 QUORUM; VOTING. A majority of the members of any Committee of the
Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Members of a Committee may participate in a
meeting of such Committee by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
ARTICLE 5
Reports
5.1 GENERAL. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
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<PAGE> 4
ARTICLE 6
Fiscal Year
6.1 GENERAL. Except as from time to time otherwise provided by the
Trustees, the initial fiscal year of the Trust shall end on such date as is
determined in advance or in arrears by the Treasurer, and subsequent fiscal
years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1 GENERAL The seal of the Trust shall consist of a flat-faced die with
the word "Massachusetts", together with the name of the Trust and the year of
its organization cut or engraved thereon but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 GENERAL. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President or by the Treasurer and need not bear the seal of the Trust.
ARTICLE 9
Issuance of Share Certificates
9.1 SHARE CERTIFICATES. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders
of certificates for such shares as if they had accepted such certificates and
shall be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to a certificate
stating the number of shares owned by him, in such form as shall be prescribed
from time to time by the Trustees. Such certificates shall be signed by the
president or vice-president and by the treasurer or assistant treasurer. Such
signatures may be facsimile if the certificate is signed by a transfer agent, or
by a registrar, other than a Trustee, officer or employee of the Trust. In case
any officer who has signed or whose facsimile signature has been placed on such
certificate shall cease to be such officer before such certificate is issued, it
may be issued by the Trust with the same effect as if he were such officer at
the time of its issue.
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<PAGE> 5
9.2 LOSS OF CERTIFICATES. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 ISSUANCE OF NEW CERTIFICATES TO PLEDGEE. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if
the instrument of transfer substantially describes the debt or duty that is
intended to be secured thereby. Such new certificates shall express on its face
that it is held as collateral security, and the name of the pledgor shall be
stated thereon, who alone shall be liable as a shareholder and entitled to vote
thereon.
9.4 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of share certificates to the Trust
for cancellation. Such surrender and cancellation shall not effect the
ownership of shares in the Trust.
ARTICLE 10
Provisions Relating to the conduct of the Trust's Business
10.1 CERTAIN DEFINITIONS. When used herein the following words shall have
the following meanings: "Distributor" shall mean any one or more corporations,
firms or associations which have distributor's or principal underwriter's
contracts in effect with the Trust providing that redeemable shares issued by
the Trust shall be offered and sold by such Distributors. "Manager" shall mean
any corporation, firm or association which may at the time have an advisory or
management contract with the Trust.
10.2 LIMITATION ON HOLDINGS BY THE TRUST OF CERTAIN SECURITIES AND ON
DEALINGS WITH OFFICERS OR TRUSTEES. The Trust may not purchase or retain shares
or securities issued by an issuer if one or more of the holders of the shares
or securities issued by an issuer or one or more of the officers or directors
of such issuer is an officer or Trustee of the Trust or officer or director of
the Manager and if one or more of such officers, Trustees or directors owns
beneficially more than 1/2 of 1% of the shares or securities, or both, of such
issuer and such officers, Trustees and directors owning more than 1/2 of 1% of
such shares or securities together own beneficially more 5% of such shares or
securities. Each officer and Trustee of the Trust shall keep the Treasurer of
the Trust informed of the names of all issuers shares or securities of which
are held in the portfolio of the Trust in which such officer or Trustee owns as
much as 1/2 of 1% of the outstanding shares or securities.
The Trust will not lend any of its assets to the Distributor or Manager
or to any officer or director of the Distributor or Manager or any officer or
Trustee of the Trust, and shall not permit any officer or Trustee or any officer
or director of the Distributor or Manager to deal for or on behalf of the Trust
with himself or herself as principal or agent, or with any partnership,
association or corporation in which he or she has a financial interest; provided
that the foregoing provisions shall not prevent (a) officers and Trustees of the
Trust or officers and directors of the
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<PAGE> 6
Distributor or Manager from buying, holding or selling shares in the Trust or
from being partners, officers or directors of or otherwise financially
interested in the Distributor or the Manager (b) purchases or sales of
securities or other property if such transaction is permitted by or is exempt
or exempted from the provisions of the Investment Company Act of 1940 or any
Rule or Regulation thereunder; (c) employment of legal counsel, registrar,
transfer agent, shareholder servicing agent, dividend disbursing agent or
custodian who is, or has a partner, shareholder, officer or director who is, an
officer or Trustee of the Trust or an officer or director of the Distributor or
Manager; (d) sharing statistical, research, legal and management expenses and
office hire and expenses with any other investment company in which an officer
or Trustee of the Trust or an officer or director of the Distributor or Manager
ifs an officer or director or otherwise financially interested.
10.3 LIMITATION ON DEALING IN SECURITIES OF THE TRUST BY CERTAIN OFFICERS,
TRUSTEES, DISTRIBUTOR OR MANAGER. Neither the Distributor nor Manager, nor any
officer or Trustee of the Trust or officer or director of the Distributor or
Manager shall take long or short positions in securities issued by the Trust;
provided, however, that:
(1) the Distributor may purchase from the Trust and otherwise deal in
shares issued by the Trust pursuant to the terms of its contract with the
Trust;
(2) any officer or Trustee of the Trust or officer or director of the
Distributor or Manager or any trustee or fiduciary for the benefit of any
of them may at any time, or from time to time, purchase from the Trust or
from the Distributor shares issued by the Trust at the price available to
the public or to such officer, Trustee, director, trustee or fiduciary, no
such purchase to be in contravention of any applicable state or federal
requirement; and
(3) the Distributor or the Manager may at any time, or from time to
time, purchase for investment shares issued by the Trust.
10.4 SECURITIES AND CASH OF THE TRUST TO BE HELD BY CUSTODIAN SUBJECT TO
CERTAIN TERMS AND CONDITIONS.
(1) All securities and cash owned by this Trust shall be held by or
deposited with one or more banks or trust companies having (according to
its last published report) not less than $5,000,000 aggregate capital,
surplus and undivided profits (any such bank or trust company being hereby
designated as "Custodian"), provided such a Custodian can be found ready
and willing to act; subject to such rules, regulations and orders, if any,
as the Securities and Exchange Commission may adopt, this Trust may, or
may permit any Custodian to, deposit all or any part of the Securities
owned by this Trust in a system for the central handling of securities
pursuant to which all securities of any particular class or series of any
issue deposited within the system may be transferred or pledged by
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<PAGE> 7
bookkeeping entry, without physical delivery. The Custodian may appoint,
subject to the approval of the Trustees, one or more subcustodians.
(2) The Trust shall enter into a written contract with each Custodian
regarding the powers, duties and compensation of such Custodian with
respect to the cash and securities of the Trust held by such Custodian.
Said contract and all amendments thereto shall be approved by the
Trustees.
(3) The Trust shall upon the resignation or inability to serve of any
Custodian or upon change of any Custodian:
(1) in case of such resignation or inability to serve, use its
best efforts to obtain a successor Custodian;
(2) require that the cash and securities owned by the Trust be
delivered directly to the successor Custodian; and
(3) in the event that no successor Custodian can be found,
submit to the shareholders, before permitting delivery of the cash
and securities owned by the Trust otherwise than to a successor
Custodian, the question whether the Trust shall be liquidated or
shall function without a Custodian.
10.5 LIMITATIONS ON INVESTMENT BY THE TRUST IN SECURITIES OF ANY ONE
ISSUER AND IN SECURITIES OF CERTAIN UNSEASONED ISSUERS. The Trust may not
acquire more than 10% of the voting securities of any issuer, both with respect
to any series of shares of the Trust and to the Trust in the aggregate.
No series of shares of the Trust may invest in securities of any issuer
if, immediately after such investment, more than 5% of the total assets of the
Trust (taken at current value) would be invested in the securities of such
issuer; provided that this limitation does not apply to obligations issued or
guaranteed as to interest and principal by the U.S. government or its agencies
or instrumentalities or to "New York Tax Exempt Bonds" as that term is defined
in the Trust's prospectus as in effect from time to time.
No series of shares of the Trust may invest in securities of any issuer,
which, together with any predecessors or controlling persons, has been in
operation for less than three consecutive years and in equity securities for
which market quotations are not readily available (but excluding restricted
securities) if, as a result, the aggregate of such investments would exceed 5%
of the value of such series' net assets; provided, however, that this
restriction shall not apply to any obligation of the U.S. government or its
instrumentalities or agencies. Debt securities having equity features shall not
be considered "equity securities" for purposes of this limitation.
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<PAGE> 8
10.6 LIMITATION ON INVESTMENT BY THE TRUST IN SECURITIES OF OTHER
INVESTMENT COMPANIES. The Trust may not invest in securities of other
investment companies except as they may be acquired as part of a merger,
consolidation or acquisition of assets.
10.7 LIMITATION ON BORROWING AND PLEDGING ASSETS BY THE TRUST.
(1) No series of shares of the Trust shall borrow money in excess of
10% of the value (taken at the lower cost or current value) of its total
assets (not including the amount borrowed) at the time the borrowing is
made, and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might otherwise
require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be repaid before
any additional investments are purchased.
(2) No series of shares of the Trust shall pledge, hypothecate,
mortgage or otherwise encumber its assets in excess of 10% of its total
assets (taken at the lower of cost or the current value) and then only to
secure borrowings permitted by (A) above. The deposit of securities in
escrow in connection with the writing of covered call options is not
deemed to be a pledge or other encumbrance.
10.8 LIMITATION ON PURCHASES ON MARGIN AND SHORT SALES. The Trust shall
not purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities, and may not
make short sales of securities or maintain a short position for the account of
the Trust unless at all times when a short position is open it owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short.
10.9 REQUIREMENTS AND RESTRICTIONS REGARDING THE MANAGEMENT CONTRACT.
Every advisory or management contract entered into by the Trust shall provide
that in the event that the total expenses of any series of shares of the Trust
for any fiscal year should exceed the limits imposed on investment company
expenses imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Trust are offered for sale, the compensation due the
Manager for such fiscal year shall be reduced by the amount of such excess by a
reduction or refund thereof.
10.10 REPORTS TO SHAREHOLDERS: DISTRIBUTIONS FROM REALIZED GAINS. The
Trust shall send to each shareholder of record at least semi-annually a
statement of the condition of the Trust and of the results of its operations,
containing all information required by applicable laws or regulations.
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<PAGE> 9
10.11 OTHER INVESTMENT LIMITATIONS.
(1) The Trust may not buy or sell oil, gas or other mineral leases,
rights, or royalty contracts or buy or sell commodity contracts.
(2) The Trust may not purchase or sell real estate, although it may
purchase securities secured by interests in real estate and securities
representing interests in real estate.
10.12 DETERMINATION OF NET ASSET VALUE PER SHARE. Net asset value per
share of each series of shares of the Trust shall mean: (i) the value of all
the assets of such series; (ii) less total liabilities of such series; (iii)
divided by the number of shares of such series outstanding, in each case at the
time of each determination. The net asset value per share of each series shall
be determined as of the normal close of trading on the New York Stock Exchange
on each day on which such Exchange is open. As of any time other than the
normal close of trading on such Exchange, the Trustees may cause the net asset
value per share last determined to be determined again in a similar manner or
adjusted to reflect changes in market values of securities in the portfolio,
such adjustment to be made on the basis of changes in selected security prices
determined by the Trustees to be relevant to the portfolio of such series or in
averages or in other standard and readily ascertainable market data, and the
Trustees may fix the time when such redetermined or adjusted net asset value
per share of each series shall become effective.
In valuing the portfolio investments of any series for determination of
net asset value per share of such series, securities for which market
quotations are readily available shall be valued at prices which, in the
opinion of the Trustees or the person designated by the Trustees to make the
determination, most nearly represent the market value of such securities, and
other securities and assets shall be valued at their fair value as determined
by or pursuant to the direction of the Trustees, which in the case of
short-term debt obligations, commercial paper and repurchase agreements may,
but need not, be on the basis of quoted yields for securities of comparable
maturity, quality and type, or on the basis of amortized cost. Expenses and
liabilities of the Trust shall be accrued each day. Liabilities may include
such reserves for taxes, estimated accrued expenses and contingencies as the
Trustees or their designates may in their sole discretion deem fair and
reasonable under the circumstances. No accruals shall be made in respect of
taxes on unrealized appreciation of securities owned unless the Trustees shall
otherwise determine. Dividends payable by the Trust shall be deducted as at the
time of but immediately prior to the determination of net asset value per share
on the record date therefor.
ARTICLE 11
Shareholders
11.1 ANNUAL MEETING. The annual meeting of the shareholders of the Trust
shall be held between January 1 and January 31 in each year on a date and at a
time within that period set by the Trustees.
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<PAGE> 10
11.2 RECORD DATES. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time, which shall be not more than 60 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or of any other distribution, as the record date for determining
the shareholders having the right to notice of and to vote at such meeting and
any adjournment thereof or the right to receive such dividend or distribution,
and in such case only shareholders of record on such record date shall have
such right notwithstanding any transfer of shares on the books of the Trust
after the record date; or without fixing such record date the Trustees may for
any of such purposes close the register or transfer books for all or any part
of such period.
ARTICLE 12
Amendments to the Bylaws
12.1 GENERAL. These Bylaws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
* * *
Adopted: September 30, 1983
Amended: November 10, 1983 (secs. 1,1 and 11.1)
Amended: December 14, 1983 (sec. 11.1)
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<PAGE> 1
Exhibit (d)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of July, 1988, by and between THE
EMPIRE BUILDER TAX FREE BOND FUND (the "Fund"), a Massachusetts business trust,
and GLICKENHAUS & COMPANY (the "Adviser"), a partnership organized under the
laws of New York.
WHEREAS, the Fund is registered as an open-end, non-diversified
management investment company under the Investment Company Act of 1940 (the
"1940 Act") and has registered its shares of beneficial interest for sale to the
public under the Securities Act of 1933 and various state securities laws; and
WHEREAS, the Fund wishes to retain the Adviser to provide investment
advisory services to the Fund; and
WHEREAS, the Adviser is willing to furnish such services on the terms
and conditions hereinafter set forth; and
WHEREAS, this Agreement has been approved by a vote of the Fund's
Trustees and certain disinterested Trustees in conformity with the 1940 Act and
the rules and regulations thereunder:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. The Fund shall at all times keep the Adviser fully informed with
regard to the securities owned by it, its funds available, or to become
available, for investment, and generally as to the condition of its affairs. It
shall furnish the Adviser with such other documents and information with regard
to its affairs as the Adviser may from time to time reasonably request.
2. (a) Subject to the direction and control of the Fund's Trustees, the
Adviser shall regularly provide the Fund with investment research, advice,
management and supervision and shall furnish a continuous investment program for
the Fund consistent with the Fund's investment objectives, policies and
limitations. The Adviser shall determine from time to time what securities will
be purchased, retained or sold by the Fund, and shall implement those decisions,
all subject to the provisions of the Fund's Agreement and Declaration of Trust
and By-Laws, the 1940 Act, the applicable rules and regulations of the
Securities and Exchange Commission and other applicable federal and state law,
as well as the investment goals and policies of the Fund. The Adviser shall also
provide advice and recommendations
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with respect to other aspects of the business and affairs of the Fund, and shall
perform such other functions of management and supervision as may be directed by
the Trustees of the Fund. The Adviser shall furnish to the Fund such information
with respect to the investments of the Fund and their manner of execution as the
Trustees may reasonably request.
(b) The Adviser, at its expense, shall place all orders for the
purchase and sale of portfolio investments for the Fund's account with brokers
or dealers selected by the Adviser. In the selection of such brokers or dealers
and the placing of such orders, the Adviser shall use its best efforts to obtain
for the Fund the most favorable price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Adviser, bearing
in mind the Fund's best interests at all times, shall consider all factors it
deems relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker or
dealer involved and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Trustees of the Fund may
determine, the Adviser shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of its
having caused the Fund to pay a broker or dealer that provides brokerage and
research services to the Adviser an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Adviser determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and to other clients
of the Adviser as to which the Adviser exercises investment discretion.
(c) The Adviser, at its expense, shall supply the Trustees and officers
of the Fund with all statistical information and reports reasonably required by
them and reasonably available to the Adviser. The Adviser shall authorize and
permit any of its directors, officers and employees, who may be elected as
Trustees or officers of the Fund, to serve in the capacities in which they are
elected and shall compensate them for such services.
(d) The Fund agrees that the Adviser may receive research, advice,
recommendations and other information and services with respect to the Fund
pursuant to a Supervisory Services Agreement between the Adviser and Lebenthal &
Co., Inc. or another appropriate entity, provided that any such Agreement shall
have been approved by the Trustees, the disinterested Trustees and the
shareholders of the Fund in the manner and to the extent required by the 1940
Act and the rules and regulations thereunder.
3. Other than as herein specifically indicated, the Adviser shall not
be responsible, except to the extent of the reasonable compensation of employees
of the Fund whose services
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may be used by the Adviser hereunder, for any of the following expenses of the
Fund, which expenses shall be borne by the Fund: legal expenses; auditing and
accounting expenses; expenses of maintenance of the Fund's books and records,
including computation of the Fund's daily net asset value per share and
dividends; interest, taxes, governmental fees and membership dues; brokerage
commissions or charges, if any; distribution fees, if any; fees of custodians,
transfer agents, registrars or other agents; expenses of preparing share
certificates; expenses relating to the redemption or repurchase of the Fund's
shares; expenses of registering and qualifying Fund shares for sale under
applicable federal and state law; expenses of preparing, setting in print,
printing and distributing prospectuses, reports, notices and dividends to Fund
shareholders; cost of stationery; costs of shareholders' and other meetings of
the Fund; traveling expenses of Trustees, officers and employees of the Fund, if
any; fees of the Fund's Trustees who are not interested persons and salaries of
any officers or employees who are not affiliated with the Adviser, and the
Fund's pro rata portion of premiums on any fidelity bond and other insurance
covering the Fund and its Trustees and officers. The Fund shall reimburse the
Adviser for any such expenses reasonably incurred by the Adviser on the Fund's
behalf.
4. No Trustee, officer or employee of the Fund shall receive from the
Fund any salary or other compensation as such Trustee, officer or employee while
he is at the same time a director, officer or employee of the Adviser or any
affiliated company of the Adviser. This paragraph shall not apply to Trustees,
executive committee members, consultants and other persons who are not regular
members of the Adviser's or any affiliated company's staff.
5. As compensation for the services performed and the facilities
furnished and expenses assumed by the Adviser, including the services of any
consultants retained by the Adviser, the Fund shall pay the Adviser, promptly
after the last day of each month, a fee, calculated daily, at an annual rate of
0.4% annually of the first $100,000,000 of the Fund's average daily net assets,
and .3333% of any excess over $100,000,000. If this Agreement is terminated as
of any date not the last day of a month, such fee shall be paid as promptly as
possible after such date of termination, and shall be based on the average daily
net assets of the Fund in the period from the beginning of such month to such
date of termination. The manner of calculating the Fund's average daily net
assets for the purpose of this Agreement shall be determined by the Fund's
Trustees and shall be binding on the parties. Each such payment shall be
accompanied by a report of the Fund prepared either by the Fund or by a firm of
independent accountants which shall show the amount properly payable to the
Adviser under this Agreement and the detailed computation thereof.
6. In the event that the expenses of the Fund for any fiscal year,
exclusive of brokerage commissions, taxes, interest, distribution expenses and
extraordinary expenses, should exceed the lesser of (i) 1.5% of the Fund's
average annual net assets or (ii) any expense limitation on investment company
expenses imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are qualified for offer and sale, the compensation
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due the Adviser for such fiscal year shall be reduced by the amount of such
excess by a reduction or refund thereof.
7. The Adviser will not be liable for any error of judgment or mistake
of law by the Adviser or for any loss suffered by the Fund in connection with
the performance of this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from 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 or duties under this Agreement.
8. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Adviser who may also be a Trustee, officer
or employee of the Fund to engage in any other business or to devote his time
and attention in part to the management or other aspects of any other business,
whether of a similar nature or a dissimilar nature, nor to limit or restrict the
right of the Adviser to engage in any other business or to render services of
any kind, including investment advisory and management services, to any other
corporation, firm, individual or association.
9. The Adviser shall have the right to use any list of shareholders of
the Fund or any other list of investors which it obtains in connection with the
provision of services under this Agreement; provided, however, that the Adviser
shall not sell or knowingly provide such list or lists to any unaffiliated
person.
10. As used in this Agreement, the terms "assignment," "interested
person" and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
11. Subject to the provisions of paragraph 12 below, this Agreement
will remain in effect for two years from the date of its execution and may be
continued from year to year thereafter, provided that (i) its continuance is
specifically approved annually in the manner required pursuant to the 1940 Act
and (ii) the Adviser does not notify the Fund in writing at least sixty (60)
days prior to the expiration date in any year that it does not wish continuance
of the Agreement for an additional year.
12. This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by the Adviser on sixty (60) days' written notice to the other
party. The Fund may effect such termination by a vote of (i) a majority of the
Trustees of the Fund, (ii) a majority of the Trustees who are not parties to
this Agreement or "interested" persons, as defined by the 1940 Act, of any such
party, or (iii) a majority of the outstanding voting securities of the Fund.
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13. The Fund hereby authorizes any entity or person associated with
the Adviser which is a member of a national securities exchange to effect any
transaction on such exchange for the account of the Fund which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Fund hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T) (2) (iv).
14. A copy of the Agreement and Declaration of Trust of the Fund is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Fund as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders of the Fund
individually but are binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers thereunto duly authorized.
Attest: THE EMPIRE BUILDER TAX FREE BOND FUND
By: /s/ illegible By: /s/ Thomas J. Metallo
-------------------------- --------------------------------
Thomas J. Metallo
Vice President
Attest: GLICKENHAUS & COMPANY
By: /s/ illegible By: /s/ Seth M. Glickenhaus
-------------------------- --------------------------------
Seth M. Glickenhaus
General Partner
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Exhibit (e)
DISTRIBUTOR'S CONTRACT
Distributor's Contract dated September 19, 1990, by and between THE
EMPIRE BUILDER TAX FREE BOND FUND, a Massachusetts business trust (the "Fund")
and Glickenhaus & Co., a partnership organized under the laws of the State of
New York (the "Distributor").
WHEREAS, the Fund and the Distributor desire to enter into an agreement
providing for the distribution by the Distributor of shares of the Fund;
NOW, THEREFORE, in consideration of the mutual agreements contained in
the Terms and Conditions of Distributor's Contract attached to and forming a
part of this Contract (the "Terms and Conditions"), the Fund hereby appoints the
Distributor as a distributor of shares of the Fund, and the Distributor hereby
accepts such appointment, all as set forth in the Terms and Conditions.
A copy of the Agreement and Declaration of Trust of the Fund is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that this instrument is executed on behalf of the Trustees of the Fund as
Trustees and not individually, and that the obligations of or arising out of
this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, THE EMPIRE BUILDER TAX FREE BOND FUND and GLICKENHAUS
& CO., has each caused this Distributor's Contract to be signed in duplicate in
its behalf, all as of the day and year first above written.
THE EMPIRE BUILDER TAX FREE BOND FUND
By: /s/ J. Kevin Lambert
------------------------------------
J. Kevin Lambert
Treasurer
GLICKENHAUS & CO.
By: /s/ Seth M. Glickenhaus
------------------------------------
Seth M. Glickenhaus
General Partner
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TERMS AND CONDITIONS
OF
DISTRIBUTOR'S CONTRACT
1. RESERVATION OF RIGHT NOT TO SELL. The Fund reserves the right to refuse at
any time or times to sell any of its shares of beneficial interest ("shares")
hereunder for any reason deemed adequate by it.
2. SALE OF SHARES TO THE DISTRIBUTOR AND SALES BY THE DISTRIBUTOR.
The Distributor will have the right, as principal, to sell shares to
investment dealers against orders therefor at the public offering price less a
discount determined by the Distributor, which discount shall not exceed the
amount of the sales charge referred to below.
The Distributor will also have the right, as principal, to purchase shares
from the Fund at their net asset value and to sell such shares to the public
against orders therefor at the public offering price. Upon receipt of an order
to purchase Fund shares from a broker or dealer with whom the Distributor has a
Sales Contract, the Distributor will promptly purchase shares from the Fund to
fill such order. Upon receipt of registration instruments in proper form and
payment for such shares, the Distributor will transmit such instructions to the
Fund or its agent for registration of the shares purchases.
The Distributor will also have the right, as agent for the Fund, to sell
shares at the public offering price to such persons and upon such conditions as
the Trustees of the Fund may from time to time determine.
The Distributor will also have the right, as principal, to sell shares at
their net asset value to such persons as may be approved by the Trustees of the
Fund, all such sales to comply with the provisions of the Investment Company Act
of 1940 and the Rules and Regulations of the Securities and Exchange Commission
promulgated thereunder.
The public offering price shall be the net asset value of shares then in
effect, plus an applicable sales charge determined in the manner set forth in
the then current Prospectus of the Fund or as permitted by the Investment
Company Act of 1940 and the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder. In no event shall the public offering price
exceed 100/91.50 of such net asset value, and in no event shall any applicable
sales charge exceed 8.50% of the public offering price. The net asset value of
shares shall be determined in the manner provided in the Agreement and
Declaration of Trust of the Fund as then amended and when determined shall be
applicable to transactions as provided for in the then current Prospectus.
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On every sale the Fund shall receive the applicable net asset value of the
shares. The Distributor shall have the right to retain the sales charge less any
applicable dealer discount. The Distributor will reimburse the Fund for any
increased issue tax paid on account of the sales charge.
3. SALES OF SHARES BY THE FUND. The Fund reserves the right to issue shares
at any time directly to its shareholders as a stock dividend or stock split and
to sell shares to its shareholders or to other persons approved by the
Distributor at not less than net asset value.
4. REPURCHASE OF SHARES. The Distributor will act as agent for the Fund in
connection with the repurchase of shares by the Fund upon the terms and
conditions set forth in the then current Prospectus of the Fund.
5. BASIS OF PURCHASES AND SALES OF SHARES. The Distributor will use its
best efforts to place shares sold by it on an investment basis. The Distributor
does not agree to sell any specific number of shares. Shares will be sold by the
Distributor only against orders therefor. The Distributor will not purchase
shares from anyone other than the Fund except in accordance with Section 4, and
will not take "long" or "short" positions in shares contrary to the Agreement
and Declaration of the Trust of the Fund.
6. RULES OF NASD, etc. The Distributor will conform to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. and the sale of
securities laws of any jurisdiction in which it sells, directly or indirectly,
any shares. The Distributor also agrees to furnish to the Fund sufficient copies
of any agreements or plans it intends to use in connection with any sales of
shares in adequate time for the Fund to file and clear them with the proper
authorities before they are put in use, and not to use them until so filed and
cleared.
7. INDEPENDENT CONTRACTOR. The Distributor shall be an independent
contractor and neither the Distributor nor any of its officers or employees as
such is or shall be an employee of the Fund. The Distributor is responsible for
its own conduct and the employment, control and conduct of its agents and
employees and for injury to such agents or employees or to others through its
agents or employees. The Distributor assumes full responsibility for its agents
and employees under applicable statutes and agrees to pay all employer taxes
thereunder.
The Distributor will maintain at its own expense insurance against public
liability in such an amount as the Trustees of the Fund may from time to time
reasonably request.
8. EXPENSES. The Fund will pay or reimburse the Distributor for all
expenses of qualifying shares of the Fund for sale under the so-called "Blue
Sky" laws of any state. The Distributor will pay all expenses of preparing,
printing and distributing advertising and sales literature (apart from expenses
of registering shares under the Federal Securities Act of 1933 and Investment
Company Act of 1940 and the preparation and printing of Prospectuses and reports
as required by said Acts and the direct expenses of the issue of shares, except
that the Distributor will pay
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the cost of the preparation and printing of Prospectuses and shareholders'
reports used by it and by others in the sale of Fund shares to the extent such
cost is not paid by others).
9. INDEMNIFICATION OF FUND. The Distributor agrees to indemnify and hold
harmless the Fund and each person who has been, is or may hereafter be a Trustee
of the Fund against expenses reasonably incurred by any of them in connection
with any claim or in connection with any action, suit or proceeding to which any
of them may be a party, which arises out of or is alleged to arise out of any
misrepresentation or omission to state a material fact, or out of any alleged
misrepresentation or omission to state a material fact, on the part of the
Distributor or any agent or employee of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Fund. The Distributor also agrees likewise to
indemnify and hold harmless the Fund and each such person in connection with any
claim or in connection with any action, suit or proceeding which arises out of
or is alleged to arise out of the diligence with respect to its services
rendered in connection with investment, reinvestment, automatic withdrawal and
other plans for shares. The term "expenses" includes amounts paid in
satisfaction of judgments or in settlements which are made with the
Distributor's consent. The foregoing rights of indemnification shall be in
addition to any other rights to which the Fund or a Trustee may be entitled as a
matter of law.
10. INDEMNIFICATION OF THE DISTRIBUTOR. The Fund agrees to indemnify,
defend and hold the Distributor, its several officers, employees and directors,
and any person who controls the Distributor within the meaning of Section 15 of
the Securities Act of 1933, free and harmless from and against any and all
claims, demands, liabilities and any counsel fees incurred in connection
therewith which the Distributor, its officers, employees or directors, or any
such controlling person, may incur, under the Securities Act of 1933 or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or
Prospectus or material fact required to be stated in either thereof not
misleading, provided that in no event shall anything contained in this Agreement
be construed so as to protect the Distributor against any liability to the Fund
or its shareholders to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of its reckless disregard of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under this Agreement.
11. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENT OF THIS CONTRACT. This
Contract shall automatically terminate, without the payment of any penalty, in
the event of its assignment. This Contract may be amended only if such amendment
be approved either by action of the Trustees of the Fund or at a meeting of the
shareholders of the Fund by the affirmative vote of a majority of the Trustees
of the Fund who are not interested persons of the Fund or of the Distributor by
vote cast in person at a meeting called for the purpose of voting on such
approval.
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12. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This Contract shall
take effect upon the date first above written and shall remain in full force and
effect continuously (unless terminated automatically as set forth in Section 11)
until terminated:
(1) Either by the Fund or the Distributor by not more than sixty (60)
days' nor less than ten (10) days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party; or
(2) If the continuance of this Contract after two years after the date
of its execution is not specifically approved at least annually by
the Trustees of the Fund or the shareholders of the Fund by the
affirmative vote of a majority of the Trustees of the Fund who are
not interested persons of the Fund or of the Distributor by vote
cast in person at a meeting called for the purpose of voting on such
approval.
Action by the Fund under (a) above may be taken either (i) by vote of its
Trustees, or (ii) by the affirmative vote of a majority of the outstanding
shares of the Fund. The requirement under (b) above that continuance of this
Contract be "specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940 and the Rules and
Regulations thereunder.
Termination of this Contract pursuant to this Section 12 shall be without
the payment of any penalty.
13. CERTAIN DEFINITIONS. For the purposes of this Contract, the "affirmative
vote of a majority of the outstanding shares of the Fund" means the affirmative
vote, at a duly called and held meeting of shareholders of the Fund, (a) of the
holders of 67% or more of the shares of the Fund present (in person or by proxy)
and entitled to vote at such meeting, if the holders of more than 50% of the
outstanding shares of the Fund entitled to vote at such meeting are present in
person or by proxy, or (b) of the holders of more than 50% of the outstanding
shares of the Fund entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "interested persons" and
"assignment" shall have the meanings defined in the Investment Company Act of
1940, subject, however, to such exemptions as may be granted by the Securities
and Exchange Commission under said Act.
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Exhibit (g)(1)
CUSTODY AGREEMENT
THIS AGREEMENT made the 2nd day of February 1992, by and between
INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of
the state of Missouri, having its trust office located at 127 West 10th Street,
Kansas City, Missouri 64105 ("Custodian"), and EMPIRE BUILDER TAX FREE BOND
FUND, a Massachusetts business trust, having its principal office and place of
business at 230 Park Avenue, New York, New York 10169 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
Custodian of the securities and monies of Fund's investment portfolio; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW, THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENTS OF CUSTODIAN. Fund hereby constitutes and appoints
Custodian as custodian of the securities and monies at any time owned
by the Fund and delivered to the Custodian.
2. DELIVERY OF CORPORATE DOCUMENTS. Fund has delivered or will deliver
to Custodian prior to the effective date of this Agreement, copies of
the following documents and all amendments or supplements thereto,
properly certified or authenticated:
1. Resolutions of the governing Board of Fund appointing
Custodian as custodian hereunder and approving the form of
this Agreement; and
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2. Resolutions of the governing Board of Fund designating
certain persons to give instructions on behalf of Fund to
Custodian and authorizing Custodian to rely upon written
instructions over his/her/their signatures.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
1. DELIVERY OF ASSETS
Fund will deliver or cause to be delivered to Custodian on
the effective date of this Agreement, or as soon
thereafter as practicable, and from time to time
thereafter, all portfolio securities acquired by it and
monies then owned by it except as permitted by the
Investment Company Act of 1940 or from time to time coming
into its possession during the time this Agreement shall
continue in effect. Custodian shall have no responsibility
or liability whatsoever for or on account of securities or
monies not so delivered. All securities so delivered to
Custodian (other than bearer securities) shall be
registered in the name of Fund or its nominee, or of a
nominee of Custodian, or shall be properly endorsed and in
form for transfer satisfactory to Custodian.
2. DELIVERY OF ACCOUNTS AND RECORDS
Fund shall turn over to Custodian all of the Fund's
relevant accounts and records previously maintained by it.
Custodian shall be entitled to rely conclusively on the
completeness and correctness of the accounts and records
turned over to it by Fund, and Fund shall indemnify and
hold Custodian harmless of and from any and all expenses,
damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other
deficiency of such accounts and records or the
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failure of Fund to provide any portion of such or to
provide any information needed by the Custodian
knowledgeably to perform its function hereunder.
3. DELIVERY OF ASSETS TO THIRD PARTIES
Custodian will receive delivery of and keep safely the
assets of Fund delivered to it from time to time
segregated in a separate account. Custodian will not
deliver, assign, pledge or hypothecate any such assets to
any person except as permitted by the provisions of this
Agreement or any agreement executed by it according to the
terms of section 3.S. of this Agreement. Upon delivery of
any such assets to a subcustodian pursuant to Section 3.S.
of the agreement, Custodian will create and maintain
records identifying those assets which have been delivered
to the subcustodian as belonging to Fund. The Custodian is
responsible for the securities and monies of Fund only
until they have been transmitted to and received by other
persons as permitted under the terms of this Agreement,
except for securities and monies transmitted to United
Missouri Bank of Kansas City, N.A. (UMBKC) and United
Missouri Trust Company of New York (UMBNY) for which
Custodian remains responsible as defined in Section 5 of
this Agreement. Custodian shall be responsible for the
monies and securities of Fund held by eligible foreign
custodians under this Agreement to the extent the domestic
subcustodian with which the custodian contracts is
responsible to Custodian. Custodian may participate
directly or indirectly through a subcustodian in the
Depository Trust Company, Treasury/Federal Reserve Book
Entry System or Participant Trust Company (PTC) (as such
entities are defined at 17 CFR Section 270-17f-4(b)) or
other depository
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approved by the Fund and with which Custodian has a
satisfactory direct or indirect contractual relationship.
4. REGISTRATION OF SECURITIES
Custodian will hold stocks and other registerable
portfolio securities of Fund registered in the name of
Fund or in the name of any nominee of Custodian for which
fidelity and liability Custodian will be fully
responsible, or in street certificate form, so-called,
with or without any indication of fiduciary capacity.
Unless otherwise instructed, Custodian will register all
such portfolio securities in the name of its authorized
nominee. All securities, and the ownership thereof by
Fund, which are held by Custodian hereunder, however,
shall at all times be identifiable on the records of the
Custodian. The Fund agrees to hold Custodian and its
nominees harmless for any liability arising solely from
Custodian or its nominees acting as a record holder or
securities held in custody.
5. EXCHANGE OF SECURITIES
Upon receipt of instructions as defined herein in Section
4.A. Custodian will exchange, or cause to be exchanged,
portfolio securities held by it for the account of Fund
for other securities or cash issued or paid in connection
with any reorganization, recapitalization, merger,
consolidation, split-up of shares, change of par value,
conversion or otherwise, and will deposit any such
securities in accordance with the terms of any
reorganization or protective plan. Without instructions,
Custodian is authorized to exchange securities held by it
in temporary form for securities in definitive form, to
effect an exchange of shares when the par value of
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the stock is changed, and upon receiving payment therefor,
to surrender bonds or other securities held by it at
maturity, or when advised of earlier call for redemption,
except that Custodian shall receive instructions prior to
surrendering any convertible security.
6. PURCHASES OF INVESTMENTS OF THE FUND
Fund will, on each business day on which a purchase of
securities shall be made by it, deliver to Custodian
instructions which shall specify with respect to each such
purchase:
1. The name of the portfolio of the Fund making
such purchase;
2. The name of the issuer and description of the
security;
3. The number of shares or the principal amount
purchased, and accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage
commission, taxes and other expenses payable in
connection with the purchase;
7. The total amount payable upon such purchase;
and
8. The name of the person from whom or the broker
or dealer through whom the purchase was made.
In accordance with such instructions, Custodian will pay
for out of monies held by the account of Fund, but only
insofar as monies are available therein for such purpose,
and receive the portfolio securities so purchased by or
for the account of
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<PAGE> 6
Fund except that Custodian may in its sole discretion
advance funds to the Fund which may result in an overdraft
because the monies held by the Custodian on behalf of the
Fund are insufficient to pay the total amount payable upon
such purchase. Such payment will be made only upon receipt
by Custodian of the securities so purchased in form for
transfer satisfactory to Custodian.
7. SALES AND DELIVERIES OF INVESTMENTS OF THE FUND - OTHER
THAN OPTIONS AND FUTURES
Fund will, on each business day on which a sale of
investment securities of Fund has been made, deliver to
Custodian instructions specifying with respect to each
such sale:
1. The name of the portfolio of the Fund making
such sale;
2. The name of the issuer and description of the
securities;
3. The number of shares or principal amounts sold,
and accrued interest, if any;
4. The date on which the securities sold were
purchased or other information identifying the
securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage
commission, taxes or other expenses payable in
connection with such sale;
8. The total amount to be received by Fund upon
such sale; and
9. The name and address of the broker or dealer
through whom or person to whom the sale was
made.
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<PAGE> 7
In accordance with such instructions, Custodian will
deliver or cause to be delivered the securities thus
designated as sold for the account of Fund to the broker
or other person specified in the instructions relating to
such sale, such delivery to be made only upon receipt of
payment therefor in such form as is satisfactory to
Custodian, with the understanding that Custodian may
deliver or cause to be delivered securities for payment in
accordance with the customers prevailing among dealers in
securities.
8. PURCHASES OR SALES OF SECURITY OPTIONS, OPTIONS ON INDICES
AND SECURITY INDEX FUTURES CONTRACTS
Fund will, on each business day on which a purchase or
sale of the following options and/or futures shall be made
by it, deliver to Custodian instructions which shall
specify with respect to each such purchase or sale:
1. The name of the portfolio of the Fund making
such purchase or sale;
2. Security Options
1. The underlying security;
2. The price at which purchased or
sold;
3. The expiration date;
4. The number of contracts;
5. The exercise price;
6. Whether the transaction is an
opening, exercising, expiring or
closing transaction;
7. Whether the transaction involves a
put or call;
8. Whether the option is written or
purchased;
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<PAGE> 8
9. Market on which option traded;
10. Name and address of the broker or
dealer through whom the sale or
purchase was made.
3. Options on Indices
1. The index;
2. The price at which purchased or
sold;
3. The exercise price;
4. The premium;
5. The multiple;
6. The expiration date;
7. Whether the transaction is an
opening, exercising, expiring or
closing transaction;
8. Whether the transaction involves a
put or call;
9. Whether the option is written or
purchased;
10. The name and address of the broker
or dealer through whom the sale or
purchase was made, or other
applicable settlement instructions.
4. Security Index Futures Contracts
1. The last trading date specified in
the contract and, when available,
the closing level, thereof;
2. The index level on the date the
contract is entered into;
3. The multiple;
4. Any margin requirements;
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<PAGE> 9
5. The need for a segregated margin
account (in addition to
instructions, and if not already in
the possession of Custodian, Fund
shall deliver a substantially
complete and executed custodial
safekeeping account and procedural
agreement which shall be
incorporated by reference into this
Custody Agreement); and
6. The name and address of the futures
commission merchant through whom the
sale or purchase was made, or other
applicable settlement instructions.
5. Option on Index Future Contracts
1. The underlying index future
contract;
2. The premium;
3. The expiration date;
4. The number of options;
5. The exercise price;
6. Whether the transaction involves an
opening, exercising, expiring or
closing transaction;
7. Whether the transaction involves a
put or call;
8. Whether the option is written or
purchased; and
9. The market on which the option is
traded.
9. SECURITIES PLEDGED OR LOANED
If specifically allowed for in the prospectus of Fund:
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<PAGE> 10
1. Upon receipt of instructions, Custodian will
release or cause to be released securities held
in custody to the pledgee designated in such
instructions by way of pledge or hypothecation
to secure any loan incurred by Fund; provided,
however, that the securities shall be released
only upon payment to Custodian of the monies
borrowed, except that in cases where additional
collateral is required to secure a borrowing
already made, further securities may be
released or caused to be released for that
purpose upon receipt of instructions. Upon
receipt of instructions, Custodian will pay,
but only from funds available for such purpose,
any such loan upon redelivery to it of the
securities pledged or hypothecated therefor and
upon surrender of the note or notes evidencing
such loan.
2. Upon receipt of instructions, Custodian will
release securities held in custody to the
borrower designated in such instructions;
provided, however, that the securities will be
released only upon deposit with Custodian of
full cash collateral as specified in such
instructions, and that Fund will retain the
right to any dividends, interest or
distribution on such loaned securities. Upon
receipt of instructions and the loaned
securities, Custodian will release the cash
collateral to the borrower.
10. ROUTINE MATTERS
Custodian will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with
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<PAGE> 11
securities or other property of Fund except as may be
otherwise provided in this Agreement or directed from time
to time by the governing Board of the Fund.
11. DEPOSIT ACCOUNT
Custodian will open and maintain a special purpose deposit
account or accounts in the name of Custodian ("Account"),
subject only to draft or order by Custodian upon receipts
of instructions. All monies received by Custodian from or
for the account of a portfolio shall be deposited in said
Account. Barring events not in the control of the
Custodian such as strikes, lockouts or labor disputes,
riots, war or equipment or transmission failure or damage,
fire, flood, earthquake or other natural disaster, action
or inaction of governmental authority or other causes
beyond its control, at 9:00 a.m., Kansas City time, on the
second business day after deposit of any check into Fund's
Account, Custodian agrees to make Fed Funds available to
the Fund in the amount of the check. Deposits made by
Federal Reserve wire will be available to the Fund
immediately and ACH wires will be available to the Fund on
the next business day. Income earned on the portfolio
securities will be credited to the applicable portfolio of
the Fund based on the schedule attached as Exhibit A. All
collected funds received on behalf of a Fund shall be
deposited, according to Custodian's usual practices, into
a Custody account on behalf of that Fund. The Custodian
will be entitled to reverse any credited amounts where
credits have been made and monies are finally collected.
If monies are collected after such reversal, the Custodian
will credit the applicable portfolio in that amount.
Custodian may open and maintain an Account in such other
banks or trust companies as may be
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<PAGE> 12
designated by it and by properly authorized resolution of
the governing Board of the Fund, such Account, however; to
be in the name of Custodian and subject only to its draft
or order.
12. INCOME AND OTHER PAYMENTS TO FUND
Custodian will:
1. Collect, claim and receive and deposit for the
Account of Fund all income and other payments
which become due and payable on or after the
effective date of this Agreement with respect
to the securities deposited under this
Agreement, and credit the account of Fund in
accordance with the schedule attached hereto as
Exhibit A. If for any reason, the Fund is
credited with income that is not subsequently
collected, Custodian may reverse that credited
amount;
2. Execute ownership and other certificates and
affidavits for all federal, state and local tax
purposes in connection with the collection of
bond and note coupons; and
3. Take such other action as may be necessary or
proper in connection with:
1. the collection, receipt and deposit
of such income and other payments,
including but not limited to the
presentation for payment of:
1. all coupons and other
income items requiring
presentation; and
2. all other securities
which may mature or be
called, redeemed, retired
or otherwise become
payable and regarding
which the
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<PAGE> 13
Custodian has actual
knowledge, or
notice of which is
contained in publications
of the type to which it
normally subscribes for
such purpose; and
2. the endorsement for collection, in
the name of Fund, of all checks,
drafts or other negotiable
instruments.
Custodian, however, will not be required to institute suit
or take other extraordinary action to enforce collection
except upon receipt of instructions and upon being
indemnified to its satisfaction against the costs and
expenses of such suit or other actions. Custodian will
receive, claim and collect all stock dividends, rights and
other similar items and will deal with the same pursuant
to instructions. Unless prior instructions have been
received to the contrary, Custodian will, without further
instructions, sell any rights held for the account of Fund
on the last trade date prior to the date of expiration of
such rights.
13. PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
On the declaration of any dividend or other distribution
on the shares of the Fund ("Fund Shares") by the governing
Board of the Fund, Fund shall deliver to Custodian
instructions with respect thereto, including a copy of the
Resolution of said governing Board certified by the
Secretary or an Assistant Secretary of Fund wherein there
shall be set forth record date as of which shareholders
entitled to receive such dividend or other distribution
shall be determined, the date of payment of such dividend
or distribution, and the amount payable per share on such
dividend or distribution. Except if the ex-dividend date
and the reinvestment date of any
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<PAGE> 14
dividend are the same, in which case funds shall remain in
the Custody Account, on the date specified in such
Resolution for the payment of such dividend or other
distribution, Custodian will pay out of the monies held
for the account of Fund, insofar as the same shall be
available for such purposes, and credit to the account of
the Dividend Disbursing Agent for Fund, such amount as may
be necessary to pay the amount per share payable in cash
on Fund Shares issued and outstanding on the record date
established by such Resolution.
14. SHARES OF FUND PURCHASED BY FUND
Whenever any Fund Shares are repurchased or redeemed by
Fund, Fund or its agent shall advise Custodian of the
aggregate dollar amount to be paid for such shares and
shall confirm such advice in writing. Upon receipt of such
advice, Custodian shall charge such aggregate dollar
amount to the Account of Fund and either deposit the same
in the account maintained for the purpose of paying for
the repurchase or redemption of Fund Shares or deliver the
same in accordance with such advice. Custodian shall not
have any duty or responsibility to determine that Fund
Shares have been removed from the proper shareholder
account or accounts or that the proper number of such
shares have been cancelled and removed from the
shareholder records.
15. SHARES OF FUND PURCHASED FROM FUND
Whenever Fund Shares are purchased from Fund, Fund will
deposit or cause to be deposited with Custodian the amount
received for such shares.
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<PAGE> 15
Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been
added to the proper shareholder account or accounts or
that the proper number of such shares have been added to
the shareholder records.
16. PROXIES AND NOTICES
Custodian will promptly deliver or mail or have delivered
or mailed to Fund all proxies properly signed, all notices
of meetings, all proxy statements and other notices,
requests or announcements affecting or relating to
securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its
nominee to execute and deliver or mail or have delivered
or mailed such proxies or other authorizations as may be
required. Except as provided in this Agreement or pursuant
to instructions hereafter received by Custodian, neither
it nor its nominee will exercise any power inherent in any
such securities, including any power to vote the same, or
execute any proxy, power of attorney, or other similar
instrument voting any of such securities, or give any
consent, approval or waiver with respect thereto, or take
any other similar action.
17. DISBURSEMENTS
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<PAGE> 16
Custodian will pay or cause to be paid insofar as funds
are available for the purpose, bills, statements and other
obligations of Fund (including but not limited to
obligations in connection with the conversion, exchange or
surrender of securities owned by Fund, interest charges,
dividend disbursements, taxes, management fees, custodian
fees, legal fees, auditors' fees, transfer agents' fees,
brokerage commissions, compensation to personnel, and
other operating expenses of Fund) pursuant to instructions
of Fund setting forth the name of the person to whom
payment is to be made, the amount of the payment, and the
purpose of the payment.
18. DAILY STATEMENT OF ACCOUNTS
Custodian will, within a reasonable time, render to Fund
as of the close of business on each day, a detailed
statement of the amounts received or paid and of
securities received or delivered for the account of Fund
during said day. Custodian will, from time to time, upon
request by Fund, render a detailed statement of the
securities and monies held for Fund under this Agreement,
and Custodian will maintain such books and records as are
necessary to enable it to do so and will permit such
persons as are authorized by Fund including Fund's
independent public accountants, access to such records or
confirmation of the contents of such records; and if
demanded, will permit federal and state regulatory
agencies to examine the securities, books and records.
Upon the written instructions of Fund or as demanded by
federal or state regulatory agencies, Custodian will
instruct any subcustodian to give such persons as are
authorized by Fund including Fund's independent public
accountants, access to such records or confirmation of the
contents of such records; and if demanded, to permit
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<PAGE> 17
federal and state regulatory agencies to examine the
books, records and securities held by subcustodian which
relate to Fund.
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<PAGE> 18
19. APPOINTMENT OF SUBCUSTODIANS
1. Notwithstanding any other provisions of this
Agreement, all or any of the monies or
securities of Fund may be held in Custodian's
own custody or in the custody of one or more
other banks or trust companies selected by
Custodian. Any such subcustodian must have the
qualifications required for custodian under the
Investment Company Act of 1940, as amended. The
subcustodian may participate directly or
indirectly in the Depository Trust Company,
Treasury/Federal Reserve Book Entry System,
Participant Trust Company (as such entities are
defined at 17 CFR Sec. 270.17f-4(b)), or other
depository approved by the Fund and with which
Custodian has a satisfactory direct or indirect
contractual relationship. Custodian will
appoint UMBKC and UMBNY as subcustodians and
Custodian shall be responsible for UMBKC and
UMBNY to the same extent it is responsible to
the Fund under Section 5 of this Agreement.
Custodian is not responsible for DTC, the
Treasury/Federal Reserve Book Entry System, and
PTC except to the extent such entities are
responsible to Custodian. Upon instruction of
the Fund, Custodian shall be willing to
contract with such entities as Bank of New York
(BONY), Morgan Guaranty and Trust Company
(MGTC), Chemical Bank (CB), and Bankers Trust
Company (BT) for variable rate securities and
Custodian will be responsible to the Fund to
the same extent those entities are responsible
to Custodian. The Fund shall be entitled to
review Custodian's contracts with BONY, MGTC,
CB and BT.
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<PAGE> 19
2. Notwithstanding any other provisions of this
Agreement, Fund's foreign securities (as
defined in Rule 17f-5(c)(1) under the
Investment Company Act of 1940) and Fund's cash
or cash equivalents in amounts reasonably
necessary to effect Fund's foreign securities
transactions, may be held in the custody of one
or more banks or trust companies acting as
subcustodians, according to Section 3.S.1; and
thereafter, pursuant to a written contract or
contracts as approved by Fund's governing
Board, may be transferred to an account
maintained by such subcustodian with an
eligible foreign custodian, as defined in Rule
17f-5(c)(2), provided that any such arrangement
involving a foreign custodian shall be in
accordance with the provisions of Rule 17f-5
under the Investment Company Act of 1040 as
that Rule may be amended from time to time. The
Fund shall be provided the contract with the
domestic subcustodian who shall contract with
the eligible foreign subcustodians. The
Custodian shall be responsible for the monies
and securities of Fund held by eligible foreign
subcustodians to the extent the domestic
subcustodian with which the Custodian contracts
is responsible to Custodian.
20. ADOPTION OF PROCEDURES
Custodian and Fund may from time to time adopt procedures
as they agree upon, and Custodian may conclusively assume
that no procedure approved by Fund, or directed by Fund,
conflicts with or violates any requirements of its
prospectus, or governing documents such as Articles of
Incorporation, Declaration of Trust, Bylaws, or any rule
or regulation of any regulatory body or governmental
agency. Fund will be
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<PAGE> 20
responsible to notify Custodian of any changes in
statutes, regulations, rules or Fund policies not
specifically governing custodians or banks which might
necessitate changes in Custodian's responsibilities or
procedures.
21. OVERDRAFTS
If Custodian shall in its sole discretion advance funds to
the account of the Fund which results in an overdraft
because the monies held by Custodian on behalf of the Fund
are insufficient to pay the total amount payable upon a
purchase of securities as specified in Fund's instructions
or for some other reason, the amount of the overdraft
shall be payable by the Fund to Custodian upon demand and
shall bear an interest rate determined by Custodian from
the date advanced until the date of payment. Custodian
shall have a lien on the assets of the Fund in the amount
of any outstanding overdraft.
4. INSTRUCTIONS.
1. The term "instructions", as used herein, means written or
oral instructions to Custodian from a designated
representative of Fund. Certified copies of resolutions of
the governing Board of Fund naming one or more designated
representatives to give instructions in the name and on
behalf of Fund, may be received and accepted from time to
time by Custodian as conclusive evidence of the authority
of any designated representative to act for Fund and may
be considered to be in full force and effect (and
Custodian will be fully protected in acting in reliance
thereon) until receipt by Custodian of notice to the
contrary. Unless the resolution delegating authority to
any person to give instructions specifically requires that
the approval of
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<PAGE> 21
anyone else will first have been obtained, Custodian will
be under no obligation to inquire into the right of the
person giving such instructions to do so. Notwithstanding
any of the foregoing provisions of this Section 4, no
authorizations or instructions received by Custodian from
Fund, will be deemed to authorize or permit any director,
trustee, officer, employee, or agent of Fund to withdraw
any of the securities or similar investments of Fund upon
the mere receipt of such authorization or instructions
from such director, trustee, officer, employee or agent.
Notwithstanding any other provision of this Agreement,
Custodian, upon receipt (and acknowledgment if required at
the discretion of Custodian) of the instructions of a
designated representative of Fund will undertake to
deliver for Fund's account monies, (provided such monies
are on hand or available) in connection with Fund's
transactions and to wire transfer such monies to such
broker, dealer, subcustodian, bank or other agent
specified in such instructions by a designated
representative of Fund.
2. No later than the next business day immediately following
each oral instruction, Fund will send Custodian written
confirmation of such oral instruction. At Custodian's sole
discretion, Custodian may record on tape, or otherwise,
any oral instruction whether given in person or via
telephone, each such recording identifying the parties,
the date and the time of the beginning and ending of such
oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
1. Custodian shall hold harmless and indemnify Fund from and
against any loss or liability arising out of Custodian's
negligence, willful misconduct, or bad faith.
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<PAGE> 22
Custodian shall not be liable for consequential, special
or punitive damages. Custodian may request and obtain the
advice and opinion of counsel for Fund, or of its own
counsel with respect to questions or matters of law, and
it shall be without liability to Fund for any action taken
or omitted by it in good faith, in conformity with such
advice or opinion. If Custodian reasonably believes that
it could not prudently act according to the instructions
of the Fund or the Fund's counsel, it may in its
discretion, with notice to the Fund, not act according to
such instructions.
2. Custodian may rely upon the advice of Fund and upon
statements of Fund's accountants and other persons
believed by, it in good faith, to be expert in matters
upon which they are consulted, and Custodian shall not be
liable for any actions taken, in good faith, upon such
statements.
3. If Fund requires Custodian in any capacity to take, with
respect to any securities, any action which involves the
payment of money by it, or which in Custodian's opinion
might make it or its nominee liable for payment of monies
or in any other way, Custodian, upon notice to Fund given
prior to such actions, shall be and be kept indemnified by
Fund in an amount and form satisfactory to Custodian
against any liability.
4. Custodian shall be entitled to receive, and Fund agrees to
pay to Custodian, on demand, reimbursement for such cash
disbursements, costs and expenses as may be agreed upon
from time to time by Custodian and Fund.
5. Custodian shall be protected in acting as custodian
hereunder upon any instructions, advice, notice, request,
consent, certificate or other instrument or paper
reasonably
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<PAGE> 23
appearing to it to be genuine and to have been properly
executed and shall, unless otherwise specifically provided
herein, be entitled to receive as conclusive proof of any
fact or matter required bo be ascertained from Fund
hereunder, a certificate signed by the Fund's President,
or other officer specifically authorized for such purpose.
6. Without limiting the generality of the foregoing,
Custodian shall be under no duty or obligation to inquire
into, and shall not be liable for:
1. The validity of the issue of any securities
purchased by or for Fund, the legality of the
purchase thereof or evidence of ownership
required by Fund to be received by Custodian,
or the propriety of the decision to purchase or
amount paid therefor;
2. The legality of the sale of any securities by
or for Fund, or the propriety of the amount for
which the same are sold;
3. The legality of the issue or sale of any shares
of the Capital Stock of Fund, or the
sufficiency of the amount to be received
therefor;
4. The legality of the repurchase or redemption of
any Fund Shares, or the propriety of the amount
to be paid therefor; or
5. The legality of the declaration of any dividend
by Fund, or the legality of the issue of any
Fund Shares in payment of any stock dividend.
7. Custodian shall not be liable for, or considered to be
Custodian of, any money represented by any check, draft,
wire transfer, clearing house funds, uncollected funds, or
instrument for the payment of money received by it on
behalf of Fund, until
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<PAGE> 24
Custodian actually receives such money, provided only that
it shall advise Fund promptly if it fails to receive any
such money in the ordinary course of business, and use its
best efforts and cooperate with Fund toward the end that
such money shall be received.
8. Except for any subcustodians or eligible foreign custodian
appointed under section 3.S., Custodian shall not be
responsible for loss occasioned by the acts, neglects,
defaults or insolvency of any broker, bank, trust company,
or any other person with whom Custodian may deal in the
absence of negligence, or bad faith on the part of
Custodian.
9. Notwithstanding anything herein to the contrary, Custodian
may, and with respect to any foreign subcustodian
appointed under Section 3.S.2 must, provide Fund for its
approval, agreements with banks or trust companies which
will act as subcustodians for Fund pursuant to Section 3.S
of this Agreement.
6. COMPENSATION. Fund will pay to Custodian such compensation as is
stated in the Fee Schedule attached hereto as Exhibit B which may be
changed from time to time as agreed to in writing by Custodian and
Fund. Custodian may charge such compensation against monies held by
it for the account of Fund. Custodian will also be entitled,
notwithstanding the provisions of Sections 5.C. or 5.D. hereof, to
charge against any monies held by it for the account of Fund the
amount of any loss, damage, liability, advance, or expense for which
it shall be entitled to reimbursement under the provisions of this
Agreement including fees or expenses due to Custodian for other
services provided to the Fund by the Custodian.
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<PAGE> 25
Custodian will not be entitled to reimbursement by Fund for any loss
or expenses of any subcustodian.
7. TERMINATION. Either party to this Agreement may terminate the same by
notice in writing, delivered or mailed, postage prepaid, to the other
party hereto and received not less than sixty (60) days prior to the
date upon which such termination will take effect. Upon termination
of this Agreement, Fund will pay to Custodian such compensation for
its reimbursable disbursements, costs and expenses paid or incurred
to such date and Fund will use its best efforts to obtain a successor
custodian. Unless the holders of a majority of the outstanding shares
of Fund vote to have the securities, funds and other properties held
under this Agreement delivered and paid over to some other person,
firm or corporation specified in the vote, having not less than Two
Million Dollars ($2,000,000) aggregate capital, surplus and undivided
profits, as shown by its last published report, and meeting such
other qualifications for custodian as set forth in the governing
documents of the Fund, the governing Board of Fund will, forthwith
upon giving or receiving notice of termination of this Agreement,
appoint as successor custodian a bank or trust company having such
qualifications. Custodian will, upon termination of this Agreement,
deliver to the successor custodian so specified or appointed, at
Custodian's office, all securities then held by Custodian hereunder,
duly endorsed and in form for transfer, all funds and other
properties of Fund deposited with or held by Custodian hereunder, or
will co-operate in effecting changes in book-entries at the
Depository Trust Company or in the Treasury/Federal Reserve
Book-Entry System, DTC, or other depository. In the event no such
vote has been adopted by the shareholders of Fund and no written
order designating a successor custodian has been
-25-
<PAGE> 26
delivered to Custodian on or before the date when such termination
becomes effective, then Custodian will deliver the securities, funds
and properties of Fund to a bank or trust company at the selection of
Custodian and meeting the qualifications for custodian, if any, set
forth in the governing documents of the Fund and having not less than
Two Million Dollars ($2,000,000) aggregate capital, surplus and
undivided profits, as shown by its last published report. Upon either
such delivery to a successor custodian, Custodian will have no
further obligations or liabilities under this Agreement. Thereafter
such bank or trust company will be the successor custodian under this
Agreement and will be entitled to reasonable compensation for its
services. In the event that no such successor custodian can be found,
Fund will submit to its shareholders, before permitting delivery of
the cash and securities owned by Fund to anyone other than a
successor custodian, the question of whether Fund will be liquidated
or function without a custodian. Notwithstanding the foregoing
requirement as to delivery upon termination of this Agreement,
Custodian may make any other delivery of the securities, funds and
property of Fund which is permitted by the Investment Company Act of
1940, Fund's governing documents then in effect or apply to a court
of competent jurisdiction for the appointment of a successor
custodian.
8. NOTICES. Notices, requests, instructions and other writings received
by Fund at 230 Park Avenue, New York, New York 10169, or at such
other address as Fund may have designated to Custodian in writing,
will be deemed to have been properly given to Fund hereunder; and
notices, requests, instructions and other writings received by
Custodian at its offices at 127 West 10th Street, Kansas City,
Missouri 64105, or to such other address as it may have
-26-
<PAGE> 27
designated to Fund in writing, will be deemed to have been properly
given to Custodian hereunder.
9. MISCELLANEOUS.
1. This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of said state.
2. All the terms and provisions of this Agreement shall be
binding upon, inure to the benefit of, and be enforceable
by the respective successor and assigns of the parties
hereto.
3. No provisions of the Agreement may be amended or modified,
in any manner except by a written agreement properly
authorized and executed by both parties hereto.
4. The captions in this Agreement are included for
convenience of reference only, and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
5. This Agreement may be executed simultaneously in two or
more counterparts, each of which will be deemed an
original but all of which together will constitute one and
the same instrument.
6. If any part, term or provision of this Agreement is by the
courts held to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions shall
be considered severable and not be affected, and the
rights and obligations of the parties shall be construed
and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or
invalid.
-27-
<PAGE> 28
7. Custodian will not release the identity of Fund to an
issuer which requests such information pursuant to the
Shareholder Communications Act of 1985 for the specific
purpose of direct communications between such issuer and
Fund unless the Fund directs the Custodian otherwise.
8. This Agreement may not be assigned by either party without
prior written consent of the other party.
9. If any provision of the Agreement, either in its present
form or as amended from time to time, limits, qualifies,
or conflicts with the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder, such
statues, rules and regulations shall be deemed to control
and supersede such provision without nullifying or
terminating the remainder of the provisions of this
Agreement.
10. If the Fund is organized as a Massachusetts business
trust, a copy of the Declaration of Trust of the Fund is
on file with the Secretary of the Commonwealth of
Massachusetts and notice is hereby given that the
Agreement has been executed on behalf of Fund by the
undersigned officer of Fund in his/her capacity as an
officer of Fund. The obligations of this Agreement shall
only be binding upon the assets and property of Fund and
shall not be binding upon any Trustee, officer or
shareholder of Fund individually.
-28-
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST
COMPANY
By: /s/ illegible
------------------------------------
Title: S.V.P.
----------------------------------
ATTEST:
/s/ illegible
- ------------------------------
Title: Exec. V.p.
EMPIRE BUILDER TAX FREE
BOND FUND
By: /s/ illegible
------------------------------------
Title: Asst. Treasurer
---------------------------------
ATTEST:
/s/ Joan V. Fiore
- ------------------------------
Secretary
-29-
<PAGE> 30
EXHIBIT A
IFTC AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<TABLE>
<CAPTION>
TRANSACTION DTC PHYSICAL FED
- ----------- ---------------------------- ------------------------------- ----------------------------
TYPE CR DATE FDS TYPE CR DATE FDS TYPE CR DATE FDS TYPE
- ---- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
Tender Reorgs. As Received C As Received C N/A
Dividends Paydate C Paydate C N/A
Floating Rate Int. Paydate C Paydate C N/A
Floating Rate Int. (No N/A As Rate Received C N/A
Rate)
Mtg. Backed P&I Paydate C Paydate + 1 Bus. C Paydate F
Day
Fixed Rate Int. Paydate C Paydate C Paydate F
Euroclear N/A C Paydate C
</TABLE>
Legend
------
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
*Availability based on how received.
-30-
<PAGE> 31
EMPIRE MUTUAL FUNDS
FEE SCHEDULE
1. SECURITY CUSTODY
A. DOMESTIC SECURITIES
Asset-Based Fees, per fund group
3/100 of 1% (3 basis points) on the first $100 million in assets
2/100 of 1% (2 basis points) on the next $100 million in assets
1/100 of 1% (1 basis point) on all assets in excess of $200 million
Transaction Fees, per transaction
Physical Delivery - $20.00
Depository Eligible - $10.00
GNMA Paydown - $10.00
Euro-Clear - $40.00
PTC - $12.00
PTC P&I - $7.00
PTC Other - $10.00
B. BALANCE CREDITS
IFTC will offset fees with balance credits calculated at 75%
of the bank credit rate which is equal to the T-bill rate
applied to average custody collected cash balances for the
month. Balance credits will be applied on a fund by fund basis
and can be used to offset custody fees. Any credits in excess
of fees will be carried forward from month to month through
the first quarter of the ensuing year. For calculation
purposes, IFTC uses an actual/accrual basis.
C. OVERDRAFT CHARGES
Fund overdrafts will be calculated at the Prime rate (as
published in the WALL STREET JOURNAL) and charged on a daily
basis.
-32-
<PAGE> 32
II. NOTES TO THE ABOVE FEE SCHEDULE
A. The above schedule does not include out-of-pocket expenses
that would be incurred by IFTC on the fund's behalf.
Examples of out-of-pocket expenses include forms, postage,
mailing services, and FDIC Insurance, etc. Out-of-pocket
expenses incurred by IFTC in planning and executing the
conversion will be passed on to the Fund. IFTC bills
out-of-pocket expenses separately from service fees.
B. The fees stated above are exclusive of terminal equipment
required in the client's location(s) and communication
line costs.
C. Any fees or out-of-pocket expenses not paid within 30 days
of the date of the original invoice will be charged a late
payment fee of 1% per month until payment of the fees are
received by IFTC.
D. The above fee schedule is predicated on the fact that IFTC
be allowed a minimum of 90 calendar days between
notification of hiring and when the selection is
effective, and that IFTC receive adequate cooperation from
the client during the implementation period.
E. The above fee schedule is applicable for selections made
and communicated within 30 days of the date of this
proposal. The fees are guaranteed for a one year period
commencing on the effective date of the service agreement
between IFTC and the client. All changes to the fee
schedule will be communicated in writing at least 60 days
prior to their effective date.
F. The fees and charges set forth hereto shall increase
annually upon each anniversary of this Agreement over the
fees and charges during the prior 12 months in an amount
not less than the annual percentage of change in the
Consumer Price Index in Kansas City,
Missouri-Kansas-Standard Metropolitan Statistical Area as
last reported by the U.S. Bureau of Labor Statistics. In
the event that this Agreement was not signed as of the
first day of the month, the fees and charges increase
shall be effective as of the first day of the month
immediately following the month during which the
anniversary occurred.
/s/ illegible /s/ illegible, Asst. Treasurer
- ------------------------------------- --------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY EMPIRE MUTUAL FUNDS
2/4/92 3/16/92
- ------------------------------------- --------------------------------------
DATE DATE
11/27/91
-33-
<PAGE> 1
Exhibit (g)(2)
PROCEDURAL AGREEMENT
AMONG MERRILL LYNCH FUTURES, INC.,
EMPIRE BUILDER TAX FREE BOND FUND,
INVESTORS FIDUCIARY TRUST COMPANY AND
UNITED MISSOURI BANK OF KANSAS CITY, N.A.
THIS AGREEMENT is made by and among Empire Builder Tax Free Bond Fund.
("Customer"), Merrill Lynch Futures, Inc. ("FCM"), Investors Fiduciary Trust
Company ("IFTC" or "Custodian"), a state chartered trust company with its trust
office and principal place of business at Kansas City, Missouri, acting as
custodian of Customer, and United Missouri Bank of Kansas City, N.A. ("Bank"), a
national banking association organized under the laws of the United States with
its principal place of business in Kansas City, Missouri acting as
sub-custodian.
WHEREAS the undersigned Customer has opened a trading account with the
undersigned FCM, a registered futures commission merchant, for the purpose of
trading futures contracts traded on duly registered boards of trade, including
options on such futures contracts ("Contracts") through said firm; and
WHEREAS, in connection with the opening of the trading account Customer
and FCM have entered into a Customer Agreement which requires Customer to
deposit as collateral the initial margin (including any additional original
margin requirements for Customer's short option positions) ("Initial Margin")
with respect to each Contract as required by the rules and regulations of the
Chicago Mercantile Exchange, the Chicago Board of Trade, the Commodity Exchange,
and such other exchanges on which FCM may effect or cause to be effected
transactions as broker for Customer; and
WHEREAS, Bank serves as IFTC's sub-custodian pursuant to a sub-custody
agreement between Bank and IFTC whereby the Bank holds certain monies and
securities owned by Customer (the "Sub-Custody Agreement"); and
WHEREAS, neither Custodian nor Bank is a fiduciary or an affiliate of
Customer or an affiliate of a fiduciary of Customer;
WHEREAS, Customer, FCM, and the undersigned IFTC and Bank have entered
into a Safekeeping Agreement establishing an account entitled "Merrill Lynch
Futures, Inc. Customer Funds for the benefit of Empire Builder Tax Free Bond
Fund (Customer Segregated Account)" (the "Safekeeping Account") pursuant to
which IFTC shall cause the Bank to maintain the Safekeeping Account for the
custody of the Initial Margin which Customer is required to deposit and
maintain, and
WHEREAS the Customer Agreement and the Safekeeping Agreement both
provide that the rights and duties of the parties thereto are subject to the
provisions of this Agreement;
<PAGE> 2
NOW, THEREFORE, IT IS AGREED THAT:
1. The terms of the Custodian Agreement and Sub-Custody Agreement
are incorporated by reference into this Agreement. This
Agreement is intended to be an amendment to the Custodian
Agreement and Sub-Custody Agreement and this Agreement shall
govern in the event of any inconsistency involving this
Safekeeping Account.
2. Bank agrees to accept all instructions of IFTC (or FCM)
concerning transactions involving this Safekeeping Account.
IFCT shall cause the Bank to establish and maintain the
Safekeeping Account for the deposit and maintenance by
Customer of Initial Margin on financial futures contracts and
Initial Margin and maintenance margin on related option
contracts with respect to transactions effected by Customer
through FCM. The securities and monies at any time deposited
in the Safekeeping Account and all instructions, deliveries,
duties, rights and liabilities of Customer and Custodian with
respect to the Safekeeping Account shall be governed in all
respects by the Custodian Agreement, except as expressly
provided otherwise in this Agreement.
3. Customer shall deposit and maintain as collateral in the
Safekeeping Account such Initial Margin as shall be required
from time to time by the exchange on which transactions are
effected or caused to be effected by FCM as broker for
Customer. Customer may deposit amounts in excess of such
requirements. The designation "Customer Funds" in the account
title is intended to indicate the status of the account under
the Commodity Exchange Act and Commodity Futures Trading
Commission regulations; however, the provisions of this
agreement shall be controlling as to the rights of the parties
in the collateral deposited in the account.
4. The Initial Margin deposited and maintained in the Safekeeping
Account, created pursuant to the Safekeeping Agreement, shall
be in the form, as Customer elects, of cash or of U.S.
Government securities or other securities or instruments as
FCM in it's sole discretion may accept in respect of initial
margin (eligible securities) or of a combination thereof.
Customer may substitute eligible securities of equal or
greater value upon prior approval by FCM, which approval shall
not be unreasonably withheld. Upon receipt of such eligible
securities, FCM agrees to give instructions to Custodian and
Custodian shall cause Bank to release from the Safekeeping
Account cash or eligible U.S. Government securities of an
equal value, or such lesser amount as may be directed by
Customer. Any separate interest payments thereon shall be
automatically credited by Custodian in Federal funds to such
demand deposit accounts designated in instructions from
Customer on the date that such interest becomes due and
received unless notice has been provided to Custodian pursuant
to Paragraph 7(a) below, and such interest is required to meet
additional Variation Margin requirements in accordance with
the procedure provided in Paragraphs 7(a), (b), and (c).
Amounts due on the securities which mature or are redeemed
will be credited to the Safekeeping Account in Federal funds
on the date such amounts are received. Amounts due to
2
<PAGE> 3
Customer as a result of the variation in value of Customer's
short option positions shall be credited to Customer by
reducing the amount of the collateral required to be
maintained in the Safekeeping Account.
5. With respect to the deposit of Initial Margin, Customer shall
direct Custodian who shall cause Bank to segregate specified
assets in the Safekeeping Account, and Custodian shall cause
Bank promptly to provide FCM and Customer with a written
confirmation of each transfer into or out of the Safekeeping
Account.
6. Withdrawals of Initial Margin from the Safekeeping Account
shall be effected upon receipt by the Custodian of Customer's
custodian order and FCM's prior written verification of such
withdrawal. FCM shall, upon request of the Customer, inform
Customer of the amount of any excess Initial Margin in the
Safekeeping Account.
7. FCM shall have access to the collateral only accordance with
the following, and only at such times as conditions set forth
hereafter are complied with:
a. If notice by FCM is given to Customer that additional
margin is required by FCM as broker for the Customer
due to variation in the value of one or more futures
contracts held in the trading account or otherwise
pursuant to the Customer Agreement ("Variation
Margin"), and such notice is given prior to 11:30
A.M. New York time on a day on which the Customer is
open for business, which Variation Margin shall first
have been satisfied from any amounts currently
credited to the Customer's trading account with FCM
in connection with which the Variation Margin is
required, the Customer shall transfer to FCM such
Variation Margin not later than 3:00 P.M. on the same
day. If Notice by FCM to the Customer is given of the
need for Variation Margin subsequent to 11:30 A.M.
but prior to 4:00 P.M. New York time on a day on
which the Customer is open for business, the Customer
shall provide such Variation Margin to FCM not later
than 10:30 A.M. New York time on the next succeeding
day on which the Customer is open for business.
Notice by FCM to the Customer of the receipt of
Variation Margin shall be given promptly.
b. If FCM has not received the requested Variation
Margin within the time period as provided in
Paragraph (7a), Notice by FCM to Customer of the
failure to receive the Variation Margin shall be
given immediately.
c. IF FCM does not receive the Variation Margin in
accordance with Paragraph 7(a), FCM may give (i)
Notice to Custodian and/or Bank of the Customer's
failure to provide Variation Margin and the amount of
Variation Margin required and Custodian shall notify
Bank; and (ii) Notice to the Customer that such
Notice has been given to Custodian and by Custodian
to Bank. Immediately upon receipt by Custodian of
such
3
<PAGE> 4
Notice but without prejudice to any rights of FCM
hereunder, Custodian shall give Notice to the
Customer of its receipt of such Notice.
d. In the event Customer has failed to transfer the
required Variation Margin to FCM during the time
period as provided in Paragraph 7(a), FCM may give
Notice to Custodian of the Customer's failure to
provide Variation Margin and that all conditions
precedent to FCM's right to direct disposition
hereunder have been satisfied, and may give
instructions to Custodian which shall instruct Bank,
(i) to transfer eligible U.S. Government securities
to FCM, (ii) to sell at the prevailing market price
such of the collateral in the Safekeeping Account
relating to the trading account in which the
Variation Margin is required, in each case as
necessary to provide for payment to FCM of the amount
of Variation Margin that FCM shall have specified in
the Notice, or (iii) with respect to collateral in
the form of cash, FCM may give instructions to
Custodian who shall instruct Bank to immediately
transfer cash in the amount of the variation that FCM
shall have specified in the Notice from such
Safekeeping Account to the account of FCM. Custodian
shall immediately give Notice to Customer of its
receipt of such action. Subject to the notice
provisions of Paragraph 7 set forth above, Custodian
shall take instructions solely from FCM with respect
to the sale of securities and/or the transfer of cash
to FCM. In the event that FCM receives eligible U.S.
Government securities pursuant to this Paragraph
7(d), it shall have the right to sell or otherwise
dispose of such securities and shall remit to
Customer any proceeds of such sale or disposition in
excess of the amount of Variation Margin specified in
instructions from FCM to Custodian.
e. Custodian shall cause Bank to retain in the
Safekeeping Account any collateral in excess of the
amount of Variation Margin specified in instructions
from FCM to Custodian including any proceeds from the
sale of securities in excess of such amount.
Custodian shall cause Bank to give consideration to
any timely request by Customer with respect to
particular securities to be sold and shall sell any
securities in the principal market for such
securities or, in the event such principal market is
closed, sell them in a manner commercially reasonable
for such securities.
8. FCM shall promptly credit to the trading account of Customer
any Variation Margin resulting from the variation in value of
one or more Contracts purchased or sold by Customer in
accordance with the rules of any contract market, exchange or
board of trade on which contract transactions are effected by
FCM for Customer. At Customer's direction, FCM shall transfer
trading account balances to Customer in Federal funds to the
Custodian or such bank account in Customer's name as Customer
shall otherwise direct. Customer may give such directions to
FCM by telephone, confirmed thereafter in writing.
4
<PAGE> 5
9. Custodian shall act or cause Bank to act only upon receipt of
instructions from FCM regarding release of collateral. FCM
shall not be responsible for any loss incurred by Customer by
reason of IFTC's or Bank's negligence or willful misconduct in
acting on those instructions; provided that the instructions
are given in a timely fashion and comply in all other respects
with the provisions of this Agreement. IFTC or Bank shall not
be responsible for any loss incurred by Customer or FCM by
reason of Customer or FCM's negligence or willful misconduct
including but not limited to instructions of FCM hereunder.
10. Unless otherwise provided, all notices or other communications
called for by this Agreement shall be given by the most
expeditious means possible and may be given by telephone. If a
notice is not given in writing, a written copy shall be
provided to appropriate parties within a reasonable time after
notice is given.
11. Any and all expenses of establishing, maintaining, or
terminating the Safekeeping Account, including without
limitation any and all expenses incurred by Custodian or Bank
in connection with the Safekeeping Account, shall be borne by
Customer.
12. Bank may resign upon thirty (30) days prior written notice to
Customer and FCM; provided that if a substitute or successor
to Bank is not available to hold the Safekeeping Account at
the end of such period, Bank shall continue to act as
custodian until Customer's open positions at FCM secured by
margin in the Safekeeping Account as of the proposed
termination date are closed out or transferred from FCM.
13. This Agreement shall be construed according to, and the rights
and liabilities of the parties hereto shall be governed by,
the laws of the State of New York.
14. Except as specifically provided herein, this Agreement does
not in any way affect any other agreements entered into among
the parties hereto and any actions taken or omitted by any
party hereunder shall not affect any rights of any other party
hereunder.
15. No amendment of this Agreement shall be effective unless in
writing and signed by persons thereunto duly authorized.
16. Written communications hereunder shall be, except as otherwise
required hereunder, hand-delivered or mailed first class
postage prepaid, except that written notice of termination
shall be sent by certified mail addressed:
5
<PAGE> 6
(a) if to IFTC, to:
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Attention: Gerard P. Dipoto, Jr.
(b) if to Bank, to:
United Missouri Bank of Kansas City, N.A.
928 Grand Avenue
Kansas City, Missouri 64141
Attention: Christy J. Smith
(c) if to Customer, to:
Empire Builder Tax Free Bond Fund
230 Park Avenue
New York, New York
Attention: Donald Brostrom
(d) if to Merrill Lynch Futures, Inc., to:
IDS Tower
80 South Eighth Street
Minneapolis, Minnesota 55402
Attention:__________________________
17. This Agreement is executed on behalf of the Trustees of the
Customer as Trustees and not individually, and the obligations
of this Agreement are not binding upon any of the Trustees but
are binding only upon the assets and property of the Fund.
6
<PAGE> 7
EMPIRE BUILDER TAX FREE BOND FUND
By: /s/ illegible
--------------
Date: 3/19/92 Title: Assistant Treasurer
-----------------
MERRILL LYNCH FUTURES, INC.
By: /s/ illegible
---------------
Date: 3/24/92 Title: Director - DMG
-----------------
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Gerard P. Dipoto, Jr.
-------------------------
Date: 3/18/92 Title: Senior Vice President
------------------
UNITED MISSOURI BANK OF KANSAS CITY, N.A.
By: /s/ Christy J. Smith
---------------------
Date: 3/27/92 Title: Senior Vice President
------------------
7
<PAGE> 8
SAFEKEEPING AGREEMENT
Empire Builder Tax Free Bond Fund ("Depositor") and Merrill Lynch Futures, Inc.
("Merrill") have interests in the subject Safekeeping Account pursuant to a
certain Procedural Agreement among, Merrill, Depositor, Investors Fiduciary
Trust Company ("IFTC" or "Custodian") and United Missouri Bank of Kansas City,
N.A. ("Bank"), which Procedural Agreement governs over any inconsistent
provisions in this Safekeeping Agreement.
- --------------------------------------------------------------------------------
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Attention: Gerard P. Dipoto, Jr.
United Missouri Bank of Kansas City, N.A.
928 Grand Avenue
Kansas City, Missouri 64141
Attention: Christy J. Smith
Gentlemen:
The Depositor hereby requests IFTC, acting as the Custodian of
Depositor, to open and maintain a Safekeeping Account, which shall be an account
under the Custodian Agreement between Depositor and IFTC, and pursuant to the
Sub-Custody Agreement between Bank and IFTC by which Bank serves as
sub-custodian of Custodian of certain monies and securities owned by Customer.
The Safekeeping Account will be opened and maintained in the name of "Merrill
Lynch Futures, Inc. Customer Funds for the benefit of Empire Builder Tax Free
Bond Fund (Customer Segregated Account)" for all monies and securities now or
hereafter deposited with and accepted by Custodian or on behalf of Custodian for
the initial margin in futures and option contracts transactions, including any
additional original margin requirements for Depositor's short option positions.
In such custodial capacity you are limited to holding the securities in
safekeeping for the Depositor and dealing with them as herein expressed unless
otherwise mutually agreed in writing.
You shall make purchases, sales, deliveries of securities only as the
Depositor may direct, and you are authorized and directed to:
1. Collect income and principal on bearer securities in the
account;
2. Dispose of the monies received from income collections,
maturity, redemption, sale, or other disposition of the
securities pursuant to said Procedural Agreement;
3. Send a daily confirmation of receipts and disbursements to the
Depositor and to Merrill;
4. Provide a monthly list of securities to the Depositor and to
Merrill;
5. On request, confirm to Merrill and Depositor all account
charges and positions.
8
<PAGE> 9
The general conditions of the Safekeeping Agreement shall be those of
the Custodian Agreement between Depositor and IFTC.
The compensation of the Custodian for its services hereunder shall be
as the parties shall agree. No change in compensation shall be applicable to
this account except upon written notice to Depositor. The Custodian and Bank
will acknowledge for Merrill by letter, Attachment A hereto, that Custodian and
Bank are informed that the monies and securities on deposit belong to Depositor
and are being held by Custodian at Bank, in the name of Merrill Lynch Futures,
Inc. in accordance with the Commodity Exchange Act and the regulations
thereunder.
All communications from the Custodian shall be sent to the Depositor
pursuant to the Custodian Agreement, and to Merrill at the address shown below,
or at such other address as the Depositor or Merrill shall from time to time
direct.
The Depositor is not a foreign citizen; if this citizenship status
changes, the Depositor will promptly notify the Custodian in writing.
Either the Depositor or the Custodian, subject to the Procedural
Agreement, may close this account at any time.
Very truly yours,
Accepted:
INVESTORS FIDUCIARY TRUST COMPANY EMPIRE BUILDER TAX FREE BOND FUND
By: /s/ Gerard P. Dipoto. Jr. By: /s/ illegible
Title: Senior Vice President Title: Assistant Treasurer
Accepted Acknowledged and Approved:
on behalf of:
UNITED MISSOURI BANK OF KANSAS CITY, N.A. MERRILL LYNCH FUTURES, INC.
By: /s/ Christy J. Smith By: /s/ illegible
Title: Senior Vice President Title: Director - DMG
9
<PAGE> 10
ATTACHMENT A
Date:
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Attention: Gerard P. Dipoto, Jr.
United Missouri Bank of Kansas City, N.A.
928 Grand Avenue
Kansas City, Missouri 64141
Attention: Christy J. Smith
Gentlemen:
We refer to the account maintained by Investors Fiduciary Trust Company ("IFTC")
at United Missouri Bank of Kansas City, N.A. ("UMB") designated as "Merrill
Lynch Futures, Inc. ("Merrill") Customer Funds for the benefit of Empire Builder
Tax Free Bond Fund (Customer Segregated Account)" account number
__________________________ (the "Account"), opened pursuant to a Safekeeping
Agreement among Empire Builder Tax Free Bond Fund ("Depositor"), Merrill Lynch
Futures, Inc. ("Merrill"), IFTC, as Custodian, and UMB, as sub-custodian for
IFTC, dated ________________.
The Account is being maintained by us in compliance with the provisions of the
Commodity Exchange Act and as a segregated sub-account under the Custodian
Agreement between Depositor and IFTC. Depositor will from time to time deposit
with you in such Account monies or obligations of the United States, general
obligations of any state or of any political subdivision other of, or
obligations fully guaranteed as to principal and interest by the United States
(collectively referred to as "securities"). All such securities and monies will
be treated either as investments of our commodity and commodity option
customer's funds or as obligations belonging to such Customer. Under the
provisions of the Commodity Exchange Act and regulations promulgated thereunder,
these deposits are required to be segregated and treated as belonging to the
Customer. By signing and returning to us the enclosed copy of this letter, you
acknowledge that you understand the nature of the securities and monies
deposited in the account.
You further acknowledge that the funds and securities held in the above Account
are those of a commodity or commodity option customer and are being held by you
subject to the requirements of the Commodity Exchange Act and regulations
promulgated thereunder. Such fund and securities will not be treated by you as
the funds or securities of any person other than such Depositor customer of
Merrill, and will not be used by you in connection with the obligations of
10
<PAGE> 11
any person other than Depositor, except as provided in the Safekeeping Agreement
and the Procedural Agreement.
You also acknowledge that the above Account is a special deposit, and you agree
that, in providing services to us or to any of our affiliates, including but not
limited to extending credit or granting accommodations or services relating to
uncollected, target, compensating or other balances to us or to any of our
affiliates, you acknowledge that you have no claim, and will seek no lien, right
of set off or any other claim or interest in the funds or securities held in
said Account, and that it will not use the funds and securities in the
above-described Account to margin, collateralize, secure or to extend credit to
Depositor, to any of its affiliates, to us, to any of our affiliates or to any
persons for such activities or otherwise. You hereby agree that the obligations
and records accounting for the monies and securities held in the Account may be
examined by an authorized employee of the Commodity Futures Trading Commission.
Sincerely,
AGREED AND ACKNOWLEDGED:
INVESTORS FIDUCIARY TRUST COMPANY MERRILL LYNCH FUTURES, INC.
By: /s/ Gerard P. Dipoto, Jr. By: /s/ illegible
Title: Senior Vice President Title: Director - DMG
Date: March 18, 1992 Date: March 24, 1992
AGREED AND ACKNOWLEDGED:
EMPIRE BUILDER TAX FREE BOND FUND UNITED MISSOURI BANK OF KANSAS
CITY, N.A.
By: /s/ illegible By: /s/ Christy J. Smith
Title: Assistant Treasurer Title: Senior Vice President
Date: March 19, 1992 Date: March 27, 1992
11
<PAGE> 1
Exhibit (h)(4)
SERVICING AGREEMENT
Empire Builder Tax Free Bond Fund
230 Park Avenue
New York, New York 10169
Gentlemen:
We wish to enter into an Agreement with you to service shareholders of, and
administer shareholder accounts in, Empire Builder Tax Free Bond Fund (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940 (the "Act").
The terms and conditions of this Agreement are as follows:
1. We shall provide shareholder and administrative services for
shareholders of the Trust who are also clients ("clients"), which services may
include, without limitation and to the extent we are permitted by applicable
statute, rule or regulations: (a) providing necessary personal and facilities to
establish and maintain certain shareholder accounts and records as requested
from time to time by the Trust; (b) arranging for the wiring of funds in
connection with client orders to purchase or redeem Trust shares; (c)
transmitting and receiving funds in connection with client orders to purchase or
redeem Trust shares; (d) verifying and guaranteeing client signatures in
connection with redemption orders, transfers among and changes in
client-designated accounts; (e) providing periodic statements showing a client's
account balances and, to the extent practicable, integrating such information
with other client transactions otherwise effected with or through us; (f)
furnishing (either separately or on an integrated basis with other reports sent
to a client by us) periodic and annual statements and confirmations of all
purchases and redemptions of Trust shares in a client's account; (g)
transmitting proxy statements, annual reports, and updating prospectuses and
other communications from the Trust to clients; and (h) such other services as
the Trust or a client reasonably may request. We shall provide such office space
and equipment, telephone facilities and personnel (which may be all or any part
of the space, equipment and facilities currently used in our business, or all or
any personnel employed by us) as is necessary or beneficial for providing
information and services to shareholders of the Trust, and we may arrange for
third parties to perform certain of these services on our behalf.
2. Neither we nor any of our employees or agents shall be authorized to
make any representation concerning shares of the Trust except those contained in
the then current
<PAGE> 2
Prospectuses for the Trust, copies of which will be supplied to you by us; and
we shall have no authority to act as agent for the Trust.
3. In consideration of the services and facilities described herein, we
shall be entitled to receive from you fees to be paid periodically (but in no
event less frequently than semi-annually) as set forth in Schedule A attached
hereto; provided that such fees shall not exceed during any period the amount
payable at an annual rate of 0.25% of the average daily net assets of the Trust
represented by shares owned by clients with whom we maintain a servicing
relationship.
It is agreed that we may impose certain conditions on clients, in
addition to, or different from, those imposed by the Trust, such as requiring a
minimum initial investment or charging clients direct fees for the same or
similar services as are provided hereunder by us as agent (which fees either may
relate specifically to our services with respect to the Trust or generally cover
services not limited to those with respect to the Trust). We shall bill clients
directly for such fees. In the event we charge clients such fees, to the extent
permissible by applicable statutes, rules and regulations, we shall make
appropriate prior written disclosure (such disclosure to be in accordance with
all applicable laws) to clients both of any direct fees charged to clients and
of the fees received or to be understood, however, that in no event shall we
have recourse or access to the account of any shareholder of the Trust except to
the extent expressively authorized by law or by such shareholder, or to any
assets of the Trust, for payment of any direct fees referred to in this
Agreement.
4. To the extent requested by the Trust from time to time, we agree
that we will provide the Treasurer of the Trust with a written report of the
amounts expended by us and the purposes for which such expenditures were made.
Such written reports shall be in a form satisfactory to the Trust and shall
supply all information necessary for the Trust to discharge its responsibilities
under applicable laws and regulations.
5. To the extent required by Schedule A attached hereto, we shall
maintain separate ledger accounts or such comparable records showing for each
client shareholder of record of the Trust the number of shares of the Trust
held, the name of the Fund in which such shares are hold, the date or dates such
shares were purchased, the number purchased and the price per share. These
records shall be preserved permanently, the first two years in an easily
accessible place, and shall be made available, at the Trust's request, for
inspection and use by the Trust, its representatives and governmental
authorities having jurisdiction over the Trust.
6. To the extent applicable, we shall maintain accurate and complete
records with respect to services performed by us in connection with the purchase
and redemption of shares as required by Rule 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, as amended.
7. The Trust will indemnify and hold us harmless from all losses,
claims, damages, liabilities or expenses from any claim, demand, action or suit
(collectively,
<PAGE> 3
"Claims"): (a) arising in connection with misstatements or omissions in the
Trust's Prospectuses, actions or inactions by the Trust or any of its agents or
contractors or the performance of our obligations hereunder and (b) not
resulting from (i) our bad faith or negligence, or that of our officers,
employees or agents, or (ii) our breach of applicable law, or any breach by our
officers, employees or agents, or (iii) our actions or those of our officers,
employees or agents which exceeds our legal authority or our authority
hereunder, or (iv) any error or omission committed by us, our officers,
employees or agents with respect to the purchase, redemption and transfer of
clients' shares or our verification or guarantee of any client signature.
Notwithstanding anything herein to the contrary, you will indemnify and hold us
harmless from any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any Claim as a
result of our acting in accordance with any written instructions reasonably
believed by us to have been executed by any person duly authorized by the Trust,
or as a result of acting in reliance upon any instrument or stock certificate
signed, countersigned or executed by a person duly authorized by the Trust,
excepting only our gross negligence or bad faith.
In any case, in which you may be asked to indemnify or hold us
harmless, you shall be advised of all pertinent facts concerning the situation
in question and we shall use reasonable care to identify and notify you promptly
concerning any situation which presents or appears likely to present a claim for
indemnification against you. You shall have the option to defend us against any
Claim which may be the subject of indemnification hereunder. In the event that
you elect to defend against such Claim, the defense shall be conducted by
counsel chosen by you and satisfactory to us. We may retain additional counsel
at our expense. Except with your prior written consent, we shall not confess any
Claim or make any compromise in any case in which you will be asked to indemnify
us.
8. Without limiting you rights under applicable law, we will indemnify
and hold you harmless from all Claims (a) resulting from (i) our bad faith or
negligence, or that of our officers, employees or agents, or (ii) our breach of
applicable law, or (iii) any breach by our officers, employees or agents which
exceed our legal authority or our authority hereunder, or (iv) any error or
omission committed by us, our officers, employees or agents with respect to the
purchase, redemption and transfer of clients shares or our verification or
guarantee of any client signature, and (b) not resulting from actions in
accordance with written instructions reasonably believed by us to have been
executed by any person duly authorized by the Trust or in reliance upon any
instrument or stock certificate reasonably believed by us to have been genuine
and signed, countersigned or executed by a person duly authorized by the Trust.
In any case in which we may be asked to indemnify of hold the Trust
harmless, we shall be advised of all pertinent facts concerning the situation in
question and the Trust shall use reasonable care to identify and notify us
promptly concerning any situation which presents or appears likely to present a
Claim for indemnification against us. We shall have the option to defend the
Trust against any Claim which may be the subject of indemnification hereunder.
In the event that we elect to defend against such
<PAGE> 4
Claim, the defense shall be conducted by counsel chosen by us and satisfactory
to the Trust. The Trust may retain additional counsel at its expense. Except
with our prior written consent, the Trust shall not confess any Claim or make
any compromise in any case in which we will be asked to indemnify the Trust. The
indemnities granted by the parties in this Agreement shall survive the
termination of this Agreement.
9. This agreement may be terminated by the Trust, without the payment
of any penalty, at any time upon not more than 60 days' nor less than 30 days'
notice, by a vote of a majority of the Board of Trustees who are not "interested
persons" of the Trust (as defined in the Act) or by "a vote of a majority of the
outstanding voting securities" (as defined in the Act) of the Trust. We may
terminate this Agreement upon not more than 60 days' nor less than 30 days'
notice to the Trust. Notwithstanding anything herein to the contrary, this
Agreement may not be assigned and shall terminate automatically without notice
to either party upon any assignment. Upon termination hereof, the Trust shall
pay such compensation as may be due as of the date of such termination.
10. Our appointment as shareholder servicing agent hereunder is
non-exclusive, and the parties hereto recognize and agree that, from time to
time, the Trust may enter into other shareholder servicing agreements, in
writing, with other financial institutions.
11. The Declaration of Trust establishing the Trust, filed on September
30, 1983, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the Office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "Empire Builder Tax Free Bond Fund" refers
to the Trustees under the Declaration collectively as Trustees and not as
individuals or personally, and that no shareholder, trustee, officer, employee
or agent of the Trust shall be subject to Claims against or obligation of the
Trust to any extent whatsoever, but that the Trust estate only shall be liable.
12. This Agreement may be changed or amended only by written instrument
signed by both parties.
13. This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of New York. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
Very truly yours,
Furman Selz Mager Dietz & Birney Inc.
-------------------------------------
Name
230 Park Avenue
---------------
Address
<PAGE> 5
New York, N.Y. 10169
---------------------
City/State/Zip Code
Date: July 1, 1988 By: /s/ illegible .
----------------------
Authorized Signature
Accepted:
Empire Builder Tax Free Bond Fund
Date: July 1, 1988 By: /s/ John J. Pileggi
---------------------
John J. Pileggi
<PAGE> 1
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 18 to the Registration Statement of The Empire Builder Tax Free Bond Fund on
Form N-1A (File No. 2-86931) of our report dated April 5, 1999 on our audits of
the financial statements and financial highlights of The Empire Builder Tax Free
Bond Fund, which report is included in the Annual Report to Shareholders for the
year ended February 28, 1999, which is incorporated by reference in
Post-Effective Amendment No. 18 to the Registration Statement. We also consent
to the reference to our Firm under the captions "Financial Highlights" in the
Prospectus and "Independent Accountants" and "Financial Statements" in the
Statement of Additional Information in this Post-Effective Amendment No. 18 to
the Registration Statement of The Empire Builder Tax Free Bond Fund on Form N-1A
(File No. 2-86931).
PricewaterhouseCoopers LLP
Columbus, Ohio
April 19, 1999
<PAGE> 1
Exhibit (l)
Initial Capital Agreement
MOSELEY CAPITAL MANAGEMENT INC.
60 State Street
Boston, Massachusetts 02109
December 19, 1983
Investment Trust of Boston -
New York Tax Free Income Fund
60 State Street
Boston, Massachusetts 02109
Gentlemen:
In connection with your sale to us today of 6,997.901 shares of
beneficial interest of Investment Trust of Boston - New York Tax Free Income
Fund (the "Shares"), we understand that: (i) the Shares have not been registered
under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us
is in reliance on the sale's being exempt under Section 4(2) of that Act as not
involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any sale
or distribution of any or all of the Shares or any interest therein. We hereby
agree that we will not sell, assign or transfer the shares or any interest
therein except upon repurchase or redemption by Investment Trust of Boston - New
York Tax Free Income Fund unless and until the Shares have been registered under
the Securities Act of 1933, as amended, or you have received an opinion of your
counsel indicating to your satisfaction that such sale, assignment or transfer
will not violate the provisions of the Securities Act of 1933, as amended, or
any rules and regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal,
shall be construed under the laws of The Commonwealth of Massachusetts, and is
delivered at Boston, Massachusetts, as of the date above written.
Very truly yours,
MOSELEY CAPITAL MANAGEMENT INC.
By /s/ Christopher T. Barrow
-----------------------------
<PAGE> 1
Exhibit (o)
THE EMPIRE BUILDER TAX FREE BOND FUND
PLAN PURSUANT TO RULE 18F-3 UNDER THE INVESTMENT COMPANY ACT OF 1940
This document constitutes the plan adopted by the Trustees of The Empire
Builder Tax Free Bond Fund (the "Fund") in connection with the establishment and
operation of two classes of shares of the Fund (the Premier Class and the
Builder Class).
Builder Class shares are intended for purchase primarily by shareholders
who intend to maintain relatively small account balances or desire certain
account features, services and conveniences customarily associated with retail
mutual fund investments. Premier Class shares are intended for purchase
primarily by shareholders who intend to maintain relatively large account
balances and do not desire the full range of account features, services and
conveniences associated with the Builder Class.
Expense Allocation. Each class of shares shall bear the transfer agency
fees and expenses associated with that class of shares. All expenses of the Fund
other than transfer agency fees and expenses shall be borne by the Fund as a
whole, rather than be allocated specially to the separate classes.
Shareholder Level Fees (Premier Class). Premier Class shareholders may be
assessed (as shareholder rather than Fund or class expenses) such fees with
respect to elective account features and services as are set forth in the Fund's
prospectus and statement of additional information as in effect from time to
time (the "Prospectus").
Conversion. Each Premier Class shareholder account shall be subject to
such minimum account size as is set forth in the Prospectus. If the balance in a
Premier Class shareholder account falls below the required minimum, the
shareholder's account will convert from Premier Class to Builder Class (subject
to such notice provisions, cure or grace periods and other terms and conditions
as may be provided in the Prospectus).
Exchanges. Except as may otherwise be provided in the Prospectus, and
subject to the minimum account size requirements for the respective classes, (1)
Builder Class shareholders may exchange Builder Class shares for Premier Class
shares free of charge, and (2) Premier Class shareholders may exchange Premier
Class shares for Builder Class shares, subject to such fee, if any, as is
provided in the Prospectus.
- 1 -
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