<PAGE>
497(c) File Nos. 33-5819 and 811-5034
LANDMARK TAX FREE INCOME FUNDS
(LANDMARK NATIONAL TAX FREE INCOME FUND AND
LANDMARK NEW YORK TAX FREE INCOME FUND)
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. N-1A ITEM LOCATION
- -------- --------- --------
PART A PROSPECTUS
- ------ ----------
<S> <C> <C>
Item 1. Cover Page............................................. Cover Page
Item 2. Synopsis............................................... Expense Summary
Item 3. Condensed Financial Information........................ Condensed Financial Information
Item 4. General Description of Registrant...................... Investment Information; General
Information; Appendix
Item 5. Management of the Fund................................. Management; Expenses
Item 5A. Management's Discussion of Fund Performance............ Not Applicable
Item 6. Capital Stock and Other Securities..................... General Information; Classes of Shares;
Voting and Other Rights; Purchases;
Exchanges; Redemptions; Dividends and
Distributions; Tax Matters
Item 7. Purchase of Securities Being Offered................... Purchases; Exchanges; Redemptions
Item 8. Redemption or Repurchase............................... Purchases; Exchanges; Redemptions
Item 9. Pending Legal Proceedings.............................. Not Applicable
STATEMENT OF
ADDITIONAL
PART B INFORMATION
- ------ -----------
Item 10. Cover Page............................................. Cover Page
Item 11. Table of Contents...................................... Cover Page
Item 12. General Information and History........................ The Funds
Item 13. Investment Objectives and Policies..................... Investment Objectives, Policies and
Restrictions
Item 14. Management of the Fund................................. Management
Item 15. Control Persons and Principal Holders of Securities.... Management
Item 16. Investment Advisory and Other Services................. Management
Item 17. Brokerage Allocation and Other Practices............... Portfolio Transactions
Item 18. Capital Stock and Other Securities..................... Description of Shares, Voting Rights and
Liabilities
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered.......................................... Description of Shares, Voting Rights and
Liabilities; Determination of Net Asset
Value; Valuation of Securities;
Additional Purchase and Redemption
Information
Item 20. Tax Status............................................. Certain Additional Tax Matters
Item 21. Underwriters........................................... Management
Item 22. Calculation of Performance Data........................ Performance Information
Item 23. Financial Statements................................... Independent Accountants and Financial
Statements
PART C Information required to be included in Part C is set
- ------ forth under the appropriate Item, so numbered, in
Part C to this Registration Statement.
</TABLE>
<PAGE>
497(c) File Nos. 33-5819 and 811-5034
PROSPECTUS
- ------------------------------------------------------------------------------
MAY 1, 1996
LANDMARK NATIONAL TAX FREE INCOME FUND
LANDMARK NEW YORK TAX FREE INCOME FUND
(Members of the Landmark(SM) 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.
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. A Statement of Additional
Information dated May 1, 1996 (and incorporated by reference in this
Prospectus) has been filed with the Securities and Exchange Commission. Copies
of the Statement of Additional Information may be obtained without charge, and
further inquiries about the 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
- ------------------------------------------
4 Expense Summary
- ------------------------------------------
6 Condensed Financial Information
- ------------------------------------------
8 Investment Information
- ------------------------------------------
9 Risk Considerations
- ------------------------------------------
Valuation of Shares
Classes of Shares
- ------------------------------------------
12 Purchases
- ------------------------------------------
15 Exchanges
- ------------------------------------------
16 Redemptions
- ------------------------------------------
17 Dividends and Distributions
Management
- ------------------------------------------
20 Tax Matters
Performance Information
- ------------------------------------------
21 General Information
- ------------------------------------------
22 Appendix -- Permitted Investments and
Investment Practices
- ------------------------------------------------------------------------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
See the body of the Prospectus for more information on the topics discussed
in this summary.
THE 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. The Fund's objectives are 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. The Fund's objectives 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 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 $83 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 dividend and capital gain 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. 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
- ------------------------------------------------------------------------------
The following table summarizes estimated shareholder transaction and annual
operating expenses for Class A and B shares of each Fund.*
<TABLE>
<CAPTION>
NATIONAL TAX FREE NEW YORK TAX FREE
INCOME FUND INCOME FUND
CLASS A CLASS B CLASS A CLASS B
- -------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C> <C>
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 is See See
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% 0.09% 0.09%
Shareholder Servicing Agent Fees .............................. 0.25% 0.25% 0.25% 0.25%
Other Operating Expenses ...................................... 0.15%(2) 0.15%(2) 0.22% 0.22%
Total Fund Operating Expenses(2) ................................ 0.80% 1.55% 0.80% 1.55%
* 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 Class B shares were not offered during the most recent fiscal year of the Funds, certain figures in the table are
based on estimated amounts for the current fiscal year. The table shows the fees paid to various service providers after
giving effect to expected voluntary partial fee waivers.
(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) Absent fee waivers and reimbursements, investment management fees, rule 12b-1 fees, administrative services fees, other
operating expenses and total fund operating expenses would be .40%, .10%, .40%, 1.35% and 2.50% for Landmark National Tax
Free Income Fund -- Class A and .40%, .85%, .40%, 1.35% and 3.25% of Landmark National Tax Free Income Fund -- Class B.
Absent fee waivers and reimbursements, investment management fees, rule 12b-1 fees, administrative service fees and total
fund operating expenses would be .40%, .20%, .25% and 1.32% for Landmark New York Tax Free Income Fund -- Class A; and
.40%, .95%, .25% and 2.07% for Landmark New York Tax Free Income Fund -- Class B. There can be no assurance that the fee
waivers and reimbursements reflected in the table will continue at their present levels. Under each Fund's administrative
services plan, the aggregate of the fee paid to the Administrator, the fees paid to the Shareholder Servicing Agents and
the fee paid to the Distributor under the rule 12b-1 distribution plan (not including the 12b-1 fee for Class A shares of
Landmark National Tax Free Income Fund and the rule 12b-1 fee for Class B shares of each Fund and not including the .05%
portion of the fee for Class A shares that may be charged in anticipation of or reimbursement for print or electronic
media advertising, see "Distribution Arrangements" below) may not exceed .65% of each Fund's average daily net assets on
an annualized basis for the then-current fiscal year. Individual components of the aggregate may vary from time to time.
(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.
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:
<PAGE>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- ---------------------------------------------------------------------------------------------------------------------------------
NATIONAL TAX FREE INCOME FUND
Class A shares(1) ............................................... $48 $65 $ 83 $135
Class B shares:
Assuming complete redemption at end of period(2) ............ $66 $79 $104 $164
Assuming no redemption ...................................... $16 $49 $ 84 $164
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ----------
(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 $64, $115, $168 and $312 for National Tax Free Income Fund -- Class A; $83, $130,
$190 and $334 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 $71, $95, $131 and $217 for New York Tax Free Income
Fund -- Class B (assuming complete redemption at the end of each period). Expenses for Class A shares are based on each
Fund's fiscal year ended December 31, 1995. Expenses for Class B shares are estimated, because Class B shares were not
offered during the fiscal year ended December 31, 1995. 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.
</TABLE>
<PAGE>
CONDENSED FINANCIAL INFORMATION
- ------------------------------------------------------------------------------
The following tables provide condensed financial information about the Funds
for the periods indicated. The information below should be read in conjunction
with the financial statements appearing in the Funds' Annual Reports to
Shareholders, which are incorporated by reference in the Statement of
Additional Information. The financial statements and notes, as well as the
tables below, have been audited by Deloitte & Touche LLP, independent
certified public accountants, whose reports are included in the Funds' Annual
Reports. Copies of the Annual Reports may be obtained without charge from an
investor's Shareholder Servicing Agent (see inside of back cover for address
and phone number).
<TABLE>
<CAPTION>
NEW YORK TAX FREE INCOME FUND
FINANCIAL HIGHLIGHTS
CLASS A SHARES
(No Class B shares were outstanding during these periods.)
FOUR
MONTHS
ENDED
YEAR ENDED DEC. 31, DEC. 31, YEAR ENDED AUGUST 31,
1995 1994 1993(A) 1993 1992 1991 1990 1989 1988 1987++
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period ..... $10.09 $11.54 $11.44 $10.82 $10.27 $ 9.77 $ 9.89 $ 9.34 $ 9.49 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Operations:
Net investment income .... 0.607 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 .......... 1.153 (1.415) 0.076 0.610 0.541 0.510 (0.117) 0.550 (0.156) (0.517)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from operations 1.760 (0.849) 0.286 1.177 1.130 1.093 0.448 1.127 0.430 0.058
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Dividends From:
Net investment income .. (0.600) (0.601) (0.186) (0.557) (0.580) (0.593) (0.568) (0.577) (0.580) (0.568)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of period ........... $11.25 $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) ..........$90.264 $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% 0.80%+ 0.80% 0.80% 0.81% 1.37% 1.42% 1.25% 0.72%+
Ratio of net investment
income to average
net assets .............. 5.62% 5.52% 4.84%+ 5.11% 5.58% 5.82% 5.73% 5.95% 6.34% 6.18%+
Portfolio turnover ....... 98% 150% 46% 149% 143% 337% 170% 204% 107% 114%
Total return ............. 17.89% (7.47%) 2.52%** 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 and expenses were not reduced
for fees paid indirectly for the fiscal year ended December 31, 1995, the net
investment income per share and the ratios would have been as follows:
Net investment
income per share ........ $0.555 $0.508 $0.191 $0.515 $0.537 $0.540 $0.561 * $0.586 $0.519
RATIOS:
Expenses to average
net assets .............. 1.27% 1.27% 1.23%+ 1.27% 1.30% 1.24% 1.40% * 1.26% 1.33%+
Net investment income
to average net assets ... 5.15% 5.05% 4.40%+ 4.64% 5.09% 5.39% 5.69% * 6.33% 5.57%+
* No waiver or assumption of expenses during the period.
** Not annualized.
+ Annualized.
++ For the period from the start of business, September 8, 1986 to August 31, 1987.
(A)Effective September 1, 1993, the Fund changed its fiscal year end from August 31 to December 31.
</TABLE>
<PAGE>
-----------------------------
NATIONAL TAX FREE INCOME FUND
FINANCIAL HIGHLIGHTS
CLASS A SHARES
(No Class B shares were
outstanding
during these periods.)
AUGUST 17, 1995
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Net Asset Value, beginning of period ........................ $10.00
------
Income from Operations:
Net investment income ....................................... 0.187
Net realized and unrealized gain (loss) on investments ...... 0.551
------
Total from operations ................................... 0.738
------
Less Dividends From:
Net investment income ..................................... (0.188)
------
Net Asset Value, end of period .............................. $10.55
======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) ................... $1,306
Ratio of expenses to average net assets ..................... 0%
Ratio of net investment income to average net assets ........ 5.20%+
Portfolio turnover .......................................... 0%
Total return ................................................ 7.43%**
Note: If certain agents of the Fund had not voluntarily agreed to waive all or a
portion of their fees for the period, expenses were not reduced for fees paid
indirectly and had expenses been limited to that required by state securities
laws, the net investment income per share and the ratios would have been as
follows:
Net investment income per share ............................. $0.098
RATIOS:
Expenses to average net assets .............................. 2.50%+
Net investment income to average net assets ................. 2.70%+
+ Annualized.
** Not annualized.
<PAGE>
INVESTMENT INFORMATION
- ------------------------------------------------------------------------------
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 other qualifying issuers ("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, and obligations of other qualifying issuers.
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.22. 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).
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. For the fiscal years ended December 31, 1995 and 1994, the
turnover rates for the New York Tax Free Income Fund were 98% and 150%,
respectively. For the period August 15, 1995 (commencement of operations)
through December 31, 1995, the turnover rate for the National Tax Free Income
Fund was 0%. 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
- ------------------------------------------------------------------------------
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. 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. 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. These risks are in addition to risks described
above and are described in the Appendix. See the Appendix -- Permitted
Investments and Investment Practices on p.22.
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 (normally 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 a Fund's shares may differ because
Class B shares bear higher expenses than Class A shares. The net asset value
per share 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.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A PERCENTAGE OF
SALES CHARGE AVERAGE DAILY NET ASSETS) OTHER INFORMATION
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A Maximum initial sales charge of 4.00% Distribution fee of 0.05% Initial sales charge waived or reduced for certain
of the public offering price purchases; a contingent deferred sales charge may
apply in certain instances where the initialsales
charge is waived
CLASS B Maximum contingent deferred sales Distribution fee of 0.75%. Shares convert to Class A shares approximately
charge of 5.00% of the lesser of Service fee of 0.05% eight years after issuance
redemption proceeds or original
purchase price; declines to zero
after six years
</TABLE>
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, so
the entire amount of a Class B shareholder's purchase price is immediately
invested in a Fund. 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.
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.
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 ofthe
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). A
securities broker may receive both commissions and shareholder servicing fees.
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 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 may from time to time make payments for distribution and/or
shareholder servicing activities and provide additional promotional incentives
to brokers who sell shares of a Fund. In some instances, incentives may be
offered to certain brokers who have sold or may sell significant numbers of
shares of a Fund. The Distributor may make these payments out of its past
profits or any other sources available to it.
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.
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 $83 billion in assets worldwide. Citibank is a
wholly-owned subsidiary of Citicorp.
Citibank manages each Fund's assets pursuant to separate Investment
Advisory Agreements. Subject to policies set by the Trustees, Citibank makes
investment decisions. Citibank's address is 153 East 53rd Street, New York
10043.
Carla Wrocklage, a Vice President of Citibank, is the manager of each Fund.
Ms. Wrocklage has over 9 years of tax exempt portfolio management experience.
Prior to joining the Adviser in 1995, she was a municipal bond fund portfolio
manager for Prudential Insurance Company of America. Previously, she was
associated with Keystone Group.
Management's discussion of each Fund's performance is included in the Fund's
Annual Report to Shareholders, which investors may obtain without charge by
contacting their Shareholder Servicing Agents.
ADVISORY FEES. For its services under the Investment 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, 1995, the fee payable to Citibank
under the Investment Advisory Agreement for the New York Tax Free Income Fund
was $354,135, of which $191,039 was voluntarily waived (after giving effect to
the waiver the fee was 0.18% of the Fund's average daily net assets for that
fiscal year). For the fiscal year ended December 31, 1995, the fee payable to
Citibank under the Investment Advisory Agreement for the National Tax Free
Income Fund was $1,723 (all of which was voluntarily waived).
BANKING RELATIONSHIPS. Citibank and its affiliates may have deposit, loan
and other relationships with the issuers of securities purchased on behalf of
the 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 Investment 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
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 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. This limitation does not include any
amounts payable under the Distribution Plan for the Class A shares of the
National Tax Free Income Fund and for the Class B shares of each Fund. 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. 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 0.25% of the average daily net assets of the New York
Tax Free Income Fund and 0.40% of the average daily net assets of the National
Tax Free Income 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 0.25% of the average daily net assets of the Fund
represented by shares owned by investors for whom such Shareholder Servicing
Agent maintains a servicing relationship.
Some Shareholder Servicing Agents may impose certain conditions on their
customers in addition to or different from those imposed by the 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, 6 St. James Avenue, Boston, Massachusetts
02116, (617) 423-1679, 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 Distribution Plans pertaining to Class A shares
and Class B shares. 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 Funds did not pay anything under this provision
during 1995 and 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. The Funds have agreed not to pay service fees in an amount in
excess of 0.10% of the average daily net assets represented by Class B shares
(0.20% for the New York Tax Free Income Fund) during the 1996 fiscal year.
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 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.
TAX MATTERS
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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 short-
term net capital gains will be taxed as ordinary income, and distributions
from long-term net capital gains will be taxed as such regardless of how long
the shares of the Fund have been held. Dividends and distributions are treated
in the same manner for federal tax purposes whether they are paid in cash or
as additional shares.
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
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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
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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
Investment 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.
COUNSEL AND INDEPENDENT AUDITORS: Bingham, Dana & Gould LLP, Boston,
Massachusetts, is counsel for each Fund. Deloitte & Touche LLP, located at 125
Summer Street, Boston, MA 02110, serves as independent auditors for each Fund.
----------------
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
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MUNICIPAL BONDS. Municipal bonds are debt obligations of states, cities,
municipalities, municipal agencies and authorities and other qualifying
issuers 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 may 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. Each of the Funds may use financial futures in order to
protect the Fund from fluctuations in interest rates (sometimes called
"hedging") without actually buying or selling debt securities, or to manage
the effective maturity or duration of fixed-income securities in the Fund's
portfolio in an effort to reduce potential losses or enhance potential gain.
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, or for making payment of a cash settlement based on changes in the
value of a security or an index of securities. Because the value of a futures
contract changes based on the price of the underlying security, futures
contracts are commonly referred to as "derivatives". Futures contracts are a
generally accepted part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. The futures
contracts that may be purchased by the Funds are standardized contracts traded
on commodities exchanges or boards of trade.
When a Fund purchases or sells a futures contract, it is required to make an
initial margin deposit. Although the amount may vary, initial margin can be as
low as 1% or less of the face amount of the contract. Additional margin may be
required as the contract fluctuates in value. Since the amount of margin is
relatively small compared to the value of the securities covered by a futures
contract, the potential for gain or loss on a futures contract is much greater
than the amount of a Fund's initial margin deposit. Neither Fund currently
intends to enter into a futures contract if, as a result, the initial margin
deposits on all of that Fund's futures contracts would exceed approximately 5%
of the Fund's net assets. Also, each Fund intends to limit its futures contracts
so that the value of the securities covered by its futures contracts would not
generally exceed 50% of the Fund's other assets and to segregate sufficient
assets to meet its obligations under outstanding futures contracts. In any
event, a Fund will not invest in futures contracts to the extent that the
investment would be inconsistent with such Fund's investment policies which
provide that, under normal circumstances, the National Tax Free Income Fund will
invest at least 80% of its assets in tax-exempt Municipal Obligations and the
New York Tax Free Income Fund will invest at least 80% of its assets in triple
tax-exempt Municipal Obligations.
The ability of a Fund to utilize futures contracts successfully will depend
on the Adviser's ability to predict interest rate movements, which cannot be
assured. In addition to general risks associated with any investment, the use of
futures contracts entails the risk that, to the extent the Adviser's view as to
interest rate movements is incorrect, the use of futures contracts, even for
hedging purposes, could result in losses greater than if they had not been used.
This could happen, for example, if there is a poor correlation between price
movements of futures contracts and price movements in a Fund's related portfolio
position. Also, although the Funds will purchase only standardized futures
traded on regulated exchanges, the futures markets may not be liquid in all
circumstances. As a result, in certain markets, a Fund might not be able to
close out a transaction without incurring substantial losses, if at all. When
futures contracts are used for hedging, even if they are successful in
minimizing the risk of loss due to a decline in the value of the hedged
position, at the same time they limit any potential gain which might result from
an increase in value of such position.
The use of futures contracts potentially exposes a Fund to the effects of
"leveraging", which occurs when futures are used so that the Fund's exposure to
the market is greater than it would have been if the Fund had invested directly
in the underlying securities. "Leveraging" increases the Fund's potential for
both gain and loss. As noted above, each of the Funds intends to adhere to
certain policies relating to the use of futures contracts, which should have the
effect of limiting the amount of leverage by the Fund. The use of futures
contracts may increase the amount of taxable income of a Fund and may affect in
other ways the amount, timing and character of a Fund's income for tax purposes,
as more fully discussed in the section entitled "Certain Additional Tax Matters"
in the Statement of Additional Information.
The use of futures by the Funds and some of their risks are described more
fully in the Statement of Additional Information.
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 CLIENTS:
Citigold
P.O. Box 5130, New York, NY 10126-5130
Call Your Citigold Executive, or in NY or CT (800) 285-1701
or for all other states (800) 285-1707
FOR PRIVATE BANKING CLIENTS:
Citibank, N.A.
The Citibank Private Bank
153 East 53rd Street, New York, NY 10043
Call Your Citibank Private Banking Account Officer,
Registered Representative or (212) 559-5959
FOR CITIGOLD 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
<PAGE>
[LANDMARK LOGO]
LANDMARK\SM/ FUNDS
Advised by Citibank, N.A.
- --------------------------------------------------------------------------------
LANDMARK
NATIONAL
TAX FREE
INCOME FUND
- --------------------------------------------------------------------------------
LANDMARK
NEW YORK
TAX FREE
INCOME FUND
- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1996
TFI/P.1/96 Printed on Recycled Paper [recycle logo]
<PAGE>
497(c) File Nos. 33-5819 and 811-5034
Statement of
Additional Information
May 1, 1996
LANDMARK NATIONAL TAX FREE INCOME FUND
LANDMARK NEW YORK TAX FREE INCOME FUND
(Members of the Landmark(SM) 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 ................................................... 9
Determination of Net Asset Value; Valuation of Securities;
Additional Purchase and Redemption Information ......................... 10
Management ............................................................... 12
Portfolio Transactions ................................................... 18
Description of Shares, Voting Rights and Liabilities ..................... 19
Certain Additional Tax Matters ........................................... 20
Independent Accountants and Financial Statements ......................... 21
Appendix A -- Description of Municipal Obligations ....................... 22
Appendix B -- Description of Securities Ratings .......................... 24
Appendix C -- Additional Information Concerning New York Municipal
Obligations ................................................ 28
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 May 1, 1996, 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 at 6 St. James
Avenue, Boston, MA 02116, (617) 423-1679.
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 May 1,
1996, 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, and may receive a service fee from
the assets of the National Tax Free Income Fund represented by Class A shares
pursuant to the Distribution Plan adopted with respect to Class A shares of
that Fund.
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, or other
qualifying issuers, 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 the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for
by the contract at a specified price, or to make or accept the cash settlement
called for by the contract, 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 1% 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.
A Fund may purchase or sell futures contracts to attempt to protect the
Fund from fluctuations in interest rates, or to manage the effective maturity
or duration of the Fund's portfolio in an effort to reduce potential losses or
enhance potential gain, without actually buying or selling debt securities.
For example, if 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 if the Fund sold bonds that it owned, or as if the
Fund sold longer-term bonds and purchased shorter-term bonds. If interest
rates did increase, the value of the Fund's debt securities would decline, but
the value of the futures contracts would increase, 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, or by selling bonds
with longer maturities and investing in bonds with shorter maturities.
However, by using futures contracts, the Fund avoids having to sell its
securities.
Similarly, when it is expected that interest rates may decline, a Fund
might enter into futures contracts for the purchase of debt securities. Such a
transaction would be intended to have much the same effect as if the Fund
purchased bonds, or as if the Fund sold shorter-term bonds and purchased
longer-term bonds. If interest rates did decline, the value of the futures
contracts would increase.
Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if a Fund
sells a futures contract to protect against losses in the debt securities held
by the Fund), at the same time the futures contracts limit any potential gain
which might result from an increase in value of a hedged position.
In addition, 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 other investments or, alternatively, the gains on the hedging transaction
might not be sufficient to offset losses on the Fund's other 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. Similarly, even where a Fund enters into
futures transactions other than for hedging purposes, the effectiveness of its
strategy may be affected by lack of correlation between changes in the value of
the futures contracts and changes in value of the securities which the Fund
would otherwise buy and sell.
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 use futures transactions
for hedging or other purposes.
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. Similarly, if a Fund
purchases futures contracts expecting a decrease in interest rates and interest
rates instead increased, the Fund will have losses in its futures positions
which will increase the amount of the losses on the securities in its portfolio
which will also decline in value because of the increase in interest rates. 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.
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 strategies involving futures.
CFTC regulations require compliance with certain limitations in order to
assure that the Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit the Fund from purchasing
or selling futures contracts (other than for bona fide hedging transactions) if,
immediately thereafter, the sum of the amount of initial margin required to
establish the Fund's non-hedging futures positions would exceed 5% of the Fund's
net assets.
Each Fund will comply with this CFTC requirement, and each Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by each Fund in a segregated
account with the Fund's custodian so that the amount so segregated, plus the
initial margin held on deposit, will be approximately equal to the amount
necessary to satisfy the Fund's obligations under the futures contract. The
second is that a Fund will not enter into a futures contract if immediately
thereafter the amount of initial margin deposits on all the futures contracts
held by the Fund would exceed approximately 5% of the net assets of the Fund.
The third is that the aggregate market value of the futures contracts held by a
Fund not generally exceed 50% of the market value of the Fund's total assets
other than its futures contracts. For purposes of this third policy, "market
value" of a futures contract is deemed to be the amount obtained by multiplying
the number of units covered by the futures contract times the per unit price of
the securities covered by that contract. Finally, a Fund will not invest in
futures contracts to the extent that such investment would be inconsistent with
such Fund's investment policies which provide that, under normal circumstances,
the National Tax Free Income Fund will invest at least 80% of its assets in
tax-exempt Municipal Obligations and the New York Tax Free Income Fund will
invest at least 80% of its assets in triple tax-exempt Municipal Obligations
(that is, 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.
The ability of a Fund to engage in futures transactions 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. In addition, the use of futures
contracts may increase the amount of taxable income of a Fund and may affect
the amount, timing and character of a Fund's income for tax purposes, as more
fully discussed herein in the section entitled "Certain Additional Tax
Matters".
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 expects always to 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' 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. Investment
Restriction (9) above applies only to short sales of or short positions in
securities, and does not prevent the writing, purchase, ownership, holding or
sale of futures contracts.
NON-FUNDAMENTAL RESTRICTIONS
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 (this restriction
does not apply to the writing, purchase, ownership, holding or sale of
futures contracts),
(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.
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
each 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. No Class B shares were outstanding during such periods.
<TABLE>
<CAPTION>
PERIOD REDEEMABLE VALUE
ANNUALIZED OF A HYPOTHETICAL
LANDMARK NEW YORK TAX FREE INCOME FUND TOTAL $1,000 INVESTMENT
(CLASS A SHARES) RATE OF RETURN AT THE END OF THE PERIOD
<S> <C> <C>
September 8, 1986 (commencement of operations) to December 31, 1995 6.73% $1,836
Five years ended December 31, 1995 7.29% $1,422
One year ended December 31, 1995 13.17% $1,132
LANDMARK NATIONAL TAX FREE INCOME FUND
(CLASS A SHARES)
August 17, 1995 (commencement of operations) to December 31, 1995 3.10% $1,031
</TABLE>
The yields with respect to Class A shares for the 30-day period ended
December 31, 1995 were 4.83% for the New York Fund and 5.39% for the National
Fund.
The New York Fund's tax equivalent yield for the 30-day period ended
December 31, 1995 was 9.09% (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).
The National Fund's tax equivalent yield for the 30-day period ended
December 31, 1995 was 8.92% (assuming a federal tax bracket of 39.60%).
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 a 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 (normally 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 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, their ages and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate that those Trustees and
officers are "interested persons" (as defined in the 1940 Act) of the Trust.
Unless otherwise indicated below, the address of each Trustee and officer is 6
St. James Avenue, Boston, Massachusetts.
TRUSTEES
H.B. ALVORD; 73 -- Treasurer-Tax Collector, County of Los Angeles (retired,
March, 1984); 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; 53 -- 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*; 44 -- President of the Trust; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. and The Landmark Funds
Broker-Dealer Services, Inc. (since December, 1988).
MARK T. FINN; 52 -- President and Director, Delta Financial, Inc. (since June,
1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
RILEY C. GILLEY; 69 -- Vice President and General Counsel, Corporate Property
Investors (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; 56 -- 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; 44 -- 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.; 61 -- Chairman of the Board of Trustees of the Trust;
Managing Director, Morong Capital Management (since February, 1993); Senior
Vice President and Investment Manager, CREF Investments, Teachers Insurance &
Annuity Association (retired January, 1993); Director, Indonesia Fund;
Director, MAS Funds. His address is 1385 Outlook Drive West, Mountainside, New
Jersey.
WALTER E. ROBB, III; 69 -- 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; 61 -- 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.; 75 -- 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*; 44 -- President of the Trust; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. and The Landmark Funds
Broker-Dealer Services, Inc. (since December, 1988).
DAVID G. DANIELSON*; 31 -- Assistant Treasurer of the Trust; Assistant
Manager, Signature Financial Group, Inc. (since May, 1991).
JOHN R. ELDER*; 47 -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April, 1995); Treasurer of the Phoenix Family of
Mutual Funds, Phoenix Home Life Mutual Insurance Company (1983 to March,
1995).
LINDA T. GIBSON*; 30 -- Assistant Secretary of the Trust; Legal Counsel,
Signature Financial Group, Inc. (since June, 1991); Law Student, Boston
University School of Law (September, 1989 to May, 1992); Product Manager,
Signature Financial Group, Inc. (January, 1989 to September, 1989).
SUSAN JAKUBOSKI; 32* -- Assistant Treasurer and Assistant Secretary of the
Portfolio Trust (since August, 1994); Manager, Signature Financial Group
(Cayman) Ltd. (since August, 1994); Senior Fund Administrator, Signature
Financial Group, Inc. (since August 1994); Assistant Treasurer, Signature
Broker-Dealer Services, Inc. (since September, 1994); Fund Compliance
Administrator, Concord Financial Group (November, 1990 to August, 1994);
Senior Fund Account, Neuberger & Berman Management, Inc. (from February, 1988
to November, 1990); Customer Service Representative, I.B.J. Schroder (prior to
1988). Her address is Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, BWI.
THOMAS M. LENZ*; 37 -- Secretary of the Trust; Vice President and Associate
General Counsel, Signature Financial Group, Inc. (since November, 1989);
Assistant Secretary, Signature Broker-Dealer Services, Inc. (since February,
1991); Attorney, Ropes & Gray (September, 1984 to November, 1989).
MOLLY S. MUGLER*; 44 -- Assistant Secretary of the Trust; Legal Counsel and
Assistant Secretary, Signature Financial Group, Inc. (since December, 1988);
Assistant Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since
December, 1988).
BARBARA M. O'DETTE*; 36 -- Assistant Treasurer of the Trust; Assistant
Treasurer, Signature Financial Group, Inc. and The Landmark Funds Broker-
Dealer Services, Inc. (since December, 1988).
ANDRES E. SALDANA*; 33 -- Assistant Secretary of the Trust; Legal Counsel and
Assistant Secretary, Signature Financial Group, Inc. (since November, 1992);
Attorney, Ropes & Gray (September, 1990 to November, 1992).
DANIEL E. SHEA*; 33 -- Assistant Treasurer of the Trust; Assistant Manager of
Fund Administration, Signature Financial Group, Inc. (since November, 1993);
Supervisor and Senior Technical Advisor, Putnam Investments (prior to
November, 1993).
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.
The Trustees of the Trust (with the exception of Mr. Coolidge, who received
no remuneration from the Trust) received the following remuneration from the
Trust for the periods indicated:
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
AGGREGATE AGGREGATE TOTAL
COMPENSATION COMPENSATION COMPENSATION
FROM THE NEW FROM THE NATIONAL FROM TRUST AND
TRUSTEE YORK FUND (1) FUND (1) COMPLEX (2)
<S> <C> <C> <C>
H. B. Alvord .............................................. $2,097.24 $400.46 $40,000.00
Elliott J. Berv ........................................... $1,508.23 $400.02 $40,000.00
Mark T. Finn .............................................. $1,463.86 $400.03 $40,000.00
Riley C. Gilley ........................................... $2,548.71 $400.66 $44,000.00
Diana R. Harrington ....................................... $2,380.39 $400.57 $40,000.00
Susan B. Kerley ........................................... $2,380.39 $400.57 $40,000.00
C. Oscar Morong, Jr. ...................................... $2,256.25 $400.60 $44,500.00
Walter E. Robb, III ....................................... $1,588.72 $400.07 $44,500.00
E. Kirby Warren ........................................... $2,256.25 $400.62 $44,500.00
William S. Wood, Jr. ...................................... $2,635.59 $400.91 $44,000.00
- ----------
(1) For the fiscal year ended December 31, 1995.
(2) Information relates to the fiscal year ended December 31, 1995. Messrs.
Alvord, Berv, Coolidge, Finn, Gilley, Morong, Robb, Warren and Woods, and
Mses. Harrington and Kerley are Trustees of 15, 15, 17, 14, 15, 15, 15,
14, 14, and 14 funds or portfolios, respectively, in the Landmark Family
of Funds.
</TABLE>
As of March 15, 1996, all Trustees and officers as a group owned less than
1% of the outstanding shares of each Fund. As of the same date, more than 95%
of the outstanding shares of each Fund were held of record by Citibank, N.A.,
or its affiliates, as Shareholder Servicing Agents for the accounts of their
respective clients.
The Declaration of Trust of the Trust provides that the Trust will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Trust unless, as to liability to the Trust or its investors, it
is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless with respect to any other matter it is finally adjudicated that they
did not act in good faith in the reasonable belief that their actions were in
the best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees of the Trust, or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
ADVISER
Citibank manages the assets of 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 year ended August 31, 1993, for the four-month
period ended December 31, 1993 and for the fiscal years ended December 31, 1994
and 1995, the fees payable to the Adviser by the New York Fund were $385,811,
$372,914, $155,418, $421,226 and $354,135 (of which $172,845, $218,289, $80,195,
$229,257 and $191,039 were voluntarily waived), respectively. For the fiscal
period August 15, 1995 (commencement of operations) to December 31, 1995, the
fee payable to the Adviser by the National Fund was $1,723 (all of which was
voluntarily waived).
ADMINISTRATOR
Pursuant to an administrative services agreement (the "Administrative
Services Agreement"), LFBDS provides the Trust with general office facilities
and LFBDS supervises the overall administration of the Trust, including, among
other responsibilities, the negotiation of contracts and fees with, and the
monitoring of performance and billings of, the 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 year
ended August 31, 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 $186,457 (of which $35,356 was voluntarily
waived). 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 years ended
December 31, 1994 and 1995, the fees payable to LFBDS from the New York Fund
under the Administrative Services Agreement were $210,613 and $177,067,
respectively (of which $58,225 and $48,777 was voluntarily waived). For the
period August 15, 1995 (commencement of operations) to December 31, 1995, the
fee payable to LFBDS from the National Fund under the Administrative Services
Agreement was $862 (all of which 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 year ended August
31, 1993, for the four-month period ended December 31, 1993 and for the fiscal
years ended December 31, 1994 and 1995, 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) and $44,267 (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. For the period August 15, 1995 (commencement of operations) to
December 31, 1995, the fee payable to the Distributor from the National Fund
under the Distribution Agreement was $216 (all of which was voluntarily waived).
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, the four-month period ended December 31,
1993, and the fiscal years ended December 31, 1994 and 1995, aggregate fees
payable from the New York Fund to Shareholder Servicing Agents were $372,914 (of
which $139,843 were voluntarily waived), $155,418 (of which $58,282 were
voluntarily waived), $421,226 (of which $157,960 was voluntarily waived) and
$354,135 (of which $132,801 was voluntarily waived). For the period August 15,
1995 (commencement of operations) to December 31, 1995, aggregate fees payable
from the National Fund to Shareholder Servicing Agents were $1,723 (all of which
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.
COUNSEL
Bingham, Dana & Gould LLP, 150 Federal Street, Boston, MA 02110, acts as
counsel for the Funds.
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. 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 or obtain such services
independently.
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 years ended
December 31, 1994 and 1995, the New York Fund paid no brokerage commissions. For
the period August 15, 1995 (commencement of operations), to December 31, 1995,
the National 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 (or the
affected series) 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.
The Fund will withhold tax payments at the rate of 30% (or any lower rate
permitted under an applicable treaty) on taxable dividends and other payments
subject to withholding taxes that are made to persons who are not citizens or
residents of the United States.
The account application asks each new shareholder to certify that the
shareholder's Social Security or taxpayer identification number is correct and
that the shareholder is not subject to 31% backup withholding for failing to
report income to the IRS. If a shareholder fails to provide this information,
or otherwise violates IRS regulations, the Fund may be required to withhold
tax at the rate of 31% on certain distributions and redemption proceeds paid
to that shareholder.
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 disallowed to the extent of any exempt-interest dividends received
with respect to those shares. If not disallowed, any such loss 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, 1995, Statement of Assets and Liabilities at
December 31, 1995, Statement of Operations for the year ended December 31, 1995,
Statement of Changes in Net Assets for the years ended December 31, 1995 and
1994, and the Financial Highlights for the years ended December 31, 1995 and
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.
The audited financial statements of the National Fund (Portfolio of
Investments at December 31, 1995, Statement of Assets and Liabilities at
December 31, 1995, Statement of Operations, Statement of Changes in Net Assets
and the Financial Highlights for the period August 17, 1995 (commencement of
operations) to December 31, 1995, Notes to Financial Statements and Independent
Auditors' Report), each of which is included in the Annual Report to
Shareholders of the National 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.
Copies of the Annual Reports for each Fund accompany 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 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 factors and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
- Amortization schedule -- the larger the final maturity relative to other
maturities, the more likely it will be treated as a note.
- Source of payment -- the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some vulnerability
to adverse financial and economic changes over the term of the notes.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
RATINGS OF TAX-EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all debt issues that have a put or demand
feature as part of their structure.
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 for the put option (for
example, "AAA/A-1+"). With short-term demand debt, note rating symbols are
used with the commercial paper rating symbols (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 SHORT-TERM DEBT RATINGS
Moody's short-term debt 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 supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics: (1) leading
market positions in well-established industries; (2) high rates of return on
funds employed; (3) conservative capitalization structure 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 supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S
TWO HIGHEST COMMERCIAL PAPER RATINGS
An 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-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. 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. This information does not purport
to be a complete description and is based on information from official
statements relating to securities offerings of New York issuers. Landmark New
York Tax Free Income Fund 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.
CURRENT ECONOMIC OUTLOOK
The national economy began the current expansion in 1991 and has added
over 7 million jobs since early 1992. However, the recession lasted longer in
the State and the State's economic recovery has lagged behind the nation's.
Although the State has added approximately 185,000 jobs since November 1992,
employment growth in the State has been hindered during recent years by
significant cutbacks in the computer and instrument manufacturing, utility,
defense, and banking industries.
The State Financial Plan is based on a projection by the State Division of
the Budget ("DOB") of national and State economic activity. The DOB had forecast
for 1995 that national economic growth would weaken, but not turn negative,
during the course of 1995 before beginning to rebound by the end of the year.
This dynamic is often described as a "soft landing." The DOB also forecast that
the overall rate of growth of the national economy during calendar year 1995
would be slightly below the "consensus" of a widely-followed survey of national
economic forecasters. Growth in the real gross domestic product during 1995 was
projected to be moderate (3.0 percent), with declines in defense spending and
net exports more than offset by increases in consumption and investment.
Continuing efforts by business and government to reduce costs were expected to
exert a drag on economic growth. Inflation, as measured by the Consumer Price
Index, was projected to remain about 3 percent due to moderate wage growth and
foreign competition. Personal income and wages were projected to increase by
about 6 percent or more.
New York's economy was expected to continue to expand modestly during 1995,
but it was anticipated that there would be a pronounced slow-down during the
course of the year. Although industries that export goods and services abroad
were expected to benefit from the lower dollar, growth would be slowed by
government cutbacks at all levels. On an average annual basis, employment growth
was expected to be about the same as 1994. Both personal income and wages were
expected to record moderate gains in 1995. Bonus payments in the securities
industry were expected to increase from last year's depressed level.
The State has updated its forecast of national and State economic activity
through the end of calendar year 1996. The national economic forecast remained
basically unchanged from the initial forecast on which the original 1995-96
State Financial Plan was based, while the State economic forecast was marginally
weaker.
The national economy achieved the desired "soft landing" in 1995, as growth
slowed from 6.2 percent in 1994 to a rate sufficiently slow to inhibit the
buildup of inflationary pressures. This was achieved without any material pause
in the economic expansion, although recession worries flared in the late spring
and early summer. Growth in the national economy is expected to moderate during
1996, with the nation's gross domestic product projected to expand by 4.6
percent in 1996 versus 5.0 percent in 1995. Declining short-term interest rates,
slowing employment growth and continued moderate inflation also characterize the
projected path for the nation's economy in the year ahead.
The annual growth rates of most economic indicators for the State improved
from 1994 to 1995, as the pace of private sector employment expansion and
personal income and wage growth all accelerated. Government employment fell as
workforce reductions were implemented at federal, State and local levels.
Similar to the nation, some moderation of growth is expected in the year ahead.
Private sector employment is expected to continue to rise, although somewhat
more slowly than in 1995, while public employment should continue to fall,
reflecting government budget cutbacks. Anticipated continued restraint in wage
settlements, a lower rate of employment growth and falling interest rates are
expected to slow personal income growth significantly.
1995-96 STATE FINANCIAL PLAN
The State issued the first of the three required quarterly updates to the
1995-96 cash-basis State Financial Plan on July 28, 1995 (the "First Quarter
Update"). The First Quarter Update reflects an analysis of actual receipts and
disbursements in the first quarter of the fiscal year, and contains revised
estimates of receipts and disbursements for the current fiscal year.
The First Quarter Update projected continued balance in the State's 1995-96
Financial Plan. The First Quarter Update incorporates few revisions to the
initial Financial Plan formulated on June 20, 1995, which reflected the
enactment of the State's 1995-96 budget. The First Quarter Update projected
General Fund receipts to total $32.859 billion and General Fund disbursements to
total $32.804 billion.
The State issued its second quarterly update to the cash-basis 1995-96 State
Financial Plan (the "Mid-Year Update") on October 26, 1995. The Mid-Year Update
projected continued balance in the State's 1995-96 Financial Plan, with
estimated receipts reduced by a net $71 million and estimated disbursements
reduced by a net $30 million as compared to the First Quarter Update. The
resulting General Fund balance decreased from $213 million in the First Quarter
Update to $172 million in the Mid-Year Update, reflecting the expected use of
$41 million from the Contingency Reserve Fund for payments of litigation and
disallowance expenses. The Mid-Year Update also incorporated changes resulting
from implementation of the Governor's Management Review Plan which was released
on October 12, 1995. The Management Review Plan is expected to produce savings
of $148 million in State fiscal year 1995-96, primarily through Medicaid
utilization controls, consolidation of State agency staffing and office space,
controls on staffing, overtime and contractual expenses, and increased
productivity. Of the $148 million in savings attributable to the Management
Review Plan, $146 million was reflected in lower spending from the General Fund
and $2 million was reflected in increased General Fund receipts.
Actual receipts through the first two quarters of the 1995-96 State fiscal
year fell short of expectations by $101 million. Much of this shortfall was due
to timing-related delays in sources other than taxes. Based on the revised
economic outlook and actual receipts for the first six months of 1995-96,
projected General Fund receipts for the 1995-96 State fiscal year were reduced
by $73 million, offset by $2 million in increased revenues and transfers
associated with actions taken in the Management Review Plan. Actual
disbursements through the first six months of the fiscal year were $89 million
less than projected, primarily because of delays in processing payments
following delayed enactment of the State budget. No savings were included in the
Mid-Year Update from this slower-than-expected spending. Projected disbursements
for the 1995-96 State fiscal year were reduced by $30 million because spending
increases in local assistance and State operations was more than offset by debt
service savings and the reductions from the Management Review Plan.
The State revised the cash-basis 1995-96 State Financial Plan on December
15, 1995, in conjunction with the release of the Executive Budget for the
1996-97 fiscal year.
The 1995-96 General Fund Financial Plan continues to be balanced, with
reductions in projected receipts offset by an equivalent reduction in projected
disbursements. Modest changes were made to the Mid-Year Update, reflecting two
more months of actual results, deficiency requests by State agencies (the
largest of which is for school aid resulting from revisions to data submitted by
school districts), and administrative efficiencies achieved by State agencies.
Total General Fund receipts are expected to be approximately $73 million lower
than estimated at the time of the Mid-Year Update. Tax receipts are now
projected to be $29.57 billion, $8 million less than in the earlier plan.
Miscellaneous receipts and transfers from other funds are estimated at $3.15
billion, $65 million lower than in the Mid-Year Update. The largest single
change in these estimates is attributable to the lag in achieving $50 million in
proceeds from sales of State assets, which are unlikely to be completed prior to
the end of the fiscal year.
Projected General Fund disbursements are reduced by a total of $73 million,
with changes made in most major categories of the 1995-96 State Financial Plan.
The reduction in overall spending masks the impact of deficiency requests
totaling more than $140 million, primarily for school aid and tuition assistance
to college students. Offsetting reductions in spending are attributable to the
continued maintenance of strict controls on spending through the fiscal year by
State agencies, yielding savings of $50 million. Reductions of $49 million in
support for capital projects reflect a stringent review of all capital spending.
Reductions of $30 million in debt service costs reflect savings from refundings
undertaken in the current fiscal year, as well as savings from lower interest
rates in the financial market. Finally, the 1995-96 Financial Plan reflects
reestimates based on actual results through November, the largest of which is a
reduction of $70 million in projected costs for income maintenance. This
reduction is consistent with declining caseload projections.
The balance in the General Fund at the close of the 1995-96 fiscal year is
expected to be $172 million, entirely attributable to monies in the Tax
Stabilization Reserve Fund following the required $15 million payment into that
Fund. A $40 million deposit to the Contingency Reserve Fund included as part of
the enacted 1995-96 budget will not be made, and the minor balance of $1 million
currently in the Fund will be transferred to the General Fund. These Contingency
Reserve Fund monies are expected to support payments from the General Fund for
litigation related to the State's Medicaid program, and for federal
disallowances.
Changes in federal aid programs currently pending in Congress are not
expected to have a material impact on the State's 1995-96 Financial Plan,
although prolonged interruptions in the receipt of federal grants could create
adverse developments, the scope of which cannot be estimated at this time. The
major remaining uncertainties in the 1995-96 State Financial Plan continue to be
those related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balance of the year.
1996-97 FISCAL YEAR (EXECUTIVE BUDGET FORECAST)
The Governor presented his 1996-97 Executive Budget to the Legislature on
December 15, 1995. The Executive Budget also contains financial projections
for the State's 1997-98 and 1998-99 fiscal years and an updated Capital Plan.
There can be no assurance that the Legislature will enact the Executive Budget
as proposed by the Governor into law, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth herein.
The 1996-97 Financial Plan projects balance on a cash basis in the General
Fund. It reflects a continuing strategy of substantially reduced State spending,
including program restructurings, reductions in social welfare spending, and
efficiency and productivity initiatives. Total General Fund receipts and
transfers from other funds are projected to be $31.32 billion, a decrease of
$1.4 billion from total receipts projected in the current fiscal year. Total
General Fund disbursements and transfers to other funds are projected to be
$31.22 billion, a decrease of $1.5 billion from spending totals projected for
the current fiscal year. After adjustments and transfers for comparability
between the 1995-96 and 1996-97 State Financial Plans, the Executive Budget
proposes an absolute year-to-year decline in General Fund spending of 5.8
percent. Spending from all funding sources (including federal aid) is proposed
to increase by 0.4 percent from the prior fiscal year after adjustments and
transfers for comparability.
The Executive Budget proposes $3.9 billion in actions to balance the 1996-
97 Financial Plan. Before reflecting any actions proposed by the Governor to
restrain spending, General Fund disbursements for 1996-97 were projected at $35
billion, and increase of $2.3 billion or 7 percent from 1995-96. This increase
would have resulted from growth in Medicaid, inflationary increases in school
aid, higher fixed costs such as pensions and debt service, collective bargaining
agreements, inflation, and the loss of non-recurring resources that offset
spending in 1995-96. Receipts would have been expected to fall by $1.6 billion.
This reduction would have been attributable to modest growth in the State's
economy and underlying tax base, the loss of non- recurring revenues available
in 1995-96 and implementation of previously enacted tax reduction programs.
The Executive Budget proposes to close this gap primarily through a series
of spending reductions and cost containment measures. The Executive Budget
projects (i) over $1.8 billion in savings from cost containment and other
actions in social welfare programs, including Medicaid, welfare and various
health and mental health programs; (ii) $1.3 billion in savings from a reduced
State General Fund share of Medicaid made available from anticipated changes in
the federal Medicaid program, including an increase in the federal share of
Medicaid; (iii) over $450 million in savings from reforms and cost avoidance in
educational services (including school aid and higher education), while
providing fiscal relief from certain State mandates that increase local
spending; and (iv) $350 million in savings from efficiencies and reductions in
other State programs. The assumption regarding an increased share of federal
Medicaid funding has received bipartisan Congressional support and would benefit
32 states, including New York.
The 1996-97 Financial Plan projects receipts of $31.32 billion and spending
of $31.22 billion, allowing for a deposit of $85 million to the Contingency
Reserve Fund and a required repayment of $15 million to the Tax Stabilization
Reserve Fund.
The Governor has submitted several amendments to the Executive Budget. These
amendments have a nominal impact on the State's Financial Plan for 1996-97 and
the subsequent years. The net impact of the amendments leaves unchanged the
total estimated amount of General Fund spending in 1996-97, which continues to
be projected at $31.22 billion. All funds spending in 1996-97 is increased by
$68 million, primarily reflecting adjustments to projections of federal funds,
and now totals $63.87 billion.
The budget amendments advanced by the Governor involve largely technical
revisions, with General Fund spending increases fully offset by spending
decreases. Reductions in estimated 1996-97 disbursements are recommended
primarily for welfare (associated with updated projections showing a declining
caseload) and debt service (reflecting lower interest rates and recent bond
sales). Disbursement increases are projected for snow and ice control, the AIDS
Institute, Health Department utilization review programs and other items.
Estimated disbursements for other funds are increased to accommodate updated
projections of federal funding in certain categorical grant programs and reduced
for welfare as noted for the General Fund.
1994-95 FISCAL YEAR
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State Fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account. $250 million of which was deposited 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.
Compared to the State Financial Plan for 1994-95 as formulated on June 16,
1994, reported receipts fell short of original projections by $1.163 billion,
primarily in the categories of personal income and business taxes. Of this
amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million. primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount, $227
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
Disbursements were also reduced from original projections by $848 million.
After adjusting for the net impact of restatements relating to the CRF and LGAC
which raised disbursements by $38 million, the variance is $886 million. Well
over two-thirds of this variance is in the category of grants to local
governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated in
January 1995 by the Governor to reduce spending to avert a potential gap in the
1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan, submitted
to the Legislature in connection with the 1995-96 Executive Budget.
1993-94 FISCAL YEAR
The State ended its 1993-94 fiscal year with a balance of $l.140 billion in
the tax refund reserve account, $265 million in the 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 was used to pay taxpayer refunds.
Of the $1.140 billion deposited in the tax refund reserve account, $l.026
billion was available for budgetary planning purposes in the 1994-95 fiscal
year. The remaining $114 million was 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 LGAC program. The balance in
the CRF was reserved to meet the cost of litigation facing the State in its
1994-95 fiscal year.
Before the deposit of $1.l40 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 1993-94 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 long-term debt service increased
by 6.2 percent annually to $2.471 billion by 1994-95 as available revenues
increased by 5.2 percent annually. The relative comparable growth in revenues
and debt service resulted in modest increases of 1.0 percent annually in the
ratio of debt service to revenues from 1985-86 to 1994-95. 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 tax and revenue anticipation notes
("TRANs") were $793.3 million for the 1994-95 fiscal year, and are estimated to
be $774.4 million for 1995-96. 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 1994-95
fiscal year. State lease-purchase rental and contractual-obligation payments for
1994-95 ("Other Financing Obligations"), including State installment payments
relating to certificates of participation ("COPs"), were $1.607 billion in
1994-95 and are estimated to be $1.641 billion in 1995-96.
Total outstanding State-related debt increased from $22.9 billion at the end
of the 1985-86 fiscal year to $36.1 billion at the end of the 1994-95 fiscal
year, an average annual increase of 4.68%. State-supported debt increased from
$9.8 billion at the end of the 1985-86 fiscal year to $27.9 billion at the end
of the 1994-95 fiscal year, an average annual increase of 11.07%. During the
same ten year period, annual personal income in the State rose from $289.2
billion to $478.2 billion, an average annual increase of 5.16%. 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 3.38% of personal income in the
1985-86 fiscal year to 5.81% for the 1994-95 fiscal year while State-related
debt outstanding declined from 7.90% to 7.51% 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.
Rating Agencies Actions: As of March 18, 1996, Moody's and S&P assigned
their municipal bond ratings of A and A-, respectively, to the State's general
obligation bonds. Each such rating reflects only the views of the respective
rating agency, and an explanation of the significance of such rating may be
obtained from such rating agency. There is no assurance that such ratings will
continue for any given period of time or that they will not be revised or
withdrawn entirely by such rating agency if, in the judgment of such rating
agency, circumstances so warrant. A downward revision or withdrawal of any
such rating may have an adverse effect on the market price of the State's
general obligation bonds.
PUBLIC AUTHORITIES
The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities, meaning public benefit corporations created
pursuant to State law, other than local authorities. Public authorities are not
subject to the constitutional restrictions on the incurrence of debt which apply
to the State itself and may issue bonds and notes within the amounts, and as
otherwise restricted by, their legislative authorization. The State's access to
the public credit markets could be impaired, and the market price of its
outstanding debt may be materially adversely affected, if any of its public
authorities were to default on their respective obligations, particularly those
using the financing techniques referred to as State-supported or State-related
debt. As of September 30, 1994, the date of the latest data available, there
were 18 public authorities that had outstanding debt of $100 million or more,
and the aggregate outstanding debt, including refunding bonds, of these 18
public authorities was $70.3 billion. As of March 31, 1995, aggregate public
authority debt outstanding as State-supported debt was $27.9 billion and as
State-related debt was $36.1 billion.
There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rentals charged
for housing units, and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques for
public authorities. Also, there are statutory arrangements providing for State
local assistance payments, otherwise payable to localities, to be made under
certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.
Some authorities also receive money from State appropriations to pay for the
operating costs of certain of their programs. As described below, the MTA
receives the bulk of this money in order to carry out mass transit and commuter
services.
METROPOLITAN TRANSPORTATION AUTHORITY
The MTA oversees the operation of subway and bus lines in New York City by
its affiliates, the New York City Transit Authority and the Manhattan and Bronx
Surface Transit Operating Authority (collectively, the "TA"). The MTA operates
certain commuter rail and bus lines in the New York Metropolitan area through
MTA's subsidiaries the Long Island Rail Road Company, the Metro-North Commuter
Railroad Company and the Metropolitan Suburban Bus Authority. In addition, the
Staten Island Rapid Transit Operating Authority, an MTA subsidiary, operates a
rapid transit line on Staten Island. Through its affiliated agency, the
Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA operates certain
intrastate toll bridges and tunnels. Because fare revenues are not sufficient to
finance the mass transit portion of these operations the MTA has depended, and
will continue to depend, for operating support upon a system of State, local
government and TBTA support, and, to the extent available, Federal operating
assistance, including loans, grants and subsidies. If current revenue
projections are not realized and/or operating expenses exceed current
projections, the TA or commuter railroads may be required to seek additional
State assistance, raise fares or take other actions.
Since 1980, 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, since 1987, State law has required that the proceeds of a one-quarter
of 1 percent mortgage recording tax paid on certain mortgages in the
Metropolitan Transportation Region be deposited in a special MTA fund for
operating or capital expenses. Further, in 1993, the State dedicated a portion
of certain additional State petroleum business tax receipts to fund operating or
capital assistance to the MTA. For the 1995-96 State fiscal year, total State
assistance to the MTA is estimated at approximately $ 1.1 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 MTA 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 was expected to be financed in significant part through
dedication of the State petroleum business tax receipts referred to above.
However, in December 1994 the proposed bond resolution based on such tax
receipts was not approved by the MTA Capital Program Review Board. Further
consideration of the resolution was deferred until 1995.
There can be no assurance that all the necessary governmental actions for
the 1992-96 Capital Program or future capital programs 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. If the 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.
LOCALITIES
THE CITY OF NEW YORK
The fiscal health of the State may also be affected by the fiscal health
of the City, which has required and continues to require significant financial
assistance from the State. The City depends on State aid both to enable the
City to balance its budget and to meet its cash requirements. The City's has
achieved balanced operating results for each of its fiscal years since 1981 as
reported in accordance with the then-applicable GAAP standards.
FISCAL OVERSIGHT
In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among those actions, the State
established the Municipal Assistance Corporation For The City of New York
("MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; 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; and a "Control Period" which existed from 1975 to 1986 during
which the City was subject to certain statutorily-prescribed fiscal controls.
Although the Control Board terminated the Control Period in 1986 when certain
statutory conditions were met, thus suspending certain Control Board powers, the
Control Board, MAC and OSDC continue to exercise various fiscal monitoring
functions over the City, and upon the occurrence or "substantial likelihood and
imminence" of the occurrence of certain events, including, but not limited to, a
City operating budget deficit of more than $100 million, the Control Board is
required by law to reimpose a Control Period. Currently, the City and its
Covered Organizations (i.e., those which receive or may receive money from the
City directly, indirectly or contingently) operate under a four-year financial
plan (the "Financial Plan") which the City prepares annually and periodically
updates. The City's Financial Plan includes its capital, revenue and expense
projections and outlines proposed gap-closing programs for years with projected
budget gaps.
The City's projections set forth in the Financial Plan are based on various
assumptions and contingencies, some of which are uncertain and may not
materialize. Unforeseen developments and changes in major assumptions could
significantly affect the City's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements.
The State could be affected by the ability of the City and certain Covered
Organizations to market their securities successfully in the public credit
markets. Future developments concerning the City or certain of the Covered
Organizations, and public discussion of such developments, as well as prevailing
market conditions and securities credit ratings, may affect the ability or cost
to sell securities issued by the City or such Covered Organizations and may also
affect the market for their outstanding securities.
MONITORING AGENCIES
The staffs of OSDC, the Control Board and the City Comptroller issue
periodic reports on the City's Financial Plans, as modified, analyzing forecasts
of revenues and expenditures, cash flow, and debt service requirements, as well
as compliance with the Financial Plan, as modified, by the City and its Covered
Organizations. OSDC staff reports issued during the mid-1980's noted that the
City's budgets benefited from a rapid rise in the City's economy, which boosted
the City's collection of property, business and income taxes. These resources
were used to increase the City's workforce and the scope of discretionary and
mandated City services. Subsequent OSDC staff reports, including its periodic
economic reports, examined the 1987 stock market crash and the 1989-92
recession, which affected the New York City region more severely than the
nation, and these reports attributed an erosion of City revenues and increasing
strain on City expenditures to that recession. According to a recent OSDC
economic report, the City's economy was slow to recover from the recession and
is expected to experience a weak employment situation, and moderate wage and
income growth, during the 1995-96 period. Also, Financial Plan reports of OSDC,
the Control Board, and the City Comptroller have variously indicated that many
of the City's balanced budgets have been accomplished, in part, through the use
of non-recurring resources, tax and fee increases, personnel reductions and
additional State assistance; that the City has not yet brought its long-term
expenditures in line with recurring revenues; that the City's proposed gap
closing programs if implemented, would narrow future budget gaps; that these
programs tend to rely heavily on actions outside the direct control of the City;
and that the City is therefore likely to continue to face future projected
budget gaps requiring the City to reduce expenditures and/or increase revenues.
According to the most recent staff reports of OSDC, the Control Board and the
City Comptroller during the four-year period covered by the current Financial
Plan, the City is relying on obtaining substantial resources from initiatives
needing approval and cooperation of its municipal labor unions, Covered
Organizations, and City Council, as well as the State and Federal governments,
among others, and there can be no assurance that such approval can be obtained.
Copies of the most recent OSDC, Control Board and City Comptroller staff reports
are available by contacting OSDC at 270 Broadway, 22nd Floor, New York, New York
10007, Attention: Deputy Comptroller; Control Board at 270 Broadway, 21st Floor,
New York, New York, 10007, Attention: Executive Director, and the City
Comptroller at Municipal Building, Room 517, One Centre Street, New York, NY
10007, Attention: Deputy Comptroller, Finance.
OTHER LOCALITIES
Certain localities in addition to the City could have financial problems
leading to requests for additional State assistance during the State's 1995-96
fiscal years and thereafter. The potential impact on the State of such
requests by localities is not included in the projections of the State's
receipts and disbursements for the State's 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the re-
establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1993, the total indebtedness of all localities in
the State other than New York City was approximately $17.7 billion. A small
portion (approximately $105 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1993.
From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the public 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. Long-range potential problems of declining urban
population, increasing expenditures and other economic trends could adversely
affect localities and require increasing State assistance in the future.
LITIGATION
GENERAL
The legal proceedings noted below involve State finances, State programs
and miscellaneous tort, real property and contract claims 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
1995-96 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 1995-
96 State Financial Plan. The State believes that the 1995-96 State Financial
Plan includes sufficient reserves for the payment of judgments that may be
required during the 1995-96 fiscal year. There can be no assurance, however,
that an adverse decision in any of these proceedings would not exceed the amount
of the 1995-96 State Financial Plan reserves for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1995-96
State Financial Plan. In its General Purpose Financial Statements, the State
reports its estimated liability in subsequent fiscal years for awarded and
anticipated unfavorable judgments.
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 1995-96 fiscal year or thereafter.
STATE FINANCE POLICIES
INSURANCE LAW
Two cases challenge provisions of Section 2807-c of the Public Health Law,
which impose a 13 percent 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 percent 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 percent. 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. By decision dated April 26, 1995, the United States Supreme Court upheld
the surcharges as not preempted by ERISA and remanded the cases for further
proceedings. By order dated October 2, 1995, the District Court held that the
11 percent and 13 percent surcharges are preempted by FEBHA and unenforceable
against commercial insurers which provide stop-loss coverage to self-funded
ERISA plans.
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 percent surcharge on inpatient bills
paid by employee welfare benefit plans.
TAX LAW
Aspects of petroleum business taxes are the subject of administrative claims
and litigation (e.g., Tug Buster Bouchard, et al. v. Wetzler, 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 to 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
MEDICAID
Several cases challenge provisions of Chapter 81 of the Laws of 1995 which
alter the nursing home Medicaid reimbursement methodology on and after April
1, 1995. Included are New York State Health Facilities Association, et al. v.
DeBuono, et al., St. Luke's Nursing Center, et al. v. DeBuono, et al., New
York Association of Homes and Services for the Aging v. DeBuono et al. (three
cases), Healthcare Association of New York State v. DeBuono and Bayberry
Nursing Home et al. v. Pataki, et al. Plaintiffs allege that the changes in
methodology have been adopted in violation of procedural and substantive
requirements of State and federal law.
Several cases challenge the rationality and the retroactive application of
State regulations recalibrating nursing home Medicaid rates. Following
invalidation of such previous regulations by the Court of Appeals, the State
Department of Health in 1991 promulgated new recalibration regulations. 10
NYCRR ss.86-2.31(a) and (b), for 1989-1991 and 1992 and subsequent rate years.
respectively. In Matter of New York Association of Homes and Services for the
Aging, Inc. v. Commissioner (Supreme Court, Albany County; Index No. 4885-92),
by decision dated June 30, 1994, the Court of Appeals held invalid the
Department's retroactive application to rate years 1989 through 1991 of the
nursing home Medicaid reimbursement rate recalibration adjustment set forth in
10 NYCRR ss.86-2.31(a). Matter of New York Association of Homes and Services
for the Aging, Inc. v. Commissioner (Supreme Court Albany County; Index No.
4370-92), challenges the new recalibration regulations for rate years
commencing 1992, and is pending.
In Matter of New York State Health Facilities Association, Inc., et al. v.
Axelrod, 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.
In a consolidated action commenced in 1992, Medicaid recipients and home
health care providers and organizations challenge promulgation by the State
Department of Social Services ("DSS") in June 1992 of a home assessment
resource review instrument ("HARRI"), which is to be used by DSS to determine
eligibility for and the nature of home care services for Medicaid recipients,
and challenge the policy of DSS of limiting reimbursable hours of service
until a patient is assessed using the HARRI (Dowd, et al. v. Bane, Supreme
Court, New York County).
OFFICE OF MENTAL HEALTH PATIENT-CARE COSTS
Two actions, Balzi, et al. v. Surles, et al., commenced in November 1985
in the United States District Court for the Southern District of New York, and
Brogan, et al. v. Sullivan, et al., commenced in May 1990 in the United States
District Court for the Western District of New York, now consolidated,
challenge the practice of using patients' Social Security benefits for the
costs of care of patients of State Office of Mental Health facilities.
SHELTER ALLOWANCE
In an action commenced in March 1987 against State and New York City
officials (Jiggetts, et al. v. Bane, et al.). plaintiffs allege that the
shelter allowance granted to recipients of public assistance is not adequate
for proper housing.
CONTRACT AND TORT CLAIMS
COGENERATION FACILITY
In Inter-Power of New York, Inc. v. State of New York, commenced November
16, 1994 in the Court of Claims, plaintiff alleges that by reason of the
failure of the State's Department of Environmental Conservation to provide in
a timely manner accurate and complete data, plaintiff was unable to complete
by the projected completion date a cogeneration facility, and thereby suffered
damages.
RACIAL SEGREGATION
In an action commenced in 1985 (United States, et al. v. Yonkers Board of
Education. et al.), the United States District Court for the Southern District
of New York found that Yonkers and its public schools were intentionally
segregated. Yonkers enacted an "education improvement plan" which was adopted
in 1986. Plaintiffs allege that defendants have not fulfilled their
responsibility to alleviate the segregation. On January 19, 1989 the State
Education Department and the New York State Urban Development Corporation were
added as defendants.
REAL PROPERTY CLAIMS
INDIAN LAND CLAIMS
On March 4, 1985 in Oneida Indian Nation of New York, et al. v. County of
Oneida, the United States Supreme Court affirmed a judgment of the United
States Court of Appeals for the Second Circuit holding that the Oneida Indians
have a common-law right of action against Madison and Oneida Counties for
wrongful possession of 872 acres of land illegally sold to the State in 1795.
At the same time, however, the Court reversed the Second Circuit by holding
that a third-party claim by the counties against the State for indemnification
was not properly before the Federal courts. The case was remanded to the
District Court for an assessment of damages, which action is still pending.
The counties may still seek indemnification in the State courts.
Several other actions involving Indian claims to land in upstate New York
are also pending. Included are Cayuga Indian Nation of New York v. Cuomo, et
al., and Canadian St. Regis Band of Mohawk Indians, et al. v. State of New
York, et al., both in the United States District Court for the Northern
District of New York. The Supreme Court's holding in Oneida Indian Nation of
New York may impair or eliminate certain of the State's defenses to these
actions but may enhance others.
RETIREMENT SYSTEM
In McCall. et al. v. State of New York. et al., commenced July 5, 1995
(Supreme Court, Albany County), an action for a declaratory judgment and
injunctive relief, plaintiffs (including the State Comptroller) contend that
certain provisions of Ch. 119 L. 1995 are unconstitutional. Ch. 119 L. 1995
provides enhanced supplemental pension allowances for members of the State and
local retirement systems. Plaintiffs contend that Section 13 of Ch. 119 L.
1995, which provides that money in a Supplemental Reserve Fund shall be used
as a credit in the State's 1995-96 fiscal year against prior State and local
pension contributions, violates Article V ss.7 of the State Constitution. This
constitutional provision bars the diminishment or impairment of benefits of
membership in the retirement systems.
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