<PAGE>
Rule 497(c)
File Nos. 33-5819 and 811-5034
LANDMARK NATIONAL TAX FREE INCOME FUND
LANDMARK NEW YORK TAX FREE INCOME FUND
(Members of the LandmarkSM Family of Funds)
Class A and B Shares
This Prospectus describes two mutual funds in the Landmark Family of Funds:
Landmark National Tax Free Income Fund and Landmark New York Tax Free Income
Fund. Each Fund has its own investment objectives and policies.
Citibank, N.A. is the investment adviser.
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REMEMBER THAT SHARES OF THE FUNDS:
* ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY
* ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, CITIBANK
OR ANY OF ITS AFFILIATES
* ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED
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This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. A Statement of Additional
Information dated April 3, 1995 (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 Funds may be made, by contacting the investor's
Shareholder Servicing Agent (see inside back cover for address and phone
number).
This Prospectus shall not constitute an offer to sell or the solicitation of
an offer to buy, nor shall there be any sales of these securities in any state
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
TABLE OF CONTENTS
2 Prospectus Summary
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4 Expense Summary
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6 Condensed Financial Information
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7 Investment Information
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8 Risk Considerations
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9 Valuation of Shares
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10 Classes of Shares
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11 Purchases
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14 Exchanges
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15 Redemptions
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16 Dividends and Distributions
Management
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19 Tax Matters
Performance Information
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20 General Information
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21 Appendix -- Permitted Investments
and Investment Practices
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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
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See the body of the Prospectus for more information on the topics discussed
in this summary.
THE FUNDS: This Prospectus describes two mutual funds: Landmark National Tax
Free Income Fund and Landmark New York Tax Free Income Fund. Each Fund has its
own investment objectives and policies. There can be no assurance that either
Fund will achieve its objectives.
INVESTMENT OBJECTIVES AND POLICIES:
LANDMARK NATIONAL TAX FREE INCOME FUND. To generate high levels of current
income exempt from federal income taxes and to preserve the value of its
shareholders' investment. The Fund invests primarily in municipal obligations
that pay interest that is exempt from federal income taxes.
LANDMARK NEW YORK TAX FREE INCOME FUND. To generate high levels of current
income exempt from federal, New York State and New York City personal income
taxes and to preserve the value of its shareholders' investment. The Fund
invests primarily in municipal obligations that pay interest that is exempt from
federal, New York State and New York City personal income taxes.
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 each Fund. See "Management."
PURCHASES AND REDEMPTIONS: Customers of Shareholder Servicing Agents may
purchase and redeem shares of the Funds on any Business Day. See "Purchases" and
"Redemptions."
PRICING: Investors may select Class A or Class B shares, with different expense
levels and sales charges (if available through the investors' Shareholder
Servicing Agents). See "Classes of Shares," "Purchases" and "Management --
Distribution Arrangements."
CLASS A SHARES. Offered at net asset value plus any applicable initial sales
charge (maximum of 4.00% of the public offering price) and subject to a
distribution fee at the annual rate of 0.05% of the average daily net assets
represented by the Class A shares. Purchases of $1 million or more are not
subject to an initial sales charge, but are subject to a 1.00% contingent
deferred sales charge in the event of certain redemptions within 12 months
following purchase.
The sales charge on Class A shares may be reduced or eliminated through the
following programs:
Letter of Intent
Right of Accumulation
Reinstatement Privilege
See "Purchases" and "Redemptions."
CLASS B SHARES. Offered at net asset value (a maximum contingent deferred sales
charge of 5.00% of the lesser of the shares' net asset value at redemption or
their original purchase price is imposed on certain redemptions made within six
years of the date of purchase) and subject to a distribution fee at the annual
rate of 0.75% of the average daily net assets represented by the Class B shares
and a service fee at the annual rate of 0.05% of the average daily net assets
represented by the Class B shares. Class B shares automatically convert into
Class A shares (which have a lower distribution fee) approximately eight years
after purchase.
EXCHANGES: Shares may be exchanged for shares of the corresponding class of most
other Landmark Funds. See "Exchanges."
DIVIDENDS: Dividends are declared and paid monthly for each Fund. Net capital
gains are distributed annually. See "Dividends and Distributions."
REINVESTMENT: All dividends and capital gains distributions may be received
either in cash or in Fund shares of the same class at net asset value, subject
to the policies of a shareholder's Shareholder Servicing Agent. See "Dividends
and Distributions."
WHO SHOULD INVEST: Each Fund has its own suitability considerations and risk
factors, as summarized below and described in more detail in "Investment
Information" and "Risk Considerations." No single Fund is intended to provide a
complete investment program.
NATIONAL TAX FREE INCOME FUND. The Fund is designed for investors seeking
current income that is exempt from federal income taxes. Investors should be
willing to accept fluctuation in the price of shares of the Fund.
NEW YORK TAX FREE INCOME FUND. The Fund is designed for investors seeking
current income that is exempt from federal, New York State and New York City
personal income taxes. Investors should be willing to accept fluctuation in the
price of shares of the Fund and to bear the increased risk of an investment
portfolio that is concentrated in obligations of New York and its political
subdivisions.
RISK FACTORS: There can be no assurance that either Fund will achieve its
investment objectives. Each Fund's net asset value will fluctuate based on
changes in the values of the underlying portfolio securities. As a result, an
investor's shares may be worth more or less at redemption than at the time of
purchase.
The value of fixed income securities, including municipal obligations,
generally goes down when interest rates go up, and vice versa. Changes in
interest rates will generally cause bigger changes in the prices of longer-term
securities than in the prices of shorter-term securities.
Prices of fixed income securities also fluctuate based on changes in the
actual and perceived creditworthiness of issuers. Bond ratings take into account
the likelihood that each issuer will be able to make its required payments, and
the prices of lower rated securities often fluctuate more than those of higher
rated securities. Also, it is possible that some issuers will be unable to make
required payments on fixed income securities held by each Fund.
Each Fund is a non-diversified mutual fund, which means that it may invest a
relatively high percentage of its assets in the obligations of a limited number
of issuers. The New York Tax Free Income Fund's investments are, under normal
circumstances, concentrated in municipal obligations of New York issuers. As a
result, each Fund is more susceptible than more diversified funds to any single
economic, political or regulatory occurrence, and the New York Tax Free Income
Fund is particularly susceptible to occurrences affecting New York issuers. New
York State, New York City and other New York governmental authorities have
experienced financial difficulties, and as a result the credit ratings of some
of their municipal obligations have been downgraded.
Certain investment practices may also entail special risks. Investors should
read "Risk Considerations" for more information about risk factors.
<PAGE>
EXPENSE SUMMARY
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The following table summarizes estimated shareholder transaction and annual
operating expenses for Class A and B shares of each Fund.*
NATIONAL TAX FREE NEW YORK TAX FREE
INCOME FUND INCOME FUND
CLASS A CLASS B CLASS A CLASS B
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SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on
Purchases (as a percentage
of offering price) ............... 4.00% None 4.00% None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, whichever See See
is less) ......................... Below(1) 5.00% Below(1) 5.00%
ANNUAL FUND OPERATING EXPENSES AFTER
FEE WAIVERS (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Management Fee(2) ....... 0.25% 0.25% 0.19% 0.19%
12b-1 Fees (including service fees
for Class B shares)(2)(3) ........ 0.05% 0.80% 0.05% 0.80%
Other Expenses
Administrative Services Fees(2) .. 0.10% 0.10% 0.14% 0.14%
Shareholder Servicing Agent Fees
(2) ............................ 0.25% 0.25% 0.25% 0.25%
Other Operating Expenses(2) ...... 0.15% 0.15% 0.17% 0.17%
Total Fund Operating Expenses(4) ... 0.80% 1.55% 0.80% 1.55%
(1) Purchases of $1 million or more are not subject to an initial sales charge;
however, a contingent deferred sales charge of 1.00% will be imposed in the
event of certain redemptions within 12 months following purchase. See
"Classes of Shares" and "Purchases."
(2) After fee waivers.
(3) 12b-1 distribution fees are asset-based sales charges. Long-term
shareholders in a 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. The figures for the Class B shares
include service fees, which are payable at the annual rate of 0.05% of the
average daily net assets represented by Class B shares.
(4) Absent fee waivers, "Total Fund Operating Expenses" would have been 0.95%
for Class A shares and 1.70% for Class B shares of the National Tax Free
Income Fund and 1.32% for Class A shares and 2.22% for Class B shares of the
New York Tax Free Income Fund.
*This table is intended to assist investors in understanding the various costs
and expenses that a shareholder of a Fund will bear, either directly or
indirectly. Because the National Tax Free Income Fund is newly organized and
Class B shares were not offered during the most recent fiscal year of the New
York Tax Free Income Fund, Other Operating Expenses in the table with respect
to all shares of the National Tax Free Income Fund and Class B shares of the
New York Tax Free Income Fund are based on estimated amounts for the current
fiscal year. There can be no assurance that the fee waivers reflected in the
table will continue at their present levels. For more information on costs and
expenses, see "Management" and "General Information -- Expenses."
EXAMPLE: A shareholder would pay the following expenses on a $1,000 investment,
assuming, except as otherwise noted, redemption at the end of each period
indicated below:
ONE YEAR THREE YEARS
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NATIONAL TAX FREE INCOME FUND
Class A shares(1) .................................... $48 $65
Class B shares:
Assuming complete redemption at end of period(2).. $66 $79
Assuming no redemption ........................... $16 $49
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
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NEW YORK TAX FREE INCOME FUND
Class A shares(1) ............ $48 $65 $ 83 $135
Class B shares:
Assuming complete redemption
at end of period(2)(3) ... $66 $79 $104 $164
Assuming no redemption(3) .. $16 $49 $ 84 $164
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(1) Assumes deduction at the time of purchase of the maximum 4.00% sales load.
(2) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares
approximately eight years after purchase.
The Example assumes that all dividends are reinvested and reflects certain
voluntary fee waivers. If waivers were not in place, the amounts in the example
would be $53 and $80 for National Tax Free Income Fund -- Class A; $72 and $99
for National Tax Free Income Fund -- Class B (assuming complete redemption at
the end of each period); $53, $80, $109 and $193 for New York Tax Free Income
Fund -- Class A; and $73, $99, $139 and $221 for New York Tax Free Income Fund
- -- Class B (assuming complete redemption at the end of each period). For the
Class A shares of the New York Tax Free Income Fund expenses are based on the
Fund's fiscal year ended December 31, 1994, and for the Class A shares of the
National Tax Free Income Fund expenses are estimated since the Fund had no
assets during the fiscal year ended December 31, 1994. Expenses for Class B
shares are estimated, because Class B shares were not offered during the fiscal
year ended December 31, 1994. 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 any Fund's future performance. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF ANY FUND. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
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The following table provides condensed financial information about the New York
Tax Free Income Fund for the periods indicated. The National Tax Free Income
Fund is newly organized and therefore has not issued financial statements. The
information below should be read in conjunction with the financial statements
appearing in the New York Tax Free Income Fund's Annual Report to Shareholders,
which is incorporated by reference in the Statement of Additional Information.
The financial statements and notes, as well as the table below, have been
audited by Deloitte & Touche LLP, independent certified public accountants,
whose report is included in the New York Tax Free Income 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).
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NEW YORK TAX FREE INCOME FUND
FINANCIAL HIGHLIGHTS
CLASS A SHARES
(No Class B shares were outstanding during these periods.)
<TABLE>
<CAPTION>
FOUR
YEAR MONTHS
ENDED ENDED
DEC. 31, DEC. 31, YEAR ENDED AUGUST 31,
1994 1993<F5> 1993 1992 1991 1990 1989 1988 1987<F4>
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period...... $11.54 $11.44 $10.82 $10.27 $ 9.77 $ 9.89 $ 9.34 $ 9.49 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Operations:
Net investment income ..... 0.566 0.210 0.567 0.589 0.583 0.565 0.577 0.586 0.575
Net realized and
unrealized gain (loss)
on investments .......... (1.415) 0.076 0.610 0.541 0.510 (0.117) 0.550 (0.156) (0.517)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from operations.. (0.849) 0.286 1.177 1.130 1.093 0.448 1.127 0.430 0.058
------ ------ ------ ------ ------ ------ ------ ------ ------
Less Dividends From:
Net investment income ... (0.601) (0.186) (0.557) (0.580) (0.593) (0.568) (0.577) (0.580) (0.568)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of period ........... $10.09 $11.54 $11.44 $10.82 $10.27 $ 9.77 $ 9.89 $9.340 $9.490
====== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) ......... $86,399 $120,824 $111,583 $81,185 $73,884 $76,442 $73,790 $70,050 $92,850
Ratio of expenses to
average net assets ...... 0.80% 0.80%<F3> 0.80% 0.80% 0.81% 1.37% 1.42% 1.25% 0.72%
Ratio of net investment
income to average net
assets .................. 5.52% 4.84%<F3> 5.11% 5.58% 5.82% 5.73% 5.95% 6.34% 6.18%
Portfolio turnover ..... 150% 46% 149% 143% 337% 170% 204% 107% 114%
Total return .............. (7.47%) 2.52%<F2> 11.19% 11.31% 11.52% 4.66% 12.49% 4.67% 0.54%
Note: If certain agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods indicated,
the net investment income per share and the ratios would have been as follows:
Net investment income per share $0.508 $0.191 $0.515 $0.537 $0.540 $0.561 <F1> $0.586 $0.519
RATIOS:
Expenses to average
net assets ............. 1.27% 1.23%<F3> 1.27% 1.30% 1.24% 1.40% <F1> 1.26% 1.33%
Net investment income
to average net assets .. 5.05% 4.40%<F3> 4.64% 5.09% 5.39% 5.69% <F1> 6.33% 5.57%
<FN>
<F1>No waiver or assumption of expenses during the period.
<F2>Not annualized.
<F3>Annualized.
<F4>For the period from the start of business, September 8, 1986 to August 31, 1987.
<F5>Effective September 1, 1993, the Fund changed its fiscal year end from August 31 to December 31.
</TABLE>
<PAGE>
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVES: The investment objectives of the NATIONAL TAX FREE INCOME
FUND are to generate high levels of current income exempt from federal income
taxes and to preserve the value of its shareholders' investment.
The investment objectives of the NEW YORK TAX FREE INCOME FUND are to
generate high levels of current income exempt from federal, New York State and
New York City personal income taxes and to preserve the value of its
shareholders' investment.
The investment objectives of each Fund may be changed by its Trustees
without approval by that Fund's shareholders, but shareholders will be given
written notice at least 30 days before any change is implemented. Of course,
there can be no assurance that either Fund will achieve its investment
objectives.
INVESTMENT POLICIES: The NATIONAL TAX FREE INCOME FUND seeks its objectives by
investing in debt securities consisting primarily of obligations issued by state
and municipal governments and by public authorities ("Municipal Obligations")
that pay interest that is exempt from federal income taxes including the federal
alternative minimum tax ("tax-exempt Municipal Obligations"). Under normal
circumstances at least 80% of the Fund's assets will be invested in tax-exempt
Municipal Obligations.
The National Tax Free Income Fund may invest in short-term debt securities
that pay interest that is subject to federal income taxes, including those
issued by companies, the U.S. Government or agencies of the U.S. Government.
Except for temporary defensive purposes no more than 20% of the Fund's net
assets will be invested in debt securities that pay interest subject to federal
income tax.
The NEW YORK TAX FREE INCOME FUND seeks its objectives by investing in
Municipal Obligations that pay interest that is exempt from federal, New York
State and New York City personal income taxes including the federal alternative
minimum tax ("triple tax-exempt Municipal Obligations"). Under normal
circumstances at least 80% of the Fund's assets will be invested in triple
tax-exempt Municipal Obligations.
The New York Tax Free Income Fund may invest in Municipal Obligations paying
interest that is exempt from federal income taxes but subject to New York State
and New York City personal income taxes. The Fund may also invest in short-term
debt securities that pay interest that is subject to federal, New York State and
New York City personal income taxes, including those issued by companies, the
U.S. Government or agencies of the U.S. Government. Except for temporary
defensive purposes no more than 20% of the Fund's net assets will be invested in
debt securities that pay interest subject to federal income tax or New York
State or New York City personal income taxes.
Municipal Obligations include municipal bonds, notes and commercial paper
issued by the states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agencies
and instrumentalities. The Funds may invest both in "general obligation" bonds,
which are backed by the full faith, credit and taxing power of the issuer, and
in "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
Each Fund will invest only in cash and in debt securities that either (i)
carry at least a Baa rating from Moody's Investor's Service, Inc., or a BBB
rating from Standard & Poor's Ratings Group, or are considered by the Adviser to
be of equivalent quality, (ii) are issued or guaranteed by the U.S. Government
or one of its agencies or instrumentalities, or (iii) are obligations (including
certificates of deposit, bankers' acceptances and repurchase agreements) of
banks with at least $1 billion of assets.
Securities rated Baa or BBB, while considered "investment grade," have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments on bonds rated Baa or BBB than is the case for higher
grade securities. Investors should review Appendix B to the Statement of
Additional Information for a description of credit ratings.
Under normal market conditions, the weighted average maturity of securities
held by each Fund is in a long-term range (between 10 and 30 years). While
long-term debt securities tend to generate a higher rate of current income than
short-term debt securities, the prices of long-term debt securities generally
fluctuate more in response to interest rate changes and other factors than the
prices of short-term debt securities. Therefore, investors in each Fund should
be willing to accept fluctuation in the price of shares of the Fund.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
TEMPORARY INVESTMENTS. During periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, each Fund may
invest without limit in cash and in U.S. dollar-denominated high quality money
market and short-term instruments. These investments may result in a lower yield
than would be available from investments with a lower quality or longer term and
the interest on these investments may be subject to tax.
OTHER PERMITTED INVESTMENTS. For more information regarding the Funds'
permitted investments and investment practices, see the Appendix -- Permitted
Investments and Investment Practices on p. 21. The Funds will not necessarily
invest or engage in each of the investments and investment practices in the
Appendix but reserve the right to do so.
INVESTMENT RESTRICTIONS. The Statement of Additional Information contains a
list of specific investment restrictions which govern the investment policies of
the Funds, including a limitation that each Fund may borrow money from banks in
an amount not to exceed 33 1/3% of the Fund's net assets for extraordinary or
emergency purposes (e.g., to meet redemption requests). Certain of these
specific restrictions may not be changed without shareholder approval. Except as
otherwise indicated, the Funds' investment objectives 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 a Fund's securities will not be a violation of policy.
PORTFOLIO TURNOVER. Securities of each Fund will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objectives, without regard to the length of time a particular security may have
been held. The turnover rate for each Fund is expected to be approximately 150%
annually. For the fiscal years ended August 31, 1993 and December 31, 1994, the
turnover rate for the New York Tax Free Income Fund was 149% and 150%,
respectively, and for the four month period ended December 31, 1993 the turnover
rate was 46%. The amount of transaction costs and realization of taxable capital
gains will tend to increase as the level of portfolio activity increases.
BROKERAGE TRANSACTIONS. The primary consideration in placing each 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
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The risks of investing in each 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.
CHANGES IN NET ASSET VALUE. Each Fund's net asset value will fluctuate based
on changes in the values of the underlying portfolio securities. This means that
an investor's shares may be worth more or less at redemption than at the time of
purchase.
INTEREST RATE RISK. The value of fixed income securities, including
Municipal Obligations, generally goes down when interest rates go up, and vice
versa. Furthermore, the value of fixed income securities may vary based on
anticipated or potential changes in interest rates. Changes in interest rates
will generally cause bigger changes in the prices of longer-term securities than
in the prices of shorter-term securities.
CREDIT RISK. Prices of fixed income securities fluctuate based on changes in
the actual and perceived creditworthiness of issuers. Bond ratings take into
account the likelihood that an issuer will be able to make its required
payments, and the prices of lower rated securities often fluctuate more than
those of higher rated securities. It is possible that some issuers will be
unable to make required payments on fixed income securities held by a Fund.
"REVENUE" OBLIGATIONS. Each Fund may invest in Municipal Obligations that
are payable only from the revenues generated from a specific project or from
another specific revenue source. Each Fund may invest more than 25% of its
assets in (i) industrial revenue bonds issued to finance industrial projects,
and (ii) Municipal Obligations issued to finance housing, electrical utilities
and hospitals (although each Fund may not invest more than 25% of its assets at
any time in debt securities financing any one of housing, electrical utilities,
or hospitals, considered as three separate categories). Projects may suffer
construction delays, increased costs or reduced revenues as a result of
political, regulatory, economic and other factors. As a result projects may not
generate sufficient revenues to pay principal and interest on Municipal
Obligations held by a Fund.
NON-DIVERSIFIED FUNDS. Each Fund is a non-diversified mutual fund. This
means that it is not subject to any statutory restrictions under the Investment
Company Act of 1940 (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 each Fund may invest a relatively
high percentage of its assets in the obligations of a limited number of issuers,
the value of shares of each Fund may be more susceptible to any single economic,
political or regulatory occurrence than the value of shares of diversified
mutual funds would be. The New York Tax Free Income Fund is particularly
susceptible to occurrences affecting New York issuers. Each 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 more diversified mutual funds.
NEW YORK SECURITIES. The New York Tax Free Income Fund's investments are,
under normal circumstances, concentrated in Municipal Obligations of New York
issuers. Payment of interest and principal of these securities is dependent on
the continuing ability of issuers in New York to meet their obligations.
Investors in the New York Tax Free Income Fund should consider carefully the
special risks inherent in investing in New York Municipal Obligations. These
risks result from the financial condition of New York State, certain of its
public bodies and municipalities, and New York City. Beginning in early 1975,
New York State, New York City and other State entities faced serious financial
difficulties which jeopardized the credit standing and impaired the borrowing
abilities of such entities and contributed to high interest rates on, and lower
market prices for, debt obligations issued by them. These financial difficulties
caused the credit ratings of certain New York Municipal Obligations to be
downgraded by ratings agencies. A recurrence of such financial difficulties or a
failure of certain financial recovery programs could result in defaults or
declines in the market values of various New York Municipal Obligations in which
the New York Tax Free Fund may invest. There can be no assurance that credit
ratings on obligations of New York State, New York City and other New York
governmental authorities will not be downgraded further. Investors in this Fund
should consider the greater risks inherent in the Fund's concentration in these
securities when compared with the safety that comes with a less geographically
concentrated investment portfolio. Further information is set forth in the
Statement of Additional Information.
INVESTMENT PRACTICES. Certain of the investment practices employed for the
Funds may entail certain risks. See the Appendix -- Permitted Investments and
Investment Practices on p.21.
VALUATION OF SHARES
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Net asset value per share of each class of shares of each 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 the close of regular trading on
the Exchange (currently 4:00 p.m. Eastern time) by adding the market value of
all securities and other assets attributable to a class of a Fund, then
subtracting the liabilities charged to the class, and then dividing the result
by the number of outstanding shares of the class. Per share net asset value of
each class of each Fund's shares may differ because Class B shares bear higher
expenses than Class A shares. The net asset value per share of each class of
shares is effective for orders received and accepted by the Distributor prior to
its calculation.
Portfolio securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed to
accurately reflect fair value.
CLASSES OF SHARES
- ------------------------------------------------------------------------------
DIFFERENCES AMONG THE CLASSES: Class A and B shares of a Fund represent
interests in the same mutual fund. The primary distinctions between the classes
of each Fund's shares are their initial and contingent deferred sales charge
structures and their ongoing expenses, including service fees and asset-based
sales charges in the form of distribution fees. These differences are summarized
in the following table. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class that best suits their
circumstances and objectives.
ANNUAL 12B-1 FEES
(AS A PERCENTAGE OF
AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
----------------------------------------------------------------------------
CLASS A Maximum initial sales Distribution fee Initial sales charge
charge of 4.00% of 0.05% waived or reduced for
of the public certain purchases; a
offering price contingent deferred
sales charge may apply
in certain instances
where the initial sales
charge is waived
CLASS B Maximum contingent Distribution fee Shares convert to Class A
deferred sales charge of 0.75%. shares approximately
of 5.00% of the Service fee of eight years after
lesser of redemption 0.05% issuance
proceeds or original
purchase price;
declines to zero
after six years
- -----------------------------------------------------------------------------
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES: In deciding which class of
shares to purchase, investors should consider the cost of sales charges together
with the cost of the ongoing annual expenses described below, as well as any
other relevant facts and circumstances.
SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.00% of the public offering price (except that for
purchases of $1 million or more, no initial sales charge is imposed and a
contingent deferred sales charge may be imposed instead). Because of this
initial sales charge, not all of a Class A shareholder's purchase price is
invested in a Fund. Class B shares are sold with no initial sales charge, but a
contingent deferred sales charge (up to 5.00% of the lesser of the shares' net
asset value at redemption or their original purchase price) applies to
redemptions made within six years of purchase. Thus, the entire amount of a
Class B shareholder's purchase price is immediately invested in a Fund.
WAIVERS AND REDUCTIONS OF SALES CHARGES. Class A share purchases totalling
at least $100,000 and Class A share purchases made under a Fund's reduced sales
charge plan may be made at a reduced sales charge. In considering the combined
cost of sales charges and ongoing annual expenses, investors should take into
account any reduced sales charges on Class A shares for which they may be
eligible.
The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. However, a 1.00% contingent deferred sales charge is
imposed on certain redemptions of Class A shares on which no initial sales
charge was assessed. Because Class A shares bear lower ongoing annual expenses
than Class B shares, in most cases investors eligible for reduced initial sales
charges should purchase Class A shares.
The contingent deferred sales charge may be waived upon redemption of
certain Class B shares. See "Purchases."
ONGOING ANNUAL EXPENSES. Class A shares pay an annual 12b-1 distribution fee
of 0.05% of average daily net assets. Class B shares pay an annual 12b-1
distribution fee of 0.75% of average daily net assets and an annual service fee
of 0.05% of average daily net assets represented by Class B shares. Annual 12b-1
distribution fees are a form of asset-based sales charge. An investor should
consider both ongoing annual expenses and initial or contingent deferred sales
charges in estimating the costs of investing in the different classes of Fund
shares over various time periods.
CONVERSION OF CLASS B SHARES: A shareholder's Class B shares will automatically
convert to Class A shares in the same Fund approximately eight years after the
date of issuance, together with a pro rata portion of all Class B shares
representing dividends and other distributions paid in additional Class B
shares. The conversion will be effected at the relative net asset values per
share of the two classes on the first Business Day of the month in which the
eighth anniversary of the issuance of the Class B shares occurs. If a
shareholder effects one or more exchanges among Class B shares of the Landmark
Funds during the eight-year period, the holding periods for the shares so
exchanged will be counted toward the eight-year period. Because the per share
net asset value of the Class A shares may be higher than that of the Class B
shares at the time of conversion, a shareholder may receive fewer Class A shares
than the number of Class B shares converted, although the dollar value will be
the same. See "Valuation of Shares." The conversion of Class B shares to Class A
shares is subject to the continuing availability of a ruling from the Internal
Revenue Service or an opinion of counsel that the conversion will not constitute
a taxable event for federal tax purposes. There can be no assurance that such a
ruling or opinion will be available, and the conversion of Class B shares to
Class A shares will not occur if such ruling or opinion is not available. In
that event, Class B shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.
OTHER INFORMATION: See "Purchases," "Redemptions" and "Management --
Distribution Arrangements" for a more complete description of the initial and
contingent deferred sales charges and distribution fees for each class of shares
of each Fund. By purchasing shares an investor agrees to the imposition of
initial and deferred sales charges as described in this Prospectus.
PURCHASES
- ------------------------------------------------------------------------------
Each Fund offers two classes of shares, Class A and B shares, with different
expense levels and sales charges. See "Classes of Shares" for more information.
WHEN PLACING PURCHASE ORDERS, INVESTORS SHOULD SPECIFY WHETHER THE ORDER IS FOR
CLASS A OR CLASS B SHARES. ALL SHARE PURCHASE ORDERS THAT FAIL TO SPECIFY A
CLASS AUTOMATICALLY WILL BE INVESTED IN CLASS A SHARES.
Shares of the Funds are offered continuously and may be purchased on any
Business Day at the public offering price 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. Such a
bank or financial institution will receive transaction fees that are equal to
the commissions paid to securities brokers. Shares of the Funds 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 a Fund). An investor's
Shareholder Servicing Agent may not make available both classes of shares. The
public offering price is the net asset value next determined after an order is
transmitted to and accepted by the Distributor, plus any applicable sales charge
for Class A shares. Each Shareholder Servicing Agent is required to promptly
forward orders for Fund shares to the Distributor. Each 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.
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 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 such 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.
PURCHASING CLASS A SHARES: INITIAL SALES CHARGE -- CLASS A SHARES. Each Fund's
public offering price of Class A shares is the next determined net asset value,
plus any applicable sales charge, which will vary with the size of the purchase
as shown in the following table:
SALES CHARGE AS
PERCENTAGE OF THE BROKER
--------- COMMISSION
PUBLIC NET AS PERCENTAGE
AMOUNT OF PURCHASE AT THE OFFERING AMOUNT OF THE PUBLIC
PUBLIC OFFERING PRICE PRICE INVESTED OFFERING PRICE
- ------------------------------------------------------------------------------
Less than $100,000 ............ 4.00% 4.17% 3.56%
$100,000 to less than $250,000 3.25% 3.36% 2.89%
$250,000 to less than $500,000 2.50% 2.56% 2.23%
$500,000 to less than $1,000,000 2.00% 2.04% 1.78%
$1,000,000 or more ............ none* none* none
------------
*A contingent deferred sales charge may apply in certain instances.
- -----------------------------------
SALES CHARGE ELIMINATION -- CLASS A SHARES. Class A shares of the Funds are
available without a sales charge through exchanges for Class A shares of most
other Landmark Funds. See "Exchanges." Also, the sales charge does not apply to
Class A shares acquired through the reinvestment of dividends and capital gains
distributions. Class A shares may be purchased without a sales charge by:
(i) tax exempt organizations under Section 501(c)(3-13) of the Internal
Revenue Code (the "Code"),
(ii) trust accounts for which Citibank or any subsidiary or affiliate of
Citibank (a "Citibank Affiliate") acts as trustee and exercises
discretionary investment management authority,
(iii) accounts purchasing shares through the Private Client Division of
Citicorp Investment Services, or through other programs accessed through
the Private Client Division of Citicorp Investment Services, or the
private banking division of either Citibank, N.A., Citibank FSB or
Citicorp Trust, N.A.,
(iv) accounts for which Citibank or any Citibank Affiliate performs investment
advisory services,
(v) accounts for which Citibank or any Citibank Affiliate charges fees for
acting as custodian,
(vi) trustees of any investment company for which Citibank or any Citibank
Affiliate serves as the investment adviser or as a shareholder servicing
agent,
(vii) any affiliated person of a Fund, the Adviser, the Distributor, the
Administrator or any Shareholder Servicing Agent,
(viii) shareholder accounts established through a reorganization or similar form
of business combination approved by a Fund's Board of Trustees or by the
Board of Trustees of any other Landmark Fund the terms of which entitle
those shareholders to purchase shares of a Fund or any other Landmark
Fund at net asset value without a sales charge,
(ix) employee benefit plans qualified under Section 401 of the Code, including
salary reduction plans qualified under Section 401(k) of the Code,
subject to such minimum requirements as may be established by the
Distributor with respect to the number of employees or amount of
purchase; currently, these criteria require that (a) the employer
establishing the qualified plan have at least 50 eligible employees or
(b) the amount invested by such qualified plan in a Fund or in any
combination of Landmark Funds totals a minimum of $500,000,
(x) investors purchasing $1 million or more of Class A shares. However, a
contingent deferred sales charge will be imposed on such investments in
the event of certain share redemptions within 12 months following the
share purchase, at the rate of 1.00% of the lesser of the value of the
shares redeemed (exclusive of reinvested dividends and capital gains
distributions) or the total cost of such shares. In determining whether a
contingent deferred sales charge on Class A shares is payable, and if so,
the amount of the charge, it is assumed that shares not subject to the
contingent deferred sales charge are the first redeemed followed by other
shares held for the longest period of time. All investments made during a
calendar month will age one month on the last day of the month and each
subsequent month. Any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A shares of another
Landmark Fund and deducted from the redemption proceeds when such
exchanged shares are subsequently redeemed (assuming the contingent
deferred sales charge is then payable). The holding period of Class A
shares so acquired through an exchange will be aggregated with the period
during which the original Class A shares were held. The contingent
deferred sales charge on Class A shares will be waived under the same
circumstances as the contingent deferred sales charge on Class B shares
will be waived. See "Sales Charge Waivers -- Class B Shares." Any
applicable contingent deferred sales charges will be paid to the
Distributor,
(xi) subject to appropriate documentation, investors where the amount invested
represents redemption proceeds from a mutual fund (other than a Landmark
Fund) if: (i) the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually imposed); and (ii)
such redemption has occurred no more than 90 days prior to the purchase
of Class A shares of the Fund, or
(xii) an investor who has a business relationship with an investment consultant
or other registered representative who joined a broker-dealer which has a
sales agreement with the Distributor from another investment firm within
six months prior to the date of purchase by such investor, if (a) the
investor redeems shares of another mutual fund sold through the
investment firm that previously employed that investment consultant or
other registered representative, and either paid an initial sales charge
or was at some time subject to, but did not actually pay, a deferred
sales charge or redemption fee with respect to the redemption proceeds,
(b) the redemption is made within 60 days prior to the investment in a
Fund, and (c) the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds of such
redemption.
REDUCED SALES CHARGE PLANS -- CLASS A SHARES. An individual who is a member
of a qualified group may purchase Class A shares of a Fund at the reduced sales
charge applicable to the group as a whole. The sales charge is based upon the
aggregate dollar value of Class A shares previously purchased and still owned by
the group, plus the amount of the purchase. A "qualified group" is one which (i)
has been in existence for more than six months, (ii) has a purpose other than
acquiring Fund shares at a discount, and (iii) satisfies uniform criteria which
enable the Distributor to realize economies of scale in its costs of
distributing shares. A qualified group must have more than ten members, must be
available to arrange for group meetings between representatives of the Fund and
the members, must agree to include sales and other materials related to the Fund
in its publications and mailings to members at reduced or no cost to the
Distributor, and must seek to arrange for payroll deduction or other bulk
transmission of investments to the Fund.
Reduced initial sales charges on Class A shares also may be achieved through
a RIGHT OF ACCUMULATION or a LETTER OF INTENT. Under a RIGHT OF ACCUMULATION
eligible investors are permitted to purchase Class A shares of a Fund at the
public offering price applicable to the total of (a) the dollar amount then
being purchased, plus (b) an amount equal to the then-current net asset value or
cost (whichever is higher) of the purchaser's combined holdings in the Landmark
Funds. The Right of Accumulation may be amended or terminated at any time.
If an investor anticipates purchasing $100,000 or more of Class A shares of
a Fund alone or in combination with Class B shares of the Fund or any of the
classes of other Landmark Funds within a 13-month period, the investor may
obtain such shares at the same reduced sales charge as though the total quantity
were invested in one lump sum, subject to the appointment of an attorney for
redemptions of shares if the intended purchases are not completed, by completing
a LETTER OF INTENT. Investors should consult "Determination of Net Asset Value;
Valuation of Securities; Additional Purchase and Redemption Information" in the
Statement of Additional Information and their Shareholder Servicing Agents for
more information about Rights of Accumulation and Letters of Intent.
PURCHASING CLASS B SHARES: CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES.
Each Fund's public offering price of Class B shares is the next determined net
asset value, and no initial sales charge is imposed. A contingent deferred sales
charge, however, is imposed upon certain redemptions of Class B shares.
Class B shares of a Fund that are redeemed will not be subject to a
contingent deferred sales charge to the extent that the value of such shares
represents (i) capital appreciation of Fund assets, (ii) reinvestment of
dividends or capital gains distributions or (iii) shares redeemed more than six
years after their purchase. Otherwise, redemptions of Class B shares will be
subject to a contingent deferred sales charge. The amount of any applicable
contingent deferred sales charge will be calculated by multiplying the lesser of
net asset value of such shares at the time of redemption or their original
purchase price by the applicable percentage shown in the following table.
CONTINGENT
DEFERRED
REDEMPTION DURING SALES CHARGE
- ---------------------------------------------------------
lst Year Since Purchase ............ 5.00%
2nd Year Since Purchase ............ 4.00%
3rd Year Since Purchase ............ 3.00%
4th Year Since Purchase ............ 3.00%
5th Year Since Purchase ............ 2.00%
6th Year Since Purchase ............ 1.00%
7th Year (or Later) Since Purchase . None
- -----------------------------------------------------
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gains distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares of a Fund acquired through an exchange with another Landmark Fund will be
calculated from the date that the Class B shares were initially acquired in one
of the other Landmark Funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gains distribution reinvestments in such other funds. This will result
in any contingent deferred sales charge being imposed at the lowest possible
rate. For federal income tax purposes, the amount of the contingent deferred
sales charge will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. Any contingent deferred sales charges will be
paid to the Distributor.
SALES CHARGE WAIVERS -- CLASS B SHARES. The contingent deferred sales charge
will be waived for exchanges. In addition, the contingent deferred sales charge
will be waived for a total or partial redemption made within one year of the
death of the shareholder. This waiver is available where the deceased
shareholder is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship, and applies only to
redemption of shares held at the time of death. The contingent deferred sales
charge also will be waived in connection with:
(i) a lump sum or other distribution in the case of an Individual Retirement
Account ("IRA"), a self-employed individual retirement plan (so-called
"Keogh Plan") or a custodian account under Section 403(b) of the Code, in
each case following attainment of age 59 1/2,
(ii) a total or partial redemption resulting from any distribution following
retirement in the case of a tax-qualified retirement plan, and
(iii) a redemption resulting from a tax-free return of an excess contribution to
an IRA.
Contingent deferred sales charge waivers will be granted subject to
confirmation by a shareholder's Shareholder Servicing Agent of the shareholder's
status or holdings, as the case may be.
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A and Class B shares. The
Distributor, at its expense, may from time to time provide additional
promotional incentives to brokers who sell shares of a Fund. In some instances,
these incentives may be offered to certain brokers who have sold or may sell
significant numbers of shares of a Fund.
EXCHANGES
- ------------------------------------------------------------------------------
Shares of each Fund may be exchanged for shares of the same class of other
Landmark Funds that are made available by a shareholder's Shareholder Servicing
Agent, or may be acquired through an exchange of shares of the same class of
those funds. No initial sales charge is imposed on shares being acquired through
an exchange unless Class A shares are being acquired and the sales charge of the
fund being exchanged into 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). No contingent deferred sales charge is imposed on shares being
disposed of through an exchange; however, contingent deferred sales charges may
apply to redemptions of Class B shares 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 Funds 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.
An exchange is treated as a sale of the shares exchanged and could result in
taxable gain or loss to the shareholder making the exchange.
REDEMPTIONS
- ------------------------------------------------------------------------------
Fund shares may be redeemed at their net asset value next determined after a
redemption request in proper form is received by a shareholder's Shareholder
Servicing Agent (subject to any applicable contingent deferred sales charge).
Shareholders may redeem shares of a Fund only by authorizing their Shareholder
Servicing Agents to redeem such shares on their behalf through the Distributor.
If a redeeming shareholder owns shares of more than one class, Class A shares
will be redeemed first unless the shareholder specifically requests otherwise.
A redemption is treated as a sale of the shares redeemed and could result in
taxable gain or loss to the shareholder making the redemption.
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 Funds 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 next Business Day, but in any event within seven days. If
a shareholder requests redemption of shares which were purchased recently, a
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; Valuation of Securities; Additional Purchase
and Redemption Information" in the Statement of Additional Information regarding
the Funds' right to pay the redemption price in kind with securities (instead of
cash).
REINSTATEMENT PRIVILEGE. Shareholders who have redeemed Class A shares may
reinstate their Fund account without a sales charge up to the dollar amount
redeemed (with a credit for any contingent deferred sales charge paid) by
purchasing Class A shares of the same Fund within 30 days after the redemption.
To take advantage of this reinstatement privilege, shareholders must notify
their Shareholder Servicing Agents in writing at the time the privilege is
exercised.
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.
DIVIDENDS AND DISTRIBUTIONS
- ------------------------------------------------------------------------------
Substantially all of each Fund's net income from dividends and interest is
paid to its shareholders of record as a dividend monthly, on or about the last
day of each month.
Each Fund's net realized short-term and long-term capital gains, if any,
will be distributed to the Fund's shareholders at least annually, in December.
Each Fund may also make additional distributions to its shareholders to the
extent necessary to avoid the application of the 4% non-deductible excise tax on
certain undistributed income and net capital gains of mutual funds.
Subject to the policies of the shareholder's Shareholder Servicing Agent, a
shareholder may elect to receive dividends and capital gains distributions in
either cash or additional shares of the same class issued at net asset value
without a sales charge. Distributions paid by each Fund with respect to Class A
shares generally will be higher than those paid with respect to Class B shares
because expenses attributable to Class B shares generally will be higher.
MANAGEMENT
- ------------------------------------------------------------------------------
TRUSTEES AND OFFICERS: Each Fund is supervised by a Board of Trustees. A
majority of the Trustees are not affiliated with the Adviser. More information
on the Trustees and officers of the Funds appears under "Management" in the
Statement of Additional Information.
INVESTMENT ADVISER: CITIBANK. Each 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. Citibank is a wholly-owned
subsidiary of Citicorp. Citibank also serves as investment adviser to 12 other
Landmark Funds or portfolios.
Citibank manages each Fund's assets pursuant to separate investment advisory
agreements ("Advisory Agreements"). Subject to policies set by the Trustees,
Citibank makes investment decisions. Citibank's address is 153 East 53rd Street,
New York 10043.
Frank Flammino, a Vice President of Citibank, is the manager of each Fund.
Mr. Flammino has 12 years of taxable and tax-exempt portfolio management
experience. Prior to joining the Adviser in 1992, he was Director of Fixed
Income for Home Capital Services. Previously, he was associated with First
Buckingham Corporation.
Management's discussion of performance of the New York Tax Free Income Fund
is included in the Annual Report to Shareholders of that Fund, which investors
may obtain without charge by contacting their Shareholder Servicing Agents. The
National Tax Free Income Fund is newly organized and has not issued any reports
to shareholders.
ADVISORY FEES. For its services under the Advisory Agreements, the Adviser
receives advisory fees from each Fund, which are accrued daily and paid monthly,
at an annual rate of 0.40% of the Fund's average daily net assets on an
annualized basis for the Fund's then-current fiscal year. The Adviser may
voluntarily agree to waive a portion of its investment advisory fees on a
month-to-month basis.
For the fiscal year ended December 31, 1994, the fee payable to Citibank
under the Advisory Agreement for the New York Tax Free Income Fund was $421,226,
of which $229,257 was voluntarily waived (after giving effect to the waiver the
fee was 0.18% of the New York Tax Free Income Fund's average daily net assets
for that fiscal year).
BANKING RELATIONSHIPS. Citibank and its affiliates may have deposit, loan
and other relationships with the issuers of securities purchased on behalf of
the Funds, 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 Funds 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 Funds. Citibank believes that its services
under the Advisory Agreements 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. If
Citibank or its affiliates were to be prevented from acting as the Adviser,
sub-administrator or a Shareholder Servicing Agent, the Funds would seek
alternative means for obtaining these services. The Funds do not expect that
shareholders would suffer any adverse financial consequences as a result of any
such occurrence.
ADMINISTRATIVE SERVICES PLAN: The Funds have an administrative services plan
(the "Administrative Services Plan") which provides that the Funds 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 Funds' Administrative Services
Plan, the total of the fees paid to each Fund's Administrator and Shareholder
Servicing Agents may not exceed 0.65% of the Fund's average daily net assets on
an annualized basis for the Fund's then-current fiscal year. Any distribution
fees (other than any fee concerning electronic or other media advertising)
payable under the Distribution Plan for the Class A shares of the New York Tax
Free Income Fund are included in this percentage limitation for those shares.
For the Class A shares of the National Tax Free Income Fund and for the Class B
shares of each Fund, this limitation does not include any amounts payable under
the Distribution Plan for those shares. Within this overall limitation,
individual fees may vary. See "Administrator," "Shareholder Servicing Agents"
and "Transfer Agent and Custodian."
ADMINISTRATOR: The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS")
provides certain administrative services to the Funds under an administrative
services agreement. These administrative services include providing general
office facilities, supervising the overall administration of the Funds, and
providing persons satisfactory to the Board of Trustees to serve as Trustees and
officers of the Funds. These 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 not to exceed 0.20% of the average daily net assets of each Fund on an
annualized basis for the Fund's then-current fiscal year. However, the
Administrator has voluntarily agreed to waive a portion of the fees payable to
it on a month-to-month basis.
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 Funds 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 Funds have 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 each Fund
at an annual rate of 0.40% 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. However, each Shareholder Servicing
Agent has voluntarily agreed to waive a portion of its fee.
Some Shareholder Servicing Agents may impose certain conditions on their
customers in addition to or different from those imposed by the Funds, 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 a 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 AND CUSTODIAN: State Street Bank and Trust Company acts as
transfer agent, dividend disbursing agent and custodian for each Fund.
Securities may be held by a sub-custodian bank approved by the Trustees. The
principal business address of State Street Bank and Trust Company is 225
Franklin Street, Boston, Massachusetts 02110.
DISTRIBUTION ARRANGEMENTS: LFBDS is the distributor of shares of each Fund and
also serves as distributor for each of the other Landmark Funds and as a
Shareholder Servicing Agent for certain investors. LFBDS receives distribution
fees from the Funds pursuant to Distribution Plans adopted in accordance with
Rule 12b-1 under the 1940 Act. As distributor, LFBDS also collects the sales
charges imposed on purchases of Class A shares and collects any contingent
deferred sales charges imposed on redemptions of Class A and Class B shares. In
those states where LFBDS is not a registered broker-dealer, shares of the Funds
are sold through Signature Broker-Dealer Services, Inc., as dealer.
The Funds maintain separate plans of distribution pertaining to Class A
shares and Class B shares (collectively "Plans"). The Class A Plan provides that
the Funds may pay the Distributor a monthly distribution fee at an annual rate
not to exceed 0.05% and 0.15% of the average daily net assets represented by
Class A shares of the National Tax Free Income Fund and the New York Tax Free
Income Fund, respectively. Currently, the distribution fee for Class A shares of
each Fund is 0.05% per annum of the average daily net assets represented by
Class A shares. In addition, the Class A Plan for the National Tax Free Income
Fund provides that the Fund may pay the Distributor a monthly service fee at an
annual rate not to exceed 0.25% of the average daily net assets represented by
Class A shares. However, the Fund has not entered into any agreement to pay this
service fee to the Distributor. The Class A Plan also permits the Funds to pay
the Distributor an additional fee (not to exceed 0.05% of the average daily net
assets represented by Class A shares) in anticipation of or as reimbursement for
print or electronic media advertising expenses incurred in connection with the
sale of Class A shares. The New York Tax Free Income Fund did not pay anything
under this provision during 1994, and the Funds do not anticipate doing so
during the current fiscal year.
The Class B Plan provides that the Funds may pay the Distributor a monthly
distribution fee and a monthly service fee at annual rates not to exceed,
respectively, 0.75% and 0.25% of the average daily net assets represented by
Class B shares. Currently the service fee for Class B shares is 0.05% per annum
of the average daily net assets represented by Class B shares.
The Distributor uses the distribution fees under the Plans to offset each
Fund's marketing costs attributable to the classes, such as preparation of sales
literature, advertising, and printing and distributing prospectuses and other
shareholder materials to prospective investors. In addition, the Distributor may
use the distribution fees to pay costs related to distribution activities,
including employee salaries, bonuses and other overhead expenses. The
Distributor also uses the distribution fees under the Class B Plan to offset the
commissions it pays to brokers and other institutions for selling the Funds'
Class B shares. The Funds and the Distributor provide to the Trustees quarterly
a written report of amounts expended pursuant to the Plans and the purposes for
which the expenditures were made.
During the period they are in effect, the Plans and related distribution
agreements pertaining to each class of shares ("Distribution Agreements")
obligate the Funds to pay distribution fees to LFBDS as compensation for its
distribution activities, not as reimbursement for specific expenses incurred.
Thus, even if LFBDS's expenses exceed its distribution fees for a Fund, the Fund
will not be obligated to pay more than those fees and, if LFBDS's expenses are
less than such fees, it will retain its full fees and realize a profit. Each
Fund will pay the distribution fees to LFBDS until either the applicable Plan or
Distribution Agreement is terminated or not renewed. In that event, LFBDS's
expenses in excess of distribution fees received or accrued through the
termination date will be LFBDS's sole responsibility and not obligations of the
Fund. In their annual consideration of the continuation of the Plans for each
Fund, the Trustees will review each Plan and LFBDS's expenses for each class
separately.
Each class of shares of each Fund has exclusive voting rights with respect
to the Plan for that class.
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.
TAX MATTERS
- ------------------------------------------------------------------------------
This discussion of taxes is for general information only. Investors should
consult their own tax advisers about their particular situations.
FEDERAL INCOME TAXES: Each Fund intends to meet the 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.
Each Fund expects that most of its net income will be attributable to
tax-exempt Municipal Obligations, and, as a result, most of the Fund's dividends
to shareholders will be excludable from shareholders' gross income. However,
each Fund may invest from time to time in taxable securities, and certain Fund
dividends may be subject to the federal alternative minimum tax. Distributions
of capital gains on the sale or other disposition of Fund investments are also
taxable to Fund shareholders. Generally, distributions from each Fund's net
short-term capital gains will be taxed as ordinary income, and distributions
from net long-term 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.
Any gains realized by a shareholder on the sale or redemption of Fund shares
are subject to tax. If Fund shares are redeemed after tax-exempt income has
accrued but not yet been declared as a dividend, the portion of redemption
proceeds representing that income may be taxed as a capital gain even though it
would have been tax-exempt if it had been declared as a dividend prior to
redemption. In addition, any short-term capital loss realized upon the
redemption of Fund shares within six months of their purchase is disallowed to
the extent of any dividends of tax-exempt income received during that period.
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 are related to, "substantial users"
of facilities financed by private activity bonds should consult their tax
advisers before buying Fund shares.
Early each year, each Fund will notify its shareholders of the amount and
tax status of distributions paid to shareholders for the preceding year.
STATE AND LOCAL TAXES: NEW YORK TAXES. To the extent that dividends received
from the New York Tax Free Income Fund are derived from interest on triple
tax-exempt obligations, the dividends will be excluded from the gross income of
individual shareholders who are New York residents for New York State and New
York City personal income tax purposes. DIVIDENDS FROM THE NEW YORK TAX FREE
INCOME FUND ARE NOT EXCLUDED IN DETERMINING NEW YORK STATE OR NEW YORK CITY
FRANCHISE TAXES ON CORPORATIONS AND FINANCIAL INSTITUTIONS. Dividends received
from the National Tax Free Income Fund are generally not expected to be excluded
from gross income for New York State and New York City personal income tax
purposes.
GENERALLY. Except as described under "New York Taxes," Fund dividends which
are excludable from shareholders' gross income for federal income tax purposes
will 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.
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, and the value of a Fund's shares when redeemed may be more or
less than their original cost.
Each 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 which was made at the maximum public offering price and reflects any
change in net asset value per share 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 mutual fund would have to generate in order
to produce an after-tax total rate of return equivalent to that of a Fund. The
use of a tax equivalent total rate of return allows investors to compare the
total rates of return of the Funds, the dividends from which are expected to be
mostly exempt from federal income taxes and, in the case of the New York Tax
Free Income Fund, from New York State and New York City personal income taxes,
with the total rates of return of funds the dividends from which are not so
tax-exempt. These total rate of return quotations may be accompanied by
quotations which do not reflect the reduction in value of the investment due to
the initial or contingent deferred sales charges, and which are thus higher.
Each Fund may provide annualized "yield," "effective yield" and "tax
equivalent yield" quotations. The "yield" of a Fund refers to the income
generated by an investment in the Fund over a 30-day or one month 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 month over a one-year period and is
shown as a percentage of the maximum public offering price on the last day of
that period. The "effective yield" is calculated similarly, but when annualized
the income earned by the investment during that 30-day or one month 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 fund would have to
generate in order to produce an after-tax yield equivalent to that of a Fund.
The use of a tax equivalent yield allows investors to compare the yield of the
Funds, the dividends from which are expected to be mostly exempt from federal
income taxes and, in the case of the New York Tax Free Income Fund, from New
York State and New York City personal income taxes, with yields of funds the
dividends from which are not so tax exempt. A "yield" quotation, unlike a total
rate of return quotation, does not reflect changes in net asset value.
Each Fund will include performance data for both classes of Fund shares in
any advertisements, reports or communications including Fund performance data.
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 Funds.
GENERAL INFORMATION
- ------------------------------------------------------------------------------
ORGANIZATION: Each Fund is a series of Landmark Tax Free Income Funds (the
"Trust"), which is a Massachusetts business trust that was organized on May 27,
1986. The Trust was known as "Landmark New York Tax Free Income Fund" until its
name was changed effective October 21, 1993. The Trust is an open-end management
investment company registered under the 1940 Act.
Each Fund is a non-diversified mutual fund, which means that it is not
limited by the 1940 Act in the proportion of its assets that may be invested in
the obligations of a single issuer. Each Fund intends, however, to comply with
diversification requirements imposed on mutual funds by the Internal Revenue
Code.
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 each Fund 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 Fund or class, only shares of that particular Fund or class are
entitled to vote.
At any meeting of shareholders of any 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 of 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 a 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 each Fund or any other series of the
Trust is entitled to participate equally in dividends and other distributions
and the proceeds of any liquidation of that Fund or such other series except
that, due to the differing expenses borne by each class, dividends and proceeds
generally will be lower for Class B shares than for Class A shares.
CERTIFICATES: The Funds' Transfer Agent maintains a share register for
shareholders of record, i.e., Shareholder Servicing Agents. Share certificates
are not issued.
EXPENSES: In addition to amounts payable as described above under the Advisory
Agreements, the Administrative Services Plan and the Distribution Plans, each
Fund is responsible for its own expenses, including, among other things, the
costs of securities transactions, the compensation of Trustees that are not
affiliated with the Adviser, government fees, taxes, accounting and legal fees,
expenses of communicating with shareholders, interest expense, and insurance
premiums. All fee waivers 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 Funds, including information related to (i)
investment policies and restrictions, (ii) the Trustees, officers, Adviser and
Administrator, (iii) securities transactions, (iv) the Funds' shares, including
rights and liabilities of shareholders, (v) the method 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 or the Statement of Additional
Information 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 Funds or their distributor. This Prospectus does
not constitute an offering by the Funds or their distributor in any jurisdiction
in which such offering may not lawfully be made.
APPENDIX
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 ("PABs") 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. PABs are, in most
cases, revenue bonds. The payment of the principal and interest on PABs 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 PABs may not be readily marketable; however, the PABs or the participation
certificates in PABs purchased by the Funds 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. Most 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 principal and interest of the maturing notes will be paid out of proceeds
from notes or bonds to be issued concurrently or at a later date. BANs are
issued most frequently 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. The Funds may invest
in 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 a 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 a Fund purchases Municipal Obligations it may
also acquire stand-by commitments from banks or broker-dealers with respect to
the Municipal Obligations. 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. Each 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 the fact that the
maturity of the underlying security will generally be different from that of the
commitment. In some cases it may not be possible to exercise rights under a
stand-by commitment when the underlying Municipal Obligation is in default.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements in
order to earn a return on temporarily available cash. Repurchase agreements are
transactions in which an institution sells a 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 and other securities.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held by
a Fund and the agreement by the Fund to repurchase the securities at an
agreed-upon price, date and interest payment. When a Fund enters into reverse
repurchase transactions, securities of a dollar amount equal in value to the
securities subject to the agreement will be maintained in a segregated account
with the Fund's custodian. The segregation of assets could impair the Fund's
ability to meet its current obligations or impede investment management if a
large portion of the Fund's assets are involved. Reverse repurchase agreements
are considered to be a form of borrowing.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, each Fund may lend its
portfolio securities to broker-dealers and other institutional borrowers. Such
loans must be callable at any time and continuously secured by collateral (cash
or U.S. Government securities) in an amount not less than the market value,
determined daily, of the securities loaned. It is intended that the value of
securities loaned by a Fund would not exceed 30% of the Fund's total assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or a reverse repurchase agreement, a Fund could experience
delays in recovering either the securities lent or cash. To the extent that, in
the meantime, the value of the securities lent has increased or the value of the
securities purchased has decreased, the Fund could experience a loss.
RULE 144A SECURITIES. Each Fund may purchase restricted securities that are
not registered for sale to the general public if the Adviser determines that
there is a dealer or institutional market in the securities. In that case, the
securities will not be treated as illiquid for purposes of the Fund's investment
limitations. The Trustees will review these determinations. These securities are
known as "Rule 144A securities," because they are traded under SEC Rule 144A
among qualified institutional buyers. Institutional trading in Rule 144A
securities is relatively new, and the liquidity of these investments could be
impaired if trading in Rule 144A securities does not develop or to the extent
qualified institutional buyers become, for a time, uninterested in purchasing
Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. The National Tax Free Income
Fund and the New York Tax Free Income Fund may invest up to 15% and 10%,
respectively, of their 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 a Fund
to sell them promptly at an acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, each 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 Fund
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 a Fund's assets committed to the purchase of securities on a "when-issued"
basis may increase the volatility of its net asset value.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To protect against the
effects of adverse changes in interest rates (sometimes known as "hedging"),
each Fund may enter into futures contracts on debt securities. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a security at a specified future time and price. Each Fund
may also purchase and write put and call options on such futures contracts. An
option on a futures contract gives the purchaser the right, in exchange for a
premium, to assume a position in a futures contract at a specified exercise
price during the term of the option. This type of option must be traded on a
national futures exchange.
Options and futures can be volatile investments, and involve certain risks.
If a Fund applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower the Fund's return. A Fund
could also experience losses if the prices of its options and futures positions
were poorly correlated with its other investments or if it could not close out
its positions because of an illiquid secondary market.
SHORT SALES "AGAINST THE BOX." In a short sale, a Fund sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. Each Fund may engage in short sales only if at the time of
the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box." A Fund may make a short sale as a
hedge, when it believes that the value of a security owned by the Fund (or a
security convertible or exchangeable for such security) may decline, or when the
Fund wants to sell the security at an attractive current price but wishes to
defer recognition of gain or loss for tax purposes. Not more than 40% of a
Fund's total assets would be involved in short sales "against the box."
<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 CUSTOMERS:
Citigold
666 Fifth Avenue, New York, NY 10150-5130
Call Your Account Officer or (212) 974-0900 or (800) 285-1701
FOR 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,
Investment Specialist 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 NORTH AMERICAN INVESTOR
SERVICES CLIENTS:
Citibank, N.A.
111 Wall Street, New York, NY 10094
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
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
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
H. B. Alvord
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong, Jr.
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY AND TREASURER
James B. Craver*
ASSISTANT TREASURER
Barbara M. O'Dette*
ASSISTANT SECRETARY
Molly S. Mugler*
*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)
TFI/P.1/95
Printed on Recycled Paper
LANDMARK(SM) FUNDS
Advised by Citibank, N.A.
LANDMARK
NATIONAL
TAX FREE
INCOME FUND
LANDMARK
NEW YORK
TAX FREE
INCOME FUND
PROSPECTUS
April 3, 1995
<PAGE>
Rule 497(c)
File Nos. 33-5819 and 811-5034
Statement of
Additional Information
LANDMARK NATIONAL TAX FREE INCOME FUND April 3, 1995
LANDMARK NEW YORK TAX FREE INCOME FUND
(Members of the LandmarkSM Family of Funds) CLASS A AND B SHARES
Each of Landmark National Tax Free Income Fund (the "National Fund")
and Landmark New York Tax Free Income Fund (the "New York Fund" and together
with the National Fund, the "Funds") is a series of Landmark Tax Free Income
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 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 Funds 2
Investment Objectives, Policies and Restrictions 2
Performance Information 13
Determination of Net Asset Value; 15
Valuation of Securities;
Additional Purchase and Redemption Information
Management 17
Portfolio Transactions 25
Description of Shares, Voting Rights and Liabilities 26
Certain Additional Tax Matters 28
Independent Accountants and Financial Statements 30
Appendix A 31
Appendix B 33
Appendix C 38
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Funds' Prospectus, dated April 3, 1995, by which shares of the Funds 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 Funds' Distributor (see inside 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 FUNDS
Landmark Tax Free Income Funds (the "Trust") is an open-end management
investment company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on May 27, 1986. The Trust was known as "Landmark
New York Tax Free Income Fund" until its name was changed effective October 21,
1993. This Statement of Additional Information describes Landmark National Tax
Free Income Fund and Landmark New York Tax Free Income Fund, each of which is a
separate series of the Trust. References in this Statement of Additional
Information to the "Prospectus" are to the Prospectus, dated April 3, 1995, of
the Trust by which shares of the Funds are offered.
Citibank, N.A. ("Citibank" or the "Adviser") is investment adviser to
each of the Funds. The Adviser manages the investments of the Funds from day to
day in accordance with each Fund's investment objectives and policies. The
selection of investments for the Funds 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 each Fund, supervises the overall
administration of each Fund. The Board of Trustees of the Trust provides broad
supervision over the affairs of the Funds. Shares of the Funds are continuously
sold by LFBDS, the Funds' 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"). Shares of each Fund
are sold at net asset value, plus, in the case of Class A Shares, a sales charge
that may be reduced on purchases involving substantial amounts and that may be
eliminated in certain circumstances. LFBDS receives a distribution fee from each
Fund pursuant to a Distribution Plan adopted with respect to each class of
shares of the Funds in accordance with Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"). LFBDS also receives a service fee from
the assets of each Fund represented by Class B shares pursuant to the
Distribution Plan adopted with respect to the Class B shares of the Funds.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objectives of the LANDMARK NATIONAL TAX FREE INCOME FUND
are to generate high levels of current income exempt from federal income taxes
and to preserve the value of its shareholders' investment.
The investment objectives of the LANDMARK NEW YORK TAX FREE INCOME FUND
are to generate high levels of current income exempt from federal, New York
State and New York City personal income taxes and to preserve the value of its
shareholders' investment.
The investment objectives of each Fund may be changed without approval
by that Fund's shareholders, but shareholders will be given written notice at
least 30 days before any change is implemented. Of course, there can be no
assurance that either Fund will achieve its investment objectives.
INVESTMENT POLICIES
As a fundamental policy, the Trust seeks to achieve the investment
objective of the National Fund by investing in debt obligations consisting
primarily (i.e., at least 80% of its assets under normal circumstances) of
municipal bonds and notes and other debt instruments the interest on which is
exempt from federal personal income taxes ("Municipal Obligations" or
"tax-exempt securities"). As used in this Statement of Additional Information,
the terms "Municipal Obligations" and "tax-exempt securities" are used
interchangeably to refer to debt instruments issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies or instrumentalities, the interest on
which is exempt from federal income taxes (without regard to whether the
interest thereon is subject to the federal alternative minimum tax).
As a fundamental policy, the Trust seeks to achieve the investment
objective of the New York Fund by investing in debt obligations consisting
primarily (i.e., at least 80% of its assets under normal conditions) of
municipal bonds and notes and other debt instruments the interest on which is
exempt from federal, New York State and New York City personal income taxes.
These obligations are issued primarily by the State of New York, its political
subdivisions, municipalities, agencies, instrumentalities or public authorities.
Each Fund's investment policies are described in "Investment
Information - Investment Policies" in the Prospectus. The following supplements
the information contained in the Prospectus concerning the investment
objectives, policies and techniques of the Funds. For a general discussion of
Municipal Obligations and the risks associated with investment therein, see
Appendix A to this Statement of Additional Information. 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.
Except as otherwise stated, the following investment policies are not
fundamental and may be changed by the Board of Trustees without approval by the
Funds' shareholders.
FUTURES CONTRACTS
A futures contract is an agreement between two parties for the purchase
or sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of an index of securities. A
"sale" of a futures contract means the acquisition of a contractual obligation
to deliver the securities or to make or accept the cash settlement called for by
the contract at a specified price on a specified date. A "purchase" of a futures
contract means the acquisition of a contractual obligation to acquire the
securities or to make or accept the cash settlement called for by the contract
at a specified price on a specified date. Futures contracts have been designed
by exchanges which have been designated "contract markets" by the Commodity
Futures Trading Commission ("CFTC") and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on these markets, and the exchanges,
through their clearing organizations, guarantee that the contracts will be
performed as between the clearing members of the exchange.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when a Fund purchases or
sells a futures contracts. At the same time such a purchase or sale is made, the
Fund must provide cash or securities as a deposit ("initial deposit") known as
"margin". The initial deposit required will vary, but may be as low as 2% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market", and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable. At the time of delivery of securities pursuant to
such a contract, adjustments are made to recognize differences in value arising
from the delivery of securities with a different interest rate than the specific
security that provides the standard for the contract. In some (but not many)
cases, securities called for by a futures contract may not have been issued when
the contract was entered into.
In the case of the Funds, which hold or will acquire long-term debt
securities, the purpose of the acquisition or sale of a futures contract is to
attempt to protect the Funds from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if a Fund
owns long-term bonds, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the long-term
bonds owned by the Fund. If the interest rates did increase, the value of the
Fund's debt securities would decline, but the value of the futures contracts
would increase at approximately the same rate, thereby keeping the net asset
value of the Fund from declining as much as it otherwise would have. Similar
results could be accomplished by selling bonds with long maturities and
investing in bonds with short maturities when interest rates are expected to
increase. However, the use of futures contracts as an investment technique
allows a Fund to maintain a hedging position without having to sell its
securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
long-term bonds at higher prices. Since the fluctuations in the value of futures
contracts should be similar to that of long-term bonds, it may be possible to
protect a Fund, in whole or in part, against the increased cost of acquiring
bonds resulting from a decline in interest rates. At that time, the futures
contracts could be liquidated and the Fund could purchase long-term bonds on the
cash market. To the extent a Fund enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality debt securities in an amount equal to the
difference between the fluctuating market value of such futures contracts and
the aggregate value of the initial and variation margin payments made by the
Fund with respect to such futures contracts.
The ability effectively to hedge all or a portion of a Fund's
investments through transactions in futures contracts depends on the degree to
which movements in the value of the debt securities underlying such contracts
correlate with movements in the value of the Fund's securities. If the security
underlying a futures contract is different than the security being hedged, they
may not move to the same extent or in the same direction. In that event, the
Fund's hedging strategy might not be successful and the Fund could sustain
losses on these hedging transactions which would not be offset by gains on the
Fund's investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken.
A Fund would purchase or sell futures contracts only if, in the
judgment of the Adviser, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's securities for the hedge to be
effective. There can be no assurance that the Adviser's judgment will be
accurate.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, there is the potential that the liquidity of the
futures market may be lacking. Prior to expiration, a futures contract may be
terminated only by entering into a closing purchase or sale transaction, which
requires a secondary market on the contract market on which the futures
contracts was originally entered into. While a Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In that event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the futures contract or to meet ongoing variation
margin requirements. The inability to close out futures positions also could
have an adverse impact on the ability effectively to hedge the Fund's
securities.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a futures
contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures contracts also is subject to
the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times make
it difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the
Adviser's investment judgment about the general direction of interest rates is
incorrect, the Fund's overall performance may be poorer than if any such
contract had not been entered into. For example, if a Fund hedged against the
possibility of an increase in interest rates which would adversely affect the
price of the Fund's bonds and interest rates decrease instead, part or all of
the benefit of the increased value of the Fund's bonds which were hedged will be
lost because the Fund will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, the Fund may
have to sell bonds from its investments to meet daily variation margin
requirements, possibly at a time when it may be disadvantageous to do so. Such
sale of bonds may be, but will not necessarily be, at increased prices which
reflect the rising market.
Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The Adviser does not believe that these trading and position limits would have
an adverse impact on a Fund's hedging strategies.
CFTC regulations require that a Fund enter into transactions in futures
contracts for hedging purposes only, in order to assure that the Fund is not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into in order to
hedge the value of Fund securities, and that all long futures positions either
constitute bona fide hedge transactions, as defined in such regulations, or have
a total value not in excess of an amount determined by reference to certain cash
and securities positions maintained by the Fund, and accrued profits on such
positions. In addition, the Fund may not purchase or sell such instruments if,
immediately thereafter, the sum of the amount of initial deposits or margins on
the Fund's existing futures positions would exceed 5% of the market value of the
Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents will be deposited in a segregated account with the Fund's custodian,
State Street Bank and Trust Company (the "Custodian"), so that the amount so
segregated, plus the initial and variation margin held in the account of the
Fund's broker, will at all times equal the value of the futures contract,
thereby ensuring that the use of such futures is unleveraged.
The ability to engage in the hedging transactions described herein may
be limited by the current federal income tax requirement that less than 30% of a
Fund's gross income be derived from the sale or other disposition of stock or
securities held for less than three months.
The Trustees of the Trust have adopted the requirement that futures
contracts only be used for the Funds as a hedge and not for speculation. In
addition to this requirement, the Board of Trustees has also adopted two
percentage restrictions on the use of futures contracts. The first is that a
Fund will not enter into a futures contract if immediately thereafter the amount
of margin deposits on all the futures contracts held by the Fund would exceed 5%
of the market value of the total assets of the Fund. The second restriction is
that the aggregate market value of the futures contracts held by a Fund not
exceed 50% of the market value of the Fund's total assets. Neither of the
restrictions would be changed by the Board of Trustees as to a Fund without
considering the policies and concerns of the various federal and state
regulatory agencies.
The Trust did not enter into any Futures Contract for the New York Fund
within the past year and has no current intention of doing so in the foreseeable
future for either of the Funds.
WHEN-ISSUED SECURITIES
Each of the Funds may purchase securities on a "when-issued" or on a
"forward delivery" basis. It is expected that, under normal circumstances, the
applicable Fund would take delivery of such securities. When a Fund commits to
purchase a security on a "when-issued" or on a "forward delivery" basis, it sets
up procedures consistent with Securities and Exchange Commission ("SEC")
policies. Since those policies currently require that an amount of a Fund's
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, the Fund will always have cash, cash
equivalents, or high quality debt securities sufficient to cover any commitments
or to limit any potential risk. However, even though the Funds do not intend to
make such purchases for speculative purposes and intend to adhere to the
provisions of SEC policies, purchases of securities on such bases may involve
more risk than other types of purchases. For example, a Fund may have to sell
assets which have been set aside in order to meet redemptions. Also, if the
Adviser determines it is advisable as a matter of investment strategy to sell
the "when-issued" or "forward delivery" securities, the Fund would be required
to meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the "when-issued" or "forward delivery" securities themselves (which may have a
value greater or less than the Fund's payment obligation).
VARIABLE AND FLOATING RATE OBLIGATIONS
Investments in floating or variable rate securities normally involve
industrial development or revenue bonds which provide that the rate of interest
is set as a specific percentage of a designated base rate, such as rates on
Treasury Bonds or Bills or the prime rate at a major commercial bank, and that a
bondholder can demand payment of the obligations on short notice at par plus
accrued interest. While there is usually no established secondary market for
issues of this type of security, the dealer that sells an issue of such
securities frequently also offers to repurchase such securities at any time, at
a repurchase price which varies and may be more or less than the amount the
bondholder paid for them.
The maturity of floating or variable rate obligations (including
participation interests therein) is deemed to be the longer of (i) the notice
period required before a Fund is entitled to receive payment of the obligation
upon demand or (ii) the period remaining until the obligation's next interest
rate adjustment. If not redeemed by a Fund through the demand feature, the
obligations mature on a specified date which may range up to 30 years from the
date of issuance.
PARTICIPATION INTERESTS
The Trust may purchase from banks on behalf of each Fund participation
interests in all or part of specific holdings of Municipal Obligations. The
Trust has the right to sell the participation interest back to the bank and draw
on the letter of credit or guarantee for all or any part of the full principal
amount of the participation interest in the security, plus accrued interest. In
some cases, these rights 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 Funds' high credit standards at the time of purchase
of the participation interests. Each participation interest is backed by an
irrevocable letter of credit or guarantee of the selling bank. Participation
interests will only be purchased if in the opinion of counsel interest income on
such interests will be tax-exempt when distributed as dividends to shareholders
of the Funds. The Trust will not invest more than 5% of either Fund's total
assets (taken at the greater of cost or market value) in participation
interests. Participation interests include municipal lease obligations which are
deemed to be illiquid unless otherwise determined by the Board of Trustees.
The Trust did not purchase any participation interest for the New York
Fund within the past year and has no current intention of doing so for either
Fund in the foreseeable future.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each of the Funds may lend its securities to broker-dealers and
other institutional borrowers. Such loans will usually be made only to member
banks of the U.S. Federal Reserve System and to member firms of the New York
Stock Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. A Fund would have the right to call a loan
and obtain the securities loaned at any time on customary industry settlement
notice (which will not usually exceed five days). During the existence of a
loan, a Fund would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and would also receive
compensation based on investment of the collateral. A Fund would not, however,
have the right to vote any securities having voting rights during the existence
of the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially. However, the loans would be
made only to entities deemed by the Adviser to be of good standing, and when, in
the judgment of the Adviser, the consideration which can be earned currently
from loans of this type justifies the attendant risk. If the Adviser determines
to make loans, it is not intended that the value of the securities loaned by
either Fund would exceed 30% of the value of its total assets.
RULE 144A SECURITIES
Each of the Funds may purchase securities that are not registered
("Rule 144A securities") under the Securities Act of 1933 (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. However, the National Fund and New York Fund
will not invest more than 15% and 10%, respectively, of their net assets in
illiquid investments, which include securities for which there is no readily
available market, securities subject to contractual restrictions on resale and
Rule 144A securities, unless the Trustees of the Trust determine, based on the
trading markets for a specific Rule 144A security, that it is liquid. The
Trustees may adopt guidelines and delegate to the Adviser the daily function of
determining and monitoring liquidity of Rule 144A securities. The Trustees,
however, retain oversight and are ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the
market for Rule 144A securities will develop, the Trustees will carefully
monitor each Fund's investments in Rule 144A securities, focusing on such
factors, among others, as valuation, liquidity and availability of information.
The liquidity of investments in Rule 144A securities could be impaired if
trading in Rule 144A securities does not develop or if qualified institutional
buyers become for a time uninterested in purchasing Rule 144A securities.
SPECIAL FACTORS AFFECTING NEW YORK
The Trust intends to invest a high proportion of the New York Fund's
assets in Municipal Obligations of the State of New York and its political
subdivisions, municipalities, agencies, instrumentalities and public
authorities. Payment of interest and preservation of principal is dependent upon
the continuing ability of New York issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations thereunder.
The fiscal stability of New York State is related, at least in part, to
the fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
recent years, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
For further information concerning New York Municipal Obligations, see
Appendix C to this Statement of Additional Information. The summary set forth
above and in Appendix C is included for purposes of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from statements of issuers of New York
Municipal Obligations and does not purport to be complete. The Trust is not
responsible for the accuracy or timeliness of this information.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The Trust, on behalf of each Fund, has adopted the following policies
which cannot be changed without the approval of the holders of a majority of the
applicable Fund's shares (which, as used in this Statement of Additional
Information, means the lesser of (i) more than 50% of the outstanding shares of
the Fund, or (ii) 67% or more of the outstanding shares of the Fund present at a
meeting at which holders of more than 50% of the Fund's outstanding shares are
represented in person or by proxy).
The Trust, on behalf of either of the Funds, may not:
(1) Borrow money or pledge, mortgage or hypothecate assets of the Fund,
except that as a temporary measure for extraordinary or emergency purposes it
may borrow in an amount not to exceed 1/3 of the current value of the Fund's net
assets, including the amount borrowed, and may pledge, mortgage or hypothecate
not more than 1/3 of such assets to secure such borrowings (it is intended that
money would be borrowed only from banks and only to accommodate requests for the
repurchase of shares of the Fund while effecting an orderly liquidation of
portfolio securities), provided that collateral arrangements with respect to
futures contracts, including deposits of initial and variation margin, are not
considered a pledge of assets for purposes of this restriction; for additional
related restrictions, see clause (i) under the caption "State and Federal
Restrictions" hereafter;
(2) Purchase any security or evidence of interest therein on margin,
except that the Trust may obtain such short-term credit for the Fund as may be
necessary for the clearance of purchases and sales of securities and except that
deposits of initial and variation margin may be made for the Fund in connection
with the purchase, ownership, holding or sale of futures contracts;
(3) Write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the writing, purchasing or
selling of puts, calls or combinations thereof with respect to U.S. Government
securities or with respect to futures contracts, or (ii) the writing, purchase,
ownership, holding or sale of futures contracts;
(4) Underwrite securities issued by other persons except insofar as the
Trust may technically be deemed an underwriter under the Securities Act of 1933
in selling a portfolio security for a Fund (provided, however, that the National
Fund may invest all of its assets in an open-end management investment company
with the same investment objective and policies and substantially the same
investment restrictions as the Fund (a "Qualifying Portfolio"));
(5) Make loans to other persons except (a) through the lending of the
Fund's portfolio securities and provided that any such loans not exceed 30% of
the Fund's total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations and provided
that not more than 10% of the New York Fund's total assets, and 15% of the
National Fund's total assets, will be invested in repurchase agreements maturing
in more than seven days, or (c) by purchasing a portion of an issue of debt
securities of types commonly distributed privately to financial institutions,
for which purposes the purchase of short-term commercial paper or a portion of
an issue of debt securities which are part of an issue to the public shall not
be considered the making of a loan;
(6) With respect to the New York Fund only, knowingly invest in
securities which are subject to legal or contractual restrictions on resale
(other than repurchase agreements maturing in not more than seven days) if, as a
result thereof, more than 10% of the New York Fund's total assets (taken at
market value) would be so invested (including repurchase agreements maturing in
more than seven days);
(7) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures contracts) in the ordinary course of business (the Trust
reserves the freedom of action to hold for the Fund's portfolio and to sell real
estate acquired as a result of ownership of securities);
(8) With respect to the New York Fund only, purchase securities of any
issuer if such purchase at the time thereof would cause more than 10% of the
voting securities of such issuer to be held by the New York Fund;
(9) Make short sales of securities or maintain a short position, unless
at all times when a short position is open the Trust, on behalf of the Fund,
owns an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short, and unless
not more than 10% of the Fund's net assets (taken at market value) is held as
collateral for such sales at any one time (it is the present intention of
management to make such sales only for the purpose of deferring realization of
gain or loss for federal income tax purposes; such sales would not be made of
securities subject to outstanding options);
(10) Concentrate the Fund's investments in any particular industry, but
if it is deemed appropriate for the achievement of the Fund's investment
objective, up to 25% of the Fund's assets, at market value at the time of each
investment, may be invested in any one industry, except that positions in
futures contracts shall not be subject to this restriction and except that all
of the assets of the National Fund may be invested in a Qualifying Portfolio; or
(11) Issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral arrangements
with respect to futures contracts, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security for purposes
of this restriction.
For purposes of the investment restrictions described above and the
state and federal restrictions described below, the issuer of a tax-exempt
security is deemed to be the entity (public or private) ultimately responsible
for the payment of the principal of and interest on the security.
STATE AND FEDERAL RESTRICTIONS
In order to comply with certain state and federal statutes and
policies, the Trust on behalf of either Fund does not, as a matter of operating
policy:
(i) borrow money for any purpose in excess of 10% of the Fund's total
assets (taken at cost) (moreover, the Trust will not purchase any securities for
the Fund at any time at which borrowings exceed 5% of the Fund's total assets
(taken at market value)),
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Fund's net assets (taken at market value), provided that collateral
arrangements with respect to futures contracts, including deposits of initial
and variation margin, are not considered a pledge of assets for purposes of this
restriction,
(iii) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon the same conditions,
(iv) invest for the purpose of exercising control or management, except
that all of the assets of the National Fund may be invested in a Qualifying
Portfolio,
(v) purchase securities issued by any registered investment company,
except that all of the assets of the National Fund may be invested in a
Qualifying Portfolio and except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase other
than the customary broker's commission, or except when such purchase, though not
made in the open market, is part of a plan of merger or consolidation, provided,
however, that the Trust will not purchase the securities of any registered
investment company for the Fund if such purchase at the time thereof would cause
more than 10% of the Fund's total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers or would cause more than
3% of the outstanding voting securities of any such issuer to be held for the
Fund; and provided, further, that the Trust, on behalf of the New York Fund,
shall not purchase securities issued by any open-end investment company,
(vi) invest more than 15% of the National Fund's net assets and 10% of
the New York Fund's net assets (taken at the greater of cost or market value) in
securities that are not readily marketable, except that all of the assets of the
National Fund may be invested in a Qualifying Portfolio,
(vii) purchase securities of any issuer if such purchase at the time
thereof would cause the Fund to hold more than 10% of any class of securities of
such issuer, for which purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class, except that all of the assets of the National Fund may be invested in a
Qualifying Portfolio and except that futures contracts shall not be subject to
this restriction,
(viii) invest more than 5% of the Fund's assets in companies which,
including predecessors, have a record of less than three years' continuous
operation, except that all of the assets of the National Fund may be invested in
a Qualifying Portfolio, or
(ix) purchase or retain in the Fund's portfolio any securities issued
by an issuer any of whose officers, directors, trustees or security holders is
an officer or Trustee of the Trust, or is an officer or director of the Adviser,
if after the purchase of the securities of such issuer for the Fund one or more
of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value.
These policies are not fundamental and may be changed by the Trust on
behalf of the Fund without shareholder approval in response to changes in the
various state and federal requirements.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage restriction on investment or utilization of assets set
forth above or referred to in the Prospectus is adhered to at the time an
investment is made or assets are so utilized, a later change in percentage
resulting from changes in the value of the securities held for a Fund is not
considered a violation of policy.
3. PERFORMANCE INFORMATION
A total rate of return quotation for a 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 per share 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. Total rates of return may also be calculated on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a reduced sales charge or net asset value would be reduced if the
maximum sales charge were taken into account.
Any current yield quotation of a Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a) raising
to the sixth power the sum of 1 plus the quotient obtained by dividing the
Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum public offering price per share on the last
day of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
Any tax equivalent yield quotation of a Fund is calculated as follows:
If the entire current yield quotation for such period is tax-exempt, the tax
equivalent yield would 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 would 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.
Set forth below is total rate of return information for Class A shares
of the New York Fund for the periods indicated, assuming that dividends and
capital gains distributions, if any, were reinvested, and that at the beginning
of such periods the maximum sales charge of 4.00% had been applicable to
purchases of shares of the Fund.
LANDMARK NEW YORK TAX FREE INCOME FUND
(CLASS A SHARES)
REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000
ANNUALIZED TOTAL INVESTMENT AT THE END
PERIOD RATE OF RETURN OF THE PERIOD
September 8, 1986 (commencement of
operations) to December 31, 1994 5.46% $1,556.69
Five years ended December 31, 1994 5.01% $1,276.78
One year ended December 31, 1994 (11.16)% $ 888.36
The New York Fund's yield with respect to Class A shares for the 30-day
period ended December 31, 1994 was 5.69%.
The New York Fund's tax equivalent yield for the 30-day period ended
December 31, 1994 was 10.71% (assuming (i) a combined New York State, New York
City and federal tax bracket of 46.88% and (ii) that 100% of the New York Fund's
assets were invested in New York Municipal Obligations).
Comparative performance information may be used from time to time in
advertising shares of the Funds, including data from Lipper Analytical Services,
Inc. and other industry sources and publications. From time to time a Fund may
compare its performance against inflation with the performance of other
instruments against inflation, such as FDIC-insured bank money market accounts.
In addition, advertising for the Funds may indicate that investors should
consider diversifying their investment portfolios in order to seek protection of
the value of their assets against inflation. From time to time, advertising
materials for the Funds may refer to or discuss current or past economic or
financial conditions, developments and events.
From time to time, each Fund may use hypothetical tax equivalent yields
or charts in their advertising. These hypothetical yields or charts will be used
for illustrative purposes only and are not indicative of either Fund's past or
future performance.
4. DETERMINATION OF NET ASSET VALUE; VALUATION OF
SECURITIES; ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The net asset value of each share of each class of each Fund is
determined each day during which the New York Stock Exchange (the "Exchange") is
open for trading. As of the date of this Statement of Additional Information,
the Exchange 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. This determination is made once each day as of the close of
regular trading on the Exchange (currently 4:00 p.m. Eastern time) by adding the
market value of all securities and other assets attributable to a class of
shares of a Fund, then subtracting the liabilities charged to the class, and
then dividing the result by the number of outstanding shares of the class. Per
share net asset value of the two classes of each Fund's shares can be expected
to differ because the Class B shares bear higher expenses than Class A shares.
The net asset value per share of each class of shares is effective for orders
received and accepted by the Distributor prior to its calculation.
Bonds and other fixed income securities (other than short-term
obligations) held for each Fund are valued on the basis of valuations furnished
by a pricing service, use of which has been approved by the Board of Trustees.
In making such valuations, the pricing service utilizes both dealer-supplied
valuations and electronic data processing techniques which take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon quoted
prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations (maturing in 60 days or less) are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures contracts are normally valued at the settlement price on the exchange on
which they are traded. Securities for which there are no such valuations are
valued at fair value as determined in good faith by or at the direction of the
Board of Trustees.
Interest income on long-term obligations held for the Funds is
determined on the basis of interest accrued plus amortization of "original issue
discount" (generally, the difference between issue price and stated redemption
price at maturity) and premiums (generally, the excess of purchase price over
stated redemption price at maturity). Interest income on short-term obligations
is determined on the basis of interest accrued less amortization of premium.
Subject to compliance with applicable regulations, the Trust has
reserved the right to pay the redemption or repurchase price of shares of the
Funds, 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 a Fund 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 a Fund's investments or determination of its net asset value not
reasonably practicable; (b) the Exchange is closed (other than customary weekend
and holiday closings); or (c) the SEC has by order permitted such suspension.
LETTER OF INTENT
If an investor anticipates purchasing $100,000 or more of Class A
shares of a Fund alone or in combination with Class B shares of the Fund or any
of the classes of other Landmark Funds within a 13-month period, the investor
may obtain such shares at the same reduced sales charge as though the total
quantity were invested in one lump sum by completing a Letter of Intent on the
terms described below. Subject to acceptance by the Distributor and the
conditions mentioned below, each purchase will be made at a public offering
price applicable to a single transaction of the dollar amount specified in the
Letter of Intent. The shareholder or his or her Shareholder Servicing Agent must
inform the Distributor that the Letter of Intent is in effect each time shares
are purchased. The shareholder makes no commitment to purchase additional
shares, but if his or her purchases within 13 months plus the value of shares
credited toward completion of the Letter of Intent do not total the sum
specified, an increased sales charge will apply as described below. A purchase
not originally made pursuant to a Letter of Intent may be included under a
subsequent Letter of Intent executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. The
value of shares of a Fund presently held, at cost or maximum offering price
(whichever is higher), on the date of the first purchase under the Letter of
Intent, may be included as a credit toward the completion of such Letter, but
the reduced sales charge applicable to the amount covered by such Letter is
applied only to new purchases. Instructions for issuance of shares in the name
of a person other than the person signing the Letter of Intent must be
accompanied by a written statement from the Shareholder Servicing Agent stating
that the shares were paid for by the person signing such Letter. Neither income
dividends nor capital gain distributions taken in additional shares will apply
toward the completion of the Letter of Intent. The value of any shares redeemed
or otherwise disposed of by the purchaser prior to termination or completion of
the Letter of Intent are deducted from the total purchases made under such
Letter of Intent.
If the investment specified in the Letter of Intent is not completed
(either prior to or by the end of the 13-month period), the Shareholder
Servicing Agent will redeem, within 20 days of the expiration of the Letter of
Intent, an appropriate number of the shares in order to realize the difference
between the reduced sales charge that would apply if the investment under the
Letter of Intent had been completed and the sales charge that would normally
apply to the number of shares actually purchased. By completing and signing the
Letter of Intent, the shareholder irrevocably appoints the Shareholder Servicing
Agent his or her attorney to surrender for redemption any or all shares
purchased under the Letter of Intent with full power of substitution in the
premises.
RIGHT OF ACCUMULATION
A shareholder qualifies for cumulative quantity discounts on the
purchase of Class A shares when his or her new investment, together with the
current offering price value of all holdings of that shareholder in the Landmark
Funds, reaches a discount level. See "Purchases" in the Prospectus for the sales
charges on quantity discounts. For example, if a Fund shareholder owns shares
valued at $100,000 and purchases an additional $50,000 of Class A shares of the
Fund, the sales charge for the $50,000 purchase would be at the rate of 3.25%
(the rate applicable to single transactions from $100,000 to less than
$250,000). A shareholder must provide the Shareholder Servicing Agent with
information to verify that the quantity sales charge discount is applicable at
the time the investment is made.
5. MANAGEMENT
The Trustees and officers of the Trust 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 -- Treasurer-Tax Collector, County of Los Angeles (retired, March,
1984); Chairman, certain registered investment companies in the 59 Wall Street
funds group. His address is P.O. Box 1812, Pebble Beach, California.
ELLIOTT J. BERV -- Chairman and Director, Catalyst, Inc. (Management
Consultants)(since June, 1992); President, Chief Operating Officer and Director,
Deven International, Inc. (International Consultants)(June, 1991 to June 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* -- President of the Trust; Chief Executive Officer,
Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer Services,
Inc. (since December, 1988).
MARK T. FINN -- 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 -- Vice President and General Counsel, Corporate Property
Investors (November, 1988 to December, 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (retired, December, 1987). His address is 4041 Gulf Shore Boulevard
North, Naples, Florida.
DIANA R. HARRINGTON -- 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 PanAgora Asset Management (since 1994). Her address is 120
Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY -- President, Global Research Associates, Inc. (Investment
Research) (since August, 1990); Manager, Rockefeller & Co. (March, 1988 to July,
1990); Trustee, Mainstay Institutional Funds (since December, 1990). Her address
is P.O. Box 9572, New Haven, Connecticut.
C. OSCAR MORONG, JR. -- Managing Director, Morong Capital Management (since
February, 1993); Senior Vice President and Investment Manager, CREF Investments,
Teachers Insurance & Annuity Association (retired January, 1993); Director
Indonesia Fund; Director, MAS Funds. His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
WALTER E. ROBB, III -- President, Benchmark Consulting Group, Inc. (since 1991);
Principal, Robb Associates (corporate financial advisers) (since 1978);
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 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978-1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR. -- Vice President-Investments, Sun Company, Inc. (retired,
April, 1984). His address is 35 Colwick Road, Cherry Hill, New Jersey.
OFFICERS OF THE TRUST
PHILIP W. COOLIDGE* -- President of the Trust; Chief Executive Officer,
Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer Services,
Inc. (since December, 1988).
JAMES B. CRAVER* -- Secretary and Treasurer of the Trust; Senior Vice President
and General Counsel, Signature Financial Group, Inc. and The Landmark Funds
Broker-Dealer Services, Inc. (since January, 1991); Partner, Baker & Hostetler
(Attorneys) (prior to January, 1991).
MOLLY S. MUGLER* -- 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* -- Assistant Treasurer of the Trust; Assistant Treasurer,
Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer Services,
Inc. (since December, 1988).
The Trustees and officers of the Trust also hold comparable positions
with certain other funds for which LFBDS or its affiliates serve as the
distributor or administrator.
As of February 28, 1995, all Trustees and officers as a group owned
less than 1% of the outstanding shares of the New York Fund. As of the same
date, more than 95% of the outstanding shares of the New York Fund were held of
record by Citibank, N.A., or its affiliates, as Shareholder Servicing Agents of
the Fund for the accounts of their respective clients. No shares of the National
Fund were outstanding as of February 28, 1995.
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 each Fund pursuant to separate
investment advisory agreements (the "Advisory Agreements"). Subject to such
policies as the Board of Trustees may determine, the Adviser manages the
securities of each Fund and makes investment decisions for each Fund. The
Adviser furnishes at its own expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
securities transactions for each Fund. Each Advisory Agreement continues in
effect as long as such continuance is specifically approved at least annually by
the Board of Trustees 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 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.
Each of the Advisory Agreements provides that the Adviser may render
services to others. Each 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 applicable Fund or by a vote of a majority of the Board of Trustees, 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. Each 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 and management of the
applicable 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 Agreements. The Adviser has agreed to
waive a portion of the fees payable to it under the Advisory Agreements on a
month-to-month basis. For the fiscal years ended August 31, 1992 and 1993, for
the four-month period ended December 31, 1993 and for the fiscal year ended
December 31, 1994, the fees payable to the Adviser by the New York Fund were
$385,811, $372,914, $155,418 and $421,226 (of which $172,845, $218,289, $80,195
and $229,257 were voluntarily waived), respectively.
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 Trust's independent contractors
and agents; 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, as well as certain other
employees and Trustees of the Trust, 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. The Administrator has
voluntarily agreed to waive a portion of the fees payable to it under the
Administrative Services Agreement on a month-to-month basis. For the fiscal
years ended August 31, 1992 and 1993, the fees payable to LFBDS from the New
York Fund under the Administrative Services Agreement and a prior administrative
services agreement with the Trust were $78,952 (of which $58,402 was voluntarily
waived) and $186,457 (of which $35,356 was voluntarily waived), respectively.
For the four-month period ended December 31, 1993, the fee payable to LFBDS from
the New York Fund under the Administrative Services Agreement was $77,709 (of
which $10,688 was voluntarily waived). For the fiscal year ended December 31,
1994, the fee payable to LFBDS from the New York Fund under the Administrative
Services Agreement was $210,613 (of which $58,225 was 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 would change its name and the name of the Funds 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 to use the word
"Landmark" or the words "Landmark Funds" in their names.
The Administrative Services Agreement with the Trust continues in
effect with respect to each Fund if such 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 Trust and, in either case, by a
majority of the Trustees who are not parties to the Administrative Services
Agreement or interested persons of any such party. The Administrative Services
Agreement with the Trust terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of the outstanding voting
securities of the Trust 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 LFBDS, as 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.
LFBDS is wholly-owned subsidiary of Signature Financial Group, Inc.
Pursuant to a sub-administrative services agreement, Citibank performs
such sub-administrative duties for the Trust as from time to time are agreed
upon by Citibank and LFBDS. Citibank's sub-administrative duties may include
providing equipment and clerical personnel necessary for maintaining the Trust's
organization, participation in the preparation of documents required for
compliance by the Trust with applicable laws and regulations, the preparation of
certain documents in connection with meetings of Trustees and shareholders, and
other functions which would otherwise be performed by the Administrator. For
performing such sub-administrative services, Citibank receives compensation as
from time to time is agreed upon by Citibank and LFBDS not in excess of the
amount paid to LFBDS for its services under the Administrative Services
Agreement with the Trust. All such compensation is paid by LFBDS.
DISTRIBUTOR
LFBDS serves as the Distributor of each Fund's shares pursuant to
Distribution Agreements with the Trust with respect to each class of shares of
each Fund. Unless otherwise terminated, the Distribution Agreements remain in
effect from year to year upon annual approval by the Trust's Board of Trustees,
or by the vote of a majority of the outstanding voting securities of the Trust
and by the vote of a majority of the Board of Trustees of the Trust who are not
parties to the Agreements or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. Each
Distribution Agreement will terminate in the event of its assignment, as defined
in the 1940 Act.
The Trust has adopted a Distribution Plan (each a "Distribution Plan")
in accordance with Rule 12b-1 under the 1940 Act with respect to each class of
shares of the Funds after concluding that there is a reasonable likelihood that
the Distribution Plans will benefit each Fund and its shareholders. The
Distribution Plan with respect to Class A shares provides that each Fund shall
pay a distribution fee to the Distributor at an annual rate not to exceed 0.05%
of the average daily net assets represented by Class A shares for the National
Fund and 0.15% of the average daily net assets represented by Class A shares for
the New York Fund. The Distribution Plan with respect to Class B shares provides
that each Fund will pay the Distributor a distribution fee at an annual rate not
to exceed 0.75% of the Fund's average daily net assets represented by Class B
shares. The Distributor receives the distribution fees for its services under
the Distribution Agreements in connection with the distribution of each Fund's
shares of each class (exclusive of any advertising expenses incurred by the
Distributor in connection with the sale of Class A shares of each Fund). The
Distributor may use all or any portion of such distribution fees to pay for
expenses of printing prospectuses and reports used for sales purposes, expenses
of the preparation and printing of sales literature, commissions to dealers who
sell shares of the applicable class of the Funds and other distribution-related
expenses.
The National Fund is permitted to pay the Distributor a service fee
with respect to the Class A shares at an annual rate not to exceed 0.25% of the
National Fund's average daily net assets represented by Class A shares, and both
Funds are permitted to pay the Distributor an additional service fee with
respect to the Class B shares at an annual rate not to exceed 0.25% of each
Fund's average daily net assets represented by Class B shares.
The Distribution Plan with respect to the Class A shares also permits
the Funds to pay the Distributor an additional fee (not to exceed 0.05% of the
average daily net assets of the Class A shares) in anticipation of or as
reimbursement for print or electronic media advertising expenses incurred in
connection with the sale of Class A shares.
The Distribution Plans continue 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 Trustees who are not "interested persons"
of the Trust and who have no direct or indirect financial interest in the
operation of the Distribution Plans or in any agreement related to the Plans
(for purposes of this paragraph "Qualified Trustees"). Each Distribution Plan
requires that the Trust and the Distributor provide to the Board of Trustees,
and the Board of Trustees review, at least quarterly, a written report of the
amounts expended (and the purposes therefor) under the Distribution Plan. Each
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 Plans may be
terminated with respect to any class of shares of either 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 that class of shares of the Fund. The
Distribution Plan applicable to a class of shares of either Fund may not be
amended to increase materially the amount of a Fund's permitted expenses
thereunder without the approval of a majority of the outstanding securities of
that class of shares of that Fund and may not be materially amended in any case
without a vote of a majority of both the Trustees and Qualified Trustees. The
Distributor will preserve copies of any plan, agreement or report made pursuant
to each 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 Plans, LFBDS acts as the agent of
the Trust in connection with the offering of shares of the Funds pursuant to the
Distribution Agreements. After the prospectuses and periodic reports of the
Funds have been prepared, set in type and mailed to existing shareholders, the
Distributor pays for the printing and distribution of copies thereof which are
used in connection with the offering of shares of the Funds to prospective
investors. The Prospectus contains a description of fees payable to the
Distributor under the Distribution Agreements. For the fiscal years ended August
31, 1992 and August 31, 1993, for the four-month period ended December 31, 1993
and for the fiscal year ended December 31, 1994, the fees payable to the
Distributor from the New York Fund under a prior distribution agreement and the
Distribution Agreement were $118,429 (of which $42,114 was voluntarily waived),
$46,614 (all of which was voluntarily waived), $19,427 (all of which was
voluntarily waived) and $52,653 (all of which was voluntarily waived),
respectively, no portion of which was applicable to reimbursement for expenses
incurred in connection with print or electronic media advertising.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Trust has adopted an administrative services plan (the
"Administrative Services Plan") after having concluded that there is a
reasonable likelihood that the Administrative Services Plan will benefit the
Funds and their shareholders. The Administrative Services Plan 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
Services Plan, the total of the fees paid from a Fund to the Trust's
Administrator and Shareholder Servicing Agents may not exceed 0.65% of the
Fund's average daily net assets on an annualized basis for the Fund's
then-current fiscal year. Any distribution fees (other than any fee concerning
electronic or other media advertising) payable under the Distribution Plan for
the Class A shares of the New York Fund are included in this percentage
limitation for those shares. This limitation with respect to the Class A shares
of the National Fund and with respect to the Class B shares of each Fund, does
not include any amounts payable under the Distribution Plans for such shares.
Within this overall limitation, individual fees may vary. The Administrative
Services Plan continues in effect if such continuance is specifically approved
at least annually by a vote of both a majority of the Trustees and a majority of
the Trustees who are not "interested persons" of the Trust and who have no
direct or indirect financial interest in the operation of the Administrative
Services Plan or in any agreement related to such Plan (for purposes of this
paragraph "Qualified Trustees"). The Administrative Services Plan requires that
the Trust provide to its Board of Trustees and the Board of Trustees review, at
least quarterly, a written report of the amounts expended (and the purposes
therefor) under the Administrative Services Plan. The Administrative Services
Plan may be terminated at any time by a vote of a majority of the Qualified
Trustees of the Trust or as to each Fund by a vote of a majority of the
outstanding voting securities of the Fund. The Administrative Services Plan may
not be amended to increase materially the amount of the New York Fund's
permitted expenses thereunder without the approval of a majority of the
outstanding voting securities of the New York 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 Trust has entered into a shareholder servicing agreement (a
"Servicing Agreement") with each Shareholder Servicing Agent and a Transfer
Agency and Custodian Agreement with State Street Bank and Trust Company ("State
Street") pursuant to which State Street acts as transfer agent and custodian for
each Fund. See "Shareholder Servicing Agents" and "Transfer Agent and Custodian"
in the Prospectus for additional information, including a description of fees
paid to the Shareholder Servicing Agents under the Servicing Agreements. For the
fiscal year ended August 31, 1993, aggregate fees payable from the New York Fund
to Shareholder Servicing Agents were $372,914 (of which $139,843 were
voluntarily waived). For the four-month period ended December 31, 1993,
aggregate fees payable from the New York Fund to Shareholder Servicing Agents
were $155,418 (of which $58,282 were voluntarily waived). For the fiscal year
ended December 31, 1994, aggregate fees payable from the New York Fund to
Shareholder Servicing Agents were $421,226 (of which $157,960 was voluntarily
waived).
The principal business address of State Street is 225 Franklin Street,
Boston, MA 02110.
AUDITORS
Deloitte & Touche LLP are the independent certified public accountants
for the Trust, providing audit services and assistance and consultation with
respect to the preparation of filings with the SEC. The address of Deloitte &
Touche LLP is 125 Summer Street, Boston, Massachusetts 02110.
6. PORTFOLIO TRANSACTIONS
The Trust trades securities for a Fund if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Fund's investment objectives. Changes in a Fund's investments are made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of turnover
is not a limiting factor when changes are appropriate. The turnover rate for
each Fund is expected to be approximately 150% annually. Specific decisions to
purchase or sell securities for the Funds are made by a portfolio manager who is
an employee of the Adviser and who is appointed and supervised by its senior
officers. The portfolio manager may serve other clients of the Adviser in a
similar capacity.
The primary consideration in placing portfolio securities 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. The Adviser attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of each Fund and other clients
of the Adviser on the basis of their professional capability, the value and
quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Adviser normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Adviser on the tender of a
Fund's securities in so-called tender or exchange offers. Such soliciting dealer
fees are in effect recaptured for the Fund by the Adviser. At present no other
recapture arrangements are in effect.
Under the Advisory Agreements, in connection with the selection of such
brokers or dealers and the placing of such orders, the Adviser is directed to
seek for each Fund in its best judgment, prompt execution in an effective manner
at the most favorable price. Subject to this requirement of seeking the most
favorable price, securities may be bought from or sold to broker-dealers who
have furnished statistical, research and other information or services to the
Adviser or the Funds, subject to any applicable laws, rules and regulations.
The investment advisory fee that each Fund pays to the Adviser will not
be reduced as a consequence of the Adviser's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff.
In certain instances there may be securities that are suitable as an
investment for a Fund as well as for one or more of the Adviser's other clients.
Investment decisions for each Fund and for the Adviser's other clients are made
with a view to achieving their respective investment objectives. It may develop
that a particular security is bought or sold for only one client even though it
might be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could adversely affect the price of or the size of the
position obtainable in a security for a Fund. When purchases or sales of the
same security for a Fund and for other portfolios managed by the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large volume purchases or sales.
For the fiscal years ended August 31, 1992 and August 31, 1993, for the
period from August 31, 1993 to December 31, 1993 and for the fiscal year ended
December 31, 1994, the New York Fund paid no brokerage commissions.
7. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Shares of Beneficial Interest (without
par value) of each series and to divide or combine the shares of any series into
a greater or lesser number of shares of that series without thereby changing the
proportionate beneficial interests in that series. Currently, the Trust has two
series of shares, each divided into two classes. The Trust has reserved the
right to create and issue additional series and classes of shares. Each share of
each class of each Fund represents an equal proportionate interest in the Fund
with each other share of that class. Shares of each series participate equally
in the earnings, dividends and distribution of net assets of the particular
series upon liquidation or dissolution (except for any differences among classes
of shares in a series). Shares of each series are entitled to vote separately to
approve advisory agreements or changes in investment policy, but shares of all
series may vote together in the election or selection of Trustees and
accountants for the Trust. In matters affecting only a particular Fund or class,
only shares of that particular Fund or class are entitled to vote.
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 hold, and has no
present intention of holding, annual meetings of shareholders but the Trust will
hold special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have, under certain circumstances (e.g., upon the 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 under certain circumstances 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 the outstanding shares of each series affected by the amendment.
(See "Investment Objectives, Policies and Restrictions--Investment
Restrictions".) At any meeting of shareholders of a 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 of which that Shareholder
Servicing Agent is the holder of record. Shares have no preference, pre-emptive,
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 (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's outstanding
shares would be sufficient. The Trust or any series of the Trust, as the case
may be, may be terminated (i) by a vote of a majority of the outstanding voting
securities of the Trust or the affected series or (ii) by the Trustees by
written notice to the shareholders of the Trust or the affected series.
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 and liabilities. However, the Declaration of Trust of the 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 Trust property for any shareholder held personally liable for the obligations
of the Trust. The Declaration of Trust of the Trust also provides that the Trust
may 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 Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action or
failure to act, but nothing in the Declaration of Trust of each Trust protects a
Trustee against any liability to which he or she 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 or her office.
8. CERTAIN ADDITIONAL TAX MATTERS
Each Fund has elected to be treated, and intends to qualify each year,
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (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
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 a
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 generally will be required to be paid by the
Fund. If a 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 each 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 a 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 each Fund on their federal income tax returns.
Any Fund dividend that is declared in October, November or December of
any calendar year, that is payable to shareholders of record in such a month,
and that is paid the following January will be treated as if received by the
shareholders on December 31 of the year in which the dividend is declared. Any
Fund distribution will have the effect of reducing the per share net asset value
of shares in the Fund by the amount of the distribution. Shareholders purchasing
shares shortly before the record date of any distribution other than an
exempt-interest dividend may thus pay the full price for the shares and then
effectively receive a portion of the purchase price back as a taxable
distribution.
In general, any gain or loss realized upon a taxable disposition of
shares of a Fund by a shareholder that holds such shares as a capital asset will
be treated as long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a redemption of shares in a Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of shares of a Fund within 90 days after their purchase followed by
any purchase (including purchases by exchanges or by reinvestment) of shares of
the Fund or another Landmark Fund without payment of an additional sales charge.
Shareholders disposing of shares after tax-exempt income has been accrued but
not yet declared as a dividend should be aware that a portion of the proceeds
realized upon disposition of the shares may reflect the existence of such
accrued tax-exempt income, and that this portion of the proceeds may be subject
to tax as a capital gain even though it would have been tax-exempt had it been
declared as a dividend prior to the disposition.
Any investment in certain securities purchased at a market discount
will cause the applicable Fund to recognize income prior to the receipt of cash
payments with respect to those securities. In order to distribute this income
and avoid a tax, the Trust may be required to liquidate securities of a Fund
that it might otherwise have continued to hold and thereby potentially cause the
Fund to realize additional taxable gain or loss.
Each Fund's transactions in options, futures contracts and forward
contracts will be subject to special tax rules that may affect the amount,
timing, and character of Fund income and distributions to holders of beneficial
interests. For example, certain positions held by the Trust on behalf of a Fund
on the last business day of each taxable year will be marked to market (i.e.,
treated as if closed out) on that day, and any gain or loss associated with the
positions will be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Trust on behalf of a Fund that substantially
diminish its risk of loss with respect to other positions in its portfolio may
constitute straddles, and may be subject to special tax rules that would cause
deferral of Fund losses, adjustments in the holding periods of securities held
by the Trust on behalf of the Fund and conversion of short-term into long-term
capital losses. Certain tax elections exist for straddles which may alter the
effects of these rules. The Trust will limit its investment activities in
options, futures contracts and forward contracts on behalf of the Funds to the
extent necessary to meet the requirements of Subchapter M of the Code.
9. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the independent certified public accountants
for the Funds, providing audit services and assistance and consultation with
respect to the preparation of filings with the SEC.
The audited financial statements of the New York Fund (Portfolio of
Investments at December 31, 1994, Statement of Assets and Liabilities at
December 31, 1994, Statement of Operations for the year ended December 31, 1994,
Statement of Changes in Net Assets for the year ended December 31, 1994, the
four-month period ended December 31, 1993 and the year ended August 31, 1993,
Financial Highlights for the year ended December 31, 1994, the four months ended
December 31, 1993 and each of the fiscal years in the four-year period ended
August 31, 1993, Notes to Financial Statements and Independent Auditors'
Report), each of which is included in the Annual Report to Shareholders of the
New York 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, independent certified public accountants, as experts in
accounting and auditing.
A copy of the Annual Report to Shareholders of the New York Fund
accompanies this Statement of Additional Information.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL OBLIGATIONS
Municipal Obligations include bonds, notes and commercial paper issued
by or on behalf of states, territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from federal income taxes
(without regard to whether the interest thereon is also exempt from the personal
income taxes of any state). Municipal Obligation bonds are issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligation bonds may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses, and
obtaining funds to loan to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide privately-operated
housing facilities, industrial facilities, sports facilities, convention or
trade show facilities, airport, mass transit, port or parking facilities, air or
water pollution control facilities, hazardous waste treatment or disposal
facilities, and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Such obligations are included within the term
Municipal Obligations if the interest paid thereon qualifies as exempt from
federal income tax. Other types of industrial development bonds, the proceeds of
which are used for the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities, may constitute Municipal
Obligations, although the current federal tax laws place substantial limitations
on the size of such issues.
The two principal classifications of Municipal Obligation bonds are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its good faith, credit and taxing power for the
payment of principal and interest. The payment of the principal of and interest
on such bonds may be dependent upon an appropriation by the issuer's legislative
body. The characteristics and enforcement of general obligation bonds vary
according to the law applicable to the particular issuer. Revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Industrial development bonds which are Municipal
Obligations are in most cases revenue bonds and do not generally constitute the
pledge of the credit of the issuer of such bonds. There are, of course,
variations in the security of Municipal Obligations, both within a particular
classification and between classifications, depending on numerous factors.
Municipal Obligation notes generally are used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal
Obligation notes include:
1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to finance
operational needs of municipalities. Generally, they are issued in anticipation
of the receipt of various tax revenues, such as property, income, sales, use and
business taxes.
2. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued in
expectation of receipt of dedicated revenues, such as state aid or federal
revenues available under federal revenue sharing programs.
3. TAX AND REVENUE ANTICIPATION NOTES. Tax and Revenue Anticipation
Notes are issued by a state or municipality to fund its day-to-day operations
and certain local assistance payments to its municipalities and school
districts. Such Notes are issued in anticipation of the receipt of various taxes
and revenues, such as personal income taxes, business taxes and user taxes and
fees.
4. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to
provide interim financing until long-term bond financing can be arranged.
Long-term bonds or renewal Bond Anticipation Notes provide the money for the
repayment of the Notes.
Issues of commercial paper typically represent short-term, unsecured,
negotiable promissory notes. These obligations are issued by agencies of state
and local governments to finance 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 Obligation commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
The yields on Municipal Obligations are dependent on a variety of
factors, including general market conditions, supply and demand and general
conditions of the Municipal Obligation market, size of a particular offering,
the maturity of the obligation and rating (if any) of the issue. 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
Municipal 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.
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS*
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") and Fitch Investors Service, Inc. ("Fitch") represent
their opinions as to the quality of various debt securities. It should be
emphasized, however, that ratings are not absolute standards of quality.
Consequently, debt securities with the same maturity, coupon and rating may have
different yields while debt securities of the same maturity and coupon with
different ratings may have the same yield. The ratings below are 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
FOUR HIGHEST BOND 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 edge". 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.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Note: Those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa1, A1 and Baa1.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
FOUR HIGHEST BOND RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Plus (+) or Minus (-): The ratings from AA to BBB may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S
FOUR 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+.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on
these bonds, and therefore impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
PLUS (+) MINUS (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
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. 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, such
as long-term secular trends, may be less important over the short run.
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in three years or less likely have a note
rating. Notes maturing beyond three years most likely have a long-term debt
rating. The following criteria are used in making that assessment.
- - Amortization schedule (the longer the final maturity relative to other
maturities the more likely it is treated as a note).
- - Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it is 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
RATINGS OF TAX-EXEMPT DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all long-term debt issues
that have as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the 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 the newer "demand notes", note rating
symbols combined with the commercial paper symbols are used (for example, "SP-1
/A-1+").
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-1+ and F-1 ratings.
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 short-term senior debt 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 normally is 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
normally is evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, are 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 COMMERCIAL PAPER RATINGS
A S&P 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 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
ADDITIONAL INFORMATION CONCERNING
NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York Municipal Obligations. The sources of payment for such
obligations and the marketability thereof may be affected by financial or other
difficulties experienced by New York State (the "State") and certain of its
municipalities and public authorities. It does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of New York issuers. The Trust is not responsible for the
accuracy or timeliness of this information.
NEW YORK STATE
The factors affecting New York State's financial condition are complex
and the following description constitutes only a summary.
RECENT DEVELOPMENTS
The national economy performed better in 1994 than in any year since
the recovery began in 1991. National job and income growth were substantial. In
response, the Federal Reserve Board ("FRB") shifted to a policy of monetary
tightening by raising interest rates throughout the year. As of March 1995, the
federal funds rate was up 300 basis points from the level of a year previously.
As a result, the economy is expected to slow sharply in several quarters
beginning in 1995, as higher interest rates reduce the growth in consumer
spending and business investment. The State Division of the Budget expects
average annual growth in real gross domestic product ("GDP") to be 2.8 percent
in 1995, following the 4 percent pace estimated for 1994. This is somewhat more
conservative than the 3.1 percent growth rate expected by the Blue Chip
consensus of leading economic forecasters.
Inflationary pressures have increased due to strong national growth
throughout 1994, with a fairly low unemployment rate and high capacity
utilization, and economic recoveries in Europe and Japan. However, foreign
competition is expected to help to moderate the increase in the inflation rate.
With a slowing economy and only a modest acceleration of inflation, wage and
personal income growth are expected to be moderate.
The State economy turned in a mixed performance during 1994. The
moderate employment growth that characterized 1993 continued into mid-1994, then
virtually ceased. After July, the trade and construction sectors stopped adding
jobs and government employment declined. Growth, though considerably slower than
earlier in the year, continued in the service sector. Wages grew at around 3.5
percent, reflecting, in part, a plunge in bonus payments from securities firms
whose profits dropped in 1994. Personal income rose 4.0 percent in 1994.
Employment growth is expected to slow to less than 0.5 percent in 1995.
Continued restructuring by large corporations and all levels of government
largely account for the subdued growth rate in the forecast. Slow growth in
employment and average wages is expected to restrain wage growth to a modest 3.2
percent in 1995. Personal income is anticipated to receive a boost from higher
interest rates and rise by 4.4 percent.
Significant uncertainties exist in the forecasts. Consumer spending
could he more robust than anticipated, and recoveries in Europe and Japan may be
stronger than expected, leading to continued strong expansion throughout 1995.
Interest rates, on the other hand, may be at a level that will initiate a
sharper-than-expected slowdown. Financial instability, such as the foreign
exchange turmoil in Mexico, remains possible. The State forecast could fail to
estimate correctly the growth in average wages and the effect of corporate and
government downsizing.
The State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of tax
and revenue anticipation notes ("TRANs"). First, the national recession, and
then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. For its
1992-93 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in its Contingency
Reserve Fund ("CRF") and $134 million in its Tax Stabilization Reserve Fund.
These fund balances were primarily the result of an improving national economy,
State employment growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the personal income tax
refund reserve have the effect of reducing reported personal income tax receipts
in the fiscal year when made and withdrawals from such reserve increase receipts
in the fiscal year when made. The balance in the tax refund reserve account will
be used to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million will be redeposited in the tax refund
reserve account at the end of the State's 1994-95 fiscal year to continue the
process of restructuring the State's cash flow as part of the Local Government
Assistance Corporation ("LGAC") program. The balance in the CRF will be used to
meet the cost of litigation facing the State. The Tax Stabilization Reserve Fund
may be used only in the event of an unanticipated General Fund cash-basis
deficit during the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in 1993-94 exceeded those originally projected when the
State Financial Plan for that year was formulated on April 16, 1993 by $1.002
billion. Greater-than-expected receipts in the personal income tax, the bank
tax, the corporation franchise tax and the estate tax accounted for most of this
variance, and more than offset weaker-than-projected collections from the sales
and use tax and miscellaneous receipts. Collections from individual taxes were
affected by various factors including changes in Federal business laws,
sustained profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.
The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 fiscal year, and, although this lagged behind the
national economic recovery, the growth in New York began earlier than
forecasted. The New York economy exhibited signs of strength in the service
sector, in construction, and in trade. Long Island and the Mid-Hudson Valley
continued to lag behind the rest of the State in economic growth. The DOB
believes that approximately 100,000 jobs were added during the 1993-94 fiscal
year.
Disbursements and transfers from the General Fund were $303 million
below the level projected in April 1993, an amount that would have been $423
million had the State not accelerated the payment of Medicaid billings, which in
the April 1993 State Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State Financial Plan
formulated in April 1993, lower disbursements resulted from lower spending for
Medicaid, capital projects, and debt service (due to refundings) and $114
million used to restructure the State's cash flow as part of the LGAC program.
Disbursements were higher-than-expected for general support for public schools,
the State share of income maintenance, overtime for prison guards, and highway
snow and ice removal. The State also made the first of six required payments to
the State of Delaware related to the settlement of Delaware's litigation against
the State regarding the disposition of abandoned property receipts.
During the 1993-94 fiscal year, the State also established and funded
the CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal year.
In addition, the State augmented this initial deposit with $132 million in debt
service savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to the
CRF, which, after a disbursement for authorized fund purposes, brought the CRF
balance at the end of 193-94 to $265 million. This amount was $165 million
higher than the amount originally targeted for this reserve fund.
During the prior ten years, State-supported debt service increased by
5.8 percent annually to $2.239 billion by 1993-94 as available revenues
increased by 5.1 percent annually. The relative comparable growth in revenues
and debt service resulted in modest increases of 2.7 percent annually in the
ratio of debt service to revenues from 1984-85 to 1993-94. The ratio is
estimated to increase to over 6 percent as a result of the enacted budget.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes and on TRANs were $782.5 million
for the 1993-94 fiscal year, and are estimated to be $786.3 million for 1994-95.
These figures do not include interest payable on State General Obligation
Refunding Bonds issued in July 1992 ("Refunding Bonds") to the extent that such
interest was paid from an escrow fund established with the proceeds of such
Refunding Bonds. Principal and interest payments on fixed rate and variable rate
bonds issued by LGAC were $239.4 million for the 1993-94 fiscal year, and are
estimated to be $289.9 million for 1994-95. State lease-purchase rental and
contractual-obligation payments for 1993-94 (Other Financing Obligations),
including State installment payments related to certificates of participation,
were $1.258 billion and are estimated to be $1.495 billion in 1994-95.
Total outstanding State-related debt increased from $22.9 billion at
the end of the 1984-85 fiscal year to $34.8 billion at the end of the 1993-94
fiscal year, an average annual increase of 4.26%. State-supported debt increased
from $9.4 billion at the end of the 1984-85 fiscal year to $26.4 billion at the
end of the 1993-94 fiscal year, an average annual increase of 10.86%. During the
same ten year period, annual personal income in the State rose from $270.7
billion to $448.1 billion, an average annual increase of 5.17%. Thus,
State-supported debt grew at a faster rate than personal income while
State-related obligations grew at a slower rate. Expressed in other terms, the
total amount of State-supported debt grew from 3.48% of personal income in the
1984-85 fiscal year to 5.9% for the 1993-94 fiscal year while State-related debt
outstanding declined from 8.46% to 7.76% for the same period.
The State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees. There has never been a default on any moral
obligation debt of any State public authority ("Authority").
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1994-95 fiscal year was formulated on June 16, 1994 and
is based on the State's budget as enacted by the Legislature and signed into law
by the Governor.
The 1994-95 State Financial Plan, as formulated on June 16, 1994,
projected a balanced General Fund. Total General Fund receipts and transfers
from other funds were projected to be $34.321 billion, an increase of $2.092
billion over total receipts in the prior fiscal year. Total General Fund
disbursements and transfers to other funds were projected to be $34.248 billion,
an increase of $2.351 billion over the total amount disbursed and transferred in
the prior fiscal year.
The State issued the first of the three required quarterly updates to
the cash-basis 1994-95 State Financial Plan on July 29, 1994. That update
reflected an analysis of actual receipts and disbursements in the first quarter
of the fiscal year, as well as the impact of legislative actions and other
developments after the enactment of the budget. Following so closely after the
initial formulation of the State Financial Plan reflecting the enactment of the
State's 1994-95 budget, the update reflected no significant changes and did not
alter the balanced position of the State's General Fund in the State Financial
Plan. The economic forecast at that time remained unchanged, following several
weeks of mixed news about the pace of the economy of the nation and New York
State.
The State issued its second quarterly, or mid-year, update to the
cash-basis 1994-95 State Financial Plan on October 28, 1994. The update
projected a year-end surplus of $14 million in the General Fund, with estimated
receipts reduced by $267 million and estimated disbursements reduced by $281
million, compared to the State Financial Plan as initially formulated. In that
update the State revised its forecast of national and State economic activity
through the end of calendar year 1995. Although the national economic forecast
was basically unchanged from that on which the initial formulation of the State
Financial Plan was based, the revised State economic forecast was marginally
weaker.
Receipts through the first two quarters of the 1994-95 fiscal year fell
short of expectations by $132 million. These shortfalls were concentrated in the
personal and business income taxes, where quarterly personal income, bank and
insurance tax payments were lower than expected. Based on the revised economic
outlook and this receipt shortfall, projected General Fund receipts for the
1994-95 fiscal year were reduced by $267 million. Estimates of the yield of the
personal income tax were lowered by $334 million, primarily reflecting weak
estimated tax collections and lower withholding collections due to reduced
expectations for wage and salary growth, particularly securities industry
bonuses, during the balance of the year. Business tax receipts were also reduced
modestly, reflecting revised estimates of liability and lower payments from
banks and insurance companies; however, these reductions were partially offset
by increases in the general business corporation and utility taxes. Estimates in
other receipt categories were increased by a total of $113 million. The largest
increases were in the sales tax, reflecting collections to date and the revised
economic outlook, and estate taxes which were buoyed by unexpectedly large
collections during the first six months of the 1994-95 fiscal year. Increases
were also made in estimates for the real property gains tax and the real estate
transfer tax, based on strong collections to date.
Disbursements through the first six months of the fiscal year fell
short of projections by $153 million, owing in part to changes in the timing of
payments but also to lower spending trends in certain programs, most notably in
payments for social services programs. Projections of 1994-95 General Fund
disbursements were reduced $281 million, with savings in virtually every
category of the State Financial Plan. Payments for social services programs were
projected to be $140 million lower than projected in the State Financial Plan as
initially formulated, reflecting experience through the first six months of the
fiscal year and an initiative to increase Federal reimbursement for
administrative costs. Although school aid costs increased reflecting revisions
to the current and two prior school years based on final audits and revised aid
claims, these costs were expected to be offset by recoveries from the Federal
government in support of programs for pupils with disabilities. Other reductions
reflected lower pension costs, increased health insurance dividends, debt
management savings, and slower spending for certain programs and capital
projects. Higher spending was projected for a single program, the Department of
Correctional Services, to accommodate an unanticipated increase in the State's
prison population.
On February 1, 1995, as part of his Executive Budget for the 1995-96
fiscal year, the Governor submitted the third quarterly update to the State
Financial Plan for the current year. This update reflects changes to receipts
and disbursements based on: (1) an updated economic forecast for both the nation
and the State, (2) an analysis of actual receipts and disbursements through the
first nine months of the fiscal year, (3) an analysis of changing program
requirements, and (4) the Governor's proposed plan to close a potential $259
million deficit. The changes are reflected after the mid-year update to the
State Financial Plan was restated to conform to certain accounting treatments
used by the State Comptroller in reporting actual results, but do not affect the
actual closing cash position of the General Fund.
Estimates of General Fund receipts for the current fiscal year have
been reduced by $585 million, from the mid-year update, and are down $1.058
billion from the budget enacted in June 1994 (of which $227 million results from
the restatement of the State Financial Plan, noted above). The reductions from
the mid-year update are concentrated in (1) the personal income tax where lower
withholdings and estimated taxes reflect the cessation of job growth in the last
half of 1994, and even more severe reductions in brokerage industry bonuses than
expected earlier, and deferrals of capital gains realizations in anticipation of
potential Federal tax changes, and (2) the bank tax, where substantial
overpayments of 1993 liability have depressed net collections in the current
year. Offsetting this projected loss in receipts, however, are projected
reductions of $312 million in disbursements from the mid-year update,
attributable to lower spending through the first nine months of the fiscal year,
and to the use of greater-than-anticipated receipts from the State lottery. The
total reduction in projected disbursements from the budget enacted in June -
including payments from reserve funds - is $1.008 billion (of which $182 million
results from the restatement of the State Financial Plan).
The net result of the projected reductions in receipts and
disbursements is a negative margin of $273 million against the mid-year update's
projection of a $14 million surplus, producing a potential deficit of $259
million for the 1994-95 fiscal year. The Governor has proposed to close this
deficit through a hiring freeze, a review of pending contracts, and spending
cuts in certain programs that were started or expanded in the 1994-95 budget.
Major actions to close the deficit include:
- $84 million in savings from freezing non-essential capital programs:
- $59 million in savings from the general State agency hiring and budget
freeze and halting the development of additional services for mental
hygiene clients in community settings;
- $21 million in receipts from excess balances in accounts of the
Environmental Facilities Corporation;
- $30 million in a repayment from the Urban Development Corporation for
advances made by the State in prior years; and
- $50 million in savings from canceling the Liberty Scholarships program.
After these actions, the balance in the General Fund at the close of
the 1994-95 fiscal year is expected to be $157 million. The required deposit to
the Tax Stabilization Reserve Fund is projected to add $23 million to the
existing balance of $134 million in that fund.
The Financial Plan for the 1995-96 fiscal year released on February 1,
1995, projects General Fund receipts, including transfers from other funds, of
$32.516 billion, a reduction of $747 million from the revised 1994-95 State
Financial Plan. Tax receipts are projected at $29.391 billion for the 1995-96
fiscal year, a reduction of $1.071 billion from the prior year. Disbursements in
the General Fund are projected to total $32.361 billion in 1995-96, a decrease
of $1.144 billion or 3.4 percent. This decline reflects a broad agenda of cost
containment actions, more than offsetting modest increases for fixed costs, such
as pensions, debt service on bonds sold during the current year, and capital
projects under construction. The closing fund balance in the General Fund for
the 1995-96 fiscal year is projected to be $312 million, reflecting the required
deposit of $15 million to the Tax Stabilization Reserve Fund, raising the
balance in that fund to $172 million at the close of the 1995-96 fiscal year.
The remainder reflects the recommended deposit of $140 million to the
Contingency Reserve Fund (CRF) to provide resources to finance potential costs
associated with litigation against the State.
There can be no assurance that the State will not face substantial
potential budget gaps in future years, including the 1994-95 fiscal year,
resulting from a significant disparity between tax revenues projected from a
lower recurring receipts base and the spending required to maintain State
programs at current levels. To address any potential budgetary imbalance, the
State may need to take significant actions to align recurring receipts and
disbursements in future fiscal years.
RATING AGENCIES ACTIONS
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990, S&P
changed its ratings of all of the State's outstanding general obligation bonds
from AA- to A. On January 13, 1992, S&P changed its ratings of all of the
State's outstanding general obligation bonds from A to A- and continued its
negative rating outlook assessment on the State's general obligation debt. On
February 14, 1994, S&P raised its outlook to positive on the State's general
obligation debt. On June 27, 1994, S&P confirmed its A- rating and Moody's
reconfirmed its A rating on the State's general obligation debt. Ratings reflect
only the respective views of such organizations. See Appendix B for descriptions
of the ratings of Moody's and S&P. There is no assurance that a particular
rating will continue for any given period of time or that any such rating will
not be revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an adverse
effect on the market price of the State's outstanding general obligation bonds.
AUTHORITIES
The fiscal stability of the State is related to the fiscal stability of
its Authorities, which generally have responsibility for financing, constructing
and operating revenue-producing public benefit facilities. Authorities are not
subject to the constitutional restrictions on the incurrence of debt which apply
to the State itself, and may issue bonds and notes within the amounts of, and as
otherwise restricted by, their legislative authorization. As of September 30,
1993, the latest data available, there were 18 Authorities that had outstanding
debt of $100 million or more. The aggregate outstanding debt, including
refunding bonds, of these 18 Authorities was $63.5 billion as of September 30,
1993. As of March 31, 1994, aggregate public authority debt outstanding as
State-supported debt was $21.1 billion and as State-related debt was $29.4
billion. The State provided $947.4 million and $955.5 million in financial
assistance to the 18 Authorities during the State's 1991-92 and 1992-93 fiscal
years, respectively, and expects to provide approximately $1,096.6 million in
financial assistance to these Authorities in its 1993-94 fiscal year. Over this
time period, the Metropolitan Transportation Authority ("MTA") received or will
receive more than 90 percent of this financial assistance. The amounts set forth
above exclude amounts provided for capital construction and pursuant to
lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain Authorities for operating and other expenses and,
in fulfillment of its commitments on moral obligation indebtedness or otherwise,
for debt service. This assistance is expected to continue to be required in
future years.
The State's experience has been that if an Authority suffers serious
financial difficulties both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
METROPOLITAN TRANSPORTATION AUTHORITY: The MTA continues to experience
financial difficulties requiring financial assistance from the State. The MTA
oversees the operation of New York City's (the "City") bus and subway lines by
the New York City Transit Authority and the Manhattan and Bronx Surface Transit
Operating Authority (collectively the "Transit Authority" or the "TA") and
through its several subsidiaries, operates certain commuter rail, bus and rapid
transit lines in Staten Island and the New York metropolitan area. The MTA has
depended and will continue to depend upon operating support from Federal, State
and local government sources and from an MTA affiliate, the Triborough Bridge
and Tunnel Authority ("TBTA").
Over the past several years the State has enacted several
taxes--including a surcharge on the profits of banks, insurance corporations and
general business corporations doing business in the 12-county Metropolitan
Transportation Region served by the MTA and a special one-quarter of 1 percent
regional sales and use tax--that provide revenues for mass transit purposes,
including assistance to the MTA. In addition, in March 1987, legislation was
enacted that creates an additional source of recurring revenues for the MTA.
This legislation requires that the proceeds of a one-quarter of 1% mortgage
recording tax paid on certain mortgages in the Metropolitan Transportation
Region that heretofore had been paid to the State of New York Mortgage Agency be
deposited in a special MTA fund. These tax proceeds may be used by the MTA for
either operating or capital (including debt service) expenses. Further, in 1993,
the State dedicated a portion of the State petroleum business tax to fund
operating or capital assistance to the MTA. For the 1994-95 State fiscal year,
total State assistance to the MTA is estimated at approximately $1.3 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the Legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the TBTA and the TA are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net of certain
statutory exclusions) to finance a portion of the 1992-96 Capital Program. The
1992-96 Capital Program is expected to be financed in significant part through
the dedication of State petroleum business taxes referred to above.
There can be no assurance that all the necessary governmental actions
for the 1992-96 Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1992-96 Capital
Program, or parts thereof, will not be delayed or reduced. Furthermore, the
power of the MTA to issue certain bonds expected to be supported by the
appropriation of State petroleum business taxes is currently the subject of a
court challenge. If the 1992-96 Capital Program is delayed or reduced, ridership
and fare revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional State assistance.
For 1993, the TA originally projected a budget gap of approximately
$266 million. The MTA Board approved an increase in TBTA tolls which took effect
January 31, 1993. Since the TBTA operating surplus helps subsidize TA
operations, the January toll increase on TBTA facilities, and other
developments, reduced the projected gap to approximately $241 million.
Legislation passed in April 1993 relating to the MTA's 1992-1996
Capital Program reflected a plan for closing this gap without raising fares. A
major element of the plan provides that the TA receive a significant share of
the petroleum business tax which will be paid directly to MTA for its agencies.
The plan also relies on certain City actions that have not yet been taken. The
plan also relies on MTA and TA resources projected to be available to help close
the gap.
If any of the assumptions used in making these projections prove
incorrect, the TA's gap could grow, and the TA would be required to seek
additional State assistance, raise fares or take other actions.
Two serious accidents in December 1990 and August 1991, which caused
fatalities and many injuries, have given rise to substantial claims for damages
against both the TA and the City.
A subway fire on December 28, 1990 and a subway derailment on August
28, 1991, each of which caused fatalities and many injuries, have given rise to
substantial claims for damages against both the TA and the City.
RATING AGENCIES' ACTIONS: In 1991, S&P and Moody's downgraded the
outstanding TBTA mortgage recording tax bonds from A to BBB+ and from A to Baa,
respectively. On May 1, 1991, S&P placed the MTA's nearly $1.7 billion of
transit facilities revenue and commuter facilities revenue bonds on S&P
CreditWatch , with negative implications and assigned it a rating of BBB+. On
April 14, 1992, Moody's lowered its rating of the MTA transit bonds to Baa from
Baa1.
LOCALITIES
THE CITY OF NEW YORK
The fiscal health of the State is closely related to the fiscal health
of its localities, particularly the City which has required and continues to
require significant State financial assistance. There can be no assurance that
in the future State assistance will enable the City to make up its budget
deficits.
The City's independently audited operating results for each of its 1981
through 1993 fiscal years, which end on June 30, show a General Fund surplus
reported in accordance with GAAP. The City has eliminated the cumulative deficit
in its net General Fund position. In addition, the City's financial statements
for the 1993 fiscal year received an unqualified opinion from the City's
independent auditors, the eleventh consecutive year the City has received such
an opinion.
In response to the City's fiscal crisis in 1975, the State took a
number of steps to assist the City in returning to fiscal stability. Among these
actions, the State created the Municipal Assistance Corporation for the City of
New York ("MAC") to provide financing assistance to the City. The State also
enacted the New York State Financial Emergency Act for The City of New York (the
"Financial Emergency Act") which, among other things, established the New York
State Financial Control Board (the "Control Board") to oversee the City's
financial affairs. The State also established the Office of the State Deputy
Comptroller for the City of New York ("OSDC") to assist the Control Board in
exercising its powers and responsibilities.
The City operates under a four-year financial plan which is prepared
annually and is periodically updated. On June 30, 1986, the Control Board's
powers of approval over the City's financial plan were suspended pursuant to the
Financial Emergency Act. However, the Control Board, MAC and OSDC continue to
exercise various monitoring functions relating to the City's financial position.
The City submits its financial plans as well as the periodic updates to the
Control Board for its review.
Estimates of the City's revenues and expenditures are based on numerous
assumptions and are subject to various uncertainties. If expected Federal or
State aid is not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from the State.
1995-1998 FINANCIAL PLAN
On July 8, 1994, the City submitted to the Control Board (the "1994
Modification") a fourth quarter modification to the City's Financial Plan for
the 1994 fiscal year which projects a balanced budget in accordance with GAAP
for the 1994 fiscal year, after taking into account a discretionary transfer of
$171 million in resources to the 1995 fiscal year. On July 8, 1994, the City
submitted to the Control Board the Financial Plan for the 1995-1998 fiscal
years, which relates to the City, the Board of Education ("BOE") and the City
University of New York ("CUNY"). The Financial Plan is based on the City's
expense and capital budgets for the City's 1995 fiscal year, which were adopted
on June 23, 1994.
The 1995-1998 Financial Plan projects revenues and expenditures for the
1995 fiscal year balanced in accordance with GAAP. The projections for the 1995
fiscal year reflect proposed actions to close a previously projected gap of
approximately $2.3 billion for the 1995 fiscal year, which include City actions
aggregating $1.9 billion, a $288 million increase in State actions over the 1994
and 1995 fiscal years, and a $200 million increase in Federal Assistance. The
City actions include proposed agency actions aggregating $1.1 billion, including
productivity savings; tax and fee enforcement initiatives; service reductions;
and savings from the restructuring of City services. City actions also include
savings of $45 million resulting from proposed tort reform, the projected
transfer to the 1995 fiscal year of $171 million of the projected 1994 fiscal
year surplus, savings of $200 million for employee health care costs, $51
million in reduced pension costs, savings of $225 million from refinancing City
bonds and $65 million from the proposed sale of certain City assets. The
proposed savings for employee health care costs are subject to collective
bargaining negotiation with the City's unions. The proposed savings from tort
reform will require the approval of the State Legislature and the $200 million
increase in Federal assistance is subject to approval by Congress and the
President.
The Financial Plan also sets forth projections for the 1996 through
1998 fiscal years and outlines a proposed gap-closing program to close projected
gaps of $1.5 billion, $2.0 billion and $2.4 billion for the 1996 through 1998
fiscal years, respectively, after successful implementation of the $2.3 billion
gap-closing program for the 1995 fiscal year.
The projections for the 1996 through 1998 fiscal years assume the
extension by the State Legislature of the 14% personal income tax surcharge
beyond calendar year 1995 and extension of the 12.5% personal income tax
surcharge beyond calendar year 1996, resulting in combined revenues of $159
million, $633 million and $920 million in the 1996, 1997 and 1998 fiscal years,
respectively. However, as part of the tax reduction program reflected in the
Financial Plan, the City is proposing the elimination of the 12.5% personal
income tax surcharge when it expires at a cost of $184 million in fiscal year
1997 and $455 million in fiscal year 1998. The proposed gap-closing actions
include City actions aggregating $1.2 billion, $1.5 billion and $1.7 billion in
the 1996 through 1998 fiscal years, respectively; $275 million, $375 million and
$525 million in proposed additional State actions in the 1996 through 1998
fiscal years, respectively, primarily from the proposed State assumption of
certain Medicaid costs; and $100 million and $200 million in proposed additional
Federal assistance in the 1997 and 1998 fiscal years, respectively. The proposed
additional City actions, a substantial number of which are unspecified, include
additional spending reductions, the reduction of City personnel through
attrition, government efficiency initiatives, procurement initiatives, labor
productivity initiatives, and the proposed privatization of City sewage
treatment plans. Certain of these initiatives may be subject to negotiation with
the City's municipal unions. Various actions proposed in the Financial Plan for
the 1996-1998 fiscal years, including the proposed state actions, are subject to
approval by the Governor and the State Legislature, and the proposed increase in
Federal assistance is subject to approval by Congress and the President. The
State Legislature has in previous legislative sessions failed to approve certain
of the City's proposals for the State assumption of certain Medicaid costs and
mandate relief, thereby increasing the uncertainty as to the receipt of the
State assistance included in the Financial Plan. In addition, the Financial Plan
assumes the continuation of the current assumption with respect to wages for
City employees and the assumed 9% earnings on pension fund assets affecting the
City's pension fund contributions. Actual earnings on pension fund assets for
the 1994 fiscal year are expected to be substantially below the 9% assumed rate,
which will increase the City's future pension contributions. In addition, a
review of the pension fund earnings assumptions is currently being conducted
which could further increase the City's future pension contributions by a
substantial amount.
The City expects that tax revenue for the 1994 fiscal year will be
approximately $65 million less than forecast in the 1994 Modification, primarily
due to shortfalls in the personal income tax and sales tax, and that
expenditures will be approximately $25 million greater than forecast.
Accordingly, the $171 million of the projected surplus for the 1994 fiscal year,
which is currently projected in the 1994 Modification and the Financial Plan to
be transferred to the 1995 fiscal year, will decrease to $81 million. As a
result, the City will reduce expenditures for the 1995 fiscal year to offset
this decrease, which is expected to be reflected in the first quarter
modification to the Financial Plan. In addition, the Financial Plan assumes that
a special session of the State Legislature will enact, and the Governor will
sign, State legislation relating to the proposed tort reform, which would save
the City $45 million in payments for tort liability in fiscal year 1995, and
certain anticipated improvements in fine and fee collections forecast to earn
$25 million in City revenue in fiscal year 1995, and that the State Legislature
will not enact proposed legislation mandating additional pension benefits for
City retirees costing the City approximately $200 million annually. To address
these and other possible contingencies, on July 25, 1994, the Mayor stated that
he will reserve $250 million from authorized spending by City agencies in fiscal
year 1995 by reserving a portion of the spending authorized by appropriation,
and that he may require agencies to reduce spending by an additional $200
million in the 1995 fiscal year in addition to the existing general reserve of
$150 million.
The City's financial plans have been the subject of extensive public
comment and criticism. On August 2, 1994 the City Comptroller issued a report on
the Financial Plan. The City Comptroller stated that the total risk could be as
much as $768 million to $968 million for the 1995 fiscal year, with
substantially greater risks for the remaining years of the Financial Plan.
On February 14, 1995, the Mayor released the Preliminary Budget for the
City's 1996 fiscal year (commencing July 1, 1995), which addresses a projected
$2.7 billion budget gap. Most of the gap-closing initiatives may be implemented
only with the cooperation of the City's municipal unions, or the State or
Federal governments.
The 1995-1998 Financial Plan is based on numerous assumptions,
including the continuing improvement in the City's and the region's economy and
a modest employment recovery during calendar year 1994 and the concomitant
receipt of economically sensitive tax revenues in the amounts projected. The
1995-1998 Financial Plan is subject to various other uncertainties and
contingencies relating to, among other factors, the extent, if any, to which
wage increases for City employees exceed the annual increases assumed for the
1995 through 1998 fiscal years; continuation of the 9% interest earnings
assumptions for pension fund assets and current assumptions with respect to
wages for City employees affecting the City's required pension fund
contributions; the willingness and ability of the State, in the context of the
State's current financial condition, to provide the aid contemplated by the
Financial Plan and to take various other actions to assist the City, including
the proposed State takeover of certain Medicaid costs and State mandate relief;
the ability of the New York City Health and Hospitals Corporation, BOE and other
such agencies to maintain balanced budgets; the willingness of the Federal
government to provide Federal aid; approval of the proposed continuation of the
personal income tax surcharge; adoption of the City's budgets by the City
Council in substantially the forms submitted by the Mayor; the ability of the
City to implement proposed reductions in City personnel and other cost reduction
initiatives, which may require in certain cases the cooperation of the City's
municipal unions, and the success with which the City controls expenditures;
savings for health care costs for City employees in the amounts projected in the
Financial Plan; additional expenditures that may be incurred due to the
requirements of certain legislation requiring minimum levels of funding for
education; the impact on real estate tax revenues of the current weakness in the
real estate market; the City's ability to market its securities successfully in
the public credit markets; the level of funding required to comply with the
Americans with Disabilities Act of 1990; and additional expenditures that may be
incurred as a result of deterioration in the condition of the City's
infrastructure. Certain of these assumptions have been questioned by the City
Comptroller and other public officials.
BORROWINGS AND RATINGS AGENCIES ACTIONS
The City requires certain amounts of financing for seasonal and capital
spending purposes. The City projects a need of $2.2 billion in seasonal
financing for fiscal year 1995 which will be met with the proceeds of notes
issued by the City. The City's capital financing program projects long-term
financing requirements of approximately $17.8 billion for the City's fiscal
years 1995 through 1998 for the construction and rehabilitation of the City's
infrastructure and other fixed assets. The major capital requirements include
expenditures for the City's water supply system, sewage and waste disposal
systems, roads, bridges, mass transit, schools and housing.
On February 11, 1991, Moody's lowered its rating of the City's general
obligation bonds to Baa1 from A. The Baa1 rating has since been reaffirmed
several times, with the most recent confirmation on November 15, 1993. Moody's
has stated that audited results indicate a modest operating surplus for fiscal
1993, continuing the City's extended record of balancing annual operations as
required by law. The City has achieved this performance despite continuing
expenditure pressures and an unbudgeted increase in labor costs resulting from a
collective bargaining settlement. Increased receipts of non-property taxes,
savings in debt service costs, and reductions in hiring helped to offset the
added expenditures. The City has used the 1993 surplus to prepay certain
expenditures for fiscal 1994. The audit indicates that the surplus is somewhat
larger than initially estimated, providing additional resources for the current
year. The fiscal 1994 budget is nominally balanced, in part through reliance on
one-shot revenues, but contains a number of risks. As in prior years, one-shot
revenues represent a substantial portion of the plan to close a baseline gap
estimated at over $2 billion. Although the use of one-shots is greater in this
budget than in those of the prior two years, it is less than in fiscal 1990 or
1991. The gap-closing plan relies on additional State and Federal aid, the sale
of property tax receivables, savings from debt refundings, and
as-yet-unspecified expenditure reductions. Some of these measures are subject to
a degree of uncertainty, as are certain other elements of the budget, and it is
likely that further gaps will appear as the fiscal year progresses. The
Financial Plan for fiscal 1995 and beyond shows an ongoing imbalance between the
City's expenditures and revenues.
S&P has rated the City's general obligation bonds A- since November 19,
1987. The most recent confirmation of the A- rating occurred on July 2, 1994.
S&P has stated that maintenance of such rating depended upon the City making
further progress towards reducing budget gaps in the outlying years. S&P has
stated that the A- rating reflects a broad based economy that remains under
recessionary stress, a relatively high debt burden, and a history of balanced
financial operations. The outlook for future balanced budgets remains under
stress based on projected deficits of $1.5 billion-$2.0 billion, current
taxation levels and maintenance of spending programs. The City recently elected
a new Mayor and Comptroller; it is too early to assess any policy changes that
may result from the new leadership, although the Mayor-elect indicated that he
would seek to dramatically reduce the City's work force and attempt to reduce
the City's high tax burden. Given the City's current financial outlook, these
goals are aggressive. The City still faces a potential budget gap of $300
million-$400 million for the current year, and the January 1994 financial plan
is likely to give the first real indications of how the new Mayor will address
the City's chronic budget imbalance.
Such ratings reflect only the views of Moody's and S&P from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of such
securities.
LOCALITIES OTHER THAN THE CITY OF NEW YORK
Certain localities other than New York City could have financial
problems leading to requests for additional State assistance during the State's
1994-95 fiscal year and thereafter. The potential impact on the State of such
requests by localities is not included in projections of State revenues and
expenditures in the State's 1994-95 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board of the City of Yonkers
(the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the Governor
or the State Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
Moody's stated in its January 6, 1992 downgrade of certain State
obligations that while such action did not directly affect the bond ratings of
local governments in New York State, the impact of the State's fiscal stringency
on local government bond ratings will be assessed on a case-by-case basis. With
S&P's January 13, 1992 downgrade of certain State obligations, under S&P's
minimum rating approach New York local school district debt will now carry a
minimum rating of A- rather than A and school districts currently rated A were
placed on CreditWatch with negative implications.
CERTAIN MUNICIPAL INDEBTEDNESS
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1992, the total indebtedness of all
localities in the State was approximately $35.2 billion, of which $19.5 billion
was debt of the City (excluding $5.5 billion in MAC debt); a small portion
(approximately $71.6 million) of the $35.2 billion of indebtedness represents
borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Seventeen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal years ending in 1992. Certain proposed federal expenditure
reductions could reduce, or in some cases eliminate, federal funding of some
local programs and accordingly might impose substantial increased expenditure
requirements on affected localities to increase local revenues to sustain those
expenditures. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
In 1992, an unusually large number of local government units requested
authorization for deficit financings. According to the Comptroller, ten local
government units were authorized to issue deficit financing in the aggregate
amount of $131.1 million, including Nassau County for $65 million in six-year
deficit bonds and Suffolk County for $36 million in six-year deficit bonds. The
current session of the Legislature may receive as many or more requests for
deficit-financing authorizations as a result of deficits previously incurred by
local governments. Although the Comptroller has indicated that the level of
deficit financing requests in unprecedented, such developments are not expected
to have a material adverse effect on the financial condition of the State.
LITIGATION
The legal proceedings noted below involve State finances in which the
State is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State in the
1994-95 fiscal year or thereafter.
Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced 1994-95
State Financial Plan. An adverse decision in any of these proceedings could
exceed the amount of the 1994-95 State Financial Plan reserve for the payment of
judgments and, therefore, could affect the ability of the State to maintain a
balanced 1994-95 State Financial Plan. In its Notes to its General Purpose
Financial Statements for the fiscal year ended March 31, 1994, the State reports
its estimated liability for awarded and anticipated unfavorable judgments at
$675 million. The State believes that the 1994-95 State Financial Plan includes
sufficient reserves for the payment of judgments that may be required during the
1994-95 fiscal year.
Although other litigation is pending against the State, except as
described below, no current litigation involves the State's authority, as a
matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects the State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
In addition to the proceedings noted below, the State is party to other
claims and litigation which its legal counsel has advised are not probable of
adverse court decisions. Although the amounts of potential losses, if any, are
not presently determinable, it is the State's opinion that its ultimate
liability in these cases is not expected to have a material adverse effect on
the State's financial position in the 1994-95 fiscal year or thereafter.
ABANDONED PROPERTY LAW
On May 31, 1988, the Supreme Court of the United States took
jurisdiction of a claim of the State of Delaware that certain unclaimed
dividends, interest and other distributions made by issuers of securities and
held by New York-based brokers incorporated in Delaware, for beneficial owners
who cannot be identified or located, had been, and were being, wrongfully taken
by the State of New York pursuant to New York's Abandoned Property Law (State of
Delaware v. State of New York, United States Supreme Court). Texas intervened,
claiming a portion of such distributions and similar property taken by the State
of New York from New York-based banks and depositories incorporated in Delaware.
All other states and the District of Columbia moved to intervene. In a decision
dated March 30, 1993, the United States Supreme Court granted all pending
motions of the states and the District of Columbia to intervene and remanded the
case to a Special Master for further proceedings consistent with the Court's
decision. The Court determined that the abandoned property should be remitted
first to the state of the beneficial owner's last known address, if
ascertainable, and, if not, then to the state of incorporation of the
intermediary bank, broker or depository. By agreement among New York, Delaware,
Massachusetts and all other parties in the action, remaining claims have been
settled. Pursuant to agreements executed by New York in the action, New York is
required to make aggregate payments of $351.4 million, of which $90.3 million
have been made. Annual payments to the various parties will continue through the
State's 2002-03 fiscal year in amounts which will not exceed $48.4 million in
any fiscal year subsequent to the State's 1994-95 fiscal year.
INSURANCE LAW
Several cases challenge provisions of Section 2807-c of the Public
Health Law, which impose a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans, and portions of Chapter
55 of the Laws of 1992 which require hospitals to impose and remit to the State
an 11% surcharge on hospital bills paid by commercial insurers and which require
health maintenance organizations to remit to the State a surcharge of up to 9%.
In The Travelers Insurance Company v. Cuomo, et al., commenced June 2, 1992, and
The Health Insurance Association of America, et al. v. Chassin, et al.,
commenced July 20, 1992, both in the United States District Court for the
Southern District of New York and consolidated, plaintiffs allege that the
surcharges are preempted by Federal law. In that consolidated case, by order
dated February 3, 1993, the District Court has granted plaintiffs' motion for
summary judgment and has enjoined enforcement of the 13%, 11% and 9% surcharges.
Defendants' appeal is pending in the United States Court of Appeals for the
Second Circuit. In Matter of Hospital Association of New York State v. Chassin,
et al. (Supreme Court, Albany County), by decision dated November 2, 1992 the
Supreme Court upheld as constitutional the legislation which authorizes the 11%
surcharge; plaintiff's appeal is pending in the Appellate Division, Third
Department.
In Trustees of and The Pension, Hospitalization Benefit Plan of the
Electrical Industry, et al. v. Cuomo, et al., commenced November 25, 1992 in the
United States District Court for the Eastern District of New York, plaintiff
employee welfare benefit plans seek a declaratory judgment nullifying on the
ground of Federal preemption provisions of Section 2807-c of the Public Health
Law and implementing regulations which impose a bad debt and charity care
allowance on all hospital bills and a 13% surcharge on inpatient bills paid by
employee welfare benefit plans.
PUBLIC AUTHORITY FINANCING PROGRAMS
In a proceeding commenced on August 6, 1991 (Schulz, et al. v. State of
New York, et al., Supreme Court, Albany County), petitioners challenge the
constitutionality of two bonding programs of the New York State Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991. Petitioners
argue that cooperative highway contractual agreements and service contracts to
be entered into by the State and the Thruway Authority in connection with the
bonding programs constitute State debt and a gift or loan of State credit in
violation of Sections 8 and 11 of Article VII and Section 5 of Article X of the
State Constitution.
In Schulz, et al. v. State of New York, et al., commenced May 24, 1993,
Supreme Court, Albany County, petitioners challenged, among other things, the
constitutionality of, and sought to enjoin, certain highway, bridge and mass
transportation bonding programs of the New York State Thruway Authority and the
Metropolitan Transportation Authority authorized by Chapter 56 of the Laws of
1993. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violated Sections 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. On June 30, 1994,
the Court of Appeals unanimously affirmed the rulings of the trial court and the
Appellate Division in favor of the State and upheld the constitutionality of
certain highway, bridge and mass transportation bonding programs of the New York
State Thruway Authority and the Metropolitan Transportation Authority authorized
by Chapter 56 of the Laws of 1993.
In upholding the State's position, the Court of Appeals found that,
because the State itself does not become "indebted" in financing arrangements
with public authorities where the State's obligation to make payments is subject
to appropriation, such as lease-purchase and contractual-obligation financing
arrangements described in the State's Annual Information Statement, those
financing arrangements do not constitute indebtedness of the State for purposes
of the State constitutional limits on debt and are thus not required to be
submitted to the voters for approval at a general election.
Plaintiffs' motion for reargument before the Court of Appeals was
denied on September 1, 1994. Plaintiffs' petition to the United States Supreme
Court for a writ of certiorari was denied on January 23, 1995.
TAX LAW
In American Telephone and Telegraph Company v. New York State
Department of Taxation and Finance, commenced December 30, 1991 in Supreme
Court, New York County, plaintiff challenged Tax Law ss.186-a(2a) as in
violation of the Commerce Clause of the United States Constitution. That statute
restricted a deduction from income of local access service fees to interstate
and international revenues prior to apportionment to New York. Plaintiff alleged
that the pre-apportionment deduction favored wholly intrastate long distance
carriers over interstate long distance carriers. By opinion dated June 16, 1994,
the Court of Appeals held Tax Law ss.186-a(2-a) to be unconstitutional and by
decision dated September 1, 1994, the Court of Appeals denied defendant's motion
for reargument.
Aspects of petroleum business taxes are the subject of administrative
claims and litigation (e.g., Tug Buster Bouchard, et al. v. Wetzlu, Supreme
Court, Albany County, commenced November 13, 1992). In Tug Buster Bouchard,
petitioner corporations, which purchase fuel out of State and consume such fuel
within the State, contend that the assessment of the petroleum business tax
pursuant to Tax Law ss.301 on such fuel violates the Commerce Clause of the
United States Constitution. Petitioners contend that the application of section
301 to the interstate transaction but not to purchasers who purchase and consume
fuel within the State discriminates against interstate commerce.
STATE PROGRAMS
In Matter of New York State Health Facilities Association, Inc., et al.
v. Azelrod, Supreme Court, Albany County, commenced 1990, petitioner nursing
homes challenge regulations of the State Department of Health (10 NYCRR
ss.86-2.10 (c) and (d)) which reduce base prices for the direct and indirect
components of Medicaid reimbursement for rate years commencing 1989.
<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 CUSTOMERS:
Citigold
666 Fifth Avenue, New York, NY 10150-5130
Call Your Account Officer or (212) 974-0900 or (800) 285-1701
FOR 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,
Investment Specialist 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 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 NATIONAL TAX FREE INCOME FUND
LANDMARK NEW YORK TAX FREE INCOME FUND
TRUSTEES AND OFFICERS
Philip W. Coolidge
President*
H.B. Alvord
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong, Jr.
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY AND TREASURER
James B. Craver*
ASSISTANT TREASURER
Barbara M. O'Dette*
ASSISTANT SECRETARY
Molly S. Mugler*
*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
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02100
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street, Boston, MA 02110
- -------------------------------------------------------------------------------