<PAGE>
As filed with the Securities and Exchange Commission on December 29, 1995
File Nos. 33-44749
811-4596
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE
AMENDMENT NO. 5
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 23
LANDMARK MULTI-STATE TAX FREE FUNDS*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM, DANA & GOULD, 150 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective on January 2,
1996, pursuant to paragraph (b) of Rule 485.
Pursuant to Rule 24f-2, Registrant has registered an indefinite number
of its Shares of Beneficial Interest (without par value) under the Securities
Act of 1933 and has filed a Rule 24f-2 Notice on October 30, 1995 for
Registrant's fiscal year ended August 31, 1995.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE - LANDMARK MULTI-STATE TAX FREE FUNDS*
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT OF SHARES BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED UNDER RULE 24E-2 SHARE** PRICE*** REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares of Beneficial Interest without
par value............ 2,569,179.47 $1.00 $290,000 $100
- --------------------------------------- -----------------------------------------------------------------------------------------
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<FN>
*Relating to shares of beneficial interest of Landmark California Tax Free Reserves.
**Pursuant to Rule 457(c), this was the maximum offering price per share of the Registrant's shares at the close of business on
December 27, 1995.
***Computed under 17 CFR 270.24e; 165,350,381.69 shares were redeemed or repurchased during the fiscal year ended August 31,
1995; 163,071,202.22 of which are being used for reductions in previous filings during the current year under Rule 24f-2 and
2,279,179.47 of which are being used for reduction in this Post-Effective Amendment No. 5.
</FN>
</TABLE>
<TABLE>
<CAPTION>
LANDMARK MULTI-STATE TAX FREE FUNDS
(LANDMARK CALIFORNIA TAX FREE RESERVES)
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A
ITEM NO. N-1A ITEM LOCATION
PART A PROSPECTUS
<S> <C> <C>
Item 1. Cover Page............................................. Cover Page
Item 2. Synopsis............................................... Expense Summary
Item 3. Condensed Financial Information........................ Condensed Financial Information
Item 4. General Description of Registrant...................... Investment Information; General
Information; Appendix
Item 5. Management of the Fund................................. Management; Expenses
Item 5A. Management's Discussion of Fund Performance............ Not Applicable
Item 6. Capital Stock and Other Securities..................... General Information; Voting and Other
Rights; Purchases; Exchanges;
Redemptions; Net Income and
Distributions; Tax Matters
Item 7. Purchase of Securities Being Offered................... Purchases; Exchanges; Redemptions
Item 8. Redemption or Repurchase............................... Purchases; Exchanges; Redemptions
Item 9 Pending Legal Proceedings.............................. Not Applicable
STATEMENT OF
ADDITIONAL
PART B INFORMATION
Item 10. Cover Page............................................. Cover Page
Item 11. Table of Contents...................................... Cover Page
Item 12. General Information and History........................ The Fund
Item 13. Investment Objectives and Policies..................... Investment Objectives, Policies and
Restrictions
Item 14. Management of the Fund................................. Management
Item 15. Control Persons and Principal Holders of Securities.... Management
Item 16. Investment Advisory and Other Services................. Management
Item 17. Brokerage Allocation and Other Practices............... Portfolio Transactions
Item 18. Capital Stock and Other Securities..................... Description of Shares, Voting Rights and
Liabilities
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered.......................................... Description of Shares, Voting Rights and
Liabilities; Determination of Net Asset
Value
Item 20. Tax Status............................................. Certain Additional Tax Matters
Item 21. Underwriters........................................... Management
Item 22. Calculation of Performance Data........................ Performance Information
Item 23. Financial Statements................................... Independent Accountants and Financial
Statements
</TABLE>
<PAGE>
PART C Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
<PAGE>
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PROSPECTUS
January 2, 1996
- --------------------------------------------------------------------------------
LANDMARK CALIFORNIA TAX FREE RESERVES
(A member of the Landmark(SM) Family of Funds)
- --------------------------------------------------------------------------------
This Prospectus describes Landmark California Tax Free Reserves, a mutual
fund in the Landmark Family of Funds. The Fund is a type of mutual fund
commonly referred to as a "double tax-exempt money market fund." Citibank,
N.A. is the investment adviser of the Fund.
- --------------------------------------------------------------------------------
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE; HOWEVER, THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO
SO. PROSPECTIVE INVESTORS SHOULD ALSO BE AWARE THAT SHARES OF THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, CITIBANK, N.A. OR
ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
This Prospectus concisely sets forth information about the Fund that a
prospective investor should know before investing. A Statement of Additional
Information dated January 2, 1996 (and incorporated by reference in this
Prospectus) has been filed with the Securities and Exchange Commission. Copies
of the Statement of Additional Information may be obtained without charge, and
further inquiries about the Fund may be made, by contacting the investor's
shareholder servicing agent (see inside back cover for address and phone
number).
TABLE OF CONTENTS
Prospectus Summary ....................................................... 2
Expense Summary .......................................................... 3
Condensed Financial Information .......................................... 4
Investment Information ................................................... 5
Risk Considerations ...................................................... 6
Valuation of Shares ...................................................... 7
Purchases ................................................................ 8
Exchanges ................................................................ 8
Redemptions .............................................................. 9
Net Income and Distributions ............................................. 9
Management ............................................................... 10
Tax Matters .............................................................. 12
Performance Information .................................................. 13
General Information ...................................................... 13
Appendix A -- Permitted Investments
and Investment Practices ............................................... 14
Appendix B -- Ratings of Municipal Obligations ........................... 16
Appendix C -- Taxable Equivalent Yield Tables ............................ 19
- -----------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
See the body of the Prospectus for more information on the topics discussed
in this summary.
THE FUND: This Prospectus describes Landmark California Tax Free Reserves, a
double tax-exempt money market mutual fund.
INVESTMENT OBJECTIVES AND POLICIES: To provide its shareholders with high levels
of current income exempt from both federal and California personal income taxes,
preservation of capital and liquidity. The Fund invests primarily in short-term,
high quality obligations issued by state and municipal governments and by public
authorities, the interest on which is exempt from federal income taxes
("Municipal Obligations"), including obligations of the State of California and
its political subdivisions. There can be no assurance that the Fund will achieve
its objectives.
INVESTMENT ADVISER AND DISTRIBUTOR: Citibank, N.A. ("Citibank" or the
"Adviser"), a wholly-owned subsidiary of Citicorp, is the investment adviser.
Citibank and its affiliates manage more than $73 billion in assets worldwide.
The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS" or the "Distributor")
is the distributor of shares of the Fund. See "Management."
PURCHASES AND REDEMPTIONS: Customers of Shareholder Servicing Agents may
purchase and redeem shares of the Fund on any Business Day. See "Purchases"
and "Redemptions."
PRICING: Shares of the Fund are purchased and redeemed at net asset value
(normally $1.00 per share) without a sales load or redemption fees. While
there are no sales loads, shares of the Fund are subject to a distribution
fee. See "Purchases," "Redemptions" and "Management -- Distribution
Arrangements."
EXCHANGES: Shares may be exchanged for shares of most other Landmark Funds.
See "Exchanges."
DIVIDENDS: Declared daily and distributed monthly. Shares begin accruing
dividends on the day they are purchased. See "Net Income and Distributions."
REINVESTMENT: Dividends may be received either in cash or in Fund shares at
net asset value, subject to the policies of a shareholder's Shareholder
Servicing Agent. See "Net Income and Distributions."
WHO SHOULD INVEST: The Fund is designed for investors seeking liquidity,
preservation of capital and current income exempt from federal income taxes,
and for whom long-term capital growth is not a consideration. The Fund is also
designed for investors seeking income exempt from California personal income
taxes and who are willing to bear the increased risk of an investment
portfolio which is concentrated in obligations of the State of California and
its political subdivisions. See "Investment Information."
RISK FACTORS: There can be no assurance that the Fund will achieve its
investment objectives. In addition, while the Fund intends to maintain a stable
net asset value of $1.00 per share, there can be no assurance that the Fund will
be able to do so. Investments in high quality, short-term instruments may, in
many circumstances, result in a lower yield than would be available from
investments with a lower quality or a longer term.
The Fund is a non-diversified mutual fund, which means that it is not
subject to any statutory restrictions under the Investment Company Act of 1940
limiting the investment of its assets in one or relatively few issuers. The Fund
may therefore invest a relatively high percentage of its assets in the
obligations of a limited number of issuers. Also, the Fund may invest 25% or
more of its assets in securities of issuers in similar or related industries or
issuers located in the same state. Under normal circumstances, the Fund invests
primarily in obligations of the State of California and its political
subdivisions. As a result, the Fund is more acceptible to any single economic,
political or regulatory occurrence.
Certain investment practices also may entail special risks. Prospective
investors should read "Risk Considerations" for more information about risk
factors.
<PAGE>
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EXPENSE SUMMARY
- --------------------------------------------------------------------------------
The following table summarizes estimated shareholder transaction and annual
operating expenses for shares of the Fund.*
SHAREHOLDER TRANSACTION EXPENSES ................................. None
ANNUAL FUND OPERATING EXPENSES, AFTER FEE WAIVERS AND
REIMBURSEMENTS (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Investment Management Fee(1) ..................................... .09%
12b-1 Fees(1)(2) ................................................. .00%
Other Expenses
Administrative Services Fees(1) ................................ .00%
Shareholder Servicing Agent Fees ............................... .25%
Other Operating Expenses ....................................... .31%
----
Total Fund Operating Expenses(1) ................................. .65%
====
* This table is intended to assist investors in understanding the various
costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. The table shows the fees paid by the Fund to
various service providers after giving effect to expected voluntary
partial fee waivers.
(1) Absent fee waivers and reimbursements, investment management fees, 12b-1
fees, administrative services fees and total fund operating expenses would
be .20%, .20%, .25% and 1.21%, respectively. There can be no assurance
that the fee waivers and reimbursements reflected in the table will
continue at their present levels. Under the administrative services plan
adopted by the Fund, the aggregate of the fee paid to the Administrator,
the fees paid to the Shareholder Servicing Agents and the fee paid to the
Distributor under the rule 12b-1 distribution plan (not including the .10%
portion of the fee that may be charged in anticipation of or reimbursement
for print or electronic media advertising, see "Distribution Arrangements"
below) may not exceed .60% of the Fund's average daily net assets on an
annualized basis for the Fund's then-current fiscal year. Individual
components of the aggregate may vary from time to time. For more
information on costs and expenses, see "Management" and "General
Information -- Expenses."
(2) Fees under the 12b-1 distribution plan are asset-based sales charges.
Long-term shareholders in the Fund could pay more in sales charges than
the economic equivalent of the maximum front-end sales charges permitted
by the National Association of Securities Dealers, Inc.
EXAMPLE: A shareholder of the Fund would pay the following expenses on a
$1,000 investment, assuming redemption at the end of each period indicated
below:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
----------------------------------------------------------
$7 $21 $36 $81
The Example assumes that all dividends are reinvested, and expenses are based
on the Fund's fiscal year ended August 31, 1995, after waivers and
reimbursements. If waivers and reimbursements were not in place, the amounts
in the Example would be $12, $38, $67 and $147, respectively. The assumption
of a 5% annual return is required by the Securities and Exchange Commission
for all mutual funds, and is not a prediction of the Fund's future
performance. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OF THE FUND. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
<PAGE>
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the Fund
for the periods indicated. This information should be read in conjunction with
the financial statements appearing in the Fund's Annual Report to
Shareholders, which are incorporated by reference in the Statement of
Additional Information. The financial statements and notes, as well as the
table below, covering periods through August 31, 1995 have been audited by
Deloitte & Touche LLP, independent certified public accountants, whose report
is included in the Fund's Annual Report. Copies of the Annual Report may be
obtained without charge from an investor's Shareholder Servicing Agent (see
inside of back cover for address and phone number).
---------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED AUGUST 31,
1995 1994 1993 1992+
- -----------------------------------------------------------------------------
Net Asset Value, beginning
of period ............... $1.00000 $1.00000 $1.00000 $1.00000
Net investment income ..... 0.03434 0.02288 0.02467 0.01304
Less dividends from net
investment income ....... (0.03434) (0.02288) (0.02467) (0.01304)
-------- -------- -------- --------
Net Asset Value, end of
period .................. $1.00000 $1.00000 $1.00000 $1.00000
======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) ......... $51,832 $52,863 $37,808 $16,295
Ratio of expenses to
average net assets ...... 0.30% 0.25% 0.00% 0.00%*
Ratio of net investment
income to average net
assets .................. 3.43% 2.30% 2.42% 2.71%*
Total return .............. 3.49% 2.31% 2.50% 2.75%*
Note: If agents of the Fund had not voluntarily waived all or a portion of
their fees from the Fund and the Administrator had not voluntarily assumed
expenses for the periods indicated, the ratios and net investment income per
share would have been as follows:
Net investment income per
share ................... $0.02513 $0.01423 $0.01121 $0.00279
RATIOS:
Expenses to average net
assets .................. 1.21% 1.12% 1.32% 2.13%*
Net investment income to
average net assets ...... 2.51% 1.43% 1.10% 0.58%*
* Annualized.
+ For the period from the start of business, March 10, 1992, to August 31, 1992.
<PAGE>
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INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
Investment Objectives: The investment objectives of the Fund are to
provide its shareholders with high levels of current income exempt from both
federal and California personal income taxes, preservation of capital and
liquidity.
The investment objectives of the Fund may not be changed without approval by
the Fund's shareholders. Of course, there can be no assurance that the Fund will
achieve its investment objectives.
INVESTMENT POLICIES: The Fund seeks its objectives by investing primarily in
short-term, high quality fixed rate and variable rate obligations issued by or
on behalf of states and municipal governments and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is exempt
from federal income taxes (these securities are referred to as "Municipal
Obligations"). As a fundamental policy, the Fund invests at least 80% of its
assets, under normal circumstances, in the following types of Municipal
Obligations and in participation interests in these obligations issued by banks,
insurance companies or other financial institutions ("Participation Interests"):
(1) Municipal bonds that at the date of purchase are rated Aa or better by
Moody's Investors Service, Inc. ("Moody's") or AA or better by Standard &
Poor's Rating Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"), or
are unrated but are of comparable quality as determined by the Adviser on
the basis of a credit evaluation of the obligor, or of the bank issuing the
Participation Interest or guarantee of the bonds, or of any insurance issued
in support of the bonds or the Participation Interest;
(2) Municipal notes that at the date of purchase are rated MIG2/VMIG2 or better
by Moody's, SP-2 or better by S&P or F-2 or better by Fitch, or are unrated
but are of comparable quality as determined by the Adviser; and
(3) Municipal commercial paper that at the date of purchase is rated Prime-2 or
better by Moody's, A-2 or better by S&P or F-2 or better by Fitch, or is
unrated but is of comparable quality as determined by the Adviser.
See Appendix A for an explanation of Municipal Obligations and Appendix B
for an explanation of ratings of Municipal Obligations.
Under normal circumstances, the Fund invests at least 65% of its assets in
Municipal Obligations the interest on which is exempt from both federal and
California personal income taxes (these securities are referred to as
"California Municipal Obligations"). The Fund is a "double tax-exempt money
market fund." California Municipal Obligations include Municipal Obligations of
the State of California and its political subdivisions and of Puerto Rico and
other U.S. territories and their political subdivisions. To the extent that
acceptable California Municipal Obligations are not available to the Fund, the
Fund may purchase Municipal Obligations issued by issuers in other states. The
interest on these securities will be subject to California personal income
taxes.
Although the Fund attempts to invest all of its assets in Municipal
Obligations, the Fund may invest up to 20% of its assets in taxable securities
(such as U.S. Government obligations or certificates of deposit of domestic
banks). Any taxable securities in which the Fund invests are of comparable
quality to the Municipal Obligations in which the Fund invests.
In determining the tax status of interest on Municipal Obligations, the
Adviser relies on opinions of bond counsel who may be counsel to the issuer.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
$1.00 NET ASSET VALUE. The Fund employs specific investment policies and
procedures designed to maintain a constant net asset value of $1.00 per share.
There can be no assurance, however, that a constant net asset value will be
maintained on a continuing basis. See "Net Income and Distributions."
90-DAY AVERAGE MATURITY. All of the Fund's investments mature in 397 days or
less from the date of purchase, have a variable rate of interest adjusted no
less frequently than every 397 days, or are purchased pursuant to a repurchase
agreement which provides for repurchase by the seller within 397 days from the
date of purchase. The average maturity of the Fund's investments (on a
dollar-weighted basis) is 90 days or less. All of the Fund's investments are
"eligible securities" within the meaning of Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act"), and are determined by the Adviser to
present minimal credit risks. Investment in high quality, short-term instruments
may, in many circumstances, result in a lower yield than would be available from
investment in instruments with a lower quality or a longer term.
PERMITTED INVESTMENTS. Uninvested cash reserves may be held temporarily for
the Fund pending investment. The Fund may borrow from banks up to 15% of its
total assets for temporary or emergency purposes. For more information regarding
permitted investments and investment practices, see Appendix A. The Fund will
not necessarily invest or engage in each of the investments and investment
practices in Appendix A but reserves the right to do so.
INVESTMENT IN ANOTHER INVESTMENT COMPANY. The Fund may, in the future, seek
its investment objectives by investing all of its investable assets in an
open-end management investment company having the same investment objectives and
policies and substantially the same investment restrictions as those of the
Fund. This investment would be made only if the Fund's Trustees believe that the
aggregate per share expenses of the Fund and such other investment company would
be less than or approximately equal to the expenses which the Fund would incur
if the assets of the Fund were to continue to be invested directly in portfolio
securities.
INVESTMENT RESTRICTIONS. The Statement of Additional Information contains a
list of specific investment restrictions which govern the Fund's investment
policies. Certain of these specific restrictions may not be changed without
shareholder approval. Except as otherwise indicated, the Fund's investment
restrictions and policies may be changed without shareholder approval. If a
percentage or rating restriction (other than a restriction as to borrowing) is
adhered to at the time an investment is made, a later change in percentage or
rating resulting from changes in the Fund's securities will not be a violation
of policy.
BROKERAGE TRANSACTIONS. The primary consideration in placing the Fund's
security transactions with broker-dealers for execution is to obtain and
maintain the availability of execution at the most favorable prices and in the
most effective manner possible.
- --------------------------------------------------------------------------------
RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
The risks of investing in the Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf. Certain
of these risks are described below.
NON-DIVERSIFIED STATUS. The Fund is a non-diversified mutual fund. This
means that it is not subject to any statutory restrictions under the 1940 Act
limiting the investment of its assets in one or relatively few issuers (although
certain diversification requirements are imposed by the Internal Revenue Code).
Since the Fund may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the value of shares of the Fund may
be more susceptible to any single economic, political or regulatory occurrence
than the value of shares of a diversified mutual fund would be. The Fund also
may invest 25% or more of its assets in securities the issuers of which are
located in the same state or the interest on which is paid from revenues of
similar type projects or that are otherwise related in such a way that a single
economic, business or political development or change affecting one of the
securities would also affect other securities. Investors should consider the
greater risk inherent in these policies when compared with a more diversified
mutual fund.
"CONCENTRATION" IN PARTICIPATION INTERESTS. The Fund may invest more than
25% of its assets in Participation Interests in Municipal Obligations which are
secured by bank letters of credit or guarantees. Banks are subject to extensive
governmental regulation which may limit both the amounts and types of loans and
other financial commitments which may be made and interest rates and fees which
may be charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. Also, general economic
conditions play an important part in the operation of this industry and exposure
to credit losses arising from possible financial difficulties of borrowers might
affect a bank's ability to meet its obligations under a letter of credit or
guarantee. For additional information concerning variable rate instruments and
Participation Interests, see Appendix A.
INVESTMENT PRACTICES. Certain of the investment practices employed for the
Fund may entail certain risks. See Appendix A.
RISKS AFFECTING INVESTMENTS IN CALIFORNIA MUNICIPAL OBLIGATIONS. The Fund
intends to invest a high proportion of its assets in California Municipal
Obligations. Payment of interest and principal of these Municipal Obligations is
dependent on the continuing ability of issuers in California and obligors of
state, municipal and public authority debt obligations to meet their
obligations. Investors in the Fund should consider the greater risks inherent in
the Fund's concentration in these obligations when compared with the safety that
comes with a less geographically concentrated investment portfolio. The Adviser
believes that by maintaining the Fund's investment portfolio in liquid,
short-term high quality California Municipal Obligations, including
Participation Interests and other variable rate instruments that have high
quality credit support from banks, insurance companies or other financial
institutions, the Fund is somewhat insulated from the credit risks that may
exist for long-term California Municipal Obligations.
Investors should be aware of special economic factors affecting California
before investing in the Fund. While these factors are summarized below, a more
detailed description is set forth in the Statement of Additional Information and
the Appendix thereto (see "Investment Objectives, Policies and Restrictions --
Risk Factors Affecting Investment in California Municipal Obligations" in the
Statement of Additional Information). The information below and in the Statement
of Additional Information is a summary of certain information contained in
official statements of issuers of California Municipal Obligations and does not
purport to be complete. The Fund is not responsible for the accuracy or
timeliness of this information.
The State of California and other issuers of California Municipal
Obligations have experienced severe financial difficulties. In December, 1994,
Orange County, California and its pooled investment funds filed for protection
under the federal Bankruptcy Code. Orange County's financial difficulties could
continue to adversely affect other issues and issuers of California Municipal
Obligations. The financial difficulties of the State of California, Orange
County and other issuers have resulted in the credit ratings of certain of their
obligations being downgraded by certain rating agencies. There can be no
assurance that credit ratings on obligations of the State of California and
other California Municipal Obligations will not be downgraded further. Many of
the California Fund's Municipal Obligations are likely to be obligations of
California governmental issuers which rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue.
Starting in mid-1990, the State of California entered a sustained economic
recession which was the most severe recession in the State since the 1930s. The
State of California ended its 1991, 1992, 1993 and 1994 fiscal years with
substantial accumulated deficits. An estimate based on economic forecasts and
projections of major tax sources made in the California Department of Finance's
May 1995 Revision of General Fund Revenues and Expenditures and on a variety of
other assumptions anticipated that the State will end its 1995-1996 fiscal year
with a small positive balance in the budget reserve. Such assumptions and
projections may be affected by many factors, and there can be no assurance that
the estimate will be met.
"Proposition Thirteen" and similar California constitutional and statutory
amendments and initiatives in recent years have restricted the ability of
California taxing entities to increase real property tax revenues. Other
initiative measures approved by California voters in recent years, through
limiting various other taxes, have resulted in a substantial reduction in state
revenues. Decreased state revenues may result in reductions in allocations of
state revenues to local governments.
Investors also should compare the yield available on a portfolio of single
state issues with the yield of a more diversified portfolio including other
state issues before making an investment decision. For a comparison of yields on
Municipal Obligations and taxable securities, see Appendix C.
- --------------------------------------------------------------------------------
VALUATION OF SHARES
- --------------------------------------------------------------------------------
Net asset value per share of the Fund is determined each day the New York
Stock Exchange is open for trading (a "Business Day"). This determination is
made once each day as of 12:00 noon, Eastern time, by adding the market value of
all of the Fund's securities and other assets, then subtracting the liabilities
charged to the Fund, and then dividing the result by the number of the Fund's
outstanding shares. The Fund attempts to stabilize the net asset value of its
shares at $1.00 by valuing portfolio securities using the amortized cost method;
however, there can be no assurance that the Fund's net asset value will always
remain at $1.00 per share. The net asset value per share is effective for orders
received and accepted by the Fund's distributor, LFBDS, prior to its
calculation.
The amortized cost method involves valuing a security at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium. Although the amortized cost method provides certainty in valuation, it
may result in periods during which the stated value of a security is higher or
lower than the price the Fund would receive if the security were sold.
- --------------------------------------------------------------------------------
PURCHASES
- --------------------------------------------------------------------------------
Shares of the Fund are offered continuously and may be purchased on any
Business Day without a sales load at the shares' net asset value next determined
after an order is transmitted to and accepted by the Distributor. Shares may be
purchased either through a securities broker which has a sales agreement with
the Distributor or through a bank or other financial institution which has an
agency agreement with the Distributor. Shares of the Fund are being offered
exclusively to customers of a Shareholder Servicing Agent (i.e., a financial
institution, such as a federal or state-chartered bank, trust company, savings
and loan association or savings bank, or a securities broker, that has entered
into a shareholder servicing agreement concerning the Fund). The Fund and the
Distributor reserve the right to reject any purchase order and to suspend the
offering of Fund shares for a period of time.
While there is no sales load imposed on shares of the Fund, the
Distributor receives fees from the Fund pursuant to a Distribution Plan. See
"Management -- Distribution Arrangements."
Each shareholder's account is established and maintained by his or her
Shareholder Servicing Agent, which will be the shareholder of record of the
Fund. Each Shareholder Servicing Agent may offer services to its customers such
as pre-authorized or automatic purchase and redemption programs and "sweep"
checking programs, and may establish its own terms, conditions and charges with
respect to services it offers to its customers. Charges for these services may
include fixed annual fees and account maintenance fees. The effect of any of
these fees will be to reduce the net return on the investment of customers of
that Shareholder Servicing Agent.
Shareholder Servicing Agents will not transmit purchase orders to the
Distributor until they have received the purchase price in federal or other
immediately available funds. If Fund shares are purchased by check, there will
be a delay (usually not longer than two business days) in transmitting the
purchase order until the check is converted into federal funds.
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EXCHANGES
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Shares of the Fund may be exchanged for shares of the other Landmark Funds
that are made available by a shareholder's Shareholder Servicing Agent, or may
be acquired through an exchange of shares of those funds. No initial sales
charge is imposed on shares being acquired through an exchange unless the shares
being acquired are subject to a sales charge that is greater than the current
sales charge of the Fund (in which case an initial sales charge will be imposed
at a rate equal to the difference). Contingent deferred sales charges may apply
to redemptions of some shares of other Landmark Funds disposed of or acquired
through an exchange.
Shareholders must place exchange orders through their Shareholder Servicing
Agents, and may do so by telephone if their account applications so permit. For
more information on telephone transactions see "Redemptions." All exchanges will
be effected based on the relative net asset values per share next determined
after the exchange order is received by the Distributor. See "Valuation of
Shares." Shares of the Fund may be exchanged only after payment in federal funds
for the shares has been made.
This exchange privilege may be modified or terminated at any time, upon at
least 60 days' notice when such notice is required by SEC rules, and is
available only in those jurisdictions where such exchanges legally may be made.
See the Statement of Additional Information for further details. Before making
any exchange, shareholders should contact their Shareholder Servicing Agents to
obtain more information and prospectuses of the Landmark Funds to be acquired
through the exchange.
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REDEMPTIONS
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Fund shares may be redeemed at their net asset value (normally $1.00 per
share) next determined after a redemption request in proper form is received by
a shareholder's Shareholder Servicing Agent. Shareholders may redeem shares of
the Fund only by authorizing their Shareholder Servicing Agents to redeem such
shares on their behalf through the Distributor.
REDEMPTIONS BY MAIL. Shareholders may redeem Fund shares by sending written
instructions in proper form (as determined by a shareholder's Shareholder
Servicing Agent) to their Shareholder Servicing Agents. Shareholders are
responsible for ensuring that a request for redemption is in proper form.
REDEMPTIONS BY TELEPHONE. Shareholders may redeem or exchange Fund shares by
telephone, if their account applications so permit, by calling their Shareholder
Servicing Agents. During periods of drastic economic or market changes or severe
weather or other emergencies, shareholders may experience difficulties
implementing a telephone exchange or redemption. In such an event, another
method of instruction, such as a written request sent via an overnight delivery
service, should be considered. The Fund and each Shareholder Servicing Agent
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures may include recording of the telephone
instructions and verification of a caller's identity by asking for his or her
name, address, telephone number, Social Security number, and account number. If
these or other reasonable procedures are not followed, the Fund or the
Shareholder Servicing Agent may be liable for any losses to a shareholder due to
unauthorized or fraudulent instructions. Otherwise, the shareholder will bear
all risk of loss relating to a redemption or exchange by telephone.
PAYMENT OF REDEMPTIONS. The proceeds of a redemption are paid in federal
funds normally on the Business Day the redemption is effected, but in any event
within seven days. If a shareholder requests redemption of shares which were
purchased recently, the Fund may delay payment until it is assured that good
payment has been received. In the case of purchases by check, this can take up
to ten days. See "Determination of Net Asset Value" in the Statement of
Additional Information regarding the Fund's right to pay the redemption price in
kind with securities (instead of cash).
Questions about redemption requirements should be referred to the
shareholder's Shareholder Servicing Agent. The right of any shareholder to
receive payment with respect to any redemption may be suspended or the payment
of the redemption price postponed during any period in which the New York Stock
Exchange is closed (other than weekends or holidays) or trading on the Exchange
is restricted or if an emergency exists.
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NET INCOME AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund's net income is determined each Business Day (and on such other
days as is necessary in order to comply with the 1940 Act). This determination
is made once during each such day as of 12:00 noon, Eastern time. All the Fund's
net income is declared as a dividend to shareholders of record at the time of
such determination. Shares begin accruing dividends on the day they are
purchased, and accrue dividends up to and including the day prior to redemption.
Dividends are distributed monthly on or prior to the last business day of each
month. Unless a shareholder elects to receive dividends in cash (subject to the
policies of the shareholder's Shareholder Servicing Agent), dividends are
distributed in the form of full and fractional additional Fund shares at the
rate of one share of the Fund for each one dollar of dividend income.
Since the Fund's net income is declared as a dividend each time the Fund's
net income is determined, the net asset value per share of the Fund is expected
to remain at $1.00 per share immediately after each such determination and
dividend declaration. Any increase in the value of a shareholder's investment in
the Fund, representing the reinvestment of dividend income, is reflected by an
increase in the number of shares of the Fund in the shareholder's account.
Because of the short-term maturities of the portfolio investments of the
Fund, the Fund does not expect to realize long-term capital gains or losses. Any
net realized short-term capital gains will be declared and distributed to the
Fund's shareholders annually after the close of the Fund's fiscal year.
Distributions of short-term capital gains are taxable to shareholders as
described in "Tax Matters". Any realized short-term capital losses will be
offset against short-term capital gains or, to the extent possible, utilized as
capital loss carryover. The Fund may distribute short-term capital gains more
frequently than annually, reduce shares to reflect capital losses or make
distributions of capital if necessary in order to maintain the Fund's net asset
value of $1.00 per share.
It is expected that the Fund will have a positive net income at the time of
each determination thereof. If for any reason the Fund's net income is a
negative amount, which could occur, for instance, upon default by an issuer of a
portfolio security, the Fund would first offset the negative amount with respect
to each shareholder account from the dividends declared during the month with
respect to those accounts. If and to the extent that negative net income exceeds
declared dividends at the end of the month, the Fund would reduce the number of
outstanding Fund shares by treating each shareholder as having contributed to
the capital of the Fund that number of full and fractional shares in his or her
account which represents his or her share of the amount of such excess. Each
shareholder would be deemed to have agreed to such contribution in these
circumstances by his or her investment in the Fund.
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MANAGEMENT
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS: The Fund is supervised by its own Board of Trustees.
A majority of the Trustees are not affiliated with the Adviser. More information
on the Trustees and officers of the Fund appears under "Management" in the
Statement of Additional Information.
INVESTMENT ADVISER: CITIBANK. The Fund draws on the strength and experience of
Citibank. Citibank offers a wide range of banking and investment services to
customers across the United States and throughout the world, and has been
managing money since 1822. Its portfolio managers are responsible for investing
in money market, equity and fixed income securities. Citibank and its affiliates
manage more than $73 billion in assets worldwide, including the Landmark Funds
and Portfolios. Citibank is a wholly-owned subsidiary of Citicorp.
Citibank manages the assets of the Fund pursuant to an investment advisory
agreement (the "Advisory Agreement"). Subject to policies set by the Fund's
Trustees, Citibank makes investment decisions for the Fund.
ADVISORY FEES. For its services under the Advisory Agreement, the Adviser
receives investment advisory fees, which are accrued daily and paid monthly, of
0.20% of the Fund's average daily net assets on an annualized basis for the
Fund's then-current fiscal year. The Adviser has voluntarily agreed to waive all
or a portion of its investment advisory fee.
For the fiscal year ended August 31, 1995, the investment advisory fees
payable to Citibank from the Fund were $91,878, all of which was voluntarily
waived.
BANKING RELATIONSHIPS. Citibank and its affiliates may have deposit, loan
and other relationships with the issuers of securities purchased on behalf of
the Fund, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Citibank has
informed the Fund that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Citibank or in the possession of any affiliate of Citibank.
BANK REGULATORY MATTERS. The Glass-Steagall Act prohibits certain financial
institutions, such as Citibank, from underwriting securities of open-end
investment companies, such as the Fund. Citibank believes that its services
under the Advisory Agreement and the activities performed by it or its
affiliates as Shareholder Servicing Agents and sub-administrator are not
underwriting and are consistent with the Glass-Steagall Act and other relevant
federal and state laws. However, there is no controlling precedent regarding the
performance of the combination of investment advisory, shareholder servicing and
sub-administrative activities by banks. State laws on this issue may differ from
applicable federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. Changes in either federal
or state statutes or regulations, or in their interpretations, could prevent
Citibank or its affiliates from continuing to perform these services for the
Fund. If Citibank or its affiliates were to be prevented from acting as the
Adviser, sub-administrator or a Shareholder Servicing Agent, the Fund would seek
alternative means for obtaining these services. The Fund does not expect that
shareholders would suffer any adverse financial consequences as a result of any
such occurrence.
ADMINISTRATIVE SERVICES PLAN: The Fund has an administrative services plan (the
"Administrative Services Plan") which provides that the Fund may obtain the
services of an administrator, a transfer agent, a custodian, a fund accountant
and one or more Shareholder Servicing Agents, and may enter into agreements
providing for the payment of fees for such services. Under the Administrative
Services Plan, the total of the fees paid to the Fund's Administrator and
Shareholder Servicing Agents and the distribution fee paid to the Distributor
(other than any fee concerning electronic or other media advertising) may not
exceed 0.60% of the Fund's average daily net assets on an annualized basis for
the Fund's then-current fiscal year. Within this overall limitation, individual
fees may vary. See "Administrator," "Shareholder Servicing Agents" and "Transfer
Agent, Custodian and Fund Accountant."
ADMINISTRATOR: LFBDS provides certain administrative services to the Fund under
an administrative services agreement. These administrative services include
providing general office facilities, supervising the overall administration of
the Fund, and providing persons satisfactory to the Board of Trustees to serve
as Trustees and officers of the Fund. Such Trustees and officers may be
directors, officers or employees of LFBDS or its affiliates.
For these services, the Administrator receives fees accrued daily and paid
monthly of 0.25% of the average daily net assets of the Fund on an annualized
basis for the Fund's then-current fiscal year. However, the Administrator has
voluntarily agreed to waive all or a portion of the fees payable to it.
LFBDS is a wholly-owned subsidiary of Signature Financial Group, Inc.
"Landmark" is a service mark of LFBDS.
SUB-ADMINISTRATOR: Pursuant to a sub-administrative services agreement, Citibank
performs such sub-administrative duties for the Fund as from time to time are
agreed upon by Citibank and LFBDS. Citibank's compensation as sub- administrator
is paid by LFBDS.
SHAREHOLDER SERVICING AGENTS: The Fund has entered into separate shareholder
servicing agreements with each Shareholder Servicing Agent pursuant to which
that Shareholder Servicing Agent provides shareholder services, including
answering customer inquiries, assisting in processing purchase, exchange and
redemption transactions and furnishing Fund communications to shareholders. For
these services, each Shareholder Servicing Agent receives a fee from the Fund at
an annual rate of 0.25% of the average daily net assets of the Fund represented
by shares owned by investors for whom such Shareholder Servicing Agent maintains
a servicing relationship.
Some Shareholder Servicing Agents may impose certain conditions on their
customers in addition to or different from those imposed by the Fund, such as
requiring a minimum initial investment or charging their customers a direct fee
for their services. Each Shareholder Servicing Agent has agreed to transmit to
its customers who are shareholders of the Fund appropriate prior written
disclosure of any fees that it may charge them directly and to provide written
notice at least 30 days prior to imposition of any transaction fees.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT: State Street Bank and Trust
Company acts as transfer agent, dividend disbursing agent and custodian for the
Fund. State Street also provides fund accounting services to the Fund and
calculates the daily net asset value of the Fund.
DISTRIBUTION ARRANGEMENTS: LFBDS is the Distributor of the Fund's shares and
also serves as distributor for each of the other Landmark Funds and as a
Shareholder Servicing Agent for certain investors. As Distributor, LFBDS bears
the cost of compensating personnel involved in the sale of shares of the Fund
and bears all costs of travel, office expenses (including rent and overhead) and
equipment. In those states where LFBDS is not a registered broker-dealer, shares
of the Fund are sold through Signature Broker-Dealer Services, Inc., as dealer.
Under a plan of distribution for the Fund (the "Plan"), the Fund pays the
Distributor a fee at an annual rate not to exceed 0.10% of the average daily net
assets of the Fund. The Plan also permits the Fund to pay the Distributor an
additional fee (not to exceed 0.10% of the average daily net assets of the Fund)
in anticipation of or as reimbursement for print or electronic media advertising
expenses incurred in connection with the sale of Fund shares. However, the
Distributor has agreed to waive a portion of these fees. The Plan was adopted in
accordance with Rule 12b-1 under the 1940 Act.
The Fund and the Distributor provide to the Trustees quarterly a written
report of amounts expended pursuant to the Plan and the purposes for which the
expenditures were made.
From time to time LFBDS may make payments for distribution and/or
shareholder servicing activities out of its past profits or any other sources
available to it.
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TAX MATTERS
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES: This discussion of taxes is for general information
only. Investors should consult their own tax advisers about their particular
situations.
The Fund intends to meet requirements of the Internal Revenue Code
applicable to regulated investment companies so that it will not be liable for
any federal income or excise taxes.
The Fund expects that most of its net income will be attributable to
interest on Municipal Obligations and as a result most of the Fund's dividends
to shareholders will be excludable from shareholders' gross income. However, the
Fund may invest from time to time in taxable securities, and certain Fund
dividends may be subject to the federal alternative minimum tax. It is also
possible, but not intended, that the Fund may realize short-term or long-term
capital gains or losses. Generally, distributions from the Fund's short-term
capital gains will be taxed as ordinary income, and distributions from long-term
net capital gains will be taxed as such regardless of how long the shares of the
Fund have been held. Dividends and distributions are treated in the same manner
for federal tax purposes whether they are paid in cash or as additional shares.
Fund dividends of tax-exempt income are taken into account in determining
the amount of a shareholder's social security and railroad retirement benefits
that may be subject to federal income tax. No deduction may be claimed for
interest on indebtedness incurred or carried for the purpose of purchasing or
holding Fund shares. Investors who are, or who are related to, "substantial
users" of facilities financed by private activity bonds should consult their tax
advisers before buying Fund shares.
Early each year, the Fund will notify its shareholders of the amount and
federal tax status of distributions paid to shareholders for the preceding year.
The account application asks each new shareholder to certify that the
shareholder's Social Security or taxpayer identification number is correct and
that the shareholder is not subject to 31% backup withholding for failing to
report income to the IRS. The Fund may be required to withhold (and pay over to
the IRS for the shareholder's credit) 31% of certain distributions paid to
shareholders who fail to provide this information or otherwise violate IRS
regulations.
STATE AND LOCAL TAXES: Except as noted below, Fund dividends which are
excludable from shareholders' gross income for federal income tax purposes may
not necessarily be exempt from the income or other tax laws of any state or
local taxing authority. Investors should consult their own tax advisers in this
regard.
Under existing California law, as long as at the end of each quarter of the
Fund's fiscal year the Fund continues to qualify for the special federal income
tax treatment afforded regulated investment companies and at least 50% of the
value of the Fund's assets consists of California Municipal Obligations,
shareholders of the Fund will be able to exclude from income, for California
personal income tax purposes, dividends received from the Fund which are derived
from income (less related expenses) from the California Municipal Obligations of
the Fund. These dividends must be designated as such by the Fund by written
notice to shareholders within 60 days after the close of that fiscal year.
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Fund performance may be quoted in advertising, shareholder reports and other
communications in terms of yield, effective yield, tax equivalent yield, total
rate of return or tax equivalent total rate of return. All performance
information is historical and is not intended to indicate future performance.
Yields and total rates of return fluctuate in response to market conditions and
other factors.
The Fund may provide its period and average annualized "total rates of
return" and "tax equivalent total rates of return." The "total rate of return"
refers to the change in the value of an investment in the Fund over a stated
period and is compounded to include the value of any shares purchased with any
dividends or capital gains declared during such period. Period total rates of
return may be "annualized." An "annualized" total rate of return assumes that
the period total rate of return is generated over a one-year period. The "tax
equivalent total rate of return" refers to the total rate of return that a fully
taxable money market fund would have to generate in order to produce an
after-tax total rate of return equivalent to that of the Fund. The use of a tax
equivalent total rate of return allows investors to compare the total rates of
return of the Fund, the dividends from which are exempt from federal personal
income taxes, with the total rates of return of funds the dividends from which
are not so tax exempt.
The Fund may provide annualized "yield," "effective yield" and "tax
equivalent yield" quotations. The "yield" of the Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period is
stated in any such advertisement or communication). This income is then
annualized; that is, the amount of income generated by the investment over that
period is assumed to be generated each week over a 365-day period and is shown
as a percentage of the investment. The "effective yield" is calculated
similarly, but when annualized the income earned by the investment during that
seven-day period is assumed to be reinvested. The effective yield is slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The "tax equivalent yield" refers to the yield that a fully
taxable money market fund would have to generate in order to produce an
after-tax yield equivalent to that of the Fund. The use of a tax equivalent
yield allows investors to compare the yield of the Fund, the dividends from
which are exempt from federal personal income tax, with yields of funds the
dividends from which are not so tax exempt. The Fund may also provide yield,
effective yield and tax equivalent yield quotations for longer periods.
Of course, any fees charged by a shareholder's Shareholder Servicing Agent
will reduce that shareholder's net return on his or her investment. See the
Statement of Additional Information for more information concerning the
calculation of yield and total rate of return quotations for the Fund.
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GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION: Landmark California Tax Free Reserves is a non-diversified
series of Landmark Multi-State Tax Free Funds (the "Trust"). The Trust is a
Massachusetts business trust which was organized on August 30, 1985; it was
known as Landmark New York Tax Free Reserves until its name was changed
effective December 18, 1991. The Trust is a non-diversified, open-end management
investment company registered under the 1940 Act. There are presently two active
series of the Trust in addition to the Fund.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the trust's
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
VOTING AND OTHER RIGHTS: The Trust may issue an unlimited number of shares, may
create new series of shares and may divide shares in each series into classes.
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each series of
the Trust have equal voting rights except that, in matters affecting only a
particular series, only shares of that particular series are entitled to vote.
At any meeting of shareholders of the Fund, a Shareholder Servicing Agent
may vote any shares of which it is the holder of record and for which it does
not receive voting instructions proportionately in accordance with the
instructions it receives for all other shares which that Shareholder Servicing
Agent is the holder of record.
The Trust's activities are supervised by its Board of Trustees. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will usually be sought only for
changes in the Fund's fundamental investment restrictions and for the election
of Trustees under certain circumstances. Trustees may be removed by shareholders
under certain circumstances. Each share of the Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any liquidation
of the Fund.
CERTIFICATES: The Fund's Transfer Agent maintains a share register for
shareholders of record, i.e., Shareholder Servicing Agents. Share certificates
are not issued.
EXPENSES: For the fiscal year ended August 31, 1995, total operating expenses of
the Fund, after giving effect to fee waivers and reimbursements, were 0.30% of
the Fund's average daily net assets for that fiscal year. All fee waivers and
reimbursements are voluntary and may be reduced or terminated at any time.
------------------------
The Statement of Additional Information dated the date hereof contains more
detailed information about the Fund, including information related to (i)
investment policies and restrictions, (ii) the Trustees, officers, Adviser and
Administrator, (iii) securities transactions, (iv) the Fund's shares, including
rights and liabilities of shareholders, (v) the methods used to calculate
performance information, (vi) programs for the purchase of shares, and (vii) the
determination of net asset value.
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund or
its distributor. This Prospectus does not constitute an offering by the Fund or
its distributor in any jurisdiction in which such offering may not lawfully be
made.
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APPENDIX A
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PERMITTED INVESTMENTS
AND INVESTMENT PRACTICES
MUNICIPAL BONDS. Municipal bonds are debt obligations of states, cities,
municipalities and municipal agencies and authorities which generally have a
maturity at the time of issue of one year or more and which are issued to raise
funds for various public purposes, such as construction of a wide range of
public facilities, refunding outstanding obligations or obtaining funds for
institutions and facilities. The two principal classifications of municipal
bonds are "general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. The principal of and interest on revenue
bonds are payable from the income of specific projects or authorities and
generally are not supported by the issuer's general power to levy taxes. In some
cases, revenues derived from specific taxes are pledged to support payments on a
revenue bond.
In addition, certain kinds of private activity bonds ("IDBs") are issued by
or on behalf of public authorities to provide funding for various privately
operated industrial facilities, such as warehouse, office, plant and store
facilities and environmental and pollution control facilities. IDBs are, in most
cases, revenue bonds. The payment of the principal and interest on IDBs usually
depends solely on the ability of the user of the facilities financed by the
bonds or other guarantor to meet its financial obligations and, in certain
instances, the pledge of real and personal property as security for payment.
Many IDBs may not be readily marketable; however, the IDBs or the participation
certificates in IDBs purchased by the Fund will have liquidity because they
generally will be supported by demand features to "high quality" banks,
insurance companies or other financial institutions.
MUNICIPAL NOTES. There are four major varieties of state and municipal
notes: Tax and Revenue Anticipation Notes ("TRANs"); Tax Anticipation Notes
("TANs"); Revenue Anticipation Notes ("RANs"); and Bond Anticipation Notes
("BANs"). TRANs, TANs and RANs are issued by states, municipalities and other
tax-exempt issuers to finance short-term cash needs or, occasionally, to finance
construction. Many TRANs, TANs and RANs are general obligations of the issuing
entity payable from taxes or designated revenues, respectively, expected to be
received within the related fiscal period. BANs are issued with the expectation
that their principal and interest will be paid out of proceeds from renewal
notes or bonds to be issued prior to the maturity of the BANs. BANs are issued
by both general obligation and revenue bond issuers usually to finance such
items as land acquisition, facility acquisition and/or construction and capital
improvement projects.
VARIABLE RATE INSTRUMENTS AND PARTICIPATION INTERESTS. Variable rate
instruments provide for a periodic adjustment in the interest rate paid on the
instrument and usually permit the holder to receive payment of principal and
accrued interest upon a specified number of day's notice. Variable rate
instruments in which the Fund may invest include participation interests in
Municipal Obligations owned by a bank, insurance company or other financial
institution or affiliated organization ("Participation Interests"). A variable
rate instrument or a Participation Interest may be backed by an irrevocable
letter of credit or guarantee of, or a right to put to, a bank, or an insurance
policy of an insurance company. See "Stand-by Commitments." Purchase of a
Participation Interest may involve the risk that the Fund will not be deemed to
be the owner of the underlying Municipal Obligation for purposes of the ability
to claim tax exemption of interest paid on that Municipal Obligation. If
interest rates rise or fall, the rates payable on variable rate instruments will
generally be readjusted. As a result variable rate instruments do not offer the
same opportunity for capital appreciation or loss as fixed rate instruments.
STAND-BY COMMITMENTS. When the Fund purchases Municipal Obligations it may
also acquire stand-by commitments from banks with respect to such Municipal
Obligations. The Fund also may acquire stand-by commitments from broker-dealers.
Under a stand-by commitment, a bank or broker-dealer agrees to purchase at the
Fund's option a specified Municipal Obligation at a specified price. A stand-by
commitment is the equivalent of a "put" option with respect to a particular
Municipal Obligation. The Fund intends to acquire stand-by commitments solely to
facilitate liquidity. Stand-by commitments are subject to certain risks, which
include the ability of the issuer of the commitment to pay for the Municipal
Obligations at the time the commitment is exercised, the fact that the
commitment is not marketable, and that the maturity of the underlying security
will generally be different from that of the commitment.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, the Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, which means that the securities would be delivered to the Fund
at a future date beyond customary settlement time. Under normal circumstances,
the Fund takes delivery of the securities. In general, the purchaser does not
pay for the securities until received and does not start earning interest until
the contractual settlement date. While awaiting delivery of the securities, the
Fund establishes a segregated account consisting of cash, cash equivalents or
high quality debt securities equal to the amount of the Fund's commitments to
purchase "when-issued" securities. An increase in the percentage of the Fund's
assets committed to the purchase of securities on a "when-issued" basis may
increase the volatility of its net asset value.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements.
Repurchase agreements are transactions in which an institution sells the Fund a
security at one price, subject to the Fund's obligation to resell and the
selling institution's obligation to repurchase that security at a higher price
normally within a seven day period. There may be delays and risks of loss if the
seller is unable to meet its obligation to repurchase. Repurchase agreements may
involve Municipal Obligations or other securities.
RESTRICTED SECURITIES. The Fund may purchase restricted securities that are
not registered for sale to the general public. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of the Fund's
investment limitations. Institutional trading in restricted securities is
relatively new, and the liquidity of the Fund's investments could be impaired if
trading does not develop or declines.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. The Fund may invest up to 10%
of its net assets in securities for which there is no readily available market.
These illiquid securities may include privately placed restricted securities for
which no institutional market exists. The absence of a trading market can make
it difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
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APPENDIX B
- --------------------------------------------------------------------------------
RATINGS OF MUNICIPAL OBLIGATIONS*
The ratings of Moody's Investors Service, Inc., Standard & Poor's Ratings
Group and Fitch Investors Service, Inc. represent their opinions as to the
quality of various debt obligations. It should be emphasized, however, that
ratings are not absolute standards of quality. Consequently, Municipal
Obligations with the same maturity, coupon and rating may have different yields
while Municipal Obligations of the same maturity and coupon with different
ratings may have the same yield.
- ----------
*As described by the rating agencies. Ratings are generally given to securities
at the time of issuance. While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO
HIGHEST LONG-TERM DEBT RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
Note: Those bonds in the Aa group which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa 1.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO HIGHEST
RATINGS OF STATE AND MUNICIPAL NOTES:
Moody's ratings for state and municipal short-term obligations are
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. A short-term
rating ("VMIG") may also be assigned to variable rate demand obligations.
Factors affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends, for example, may be less important over the
short run. Symbols used are as follows:
MIG 1/VMIG 1 -- Notes bearing this designation are of the best quality, with
strong protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- Notes bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO
HIGHEST COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior short-term obligations not having an original maturity
in excess of one year.
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S TWO
HIGHEST LONG-TERM DEBT RATINGS:
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
Plus (+) or Minus (-): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S TWO
HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES:
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment:
- -- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- -- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S TWO
HIGHEST COMMERCIAL PAPER RATINGS:
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 -- This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
DESCRIPTION OF STANDARD & POOR'S
RATINGS GROUP'S DUAL RATINGS:
Standard & Poor's assigns "dual" ratings to all debt issues that have as
part of their structure a put option or demand feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the put option or demand
feature. The long-term debt rating symbols are used for bonds to denote the
long-term maturity and the commercial paper rating symbols are used to denote
the put option (for example, "AAA/A-1+"). For demand debt, the note rating
symbols are used with the commercial paper rating symbols (for example,
"SP-1+/A-1+").
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S
TWO HIGHEST BOND RATINGS:
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
Plus (+) or Minus (-): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S THREE HIGHEST
RATINGS OF STATE AND MUNICIPAL NOTES:
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 -- Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned "F-2+" and "F-1" ratings.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S THREE
HIGHEST COMMERCIAL PAPER RATINGS:
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 -- Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned "F-1+" and "F-1" ratings.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
- --------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELD TABLES
(RATES FOR 1995++ UNDER FEDERAL AND
CALIFORNIA PERSONAL INCOME TAX LAWS)
The tables below show the approximate taxable bond yields which are
equivalent to tax-exempt bond yields under 1995 federal and California personal
income tax laws. SUCH YIELDS MAY DIFFER UNDER THE LAWS APPLICABLE TO SUBSEQUENT
YEARS IF THE EFFECT OF ANY SUCH LAW IS TO CHANGE ANY TAX BRACKET OR THE AMOUNT
OF TAXABLE INCOME WHICH IS APPLICABLE TO A TAX BRACKET. Separate calculations,
showing the applicable taxable income brackets, are provided for investors who
file joint returns and for investors who file individual returns. While it is
expected that a substantial portion of the dividends paid to shareholders of the
Fund will be exempt from federal and California personal income taxes, portions
of such dividends from time to time may be subject to federal income taxes
and/or California personal income taxes.
<TABLE>
<CAPTION>
FEDERAL TABLE
- ------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- ------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN JOINT RETURN INCOME
TAX 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
BRACKET**
BUT BUT
OVER NOT OVER OVER NOT OVER EQUIVALENT TAXABLE YIELD
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ 23,350 $ 0 $ 39,000 15.00% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 23,350 $ 56,550 $ 39,000 $ 94,250 28.00% 2.78% 3.47% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 56,550 $117,950 $ 94,250 $143,600 31.00% 2.90% 3.62% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$117,950 $256,500 $143,600 $256,500 36.00% 3.13% 3.91% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$256,500 $256,500 39.60% 3.31% 4.14% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
* Net amount subject to Federal Personal income tax after deductions and exemptions.
** Effective Federal Tax Bracket for 1995.
<CAPTION>
FEDERAL AND CALIFORNIA STATE TABLE
- ------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- ------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN JOINT RETURN INCOME
TAX 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
BRACKET**
BUT BUT
OVER NOT OVER OVER NOT OVER EQUIVALENT TAXABLE YIELD
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ 23,350 17.78% 2.43% 3.04% 3.65% 4.26% 4.86% 5.47% 6.08% 6.69% 7.30% 7.91%
$ 0 $ 39,000 17.32% 2.42% 3.02% 3.63% 4.23% 4.84% 5.44% 6.05% 6.65% 7.26% 7.86%
$ 23,350 $ 56,550 34.39% 3.05% 3.81% 4.57% 5.33% 6.10% 6.86% 7.62% 8.38% 9.14% 9.91%
$ 39,000 $ 94,250 33.99% 3.03% 3.79% 4.54% 5.30% 6.06% 6.82% 7.57% 8.33% 9.09% 9.85%
$ 56,550 $117,950 37.48% 3.20% 4.00% 4.80% 5.60% 6.40% 7.20% 8.00% 8.80% 9.60% 10.40%
$ 94,250 $143,600 37.42% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39%
$117,950 $256,500 42.57% 3.48% 4.35% 5.22% 6.09% 6.97% 7.84% 8.71% 9.58% 10.45% 11.32%
-- -- $143,600 $256,500 42.10% 3.45% 4.32% 5.16% 6.04% 6.91% 7.77% 8.64% 9.50% 10.36% 11.23%
-- -- $256,500 $439,744 45.64% 3.68% 4.60% 5.52% 6.44% 7.36% 8.28% 9.20% 10.12% 11.04% 11.96%
$256,500 $439,744 46.24% 3.72% 4.65% 5.58% 6.51% 7.44% 8.37% 9.30% 10.23% 11.16% 12.09%
* Net amount subject to Federal and California personal income tax after deductions and exemptions.
** Effective combined federal and state tax bracket. State tax rate based on the average state rate for the federal tax
bracket.
+ Combined Federal and California rate assumes itemization of state tax deduction. California tax rates are based on
1995 information.
++ Rates for 1996 under Federal and California personal income tax laws were not available in time to be included in
this Prospectus.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER
SERVICING AGENTS
- --------------------------------------------------------------------------------
FOR CITIBANK NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
450 West 33rd Street, New York, NY 10001
(212) 564-3456 or (800) 846-5300
FOR CITIGOLD CLIENTS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive, or in NY or CT (800) 285-1701,
or for all other states (800) 285-1707
FOR CITIBANK PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Registered Representative or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117
FOR CITIBANK NORTH AMERICAN INVESTOR
SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100
FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 736-8170 in New York City
[LOGO] LANDMARK
FUNDS
MONEY MARKET FUNDS:
Cash Reserves
Premium Liquid Reserves
Institutional Liquid Reserves
U.S. Treasury Reserves
Premium U.S. Treasury Reserves
Institutional U.S. Treasury Reserves
Tax Free Reserves
California Tax Free Reserves
Connecticut Tax Free Reserves
New York Tax Free Reserves
STOCK & BOND FUNDS:
U.S. Government Income Fund
Intermediate Income Fund
National Tax Free Income Fund
New York Tax Free Income Fund
Balanced Fund
Equity Fund
International Equity Fund
Small Cap Equity Fund
Emerging Asian Markets Equity Fund
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
H. B. Alvord
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Thomas M. Lenz*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
The Landmark Funds Broker-Dealer Services, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street, Boston, MA 02110
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENTS
(See Inside of Cover)
CATR/P/96/RB Printed on Recycled Paper [Recycle Symbol]
[LOGO] LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
- --------------------------------------------------------------------------------
LANDMARK
CALIFORNIA
TAX FREE
RESERVES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
January 2, 1996
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
January 2, 1996
LANDMARK CALIFORNIA TAX FREE RESERVES
(A member of the LandmarkSM Family of Funds)
Landmark California Tax Free Reserves (the "Fund") is a separate series
of Landmark Multi-State Tax Free Funds (the "Trust"). The address and telephone
number of the Trust are 6 St. James Avenue, Boston, Massachusetts 02116,
(617) 423-1679.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Table of Contents Page
The Fund 2
Investment Objectives, Policies and
Restrictions 2
Performance Information 14
Determination of Net Asset Value 15
Management 16
Portfolio Transactions 24
Description of Shares, Voting Rights
and Liabilities 25
Certain Additional Tax Matters 26
Independent Accountants and Financial
Statements 27
Appendix 28
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Fund's Prospectus, dated January 2, 1996, by which shares of the Fund are
offered. This Statement of Additional Information should be read in conjunction
with the Prospectus, a copy of which may be obtained by an investor without
charge by contacting the Fund's Distributor (see back cover for address and
phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. THE FUND
The Trust is a no-load, non-diversified, open-end management investment
company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on August 30, 1985. The Trust was known as
"Landmark New York Tax Free Reserves" until its name was changed on December 18,
1991. Shares of the Trust are divided into three separate series, one of which,
the Fund, is described in this Statement of Additional Information. References
in this Statement of Additional Information to the Prospectus are to the
Prospectus, dated January 2, 1996, of the Fund by which shares of the Fund are
offered.
The Fund is a type of mutual fund commonly referred to as a "double
tax-exempt money market fund." The net asset value of each of the Fund's shares
is expected to remain constant at $1.00, although there can be no assurance that
this will be so on a continuing basis. (See "Determination of Net Asset Value.")
Citibank, N.A. ("Citibank" or the "Adviser") is the investment adviser
to the Fund. The Adviser manages the investments of the Fund from day to day in
accordance with the Fund's investment objectives and policies. The selection of
investments for the Fund, and the way they are managed, depend on the conditions
and trends in the economy and the financial marketplaces.
The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS" or the
"Administrator"), the administrator of the Trust, supervises the overall
administration of the Trust. The Board of Trustees of the Trust provides broad
supervision over the affairs of the Trust. Shares of the Fund are continuously
sold by LFBDS, the Fund's distributor (the "Distributor"), only to investors who
are customers of a financial institution, such as a federal or state-chartered
bank, trust company, savings and loan association or savings bank, or a
securities broker, that has entered into a shareholder servicing agreement with
the Trust (collectively, "Shareholder Servicing Agents"). Although shares of the
Fund are sold without a sales load, LFBDS may receive a fee from the Fund
pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act").
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objectives of the Fund are to provide its shareholders
with high levels of current income exempt from federal and California personal
income taxes, preservation of capital and liquidity.
The investment objectives of the Fund may not be changed without
approval by the Fund's shareholders. Of course, there can be no assurance that
the Fund will achieve its investment objectives.
INVESTMENT POLICIES
The Fund seeks its investment objectives by investing primarily in
short-term, high quality fixed rate and variable rate obligations issued by or
on behalf of the State of California, and other states, territories and
possessions of the United States and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is exempt
from federal income taxes, including participation interests in such obligations
issued by banks, insurance companies or other financial institutions. (These
securities, whether or not the interest thereon is subject to the federal
alternative minimum tax, are referred to herein as "Municipal Obligations").
Dividends paid by the Fund which are attributable to interest income on
tax-exempt obligations of the State of California and its political
subdivisions, and of Puerto Rico, other U.S. territories and their political
subdivisions ("California Municipal Obligations"), will be exempt from federal
and California personal income taxes. The Fund may purchase Municipal
Obligations issued by other states, their agencies and instrumentalities, the
interest income on which will be exempt from federal income tax but will be
subject to California personal income taxes.
In determining the tax status of interest on Municipal Obligations and
California Municipal Obligations, the Adviser relies on opinions of bond counsel
who may be counsel to the issuer.
Under normal circumstances, the Fund invests at least 65% of its assets
in California Municipal Obligations, although the exact amount of the Fund's
assets invested in such securities varies from time to time. Although the Fund
attempts to invest 100% of its assets in Municipal Obligations, the Fund may
invest up to 20% of its total assets in securities the interest income on which
is subject to federal, state and local income tax or the federal alternative
minimum tax. The Fund may invest more than 25% of its assets in participation
interests issued by banks in industrial development bonds and other Municipal
Obligations. In view of this possible "concentration" in bank participation
interests, an investment in the Fund should be made with an understanding of the
characteristics of the banking industry and the risks which such an investment
may entail. (See "Variable Rate Instruments and Participation Interests"
hereafter.) Uninvested cash reserves may be held temporarily for the Fund
pending investment. The Fund's investments may include "when-issued" and
"forward delivery" Municipal Obligations, stand-by commitments and taxable
repurchase agreements.
The Trust's Board of Trustees has determined that the term "high
quality" means Municipal Obligations which at the time of purchase are rated
within the AAA or AA categories by Standard & Poor's Rating Group ("Standard &
Poor's") or Fitch Investors Service, Inc. ("Fitch") or within the Aaa or Aa
categories by Moody's Investors Service, Inc. ("Moody's") in the case of bonds;
MIG 1/VMIG 1 or MIG 2/VMIG 2 by Moody's, SP-1+, SP-1 or SP-2 by Standard &
Poor's or F-1+, F-1 or F-2 by Fitch in the case of notes; A-1+, A-1 or A-2 by
Standard & Poor's or Prime-1, Prime-2 by Moody's or F-1+, F-1 or F-2 by Fitch,
in the case of tax-exempt commercial paper; or which are unrated but are
determined to be of comparable quality by or on behalf of the Trust's Board of
Trustees on the basis of a credit evaluation of the obligor or of the bank
issuing a participation interest, letter of credit or guarantee, or insurance
policy issued in support of the Municipal Obligations or participation
interests. (See "Variable Rate Instruments and Participation Interests" below.)
Such instruments may produce a lower yield than would be available from less
highly rated instruments. The Trust's Board of Trustees has determined that
Municipal Obligations which are backed by the full faith and credit of the U.S.
Government will be considered to have a rating equivalent to Moody's Aaa. (See
"Ratings of Municipal Obligations" in Appendix B to the Prospectus.)
All of the Fund's investments mature or are deemed to mature within 397
days from the date of acquisition and the average maturity of the investments in
the Fund's portfolio (on a dollar-weighted basis) is 90 days or less. The
maturities of variable rate instruments held in the Fund's portfolio are deemed
to be the longer of the period remaining until the next interest rate adjustment
or the period until the Fund would be entitled to payment pursuant to demand
rights, a letter of credit, guarantee or insurance policy or a right to tender
or put the instrument, although the stated maturities may be in excess of 397
days. (See "Variable Rate Instruments and Participation Interests" below.)
As a non-diversified investment company, the Fund is not subject to any
statutory restrictions under the 1940 Act with respect to limiting the
investment of its assets in one or relatively few issuers. This concentration
may present greater risks than in the case of a diversified company. However,
the Fund intends to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). In order so to
qualify under current law, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of the Fund's total assets must be represented
by cash, U.S. Government securities, investment company securities and other
securities limited in respect of any one issuer (or related issuers) to not more
than 5% in value of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer. In addition, and again under
current law, at the close of each quarter of its taxable year, not more than 25%
in value of the Fund's total assets may be invested in securities, other than
U.S. Government securities, of one issuer (or related issuers).
For a general discussion of Municipal Obligations and an explanation of
the ratings of Municipal Obligations by Moody's, Standard & Poor's and Fitch,
see Appendix A and B to the Fund's Prospectus. For a comparison of yields on
such Municipal Obligations and taxable securities, see the "Taxable Equivalent
Yield Tables" in Appendix C to the Prospectus.
Except as stated below, the Fund's investment policies are not
fundamental and may be changed by the Board of Trustees of the Trust without
approval by the Fund's shareholders. As a fundamental policy, the Fund invests
at least 80% of its assets, under normal circumstances, in:
(1) Municipal bonds with remaining maturities of 397 days or less that
are rated at the date of purchase within the Aaa or Aa categories by Moody's or
within the AAA or AA categories by Standard & Poor's or Fitch or, if not rated
by any of these rating agencies, are of comparable quality as determined by the
Adviser on the basis of the credit evaluation of the obligor on the bonds or of
the bank issuing a participation interest or guarantee or of any insurance
policy issued in support of the bonds or the participation interests.
(2) Municipal notes with remaining maturities of 397 days or less that
are rated at the date of purchase MIG 1/VMIG 1 or MIG 2/VMIG 2 by Moody's,
SP-1+, SP-1 or SP-2 by Standard & Poor's or F-1+,F-1 or F-2 by Fitch or, if not
rated by any of these rating agencies, are of comparable quality as determined
by the Adviser. The principal kinds of municipal notes are tax and revenue
anticipation notes, tax anticipation notes, bond anticipation notes and revenue
anticipation notes. Notes sold in anticipation of collection of taxes, a bond
sale or receipt of other revenues are usually general obligations of the issuing
municipality or agency. The Fund's investments may be concentrated in municipal
obligations of California issuers.
(3) Municipal commercial paper that is rated Prime-1 or Prime-2 by
Moody's, A-1+, A-1 or A-2 by Standard & Poor's or F-1+, F-1 or F-2 by Fitch or,
if not rated by any of these rating agencies, is of comparable quality as
determined by the Adviser. Issues of municipal commercial paper typically
represent very short-term, unsecured, negotiable promissory notes. These
obligations are often issued to meet seasonal working capital needs of
municipalities or to provide interim construction financing and are paid from
general revenues of municipalities or are refinanced with long-term debt. In
most cases municipal commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the event of
default by the issuer of the commercial paper.
Subsequent to its purchase by the Fund, a rated Municipal Obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase for the Fund. Neither event will require sale of such Municipal
Obligation by the Fund (other than variable rate instruments which must be sold
if they are not "high quality"), but the Adviser will consider such event in
determining whether the Fund should continue to hold the Municipal Obligation.
To the extent that the ratings given to the Municipal Obligations or other
securities held by the Fund are altered due to changes in either the Moody's or
Standard & Poor's ratings systems (see Appendix B to the Prospectus for an
explanation of these rating systems), the Adviser will adopt such changed
ratings as standards for its future investments in accordance with the
investment policies contained in the Prospectus. Certain Municipal Obligations
issued by instrumentalities of the U.S. Government are not backed by the full
faith and credit of the U.S. Treasury but only by the creditworthiness of the
instrumentality. The Trust's Board of Trustees has determined that any Municipal
Obligation that depends directly, or indirectly through a government insurance
program or other guarantee, on the full faith and credit of the U.S. Government
will be considered to have a rating in the highest category. Where necessary to
ensure that the Municipal Obligations are of "high quality" (i.e., within the
two highest ratings assigned by any major rating service), or where the
obligations are not freely transferable, the Fund will require that the
obligation to pay the principal and accrued interest be backed by an
unconditional irrevocable bank letter of credit, a guarantee, insurance policy
or other comparable undertaking of an approved financial institution.
The Fund may invest 25% or more of its assets in securities that are
related in such a way that an economic, business or political development or
change affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
VARIABLE RATE INSTRUMENTS AND PARTICIPATION INTERESTS
Variable rate instruments that the Fund may purchase are tax-exempt
Municipal Obligations (including municipal notes and municipal commercial paper)
that provide for a periodic adjustment in the interest rate paid on the
instrument and permit the holder to receive payment upon a specified number of
days' notice of the unpaid principal balance plus accrued interest either from
the issuer or by drawing on a bank letter of credit, a guarantee or an insurance
policy issued with respect to such instrument or by tendering or "putting" such
instrument to a third party.
The variable rate instruments in which the Fund's assets may be
invested are payable upon a specified period of notice which may range from one
day up to one year. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to one year and the adjustments
are based upon the prime rate of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Fund will decide
which variable rate instruments it will purchase in accordance with procedures
prescribed by the Board of Trustees to minimize credit risks. An unrated
variable rate instrument may be determined to meet the Fund's high quality
criteria if it is backed by a letter of credit or guarantee or a right to tender
or put the instrument to a third party or is insured by an insurer that meets
the high quality criteria for the Fund discussed above or on the basis of a
credit evaluation of the underlying obligor. If the credit of the obligor is of
"high quality," no credit support from a bank or other financial institution
will be necessary. Each unrated variable rate instrument will be evaluated on a
quarterly basis to determine that it continues to meet the Fund's high quality
criteria. If an instrument is ever deemed to be of less than high quality, the
Fund either will sell it in the market or exercise the liquidity feature
described below.
Variable rate instruments in which the Fund may invest include
participation interests in variable rate, Municipal Obligations owned by a bank,
insurance company or other financial institution or affiliated organizations.
Although the rate of the underlying Municipal Obligations may be fixed, the
terms of the participation interest may result in the Fund receiving a variable
rate on its investment. A participation interest gives the Fund an undivided
interest in the Municipal Obligation in the proportion that the Fund's
participation bears to the total principal amount of the Municipal Obligation
and provides the liquidity feature. Each participation may be backed by an
irrevocable letter of credit or guarantee of, or a right to put to, a bank
(which may be the bank issuing the participation interest, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
participation interest) or insurance policy of an insurance company that has
been determined by or on behalf of the Board of Trustees of the Trust to meet
the prescribed quality standards of the Fund. The Fund has the right to sell the
participation interest back to the institution or draw on the letter of credit
or insurance after a specified period of notice, for all or any part of the full
principal amount of the Fund's participation in the security, plus accrued
interest. The Fund intends to exercise the liquidity feature only (1) upon a
default under the terms of the bond documents, (2) as needed to provide
liquidity to the Fund in order to make redemptions of Fund shares, or (3) to
maintain a high quality investment portfolio. In some cases, this liquidity
feature may not be exercisable in the event of a default on the underlying
Municipal Obligations; in these cases, the underlying Municipal Obligations must
meet the Fund's high credit standards at the time of purchase of the
participation interest. Issuers of participation interests will retain a service
and letter of credit fee and a fee for providing the liquidity feature, in an
amount equal to the excess of the interest paid on the instruments over the
negotiated yield at which the participations were purchased by the Fund. The
total fees generally range from 5% to 15% of the applicable prime rate or other
interest rate index. With respect to insurance, the Fund will attempt to have
the issuer of the participation interest bear the cost of the insurance,
although the Fund retains the option to purchase insurance if necessary, in
which case the cost of insurance will be an expense of the Fund subject to the
expense limitation of 2 1/2% of the first $30 million of the Fund's average net
assets, 2% of the next $70 million and 1 1/2% of the Fund's average net assets
in excess of $100 million. The Adviser has been instructed by the Trust's Board
of Trustees to monitor continually the pricing, quality and liquidity of the
variable rate instruments held by the Fund, including the participation
interests, on the basis of published financial information and reports of the
rating agencies and other bank analytical services to which the Fund may
subscribe. Although participation interests may be sold, the Fund intends to
hold them until maturity, except under the circumstances stated above.
In view of the "concentration" of the Fund in bank participation
interests in Municipal Obligations secured by bank letters of credit or
guarantees, an investment in the Fund should be made with an understanding of
the characteristics of the banking industry and the risks which such an
investment may entail. Banks are subject to extensive governmental regulation
which may limit both the amounts and types of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operation of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit.
Periods of high inflation and periods of economic slowdown, together
with the fiscal measures adopted to attempt to deal with them, have brought wide
fluctuations in interest rates. When interest rates rise, the value of fixed
income securities generally falls, and vice versa. While this is true for
variable rate instruments generally, the variable rate nature of the underlying
instruments should minimize these changes in value. Accordingly, as interest
rates decrease or increase, the potential for capital appreciation and the risk
of potential capital depreciation is less than would be the case with a
portfolio of fixed income securities. Because the adjustment of interest rates
on the variable rate instruments is made in relation to movements of various
interest rate adjustment indices, the variable rate instruments are not
comparable to long-term fixed rate securities. Accordingly, interest rates on
the variable rate instruments may be higher or lower than current market rates
for fixed rate obligations of comparable quality with similar maturities.
Because of the variable rate nature of the instruments, when prevailing
interest rates decline the Fund's yield will decline and its shareholders will
forego the opportunity for capital appreciation. On the other hand, during
periods when prevailing interest rates increase, the Fund's yield will increase
and its shareholders will have reduced risk of capital depreciation.
For purposes of determining whether a variable rate instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument after notice or (2) the period remaining until the instrument's next
interest rate adjustment. The maturity of a variable rate instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity.
"WHEN-ISSUED" SECURITIES
New issues of certain Municipal Obligations frequently are offered on a
"when-issued" or "forward delivery" basis. The payment obligation and the
interest rate that will be received on the Municipal Obligations are each fixed
at the time the buyer enters into the commitment although settlement, i.e.,
delivery of and payment for the Municipal Obligations, takes place beyond
customary settlement time (but normally within 45 days after the date of the
Fund's commitment to purchase). Although the Fund will only make commitments to
purchase "when-issued" or "forward delivery" Municipal Obligations with the
intention of actually acquiring them, the Fund may sell these securities before
the settlement date if deemed advisable by the Adviser.
Municipal Obligations purchased on a "when-issued" or "forward
delivery" basis and the securities held in the Fund's portfolio are subject to
changes in value based upon the public's perception of the credit-worthiness of
the issuer and changes, real or anticipated, in the level of interest rates. The
value of these Municipal Obligations and securities generally change in the same
way, that is, both experience appreciation when interest rates decline and
depreciation when interest rates rise. Purchasing Municipal Obligations on a
"when-issued" or "forward delivery" basis can involve a risk that the yields
available in the market on the settlement date may actually be higher or lower
than those obtained in the transaction itself. A separate account of the Fund
consisting of cash or liquid debt securities equal to the amount of the
"when-issued" or "forward delivery" commitments will be established at the
Fund's custodian bank. For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at market
value. If the market value of such securities declines, additional cash or
highly liquid securities will be placed in the account daily so that the value
of the account will equal the amount of the Fund's commitments. On the
settlement date of the "when-issued" or "forward delivery" securities, the
Fund's obligations will be met from then-available cash flow, sale of securities
held in the separate account, sale of other securities or, although not normally
expected, from sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or lesser than the Fund's payment
obligations). Sale of securities to meet such obligations may result in the
realization of capital gains or losses, which are not exempt from federal income
tax.
STAND-BY COMMITMENTS
When the Fund purchases Municipal Obligations it may also acquire
stand-by commitments from banks with respect to such Municipal Obligations. The
Fund also may acquire stand-by commitments from broker-dealers. Under the
stand-by commitment, a bank or broker-dealer agrees to purchase at the Fund's
option a specified Municipal Obligation at a specified price. A stand-by
commitment is the equivalent of a "put" option acquired by the Fund with respect
to a particular Municipal Obligation held in the Fund's portfolio.
The amount payable to the Fund upon the exercise of a stand-by
commitment normally would be (1) the acquisition cost of the Municipal
Obligation (excluding any accrued interest paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation. The Fund values stand-by
commitments at zero for purposes of computing the value of its net assets.
The stand-by commitments that the Fund may enter into are subject to
certain risks, which include the ability of the issuer of the commitment to pay
for the securities at the time the commitment is exercised and the fact that the
commitment is not marketable by the Fund and the maturity of the underlying
security will generally be different from that of the commitment.
TAXABLE SECURITIES
Although the Fund attempts to invest 100% of its net assets in
tax-exempt Municipal Obligations, the Fund may invest up to 20% of the value of
its net assets in securities of the kind described below, the interest income on
which is subject to federal income tax. Circumstances in which the Fund may
invest in taxable securities include the following: (a) pending investment of
proceeds of sales of Fund shares or of portfolio securities; (b) pending
settlement of purchases of portfolio securities; (c) to maintain liquidity for
the purpose of meeting anticipated redemptions; and (d) when, in the opinion of
the Fund's investment adviser, it is advisable to do so because of adverse
market conditions affecting the market for Municipal Obligations. The kinds of
taxable securities in which the Fund's assets may be invested are limited to the
following short-term, fixed-income securities (maturing in 397 days or less from
the time of purchase): (1) obligations of the U.S. Government or its agencies,
instrumentalities or authorities; (2) commercial paper rated Prime-1 or Prime-2
by Moody's, A-1+, A-1 or A-2 by Standard & Poor's or F-1+, F-1 or F-2 by Fitch;
(3) certificates of deposit of U.S. banks with assets of $1 billion or more; and
(4) repurchase agreements with respect to any Municipal Obligations or other
securities which the Fund is permitted to own. The Fund's assets may also be
invested in Municipal Obligations which are subject to an alternative minimum
tax.
REPURCHASE AGREEMENTS
The Fund may invest assets in instruments subject to repurchase
agreements only with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities. Under the terms of a typical repurchase agreement, the
Fund would acquire an underlying debt instrument for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase and the Fund to resell the instrument at a fixed price and time,
thereby determining the yield during the Fund's holding period. This results in
a fixed rate of return insulated from market fluctuations during such period. A
repurchase agreement is subject to the risk that the seller may fail to
repurchase the security. Repurchase agreements may be deemed to be loans under
the 1940 Act. All repurchase agreements entered into by the Fund shall be fully
collateralized at all times during the period of the agreement in that the value
of the underlying security shall be at least equal to the amount of the loan,
including the accrued interest thereon, and the Fund or its custodian or
sub-custodian shall have possession of the collateral, which the Trust's Board
of Trustees believes will give it a valid, perfected security interest in the
collateral. Whether a repurchase agreement is the purchase and sale of a
security or a collateralized loan has not been definitively established. This
might become an issue in the event of the bankruptcy of the other party to the
transaction. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs
in connection with the disposition of the collateral. The Trust's Board of
Trustees believes that the collateral underlying repurchase agreements may be
more susceptible to claims of the seller's creditors than would be the case with
securities owned by the Fund. Repurchase agreements will give rise to income
which will not qualify as tax-exempt income when distributed by the Fund. The
Fund will not invest in a repurchase agreement maturing in more than seven days
if any such investment together with illiquid securities held by the Fund exceed
10% of the Fund's total net assets. (see "Investment Restrictions: Investment
Restriction Number (6) hereafter.) Repurchase agreements are also subject to the
same risks described herein with respect to stand-by commitments.
RISK FACTORS AFFECTING INVESTMENT
IN CALIFORNIA MUNICIPAL OBLIGATIONS
The Fund intends to invest a high proportion of its assets in
California Municipal Obligations. Payment of interest and preservation of
principal is dependent upon the continuing ability of California issuers and/or
obligors of state, municipal and public authority debt obligations to meet their
obligations thereunder. For information concerning California Municipal
Obligations, see the Appendix to this Statement of Additional Information.
The Adviser believes that by maintaining the Fund's investment
portfolio in liquid, short-term, high quality investments, including
participation interests and other variable rate instruments that have high
quality credit support from banks, insurance companies or other financial
institutions, the Fund is somewhat insulated from the credit risks that may
exist for long-term California Municipal Obligations.
The summary set forth above and in the Appendix is included for the
purpose of providing a general description of the State of California credit and
financial conditions. This summary is based on information from statements of
issuers of California Municipal Obligations and does not purport to be complete.
The Trust is not responsible for the accuracy or timeliness of this information.
INVESTMENT RESTRICTIONS
The Trust has adopted the following policies with respect to the Fund
which may not be changed without approval by a "majority of the outstanding
shares" of the Fund, which as used in this Statement of Additional Information,
means the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding "voting
securities" of the Fund are present or represented by proxy, or (ii) more than
50% of the outstanding "voting securities" of the Fund. The term "voting
securities" as used in this paragraph has the same meaning as in the 1940 Act.
The Fund will vote the shares held by its shareholders who do not give voting
instructions in the same proportion as the shares of the Fund's shareholders who
do give voting instructions. Shareholders of the Fund who do not vote will have
no effect on the outcome of these matters.
The Trust may not with respect to the Fund:
(1) Make investments other than as described under "Investment
Policies" above or any other form of federal tax-exempt investment which meets
the Fund's high quality criteria, as determined by the Board of Trustees and
which is consistent with the Fund's investment objectives and policies
(provided, however, that the Trust may invest all or substantially all of the
Fund's assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Fund).
(2) Borrow money. This restriction shall not apply to borrowings from
banks for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 15% of the value of the Fund's
total assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made. While
borrowings exceed 5% of the value of the Fund's total assets, the Trust will not
make any investments on behalf of the Fund. Interest paid on borrowings will
reduce net income.
(3) Pledge, hypothecate, mortgage or otherwise encumber the Fund's
assets, except in an amount up to 15% of the value of the Fund's total assets
and only to secure borrowings for temporary or emergency purposes.
(4) Sell securities short or purchase securities on margin, or engage
in the purchase and sale of put, call, straddle or spread options or in writing
such options, except to the extent that securities subject to a demand
obligation and stand-by commitments may be purchased as set forth under
"Investment Policies" above.
(5) Underwrite the securities of other issuers, except insofar as the
Trust may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security of the Fund (provided, however, that the Trust may
invest all or substantially all of the Fund's assets in another registered
investment company having the same investment objective and policies and
substantially the same investment restrictions as the Fund).
(6) The Trust will not invest on behalf of the Fund in a repurchase
agreement maturing in more than seven days if any such investment together with
other illiquid securities held by the Fund exceed 10% of the Fund's total net
assets.
(7) Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests, but
this shall not prevent the Trust from investing in Municipal Obligations secured
by real estate or interests in real estate.
(8) Make loans to others, except through the purchase of portfolio
investments, including repurchase agreements, as described under "Investment
Policies" above.
(9) Purchase more than 10% of all outstanding voting securities of any
one issuer or invest in companies for the purpose of exercising control, except
that the Trust may invest all or substantially all of the Fund's assets in
another registered investment company having the same investment objective and
policies and substantially the same investment restrictions as the Fund.
(10) Invest more than 25% of the Fund's assets in the securities of
"issuers" in any single industry, provided that the Trust may invest more than
25% of the Fund's assets in bank participation interests and there shall be no
limitation on the purchase of those Municipal Obligations and other obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
except that the Trust may invest all or substantially all of the Fund's assets
in another registered investment company having the same investment objectives
and policies and substantially the same investment restrictions as the Fund.
When the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
issuing entity and a security is backed only by the assets and revenues of the
entity, the entity would be deemed to be the sole issuer of the security.
Similarly, in the case of a private activity bond, if that bond is backed only
by the assets and revenues of the non-governmental user, then such
non-governmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity, such as an insurance
company or other corporate obligor, guarantees a security or a bank issues a
letter of credit, such a guarantee or letter of credit would be considered a
separate security and would be treated as an issue of such government, other
entity or bank.
(11) Invest in securities of other investment companies, except the
Trust may purchase on behalf of the Fund unit investment trust securities (i.e.,
securities issued by an investment company which (i) is organized under a trust
indenture or contract of custodianship or similar instrument, (ii) does not have
a board of directors, and (iii) issues only redeemable securities, each of which
represents an undivided interest in a unit of specified securities) where such
unit trusts meet the investment objectives and policies of the Fund and then
only up to 5% of the Fund's net assets, except as they may be acquired as part
of a merger, consolidation or acquisition of assets, except that the Trust may
invest all or substantially all of the Fund's assets in another registered
investment company having the same investment objectives and policies and
substantially the same investment restrictions as the Fund. As of the date of
this Statement of Additional Information, the Trust has no intention of
investing in unit investment trust securities on behalf of the Fund.
For purposes of the investment restrictions described in (9) and (10)
above, the issuer of a tax-exempt security is deemed to be the entity (public or
private) ultimately responsible for the payment of principal of and interest on
the security. If, however, the acting government or some other entity, such as
an insurance company or other corporate obligor, guarantees a security or a bank
issues a Letter of Credit, such a guarantee or Letter of Credit may, in
accordance with applicable Securities and Exchange Commission ("SEC") rules, be
considered a separate security and treated as an issue of such government, other
entity or bank.
If a percentage restriction or a rating restriction (other than a
restriction as to borrowing) on investment or utilization of assets set forth
above is adhered to at the time an investment is made or assets are so utilized,
a later change in percentage resulting from the changes in the value of the
portfolio securities or a later change in the rating of a portfolio security
will not be considered a violation of such policy.
3. PERFORMANCE INFORMATION
Any current yield quotation of the Fund which is used in such a manner
as to be subject to the provisions of Rule 482(d) under the Securities Act of
1933, as amended, consists of an annualized historical yield, carried at least
to the nearest hundredth of one percent, based on a specific seven calendar day
period and is calculated by dividing the net change in the value of an account
having a balance of one share at the beginning of the period by the value of the
account at the beginning of the period and multiplying the quotient by 365/7.
For this purpose the net change in account value would reflect the value of
additional shares purchased with dividends declared on the original share and
dividends declared on both the original share and any such additional shares,
but would not reflect any realized gains or losses from the sale of securities
or any unrealized appreciation or depreciation on portfolio securities. In
addition, any effective yield quotation of the Fund so used shall be calculated
by compounding the current yield quotation for such period by multiplying such
quotation by 7/365, adding 1 to the product, raising the sum to a power equal to
365/7, and subtracting 1 from the result.
Any tax equivalent yield quotation of the Fund is calculated as
follows: If the entire current yield quotation for such period is tax-exempt,
the tax equivalent yield will be the current yield quotation divided by 1 minus
a stated income tax rate or rates. If a portion of the current yield quotation
is not tax-exempt, the tax equivalent yield will be the sum of (a) that portion
of the yield which is tax-exempt divided by 1 minus a stated income tax rate or
rates and (b) the portion of the yield which is not tax-exempt.
A total rate of return quotation for the Fund is calculated for any
period by (a) dividing (i) the sum of the net asset value per share on the last
day of the period and the net asset value per share on the last day of the
period of shares purchasable with dividends and capital gains distributions
declared during such period with respect to a share held at the beginning of
such period and with respect to shares purchased with such dividends and capital
gains distributions, by (ii) the public offering price on the first day of such
period, and (b) subtracting 1 from the result. Any annualized total rate of
return quotation is calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result.
Any tax equivalent total rate of return quotation of the Fund is
calculated as follows: If the entire current total rate of return quotation for
such period is tax-exempt, the tax equivalent total rate of return will be the
current total rate of return quotation divided by 1 minus a stated income tax
rate or rates. If a portion of the current total rate of return quotation is not
tax-exempt, the tax equivalent total rate of return will be the sum of (a) that
portion of the total rate of return which is tax-exempt divided by 1 minus a
stated income tax rate or rates and (b) the portion of the total rate of return
which is not tax-exempt.
Set forth below is total rate of return information, assuming that
dividends and capital gains distributions, if any, were reinvested, for the Fund
for the periods indicated, at the beginning of which periods no sales charges
were applicable to purchases of shares of the Fund (unless otherwise indicated).
<TABLE>
<CAPTION>
REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000
ANNUALIZED TOTAL RATE OF INVESTMENT AT THE END
PERIOD RETURN OF THE PERIOD
<S> <C> <C>
March 1, 1992 (commencement of operations) to August 2.77% $1,099.50
31, 1995
One year ended August 31, 1995 3.49 $1,034.90
</TABLE>
The annualized yield of the Fund for the seven-day period ended August
31, 1995 was 3.35%, the effective compound annualized yield of the Fund for such
period was 3.40% and the annualized tax equivalent yield of the Fund for such
period was 5.61% (assuming (i) a combined California State and federal tax
bracket of 46.24% and (ii) that 90% of the Fund's assets were invested in
California Municipal Obligations).
4. DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on
each day on which the New York Stock Exchange is open for trading. This
determination is made once during each such day as of 12:00 noon, Eastern time,
by dividing the value of the Fund's net assets (i.e., the value of its assets
less its liabilities, including expenses payable or accrued) by the number of
shares of the Fund outstanding at the time the determination is made. As of the
date of this Statement of Additional Information, the NYSE is open for trading
every weekday except for the following holidays (or the days on which they are
observed): New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It is
anticipated that the net asset value of each share of the Fund will remain
constant at $1.00 and, although no assurance can be given that it will be able
to do so on a continuing basis, as described below, the Fund employs specific
investment policies and procedures to accomplish this result.
The securities held by the Fund are valued at their amortized cost.
Amortized cost valuation involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium. If fluctuating interest rates cause the market value of the securities
held by the Fund to deviate more than 1/2 of 1% from their value determined on
the basis of amortized cost, the Board of Trustees of the Trust will consider
whether any action should be initiated, as described in the following paragraph.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the stated value of an instrument is higher or
lower than the price the Fund would receive if the instrument were sold.
Pursuant to the rules of the Securities and Exchange Commission, the
Trust's Board of Trustees has established procedures to stabilize the value of
the Fund's net assets within 1/2 of 1% of the value determined on the basis of
amortized cost. These procedures include a review of the extent of any such
deviation of net asset value, based on available market rates. Should that
deviation exceed 1/2 of 1%, the Trust's Board of Trustees will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to investors in the Fund. Such action may include withdrawal in
kind, selling securities prior to maturity and utilizing a net asset value as
determined by using available market quotations. The Fund maintains a
dollar-weighted average maturity of 90 days or less, does not purchase any
instrument with a remaining maturity greater than 397 days or subject to a
repurchase agreement having a duration of greater than 397 days, and limits its
investments, including repurchase agreements, to those U.S. dollar-denominated
instruments that are determined by the Adviser to present minimal credit risks
and comply with certain reporting and recordkeeping procedures. The Trust also
has established procedures to ensure that securities purchased by it meet the
high quality criteria described above in "Investment Policies."
Subject to compliance with applicable regulations, the Trust has
reserved the right to pay the redemption price of shares of the Fund, either
totally or partially, by a distribution in kind of readily marketable securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares or beneficial interests being sold. If a holder of shares or beneficial
interests received a distribution in kind, such holder could incur brokerage or
other charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for shares of the Fund for more than seven days during any period when
(a) trading in the markets the Fund normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists making
disposal of the Fund's investments or determination of its net asset value not
reasonably practicable; (b) the NYSE is closed (other than customary weekend and
holiday closings); or (c) the SEC has by order permitted such suspension.
5. MANAGEMENT
The Trustees and officers of the Trust, their ages and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate that those Trustees and
officers are "interested persons" (as defined in the 1940 Act) of the Trust.
Unless otherwise indicated below, the address of each Trustee and officer is 6
St. James Avenue, Boston, Massachusetts.
TRUSTEES
H. B. ALVORD; 73 -- Treasurer - Tax Collector, County of Los Angeles (retired,
March, 1984); Trustee, The 59 Wall Street Trust and The 59 Wall Street Fund,
Inc. (Registered Investment Companies). His address is P.O. Box 1812, Pebble
Beach, California.
ELLIOTT J. BERV; 52 -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since August, 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June, 1991 to
July, 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE; 44* -- President of the Trust; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. and The Landmark Funds
Broker-Dealer Services, Inc. (since December, 1988).
MARK T. FINN; 52 -- President and Director, Delta Financial, Inc. (since June,
1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd. (Commodity
Trading Advisory Firm) (since April, 1990); Director, Vantage Consulting Group,
Inc. (since October, 1988). His address is 3500 Pacific Avenue, P.O. Box 539,
Virginia Beach, Virginia.
RILEY C. GILLEY; 69 -- Vice President and General Counsel, Corporate Property
Investors (December, 1988 to September, 1991); Retired Partner, Breed, Abbott &
Morgan (Attorneys) (Retired, December, 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.
DIANA R. HARRINGTON; 55 -- Professor, Babson College (since September, 1993);
Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September, 1992 to September, 1993); Professor, Darden Graduate
School of Business, University of Virginia (September, 1978 to September, 1993);
Consultant to Kidder, Peabody & Co. Incorporated (since January, 1990). Her
address is 120 Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY; 44 -- President, Global Research Associates, Inc. (Investment
Research) (since August, 1990); Manager of Special Investments, Rockefeller &
Co. (April, 1988 to August, 1990); Director of Research, Rogers, Casey &
Barksdale (Investment Research and Consulting) (November, 1983 to March, 1988);
Director, New York Life Insurance Company (Institutional Mutual Funds) (since
December, 1990). Her address is P.O. Box 9572, New Haven, Connecticut.
C. OSCAR MORONG, JR.; 60 -- Chairman of the Board of Trustees of the Trust;
Managing Director, Morong Capital Management (since February, 1993); Senior Vice
President and Investment Manager, CREF Investments, Teachers Insurance & Annuity
Association (retired January, 1993). His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
WALTER E. ROBB, III; 69 -- President, Benchmark Advisors, Inc. (Corporate
Financial Advisors) (since 1989); Trustee of certain registered investment
companies in the MFS Family of Funds. His address is 35 Farm Road, Sherborn,
Massachusetts.
E. KIRBY WARREN; 61 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR.; 75 -- Vice President - Investments, Sun Company (retired,
April, 1984). His address is 35 Colwick Road, Cherry Hill, New Jersey.
OFFICERS
PHILIP W. COOLIDGE; 44* -- President of the Trust; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc., and The Landmark Funds
Broker-Dealer Services, Inc. (since December, 1988).
DAVID G. DANIELSON; 30*; Assistant Treasurer of the Trust; Assistant Manager,
Signature Financial Group, Inc. since May 1991; Graduate Student, Northeastern
University from April 1990 to March 1991.
JOHN R. ELDER; 47* -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April 1995); Treasurer, Phoenix Family of Mutual
Funds (Phoenix Home Life Mutual Insurance Company) (from 1983 to March 1995).
LINDA T. GIBSON; 30* -- Assistant Secretary of the Trust; Legal Counsel,
Signature Financial Group, Inc. (since June 1991); law student, Boston
University School of Law (from September 1989 to May 1992); Product Manager,
Signature Financial Group, Inc. (January 1989 to September 1989).
JAMES S. LELKO; 30*; Assistant Treasurer of the Trust; Assistant Manager,
Signature Financial Group, Inc. since January 1993; Senior Tax Compliance
Accountant, Putnam Companies since prior to December 1992.
THOMAS M. LENZ; 37* -- Secretary of the Trust; Vice President and Associate
General Counsel, Signature Financial Group, Inc. (since November 1989);
Attorney, Ropes & Gray (September 1984 to November 1989).
MOLLY S. MUGLER; 44* -- Assistant Secretary of the Trust; Legal Counsel and
Assistant Secretary, Signature Financial Group, Inc. (since December, 1988);
Assistant Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since
December, 1988).
BARBARA M. O'DETTE; 36* -- Assistant Treasurer of the Trust; Assistant
Treasurer, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer
Services, Inc. (since December, 1988).
ANDRES E. SALDANA; 33*; Assistant Secretary of the Trust; Legal Counsel and
Assistant Secretary, Signature Financial Group, Inc. since November 1992;
Attorney, Ropes & Gray from September 1990 to November 1992.
DANIEL E. SHEA; 33*; Assistant Treasurer of the Trust; Assistant Manager of Fund
Administration, Signature Financial Group, Inc. since November 1993; Supervisor
and Senior Technical Advisor, Putnam Investments since prior to 1990.
The Trustees and officers of the Trust also hold comparable positions
with certain other funds for which LFBDS or an affiliate serves as the
distributor or administrator.
TRUSTEES COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
TRUSTEE FROM THE TRUST(1) TRUST AND COMPLEX(2)
<S> <C> <C>
H.B. Alvord $1,579.26 $40,000.00
Elliott J. Berv $1,255.78 $40,000.00
Philip W. Coolidge 0 0
Mark T. Finn $1,226.33 $40,000.00
Riley C. Gilley $1,862.57 $44,000.00
Diana R. Harrington $1,764.46 $40,000.00
Susan B. Kerley $1,764.46 $40,000.00
C. Oscar Morong, Jr. $1,667.62 $44,500.00
Walter E. Robb, III $1,303.74 $44,500.00
E. Kirby Warren $1,667.62 $44,500.00
William S. Woods, Jr. $1,867.02 $44,000.00
- ---------------------
(1) For the fiscal year ended August 31, 1995.
(2) Information relates to the fiscal year ended August 31, 1995. Messrs. Alvord, Berv, Coolidge, Finn,
Gilley, Morong, Robb, Warren and Woods and Mses. Harrington and Kerley are trustees of 12, 12, 28, 14, 11,
12, 12, 12, 11, 11 and 11 Funds, respectively, of the Landmark Family of Funds.
</TABLE>
As of December 15, 1995, all Trustees and officers as a group owned
less than 1% of the Fund's outstanding shares. As of the same date, more than
95% of the outstanding shares of the Fund were held of record by Citibank, N.A.
or an affiliate, as a Shareholder Servicing Agent of the Fund, for the accounts
of their respective clients.
The Declaration of Trust of the Trust provides that the Trust 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 Trust unless, as to liability to the Trust or its investors, it
is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless with respect to any other matter it is finally adjudicated that they
did not act in good faith in the reasonable belief that their actions were in
the best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees of the Trust, or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
ADVISER
Citibank manages the assets of the Trust pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees of the Trust may determine, the Adviser manages the securities
of the Fund and makes investment decisions for the Fund. The Adviser furnishes
at its own expense all services, facilities and personnel necessary in
connection with managing the Fund's investments and effecting securities
transactions for the Fund. The Advisory Agreement will continue in effect as
long as its continuance is specifically approved at least annually by the Board
of Trustees of the Trust or by a vote of a majority of the outstanding voting
securities of the Fund, and, in either case, by a majority of the Trustees of
the Trust who are not parties to the Advisory Agreement or interested persons of
any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement provides that the Adviser may render services
to others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Trust when authorized
either by a vote of a majority of the outstanding voting securities of the Fund
or by a vote of a majority of the Board of Trustees of the Trust, or by the
Adviser on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Advisory
Agreement provides that neither the Adviser nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of security transactions
for the Fund, except for willful misfeasance, bad faith or gross negligence or
reckless disregard of its or their obligations and duties under the Advisory
Agreement.
The Prospectus contains a description of the fees payable to the
Adviser for services under the Advisory Agreement. The Adviser has voluntarily
agreed to waive a portion of the fees payable to it under the Advisory Agreement
on a month-to-month basis. For the fiscal years ended August 31, 1993, 1994 and
1995, the fees payable to the Adviser under the Advisory Agreement were $51,757,
$84,862 and $91,878 (all of which were voluntarily waived).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement (the "Administrative
Services Agreement"), LFBDS provides the Trust with general office facilities
and LFBDS supervises the overall administration of the Trust, including, among
other responsibilities, the negotiation of contracts and fees with, and the
monitoring of performance and billings of, the independent contractors and
agents of the Trust; the preparation and filing of all documents required for
compliance by the Trust with applicable laws and regulations; and arranging for
the maintenance of books and records of the Trust. The Administrator provides
persons satisfactory to the Board of Trustees of the Trust to serve as Trustees
and officers of the Trust. Such Trustees and officers may be directors, officers
or employees of LFBDS or its affiliates.
The Prospectus contains a description of the fees payable to the
Administrator under the Administrative Services Agreement.
For the fiscal years ended August 31, 1993, 1994 and 1995, the fees
payable to LFBDS from the Fund under the Administrative Services Agreement and a
prior administrative services agreement were $25,878, $63,646 and $68,908 (all
of which were voluntarily waived).
The Administrative Services Agreement with the Trust acknowledges that
the names "Landmark" and "Landmark Funds" are the property of the Administrator
and provides that if LFBDS ceases to serve as the Administrator of the Trust,
the Trust and the Fund will change their respective names so as to delete the
word "Landmark" or the words "Landmark Funds." The Administrative Services
Agreement with the Trust also provides that LFBDS may render administrative
services to others and may permit other investment companies in addition to the
Trust to use the word "Landmark" or the words "Landmark Funds" in their names.
The Administrative Services Agreement with the Trust continues in
effect if such continuance is specifically approved at least annually by the
Trust's Board of Trustees or by a vote of a majority of the outstanding voting
securities of the Trust and, in either case, by a majority of the Trustees of
the Trust who are not interested parties of the Trust or the Administrator. The
Administrative Services Agreement with the Trust terminates automatically if it
is assigned and may be terminated as to the Fund by the Trust without penalty by
vote of a majority of the outstanding voting securities of the Fund or by either
party on not more than 60 days' nor less than 30 days' written notice. The
Administrative Services Agreement with the Trust also provides that neither the
Administrator nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their obligations and duties under the Administrative Services Agreement.
The Administrator has agreed to reimburse the Fund for its operating
expenses (exclusive of interest, taxes, brokerage, and extraordinary expenses)
which in any year exceed the limits prescribed by any state in which the Fund's
shares are qualified for sale. The expenses incurred by the Fund for
distribution purposes pursuant to the Trust's Distribution Plan are included
within such operating expenses only to the extent required by any state in which
the Fund's shares are qualified for sale. The Trust may elect not to qualify the
Fund's shares for sale in every state. The Trust believes that currently the
most restrictive expense ratio limitation imposed by any state is 2 1/2% of the
first $30 million of the Fund's average net assets for its then-current fiscal
year, 2% of the next $70 million of such assets, and 1 1/2% of such assets in
excess of $100 million. For the purpose of this obligation to reimburse
expenses, the Fund's annual expenses are estimated and accrued daily, and any
appropriate estimated payments will be made by the Administrator. Subject to the
obligation of the Administrator to reimburse the Fund for its excess expenses as
described above, the Trust has, under its Administrative Services Agreement,
confirmed its obligation for payment of all other expenses of the Fund.
LFBDS is a wholly-owned subsidiary of Signature Financial Group, Inc.
Pursuant to a Sub-Administrative Services Agreement (the
"Sub-Administrative Agreement"), Citibank performs such sub-administrative
duties for the Trust as are from time to time agreed upon by Citibank and LFBDS.
Citibank's sub-administrative duties may include providing equipment and
clerical personnel necessary for maintaining the organization of the Trust,
participation in preparation of documents required for compliance by the Trust
with applicable laws and regulations, preparation of certain documents in
connection with meetings of Trustees and shareholders of the Trust, and other
functions which would otherwise be performed by the Administrator as set forth
above. For performing such sub-administrative services, Citibank receives such
compensation as is from time to time agreed upon by LFBDS and Citibank, not in
excess of the amount paid to the Administrator for its services under the
Administrative Services Agreement. All such compensation is paid by LFBDS.
DISTRIBUTOR
The Trust, on behalf of the Fund, has adopted a Distribution Plan (the
"Distribution Plan") in accordance with Rule 12b-1 under the 1940 Act after
having concluded that there is a reasonable likelihood that the Distribution
Plan will benefit the Fund and its shareholders. The Distribution Plan provides
that the Trust shall pay a distribution fee to the Distributor at an annual rate
not to exceed 0.10% of the Fund's average daily net assets for distribution of
the Fund's shares (exclusive of any advertising expenses incurred by the
Distributor in connection with the sale of shares of the Fund). The Distributor
may use all or any portion of such fee to pay for Fund expenses of printing
prospectuses and reports used for sales purposes, expenses of the preparation
and printing of sales literature and other distribution-related expenses.
The Trust is also permitted to pay the Distributor an additional fee
not to exceed 0.10% per annum of the Fund's average daily net assets in
anticipation of, or as reimbursement for, print or electronic media advertising
expenses incurred in connection with the sale of shares of the Fund. No payments
under the Distribution Plan will be made to Shareholder Servicing Agents
although Shareholder Servicing Agents receive payments under the Administrative
Services Plan referred to below.
The Distribution Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trust's Trustees and a majority of the Trust's Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any agreement related to the Plan
("Qualified Trustees"). The Distribution Plan requires that the Trust and the
Distributor shall provide to the Board of Trustees, and the Board of Trustees
shall review, at least quarterly, a written report of the amounts expended (and
the purposes therefor) under the Distribution Plan. The Distribution Plan
further provides that the selection and nomination of the Qualified Trustees is
committed to the discretion of the disinterested Trustees (as defined in the
1940 Act) then in office. The Distribution Plan may be terminated with respect
to the Fund at any time by a vote of a majority of the Trust's Qualified
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund. The Distribution Plan may not be amended to increase materially the amount
of the Fund's permitted expenses thereunder without the approval of a majority
of the outstanding voting securities of the Fund and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees. The Distributor will preserve copies of any plan, agreement
or report made pursuant to the Distribution Plan for a period of not less than
six years from the date of the Plan, and for the first two years the Distributor
will preserve such copies in an easily accessible place.
As contemplated by the Distribution Plan, LFBDS acts as the agent of
the Fund in connection with the offering of shares of the Fund pursuant to a
Distribution Agreement (the "Distribution Agreement"). After the prospectus and
periodic reports have been prepared, set in type and mailed to existing
shareholders, the Distributor pays for the printing and distribution of copies
of the prospectuses and periodic reports which are used in connection with the
offering of shares of the Fund to prospective investors. The Prospectus contains
a description of fees payable to the Distributor under the Distribution
Agreement. For the fiscal years ended August 31, 1993, 1994 and 1995, the fees
payable to the Distributor under the Distribution Agreement were $25,878,
$21,215 and $22,969 (all of which were voluntarily waived).
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Trust has adopted an Administrative Services Plan (the
"Administrative Plan") which provides that the Trust may obtain the services of
an administrator, a transfer agent, a custodian and one or more Shareholder
Servicing Agents, and may enter into agreements providing for the payment of
fees for such services. Under the Administrative Plan, the aggregate of the fee
paid to the Administrator from the Fund, the fees paid to the Shareholder
Servicing Agents from the Fund and the distribution fee paid from the Fund to
the Distributor under the Distribution Plan may not exceed 0.60% of the Fund's
average daily net assets on an annualized basis for the Fund's then-current
fiscal year. The Administrative Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trust's Trustees and a majority of the Trust's Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Administrative Plan or in any agreement related to such
Plan ("Qualified Trustees"). The Administrative Plan requires that the Trust
provide to the Trust's Board of Trustees and the Trust's Board of Trustees
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Administrative Plan. The Administrative Plan may be
terminated at any time with respect to the Fund by a vote of a majority of the
Trust's Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the Fund. The Administrative Plan may not be amended to increase
materially the amount of permitted expenses thereunder without the approval of a
majority of the outstanding voting securities of the Fund and may not be
materially amended in any case without a vote of the majority of both the
Trust's Trustees and the Qualified Trustees.
The Trust has entered into a shareholder servicing agreement (a
"Servicing Agreement") with each Shareholder Servicing Agent and a Transfer
Agency and Service Agreement and a Custodian Agreement with State Street Bank
and Trust Company ("State Street") pursuant to which State Street acts as
transfer agent and custodian and performs fund accounting services for the
Trust. For additional information, including a description of fees paid to the
Shareholder Servicing Agents under the Servicing Agreements, see "Shareholder
Servicing Agents" and "Transfer Agent, Custodian and Fund Accountant" in the
Prospectus. For the fiscal years ended August 31, 1994 and 1995, the aggregate
fees payable by the Fund to Shareholder Servicing Agents under the
Administrative Services Plan were $169,723 and $183,755 (all of which were
voluntarily waived).
6. PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of its portfolio securities usually are
principal transactions. Portfolio securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities. There
usually are no brokerage commissions paid for such purchases. The Fund does not
anticipate paying brokerage commissions. Any transaction for which the Fund pays
a brokerage commission will be effected at the best price and execution
available. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked price.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
to be in the best interest of investors in the Fund rather than by any formula.
The primary consideration is prompt execution of orders in an effective manner
at the most favorable price.
Investment decisions for the Fund will be made independently from those
for any other account, series or investment company that is or may in the future
become managed by the Adviser or its affiliates. If, however, the Fund and other
investment companies, series or accounts managed by the Adviser are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by the Fund or the size of the position obtainable for the Fund. In
addition, when purchases or sales of the same security for the Fund and for
other investment companies or series managed by the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
No portfolio transactions are executed with the Adviser, or with any
affiliate of the Adviser, acting either as principal or as broker.
7. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trust's Board of Trustees
to issue an unlimited number of full and fractional Shares of Beneficial
Interest (without par value) and to divide or combine the shares into a greater
or lesser number of shares without thereby changing the proportionate beneficial
interests in that series. Each share of the series represents an equal
proportionate interest in the series with each other share. Upon liquidation or
dissolution of the Fund, the Fund's shareholders are entitled to share pro rata
in the Fund's net assets available for distribution to its shareholders. The
Trust reserves the right to create and issue additional series of shares, in
which case the shares of each series would participate pro rata in the earnings,
dividends and distribution of net assets of the particular series upon the
liquidation or dissolution of the series. Shares of each series would be
entitled to vote separately to approve advisory agreements or changes in
investment policy, but shares of all series could vote together in the election
or selection of Trustees and accountants for the Fund.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee. The Trust is not required to and has no
current intention to hold annual meetings of shareholders but the Trust will
hold special meetings of shareholders when in the judgment of the Trust's
Trustees it is necessary or desirable to submit matters for a shareholder vote.
Shareholders have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Trustees by a specified number
of shareholders) the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have the right to remove one or more Trustees
without a meeting by a declaration in writing by a specified number of
shareholders. No material amendment may be made to the Trust's Declaration of
Trust without the affirmative vote of the holders of a majority of its
outstanding shares.
The Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Trust or of any series of the Trust, a Shareholder Servicing
Agent may vote any shares of which it is the holder of record and for which it
does not receive voting instructions proportionately in accordance with the
instructions it receives for all other shares of which it is the holder of
record. Shares have no preference, pre-emptive or conversion or similar rights.
Shares, when issued, are fully paid and non-assessable, except as set forth
below.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of the holders of
two-thirds of its outstanding shares voting as a single class, except that if
the Trustees of the Trust recommend such sale of assets, merger or
consolidation, the approval by a vote of the holders of a majority of the
Trust's outstanding voting securities would be sufficient. The Trust may be
terminated (i) by a vote of a majority of the outstanding voting securities of
the Trust or (ii) by the Trustees by written notice to the shareholders of the
Trust. If not so terminated, the Trust will continue indefinitely.
Share certificates will not be issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides for
indemnification and reimbursement of expenses out of the Trust property for any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (e.g., fidelity bonding and errors and omissions insurance) for the
protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of
the Trust are not binding upon the Trust's Trustees individually but only upon
the property of the Trust and that the Trust's Trustees will not be liable for
any action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
8. CERTAIN ADDITIONAL TAX MATTERS
The Fund has elected to be treated and intends to qualify each year as
a "regulated investment company" under Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of Fund distributions (as a percentage of
both the Fund's overall income and its tax-exempt income), and the composition
and holding period of the Fund's portfolio assets. Provided all such
requirements are met and all of the Fund's net investment income and realized
capital gains are distributed to shareholders in accordance with the timing
requirements imposed by the Code, no federal income or excise taxes will be
required to be paid by the Fund. If the Fund should fail to qualify as a
regulated investment company for any year, the Fund would incur a regular
corporate federal income tax upon its taxable income and Fund distributions
would generally be taxable as ordinary dividend income to shareholders.
The portion of the Fund's distributions of net investment income that
is attributable to interest from tax-exempt securities will be designated by the
Fund as an "exempt-interest dividend" under the Code and will generally be
exempt from federal income tax in the hands of shareholders so long as at least
50% of the total value of the Fund's assets consists of tax-exempt securities at
the close of each quarter of the Fund's taxable year. Distributions of
tax-exempt interest earned from certain securities may, however, be treated as
an item of tax preference for shareholders under the federal alternative minimum
tax, and all exempt-interest dividends may increase a corporate shareholder's
alternative minimum tax. Unless the Fund provides shareholders with actual
monthly percentage breakdowns, the percentage of income designated as tax exempt
will be applied uniformly to all distributions by the Fund of net investment
income made during each fiscal year of the Fund and may differ from the
percentage of distributions consisting of tax-exempt interest in any particular
month. Shareholders are required to report exempt-interest dividends received
from the Fund on their federal income tax returns.
Because the Fund expects to earn primarily interest income, it is
expected that no Fund distributions will qualify for the dividends-received
deduction for corporations.
9. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the independent certified public accountants
for the Fund, providing audit services and assistance and consultation with
respect to the preparation of filings with the Securities and Exchange
Commission.
The audited financial statements of the Fund (Portfolio of Investments
at August 31, 1995, Statement of Assets and Liabilities at August 31, 1995,
Statement of Operations for the years ended August 31, 1995 and 1994, Statement
of Changes in Net Assets for each of the years ended August 31, 1995 and August
31, 1994, Financial Highlights for each of the years in the three-year period
ended August 31, 1995; and for the period from March 10, 1992 (commencement of
operations) to August 31, 1992, Notes to Financial Statements and Independent
Auditor's Report), which are included in the Annual Report to Shareholders of
the Fund, are incorporated by reference into this Statement of Additional
Information and have been so incorporated in reliance upon the report of
Deloitte & Touche LLP.
A copy of the Annual Report accompanies this Statement of Additional
Information.
<PAGE>
APPENDIX
ADDITIONAL INFORMATION CONCERNING
CALIFORNIA MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in California Municipal Obligations. The sources of payment for such
obligations and the marketability thereof may be affected by financial or other
difficulties experienced by the State and certain of its municipalities and
public authorities. This information does not purport to be a complete
description and is based on information from statements relating to offerings of
California issuers. Landmark California Tax Free Reserves is not responsible for
the accuracy or timeliness of this information.
RECENT DEVELOPMENTS
Starting in mid-1990, the State of California (the "State") entered a
sustained economic recession, somewhat later than the rest of the nation. It was
the most severe recession in the State since the 1930s, with job losses
estimated at over 800,000, particularly in the manufacturing (predominately
aerospace), services and construction sectors. The greatest effects were felt in
Southern California. A significant portion of these losses were linked to
post-Cold War cuts in the federal defense budget and military base closures. The
trough of the recession is estimated to have occurred in late 1993, again later
than for the nation as a whole. Although a steady recovery has been underway
since 1994, pre-recession employment levels are not expected to be reached until
later in the decade.
Northridge Earthquake. On January 17, 1994, a major earthquake
measuring an estimated 6.8 on the Richter Scale struck the Los Angeles
metropolitan area, centered in the Northridge area of the City of Los Angeles.
Significant property damage, estimated at $15-20 billion, occurred to private
and public facilities in a four-county area including northern Los Angeles
County, Ventura County and parts of Orange and San Bernardino Counties. These
counties were declared State and federal disaster areas. Much of this damage
will be compensated by insurance or government aid. The effects of the
earthquake are not expected to have a material impact on the State's overall
economic performance.
Damage to State-owned facilities included transportation corridors and
facilities such as Interstate Highways 5 and 10 and State Highways 14, 118 and
210. Major highways have now been reopened. The campus of California State
University at Northridge, located very near the epicenter, suffered an estimated
$350 million damage and was closed for a short time, but has been reopened.
The State and federal governments have committed to providing
assistance to local governments, individuals and businesses suffering damage as
a result of the earthquake, as well as to providing for the repair and
replacement of State-owned facilities. The federal government is providing
substantial earthquake assistance, totaling over $9.5 billion.
On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "Pools") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Pools had
suffered significant market losses in their investments, causing a liquidity
crisis for the Pools and the County. More than 180 other public entities, most
of which, but not all, are located in the County, were also depositors in the
Pools. The County has reported the Pools' loss at about $1.69 billion, or about
23 percent of their initial deposits of approximately $7.5 billion. Many of the
entities which deposited moneys in the Pools, including the County, faced
interim and/or extended cash flow difficulties because of the bankruptcy filing
and may be required to reduce programs or capital projects.
As a result of the deterioration in the State's budget and cash
situation in fiscal years 1991-92 and 1992-93, rating agencies reduced the
State's credit rating. On December 13, 1991, Standard & Poor's Ratings Group
("S&P") lowered its rating of the State's general obligation bonds from AAA to
AA and did so again on July 15, 1992 from AA to A+. On February 11, 1992,
Moody's Investors Service ("Moody's") reduced its rating of the same debt from
Aaa to Aa1 and on July 6, 1992, Moody's again dropped its rating from Aa1 to Aa.
On February 14, 1992, Fitch Investors Service, Inc. ("Fitch") downgraded
California's general obligation bonds to AA+ from AAA and on September 25, 1992,
lowered its rating from AA+ to AA. On July 15, 1994, all three of the rating
agencies again lowered their ratings of the State's general obligation bonds.
Moody's lowered its rating from "Aa" to "A1," S&P lowered its rating from "A+"
to "A" and termed its outlook as "stable," and Fitch lowered its rating from
"AA" to "A." As of July 15, 1994 Moody's, S&P and Fitch assigned their municipal
bond ratings of A1, A and A, respectively, to the State's general obligation
bonds. Each such rating reflects only the views of the respective rating agency,
and an explanation of the significance of such rating may be obtained from such
rating agency. There is no assurance that such ratings will continue for any
given period of time or that they will not be revised or withdrawn entirely by
such rating agency if, in the judgment of such rating agency, circumstances so
warrant. A downward revision or withdrawal of any such rating may have an
adverse effect on the market price of the State's general obligation bonds.
CONSTITUTIONAL LIMITS ON SPENDING AND TAXES
STATE APPROPRIATIONS LIMIT
The State is subject to an annual appropriations limit imposed by
Article XIII B of the State Constitution (the "Appropriations Limit"). Article
XIII B prohibits the State from spending "appropriations subject to limitation"
in excess of the Appropriations Limit. Article XIII B, originally adopted in
1979, was modified substantially by Propositions 98 and 111 of 1988 and 1990,
respectively. See "Proposition 98" below. "Appropriations subject to
limitation," with respect to the State, are authorizations to spend "proceeds of
taxes," which consist of tax revenues, and certain other funds, including
proceeds from regulatory licenses, user charges or other fees to the extent that
such proceeds exceed "the cost reasonably borne by that entity in providing the
regulation, product or service," but "proceeds of taxes" exclude most State
subventions to local governments, tax refunds and some benefit payments such as
unemployment insurance. No limit is imposed on appropriations of funds which are
not "proceeds of taxes," such as reasonable user charges or fees and certain
other non-tax funds.
Not included in the Appropriations Limit are appropriations for the
debt service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government and, pursuant to Proposition 111,
appropriations for qualified capital outlay projects and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle weight
fees above January 1, 1990 levels. In addition, a number of recent initiatives
were structured or proposed to create new tax revenues dedicated to certain
specific uses, with such new taxes expressly exempted from the Article XIII B
limits (for example, increased cigarette and tobacco taxes enacted by
Proposition 99 in 1988). The Appropriations Limit may also be exceeded in cases
of emergency. However, unless the emergency arises from civil disturbance or
natural disaster declared by the Governor, and the appropriations are approved
by two-thirds of the Legislature, the Appropriations Limit for the next three
years must be reduced by the amount of the excess.
The State's Appropriations Limit in each year is based on the limit for
the prior year, adjusted annually for changes in California per capita personal
income and changes in population, and adjusted, when applicable, for any
transfer of financial responsibility of providing services to or from another
unit of government. The measurement of change in population is a blended average
of statewide overall growth, and change in attendance at local school and
community college ( "K-14") districts. As amended by Proposition 111, the
Appropriations Limit is tested over consecutive two-year periods. Any excess of
the aggregate "proceeds of taxes" received over such two-year period above the
combined Appropriations Limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.
PROPOSITION 98
On November 8, 1988, voters of the State approved Proposition 98, a
combined initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act." Proposition 98 changed State
funding of public education below the university level and the operation of the
State Appropriations Limit, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues. Under Proposition 98 (as modified by Proposition
111, which was enacted on June 5, 1990), K-14 schools are guaranteed the greater
of (a) in general, a fixed percent of General Fund revenues (Test 1"), (b) the
amount appropriated to K-14 schools in the prior year, adjusted for changes in
the cost of living (measured as in Article XIII B by reference to California per
capita personal income) and enrollment ("Test 2"), or (c) a third test, which
would replace Test 2 in any year when the percentage growth in per capital
General Fund revenues plus one half of one percent is less than the percentage
growth in California per capita personal income ("Test 3"). Under Test 3,
schools would receive the amount appropriated in the prior year adjusted for
changes in enrollment and per capita General Fund revenues, plus an additional
small adjustment factor. If Test 3 is used in any year, the difference between
Test 3 and Test 2 would become a "credit" to schools which would be the basis of
payments in future years when per capita General Fund revenue growth exceeds per
capita personal income growth. Legislation adopted prior to the end of the
1988-89 Fiscal Year, implementing Proposition 98, determined the K-14 schools'
funding guarantee under Test 1 to be 40.3 percent of the General Fund tax
revenues, based on 1986-87 appropriations. However, that percentage has been
adjusted to 34 percent to account for a subsequent redirection of local property
taxes, since such redirection directly affects the share of General Fund
revenues to schools.
SOURCES OF TAX REVENUE
The following is a summary of the State's major revenue sources.
PERSONAL INCOME TAX
The California personal income tax, which in 1993-94 contributed about
44 percent of General Fund revenues, is closely modeled after the federal income
tax law. It is imposed on net taxable income (gross income less exclusions and
deductions). The tax is progressive with rates ranging from 1 to 11 percent.
Personal, dependent, and other credits are allowed against the gross tax
liability. In addition, taxpayers may be subject to an alternative minimum tax
("AMT") which is much like the federal AMT. Legislation enacted in July 1991
added two new marginal tax rates, at 10 percent and 11 percent, effective for
tax years 1991 through 1995. After 1995, the maximum personal income tax rate is
scheduled to return to 9.3 percent, and the AMT rate is scheduled to drop from
8.5 percent to 7 percent.
The personal income tax is adjusted annually by the change in the
consumer price index to prevent taxpayers from being pushed into higher tax
brackets without a real increase in income.
SALES TAX
The sales tax is imposed upon retailers for the privilege of selling
tangible personal property in California. Sales tax accounted for about 35
percent of General Fund revenue in 1993-94. Most retail sales and leases are
subject to the tax. However, exemptions have been provided for certain
essentials such as food for home consumption, prescription drugs, gas,
electricity and water. Other exemptions provide relief for a variety of sales
ranging from custom computer software to aircraft.
BANK AND CORPORATION TAX
Bank and corporation tax revenues, which comprised about 12 percent of
General Fund revenue in 1993-94, are derived from the following taxes:
1. The franchise tax and the corporate income tax are levied at a 9.3
percent rate on profits. The former is imposed on corporations for the privilege
of doing business in California, while the latter is imposed on corporations
which do not do business in the State but which derive income from California
sources.
2. Banks and other financial corporations pay an additional tax at the
rate of approximately 1.7 percent on their net income. This tax is in lieu of
all State and local taxes except those on real property, motor vehicles and
business licenses.
INSURANCE TAX
The majority of insurance written in California is subject to a 2.35
percent gross premium tax. For insurers, this premium tax takes the place of all
other state and local taxes except those on real property and motor vehicles.
Exceptions to the 2.35 percent rate are certain pension and profit-sharing plans
which are taxed at the lesser rate of 0.50 percent, surplus lines at 3 percent
and ocean marine insurers at 5 percent of underwriting profits. Insurance taxes
comprised approximately 3 percent of General Fund revenues in 1993-94.
OTHER TAXES
Other tax sources for the General Fund include: Estate, Inheritance and
Gift Taxes, Cigarette Taxes, Alcoholic Beverage Taxes and Horse Racing Revenues.
These other tax sources total approximately 3 percent of General Fund revenues
in the 1993-94 Fiscal Year.
SPECIAL FUND REVENUES
The California Constitution, codes and statutes specify the uses of
certain revenue. Such receipts are accounted for in various special funds. In
general, Special Fund revenues comprise three categories of income:
1. Receipts from tax levies which are allocated to specified functions,
such as motor vehicle taxes and fees and certain taxes on tobacco products.
2. Charges for special services to specific functions, including such
items as business and professional license fees.
3. Rental royalties and other receipts designated for particular
purposes (for example, oil and gas royalties).
On November 8, 1988, voters approved Proposition 99, which imposed, as
of January 1, 1989, an additional 25 cents per pack excise tax on cigarettes,
and a new, equivalent excise tax on other tobacco products. The initiative
requires that funds from this tax be allocated to health related, environmental
and educational programs. The Legislature has, a part of the 1994-95 and 1995-96
Budget Acts redirected part of the Proposition 99 funds to indigent health care.
These actions have been blocked by court orders, and, as regards the 1995-96
Fiscal Year, are in litigation. Legislation enacted in 1993 added an additional
2 cents per pack excise tax for the purpose of funding breast cancer research.
The State is a respondent/defendant in two cases filed by the American
Lung Association and the Americans for Nonsmokers' Rights (American Lung
Association v. Wilson; Americans for Nonsmokers' Rights v. State of California).
These cases challenge the amendment of statutes prescribing specific percentages
of tobacco tax revenues to be placed in accounts to be used for health education
and research programs, as well as the appropriation of approximately $63 million
in tobacco tax funds for medical treatment programs, pursuant to legislation
enacted in July 1995. In September 1995, the Sacramento County Superior Court
issued a preliminary injunction, confirming an earlier temporary restraining
order, prohibiting the State from issuing, negotiating or processing warrants
from the challenged appropriations. A hearing on the petition for writ of
mandate is anticipated to be scheduled, which the State will contest.
PRIOR FISCAL YEARS' FINANCIAL RESULTS
FISCAL YEARS PRIOR TO 1994-95
In the years following the enactment of the federal Tax Reform Act of
1986, and conforming changes to the State's tax laws, taxpayer behavior became
much more difficult to predict, and the State experienced a series of fiscal
years in which revenue came in significantly higher or lower than original
estimates. From the late 1980's until 1992-93, the State had a period of budget
imbalance. Starting in the 1990-91 Fiscal Year and for each fiscal year
thereafter, each budget required multibillion dollar actions to bring projected
revenues and expenditures into balance and to close large "budget gaps" which
were identified. Despite these budget actions, the effects of the recession led
to large, unanticipated deficits in the budget reserve, the Special Fund for
Economic Uncertainties or SFEU, as compared to projected positive balances. The
State's cash condition became so serious in late spring of 1992 that the State
Controller was required to issue revenue anticipation warrants maturing in the
following fiscal year in order to pay the State's continuing obligations.
1994-95 FISCAL YEAR
The 1994-95 Fiscal Year represented the fourth consecutive year the
Governor and the Legislature were faced with a very difficult budget environment
to produce a balanced budget. The Governor's Budget Proposal, as updated in May
and June, 1994, recognized that the accumulated deficit could not be repaid in
one year, and proposed a two-year solution designed to eliminate the accumulated
budget deficit, estimated at about $1.8 billion on June 30, 1994, by June 30,
1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994,
projected revenues and transfers of $41.9 billion, $2.1 billion more than actual
revenues received in 1993-94, and expenditure of $40.9 billion, an increase of
$1.6 billion from the prior year. The revenue estimate partly reflected the
Administration's forecast of an improving economy. The principal features of the
1994-95 Budget Act were the following:
1. Receipt of additional federal aid of about $760 million for costs of
refugee assistance and medical care for illegal immigrants. Analysis of the
federal Fiscal Year 1995 budget by the Department of Finance indicates that
about $98 million was appropriated for California to offset costs of
incarceration of illegal immigrants, less than the $356 million which was
assumed in the State's 1994-95 Budget Act. Because of timing considerations in
applying for these federal funds, the Department of Finance estimates that about
$33 million of these funds will be received during the State's 1994-95 Fiscal
Year, with the balance received in the following fiscal year. It does not appear
that the federal budget contains any of the additional $400 million in funding
for refugee assistance and health costs which were also assumed in the 1994-95
Budget Act.
2. Reductions of approximately $1.1 billion in health and welfare
costs. Certain of these actions have been blocked so far by legal challenges.
See below.
Deanna Beno, et al. v. Donna Shalala, et al. See discussion following
"Current State Budget" section.
Welch v. Anderson. See discussion following "Current State Budget"
section.
3. A General Fund increase of approximately $38 million in support for
the University of California and $65 million for California State University,
accompanied by student fee increases for both the University of California and
California State University.
4. Proposition 98 funding for K-14 schools was increased by $526
million from 1993-94 Fiscal Year levels, representing an increase for enrollment
growth and inflation. Consistent with previous budget agreements, Proposition 98
funding provided approximately $4,217 per student for K-12 schools, equal to the
level in the prior three years.
5. Additional miscellaneous cuts ($500 million), fund transfers ($255
million), and adjustment to prior years' legislation concerning property tax
shifts for local governments ($300 million).
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after this year failed at the June, 1994 election. The
Legislature enacted a further one-year suspension of the renters' tax credit,
for 1995, saving about $390 million in the 1995-96 Fiscal Year.
Reports by the Department of Finance in May, 1995, indicate that, with
economic recovery well underway in the State, General Fund revenues for the
entire 1994-95 Fiscal Year were above projection, and expenditures were below
projections because of slower than anticipated health/welfare caseload growth
and school enrollments. The aggregate effect improved the budget picture by
about $500 million, leaving an estimated budget deficit of about $630 million on
June 30, 1995.
CURRENT STATE BUDGET
The discussion below of the 1995-96 fiscal year budget is based on
estimates and projections of revenues and expenditures for the current fiscal
year and must not be construed as a statement of fact. These estimates and
projections are based upon various assumptions which may be affected by numerous
factors, including future economic conditions in the State and the nation, and
there can be no assurance that the estimates will be achieved. See "Economic
Considerations" below.
1995-96 FISCAL YEAR
For the first time in four years, the State entered the upcoming fiscal
year with strengthening revenues and reduced caseload growth based on an
improving economy. The State entered the 1995-96 Budget negotiations with the
smallest nominal "budget gap" to be closed in many years. However, the serious
policy differences between the Governor and Legislature prevented timely
enactment of the budget. The 1995-96 Budget Act was signed by the Governor on
August 3, 1995, 34 days after the start of the fiscal year. The Budget Act
projects General Fund revenues and transfers of $44.1 billion, a 3.5 percent
increase from the prior year. Expenditures are budgeted at $43.4 billion, a 4
percent increase. The Department of Finance projects that, after repaying the
last of the carryover budget deficit, there will be a positive balance of $28
million in the budget reserve, the Special Fund for Economic Uncertainties, on
June 30, 1996. The Budget Act also projects Special Fund revenues of $12.7
billion and appropriates Special Fund expenditures of $13.0 billion.
The Department of Finance projects cash flow borrowings in the 1995-96
Fiscal Year will be the smallest in many years, comprising about $2 billion of
notes to be issued in April, 1996, and maturing by June 30, 1996. With full
payment of $4 billion of revenue anticipation warrants on April 25, 1995, the
Department sees no further need for borrowing over the end of the fiscal year.
The available internal borrowable cash resources of the General Fund on June 30,
1996, are projected at almost $2 billion. The State Controller has commented on
this estimate, and will reexamine this cushion on October 16, 1995, in the third
step of the Budget Adjustment Law process.
The following are the principal features of the 1995-96 Budget Act:
1. Proposition 98 funding for schools and community colleges will
increase by about $1.0 billion (General Fund) and $1.2 billion total above
revised 1994-95 levels. Because of higher-than-projected revenues in 1994-95, an
additional $543 million ($91 per K-12 ADA) is appropriated to the 1994-95
Proposition 98 entitlement. A large part of this is a block grant of about $54
per pupil for any one-time purpose. Per-pupil expenditures are projected to
increase by another $125 in 1995-96 to $4,435. For the first time in several
years, a full 2.7 percent cost of living allowance is funded. The budget
compromise anticipates a settlement of the CTA v. Gould litigation.
2. Cuts in health and welfare costs totaling about $0.9 billion. some
of these cuts (totaling about $500 million) would require federal legislative
approval.
A federal Court of Appeals in the case of Deanna Beno, et al. v. Donna
Shalala, et al., reversing a trial court ruling in favor of the State, recently
determined that the Secretary of the United States Department of Health and
Human Services violated the Federal Administrative Procedure Act when she
approved California's Assistance Payment Demonstration Project, which, in part,
granted California a waiver from complying with requirements for state
participation in the federal program for medical assistance (Medicaid). The
waiver had allowed California to reduce payments under the Aid to Families with
Dependent Children program (AFDC) below 1988 payment levels without violating
Medicaid requirements relating to maintenance of AFDC payment levels. The Court
of Appeals remanded the case to the trial court with instructions to remand the
demonstration project to the Secretary for additional consideration of
objections raised by the plaintiffs. The State has submitted a renewed waiver
request to the Secretary, which is currently pending. The effect of the court's
decision on California is uncertain at this time.
One of the features of the 1994-95 Budget Act is a 2.3 percent
reduction in AFDC payments. In Welch v. Anderson, on August 19, 1994, the San
Francisco Superior Court issued a preliminary injunction against the California
Director of Social Services to prevent the 2.3 percent AFDC cuts from becoming
effective September 1, 1994. The case has been appealed, and on August 16, 1995,
the appellate court upheld the issuance of the preliminary injunction. The case
on the merits remains pending.
3. A 3.5 percent increase in funding for the University of California
($90 million General Fund) and the California State University system ($24
million General Fund).
4. The Budget assumes receipt of $473 million in new federal aid for
costs of illegal immigrants, above commitments already made by the federal
government. This amount is much less than estimates made in the summer of 1994
as part of the two-year budget proposal, and somewhat lower than the estimates
in the January 1995 Governor's Budget.
5. General Fund support for the Department of Corrections is increased
by about 8 percent over the prior year, reflecting estimates of increased prison
population, but funding is less than proposed in the Governor's Budget.
In Jernigan & Burleson v. State, filed in federal district court, the
prison inmate plaintiffs claim they are entitled to minimum wages while working
for the Prison Industry Authority. The inmates claim the State has violated the
Fair Labor Standards Act (the "FLSA"). Plaintiffs are seeking back pay for the
period from August 1990 onward, and liquidated damages, for a total of
approximately $350 million. In June 1995, the district court ruled that the
inmates are not employees under FLSA. The decision has been appealed to the
Ninth Circuit Court of Appeals.
ECONOMIC CONSIDERATIONS
Economic developments in California and the nation have unfolded close
to the economic forecasts contained in the Governor's January Budget. As
anticipated, the national economy has slowed in its growth, but this slowdown
has not thwarted California's economic recovery, which continues and is evident
in a broad range of the State's industries. Similar to other economic forecasts,
the May 1995 Revision to the 1995-96 Governor's Budget projects that
California's economy will continue to out-perform the nation's economy in both
employment and personal income growth through 1995 and in 1996. The following
excerpts are from the May 1995 Revision discussion of economic conditions.
The U.S. economy turned in a strong performance in 1994, with real
gross domestic product (GDP) up 4.1 percent on average, capped by a 5.1-percent
growth spurt in the fourth quarter. But the early months of 1995 have brought
unmistakable signs of a slowing in economic growth. Advance estimates of first
quarter GDP indicate that the economy grew at a 2.8-percent pace, and much of
the gain reflected the largest buildup in inventories in nearly 11 years. Final
sales--excluding the effects of inventory movements--rose at a tepid 1.7-percent
pace, down sharply from the fourth quarter's 5.7-percent rate.
There are a number of positive elements in the outlook which will
almost certainly keep the current slowdown from turning into a full-fledged
downturn. For one thing, business fixed investment remains strong, especially
for high-tech equipment outlays. Real producers' durable equipment spending
surged at a 21-percent annual rate in the first quarter, following gains of 18
percent and more than 19 percent in the last two quarters of 1994. Spending on
technology helps reduce costs and boost productivity--key elements in
maintaining profitability as final demand slows. These strong gains in high-tech
equipment spending are particularly important for California's electronics
industry.
Although consumers are more cautious, the fundamentals of income and
employment remain sound. Income gains outpaced household spending in the first
quarter, and lower interest rates will eventually lead to increased purchases of
big-ticket goods and housing.
The interest rate outlook has improved dramatically since the beginning
of the year. Interest rates on longer term securities, including mortgages, are
down more than a full percentage point since mid-December. The weaker economy
and continued good news on inflation should all but rule out a further Federal
Reserve hike in short-term rates. This forecast expects both short- and
long-term interest rates to decline later this year and in early 1996.
On the inflation front, most non-food commodity prices have eased off
early-year peaks due to slower economic growth, although there is some
expectation of climbing oil prices. Compensation costs, including wages and
benefits, rose at a record slow pace in the first quarter of 1995, reflecting
among other factors, a dramatic slowing in medical premiums. California's floods
are placing upward pressure on fresh fruit and vegetable prices, but bumper
Midwest grain crops in 1994 point to lower meat and poultry prices this year.
The conclusion is that consumer price inflation will likely hover in the 3
percent zone in 1995 and 1996, very much in line with experience of the last
three years.
The key question in the California outlook is the extent to which the
U.S. slowdown will affect the state's economic recovery. Since the emerging U.S.
slowdown was anticipated in the January Budget forecast, there is little reason
to alter the basic view of California's prospects over the next 18 months.
Job growth is still expected to be near 200,000 this year and about
300,000 in 1996. Personal income is expected to increase by 6.7 percent in 1995
and by approximately 6 percent next year. With inflation in California below 2
percent this year and around 3 percent in 1996, these income gains point to
solid real growth in the state's economy.
California's economy would perform even better were it not for the
softening in US activity. But there are several good reasons to expect the state
to escape the major impact of the slower national economy:
o California's late entry into the economic upturn implies
considerable pent-up demand for motor vehicles and other consumer
durable goods, as well as housing.
o Lower interest rates will provide and extra boost to housing and
big-ticket consumer purchases later this year and in 1996
o The strength of business equipment purchases is a plus for
California. In addition, home computes comprise the one buoyant
segment of US consumer durable spending, and California is the
leader in the manufacture of computers for the home market (as
well as the chips inside them).
o The effects of defense spending cuts and restructuring in such
industries as banking and the utilities are gradually diminishing.
Employment in the latter two industries should stabilize by 1996.
o The prospect of rising US exports, now strengthened even more by
the lower dollar exchange rate, is an important plus for
California' trade-oriented economy.
EXPORT PROSPECTS
There is concern the Mexico's problems will dampen the California
outlook. Prior to the peso crisis, California might have expected to see exports
to Mexico rise by about $1 billion this year. Now, a drop of about $2 billion
seems likely - a $3 billion swing. But although Mexico is an important element
in the state's export picture, Japan and Europe are far larger markets ($33
billion) for the state's goods and services.
Already, the strong yen has prompted a record surge in tourism from
Japan. These visitors are not just sightseeing, but are also buying a variety of
consumer goods at less than half the price they could at home. In addition to
tourism, traditional exports are also on the rise. Even though Japan's recovery
is likely to slow as a result of the rising yen, American - including California
- - exports will increase.
The dollar's depreciation is considerably less against European
currencies, but there will still be an extra boost for exports. Thus, it is
likely that most if not all of the weakness in exports to Mexico will be offset
by better prospects in Europe and Asia.
While the uncertainties surrounding the U.S.-Japanese trade
negotiations will take some time to play out, the proposed sanctions on Japanese
luxury vehicles are not expected to materially effect the level of California
exports.
WINTER RAINS
Damage from the heavy winter rains will probably exceed $2 billion when
the final totals are in. Late spring rains and cool weather have reduced
projected yields for alfalfa and canning tomatoes. But without minimizing the
impact of the losses on individual farmers and homeowners, there are also gains
which will partially offset the weather-related damage on a statewide basis.
PERSONAL INCOME
In 1994, personal income growth was held down by special factors,
including the Northridge earthquake and tax-related income shifting following
the November Congressional elections. The earthquake subtracted over $6 billion
from income last year, reflecting uninsured losses to residences and small
businesses. It appears that about $2 billion was shifted from the fourth
quarter, after the election dramatically increased the odds of a federal tax cut
in 1995. In the previous two years, income had been accelerated to avoid federal
tax increases, following the 1992 Presidential election. Without these
distortions, income would have grown 4.7 percent last year, rather than the 3.5
percent estimate.
The reversal of these special factors will add to growth in 1995. The
forecast 6.7-percent increase would be a more moderate 5.2-percent rise without
the earthquake-related and tax-motivated income shifting. The moderate
improvement in underlying income growth reflects employment gains, partially
offset by slower growth in interest income and government transfer payments. In
1996, this underlying improvement is projected to continue, with income up
almost 6 percent.
<PAGE>
SHAREHOLDER SERVICING AGENTS
FOR CITIBANK NEW YORK RETAIL BANKING AND
BUSINESS AND PROFESSIONAL CUSTOMERS:
Citibank, N.A.
450 West 33rd Street, New York, NY 10001
(212) 564-3456 or (800) 846-5300
FOR CITIGOLD CLIENTS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive or in NY or CT (800) 285-1701,
or for all other states (800) 285-1707
FOR CITIBANK PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Registered Representative or (212) 559-5959
FOR CITIBANK GLOBAL ASSET MANAGEMENT CLIENTS:
Citibank, N.A.
Citibank Global Asset Management
153 East 53rd Street, New York, NY 10043
(212) 559-7117
FOR CITIBANK NORTH AMERICAN INVESTOR SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10043
Call Your Account Manager or (212) 657-9100
FOR CITICORP INVESTMENT SERVICES CUSTOMERS:
Citicorp Investment Services
One Court Square, Long Island City, NY 11120
Call Your Investment Consultant or (800) 846-5200
(212) 736-8170 in New York City
<PAGE>
LANDMARK CALIFORNIA TAX FREE RESERVES
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge, President*
H.B. Alvord
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Thomas M. Lenz*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
- ----------------------------------------------------------------------------
INVESTMENT ADVISER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
The Landmark Funds Broker-Dealer Services, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN State Street Bank and Trust Company 225 Franklin
Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street, Boston, MA 02110
- ----------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENTS
(See Inside of Cover)
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
LANDMARK CALIFORNIA TAX FREE RESERVES
Condensed Financial Information - Financial Highlights for the
years ended August 31, 1995, August 31, 1994 and August 31,
1993 and the period from March 10, 1992 (commencement of
operations) to August 31, 1992.
Financial Statements Included in Part B:
LANDMARK CALIFORNIA TAX-FREE RESERVES
Portfolio of Investments at August 31, 1995*
Statement of Assets and Liabilities at August 31, 1995*
Statement of Operations for the year ended August 31, 1995 and
August 31, 1994*
Statement of Changes in Net Assets for the years ended
August 31, 1995 and August 31, 1994*
Financial Highlights for the years ended August 31, 1995,
August 31, 1994 and August 31, 1993 and the period from
March 10, 1992 (commencement of operations) to
August 31, 1992*
- ------------------
*Incorporated by reference to the Registrant's Annual Report to Shareholders of
Landmark California Tax-Free Reserves for the fiscal year (or period) ended
August 31, 1995, filed with the Securities and Exchange Commission on the
EDGAR system on or about October 26, 1995 (Accession Number
775613-95-000002).
<TABLE>
<CAPTION>
(b) Exhibits
<S> <C>
* 1(a) Declaration of Trust of Registrant
*** 1(b) Amended and Restated Establishment and Designation of Series
* 2(a) Amended and Restated By-Laws of Registrant
**** 2(b) Amendment to Amended and Restated By-Laws of Registrant
* and *** 4 Specimen of certificate representing ownership of shares in the Registrant
*** 5 Investment Advisory Agreement between the Registrant and Citibank, N.A., as
adviser
* and *** 6 Amended and Restated Distribution Agreement between the Registrant and The
Landmark Funds Broker-Dealer Services, Inc. ("LFBDS"), as distributor
* 8 Custodian Contract between the Registrant and State Street Bank and Trust
Company ("State Street"), as custodian
*** 9(a) Amended and Restated Administrative Services Plan of the Registrant
* and *** 9(b) Administrative Services Agreement between the Registrant and LFBDS, as
administrator
* and *** 9(c) Form of Amended and Restated Sub-Administrative Services Agreement between
Citibank, N.A. and LFBDS
**** 9(d)(i) Form of Shareholder Servicing Agreement between the Registrant and Citibank,
N.A., as shareholder servicing agent
**** 9(d)(ii) Form of Shareholder Servicing Agreement between the Registrant and a federal
savings bank, as shareholder servicing agent
**** 9(d)(iii) Form of Shareholder Agreement between the Registrant and LFBDS, as shareholder
servicing agent
* 9(e) Transfer Agency and Servicing Agreement between the Registrant and State
Street, as transfer agent
**** 9(g) Form of Amended and Restated Exchange Privilege Agreement among the
Registrant, certain other investment companies and LFBDS, as distributor
11 Consent of Deloitte & Touche LLP, independent auditors of the Registrant
* and *** 15(a) Amended and Restated Distribution Plan of the Registrant
*** 16 Performance Calculations
*, **, ***, 25 Powers of Attorney for the Registrant
****
27 Financial Data Schedule
- ---------------------
*Incorporated herein by reference to the Registrant's Registration Statement
on Form N-1A as filed with the Securities and Exchange Commission on
December 31, 1991 and Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A as filed with the Securities and
Exchange Commission on July 21, 1992.
**Incorporated herein by reference to Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on December 18, 1992.
***Incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on December 16, 1993.
****Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on November 3, 1994.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
As of December 18, 1995
Shares of Beneficial Interest
(without par value)
Landmark California Tax Free Reserves 6
Item 27. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to Post-Effective Amendment No. 1 to
its Registration Statement on Form N-1A; (b) Section 4 of the Distribution
Agreement between the Registrant and The Landmark Funds Broker-Dealer Services,
Inc., filed as an Exhibit to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A; and (c) the undertaking of the Registrant
regarding indemnification set forth in its Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, a
registered bank holding company. Citibank also serves as investment adviser to
the following registered investment companies (or series thereof): The Premium
Portfolios (Balanced Portfolio, Equity Portfolio, Government Income Portfolio,
International Equity Portfolio, Emerging Asian Markets Equity Portfolio and
Small Cap Equity Portfolio), Tax Free Reserves Portfolio, U.S. Treasury Reserves
Portfolio, Cash Reserves Portfolio, Landmark Multi-State Tax Free Funds
(Landmark Connecticut Tax Free Reserves, Landmark New York Tax Free Reserves),
Landmark Fixed Income Funds (Landmark Intermediate Income Fund), Landmark Tax
Free Income Funds (Landmark New York Tax Free Income Fund and Landmark National
Tax Free Income Fund) and Landmark VIP Funds (Landmark VIP U.S. Government
Portfolio, Landmark VIP Balanced Portfolio, Landmark VIP Equity Portfolio and
Landmark VIP International Equity Portfolio). As of December 31, 1994, Citibank
and its affiliates managed assets in excess of $73 billion worldwide. The
principal place of business of Citibank is located at 399 Park Avenue, New York,
New York 10043.
The Chairman of the Board and a Director of Citibank is John S. Reed.
The following are Vice Chairmen of the Board and Directors of Citibank: Paul J.
Collins, Pei-yuan Chia, William R. Rhodes and H. Onno Ruding. Other Directors of
Citibank are D. Wayne Calloway, Chairman and Chief Executive Officer, PepsiCo,
Inc., Purchase, New York; Colby H. Chandler, Former Chairman and Chief Executive
Officer, Eastman Kodak Company; Kenneth T. Derr, Chairman and Chief Executive
Officer, Chevron Corporation; H.J. Haynes, Senior Counselor, Bechtel Group,
Inc., San Francisco, California; Rozanne L. Ridgway, President, The Atlantic
Council of the United States; Robert B. Shapiro, President and Chief Operating
Officer, Monsanto Company; Frank A. Shrontz, Chairman and Chief Executive
Officer, Boeing Company, Seattle, Washington; Mario Henrique Simonsen, Vice
Chairman, Brazilian Institute of Economics, The Getulio Vargas Foundation; Roger
B. Smith, Former Chairman and Chief Executive Officer, General Motors
Corporation; Franklin A. Thomas, President, The Ford Foundation, New York, New
York; and Edgar S. Woolard, Jr., Chairman and Chief Executive Officer, E.I.
DuPont De Nemours & Company.
Each of the individuals named above is also a Director of Citicorp. In
addition, the following persons have the affiliations indicated:
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Company
Director, PepsiCo., Inc.
Colby H. Chandler Director, Digital Equipment Corporation
Director, Ford Motor Company
Director, J.C. Penney Company, Inc.
Pei-yuan Chia None
Paul J. Collins Director, Kimberly-Clark Corporation
Kenneth T. Derr Director, Chevron Corporation
Director, Potlatch Corporation
H.J. Haynes Director, Bechtel Group, Inc.
Director, Boeing Company
Director, Fremont Group, Inc.
Director, Hewlett-Packard Company
Director, Paccar Inc.
Director, Saudi Arabian Oil Company
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies, Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding Corporation
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporation
Director, Boeing Company
Director, Emerson Electric Company
Member-International Advisory Board,
New Perspective Fund, Inc.
Director, RJR Nabisco, Inc.
Director, Sara Lee Corporation
Director, Union Carbide Corporation
H. Onno Ruding Member, Board of Supervisory Directors,
Amsterdam Trustee's Kantoor
Board Member, Corning Incorporated
Advisor, Intercena (C&A) (Netherlands)
Member, Board of Supervisory Directors,
Pechiney Nederland N.V.
Member, Board of Advisers, Robeco N.V.
Advisory Director, Unilever N.V.
Advisory Director, Unilever PLC
Robert B. Shapiro Director, G.D. Searle & Co.
Director, Liposome Technology, Inc.
Director, Monsanto Company
Director, The Nutrasweet Company
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director, Boeing Company
Director, Boise Cascade Corp.
Mario Henrique Simonsen Director, Companhia Bozano Simonsen
Comercioe E Industria
Director, Companhia Monteia & Aranha
President, Simposium Consultoria E
Servicos Tecnicos LTDA
Roger B. Smith Director, International Paper Company
Director, Johnson & Johnson
Director, Pepsico, Inc.
Director, Rubatex Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, American Telephone & Telegraph Co.
Director, CBS Inc.
Director, Cummins Engine Company, Inc.
Director, Pepsico, Inc.
Edgar S. Woolard, Jr. Director, E.I. DuPont De Nemours & Company
Director, International Business Machines Corp.
Director, Seagram Company, Ltd.
Item 29. Principal Underwriters.
(a) The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS"), the
Registrant's Distributor, is also the distributor for Landmark International
Equity Fund, Landmark Emerging Asian Markets Equity Fund, Landmark U.S. Treasury
Reserves, Landmark Cash Reserves, Premium U.S. Treasury Reserves, Premium Liquid
Reserves, Landmark Institutional U.S. Treasury Reserves, Landmark Institutional
Liquid Reserves, Landmark Tax Free Reserves, Landmark Connecticut Tax Free
Reserves, Landmark New York Tax Free Reserves, Landmark U.S. Government Income
Fund, Landmark Intermediate Income Fund, Landmark Balanced Fund, Landmark Equity
Fund, Landmark Small Cap Equity Fund, Landmark National Tax Free Income Fund,
Landmark New York Tax Free Income Fund, and Landmark VIP Funds (Landmark VIP
U.S. Government Portfolio, Landmark VIP Balanced Portfolio, Landmark VIP Equity
Portfolio and Landmark VIP International Equity Portfolio). LFBDS is also the
placement agent for International Equity Portfolio, Balanced Portfolio, Equity
Portfolio, Small Cap Equity Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Cash Reserves Portfolio, U.S. Treasury Reserves
Portfolio and Tax Free Reserves Portfolio.
(b) The information required by this Item 29 with respect to each
director and officer of LFBDS is incorporated by reference to Schedule A of Form
BD filed by LFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
The Landmark Funds Broker-Dealer Services, Inc. 6 St. James Avenue
(administrator and distributor) Boston, MA 02116
State Street Bank and Trust Company 1776 Heritage Drive
(custodian and transfer agent) North Quincy, MA 02171
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
SHAREHOLDER SERVICING AGENTS
Citibank, N.A. 450 West 33rd Street
New York, NY 10001
Citibank, N.A. -- Citigold 666 5th Avenue
New York, NY 10043
Citibank, N.A. -- The Citibank 153 East 53rd Street
Private Bank New York, NY 10022
Citibank, N.A. -- Citibank Global 153 East 53rd Street
Asset Management New York, NY 10043
Citibank, N.A. -- North American 111 Wall Street
Investor Services New York, NY 10043
Citicorp Investment Services One Court Square
Long Island City, NY 11120
The Landmark Funds Broker-Dealer Services, Inc. 6 St. James Avenue
Boston, MA 02116
</TABLE>
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus of Landmark California Tax Free Reserves is
delivered with a copy of such fund's latest Annual Report to
Shareholders, upon request without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment to its Registration Statement on Form N-1A meets all of
the requirements for effectiveness pursuant to Rule 485(b) under the Securities
Act of 1933 and that the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and Commonwealth
of Massachusetts on the 27th day of December, 1995.
LANDMARK MULTI-STATE TAX FREE FUNDS
By: Philip W. Coolidge
-------------------------------------
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated below on December 27, 1995.
Signature Title
Philip W. Coolidge President, Principal Executive Officer and Trustee
----------------------
Philip W. Coolidge
John R. Elder Principal Accounting and Financial Officer
----------------------
John R. Elder
H.B. Alvord* Trustee
----------------------
H.B. Alvord
Elliott J. Berv* Trustee
----------------------
Elliot J. Berv
Mark T. Finn* Trustee
----------------------
Mark T. Finn
Riley C. Gilley* Trustee
----------------------
Riley C. Gilley
Diana R. Harrington* Trustee
----------------------
Diana R. Harrington
Susan B. Kerley* Trustee
----------------------
Susan B. Kerley
C. Oscar Morong, Jr.* Trustee
----------------------
C. Oscar Morong, Jr.
Walter E. Robb, III* Trustee
----------------------
Walter E. Robb, III
E. Kirby Warren* Trustee
----------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
----------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
--------------------------------
Philip W. Coolidge
Executed by Philip W. Coolidge on behalf of those indicated pursuant to
Powers of Attorney.
<PAGE>
EXHIBIT INDEX
11 Consent of Deloitte & Touche LLP, independent auditors of the Registrant
27 Financial Data Schedule
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post Effective Amendment
No. 5 to Registration Statement No. 33-44749 of Landmark Multi-State Tax Free
Funds of our report dated October 9, 1995 appearing in the annual report to
shareholders for the year ended August 31, 1995 of Landmark California Tax Free
Reserves (a series of Landmark Multi-State Tax Free Funds), and to the
references to us under the headings "Condensed Financial Information" in the
Prospectus and "Independent Accountants and Financial Statements" in the
Statement of Additional Information, both of which are part of such Registration
Statement.
Deloitte & Touche LLP
Boston, Massachusetts
December 27, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775613
<NAME> LANDMARK MULTI STATE TAX FREE FUNDS
<SERIES>
<NUMBER>002
<NAME>LANDMARK CALIFORNIA TAX FREE RESERVES
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 54,615,962
<RECEIVABLES> 441,672
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 73,158
<TOTAL-ASSETS> 55,130,792
<PAYABLE-FOR-SECURITIES> 3,159,517
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,159,517
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,841,085
<SHARES-COMMON-STOCK> 51,841,085
<SHARES-COMMON-PRIOR> 52,864,216
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,773)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 51,832,312
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,710,465
<OTHER-INCOME> 0
<EXPENSES-NET> 136,522
<NET-INVESTMENT-INCOME> 1,573,943
<REALIZED-GAINS-CURRENT> (7,800)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,566,143
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,573,943)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 163,071,202
<NUMBER-OF-SHARES-REDEEMED> 1,256,049
<SHARES-REINVESTED> (165,350,381)
<NET-CHANGE-IN-ASSETS> (1,030,930)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (973)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91,878
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 555,947
<AVERAGE-NET-ASSETS> 45,939
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
