As filed with the Securities and Exchange Commission on March 29, 1996
Registration No. 33-36784
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20449
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13 [X]
(Check appropriate box or boxes)
LEBENTHAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Lebenthal Asset Management, Inc.
120 Broadway
New York, New York 10271
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 425-6116
--------------
Hiram Lazar Copy to: MICHAEL ROSELLA, ESQ.
Lebenthal & Co., Inc. Battle Fowler LLP
120 Broadway 75 East 55th Street
New York, New York 10271 New York, New York 10022
------------------------ ------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective: (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940, as amended, and Rule 24f-2 thereunder, and the Registrant
filed a Rule 24f-2 Notice for its fiscal year end November 30, 1995 on or
about January 31, 1996.
345164.2
<PAGE>
LEBENTHAL FUNDS, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 404(c)
Part A
Item No. Prospectus Heading
1. Cover Page........................... Cover Page
2. Synopsis............................. Introduction; Table of Fees and
Expenses
3. Condensed Financial
Information.......................... Selected Financial Information
4. General Description..................
of Registrant........................ General Information; Investment
Objectives, Policies and Risks
5. Management of the Fund............... Management of the Fund; Custodian,
Transfer Agent and Dividend Agent;
Distribution and Service Plan
5a. Management's Discussion of
Fund Performance..................... Management of the Fund
6. Capital Stock and
Other Securities..................... Description of Common Stock; How to
Purchase and Redeem Shares; General
Information; Dividends and
Distributions; Federal Income Taxes
7. Purchase of Securities
Being Offered........................ How to Purchase and Redeem Shares;
Net Asset Value; Distribution and
Service Plan
8. Redemption or Repurchase............. How to Purchase and Redeem Shares
9. Legal Proceedings.................... *
10. Cover Page........................... Cover Page
* Not Applicable
345164.2
ii
<PAGE>
Part B Caption in Statement of
Item No. Additional Information
11. Table of Contents.................... Table of Contents
12. General Information and
History.............................. Management of the Fund
13. Investment Objectives,
Policies and Risks................... Investment Objectives, Policies and
Risks
14. Management of the Fund............... Management of the Fund
15. Control Persons and Principal
Holders of Securities................ Management of the Fund
16. Investment Advisory and
Other Services....................... Management of the Fund; Distribution
and Service Plan; Custodian;
Transfer Agent and Dividend Agent;
Expense Limitation
17. Brokerage Allocation................. Investment Objectives, Policies and
Risks
18. Capital Stock and Other
Securities........................... Description of Common Stock
19. Purchase, Redemption and Pricing
of Securities Being Offered.......... How to Purchase and Redeem Shares;
Net Asset Value
20. Tax Status........................... Federal Income Taxes; New York
Income Taxes; New Jersey Income
Taxes
21. Underwriters......................... Distribution and Service Plan
22. Calculations of Yield Quotations
of Money Market Funds................ Yield Quotations
23. Financial Statements................. Independent Auditor's Report;
Statements of Investments; Statement
of Assets and Liabilities;
Statements of Operations; Statements
of Changes in Net Assets; Notes to
Financial Statements
345164.2
iii
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL 120 Broadway, New York, NY 10271
FUNDS, INC. 212-425-6116
OUTSIDE NYC TOLL FREE 1-800-221-5822
===============================================================================
PROSPECTUS
March 29, 1996
Lebenthal Funds, Inc. (the "Fund") is an open-end, management investment company
currently consisting of two non-diversified portfolios and one diversified
portfolio. No assurance can be given that each of the Portfolios' objectives
will be achieved.
Lebenthal New York Municipal Bond Fund - The Lebenthal New York Municipal Bond
Fund (the "New York Portfolio") is a non-diversified municipal bond fund whose
investment objectives are to maximize income exempt from regular Federal income
taxes and from New York State and New York City personal income taxes,
consistent with preservation of capital and with consideration given to
opportunities for capital gain. The New York Portfolio seeks to achieve its
investment objectives by investing principally in long term investment grade
tax-exempt securities of New York State, Puerto Rico and other U.S. territories
and their political subdivisions, municipalities and public authorities.
Lebenthal New Jersey Municipal Bond Fund - The Lebenthal New Jersey Municipal
Bond Fund (the "New Jersey Portfolio") is a non-diversified municipal bond fund
whose investment objectives are to maximize income exempt from regular Federal
income taxes and from New Jersey gross income tax, consistent with preservation
of capital and with consideration given to opportunities for capital gain. The
New Jersey Portfolio seeks to achieve its investment objectives by investing
principally in long-term investment grade tax-exempt securities of New Jersey,
Puerto Rico and other U.S. territories and their political subdivisions,
municipalities and public authorities.
Lebenthal Taxable Municipal Bond Fund - The Lebenthal Taxable Municipal Bond
Fund (the "Taxable Portfolio") is a diversified municipal bond fund whose
investment objectives are to maximize income consistent with preservation of
capital and with consideration given to opportunities for capital gain. The
Taxable Portfolio seeks to achieve its investment objectives by investing
principally in taxable, long-term investment grade securities issued by state
and municipal governments and by their political subdivisions and public
authorities ("Taxable Municipal Obligations"). The interest on the Taxable
Municipal Obligations is includable in gross income for Federal income tax
purposes and may be subject to personal income taxes imposed by any state of the
United States or any political subdivision thereof, or by the District of
Columbia. Shares of the Portfolio may be particularly appropriate, therefore,
for retirement plans such as Individual Retirement Accounts. (See "Retirement
Plans.") Investors should consult their tax advisors concerning the taxability
of interest on the Taxable Municipal Obligations.
This Prospectus sets forth concisely the information about each of the
Portfolios that prospective investors will find helpful in making their
investment decisions. Additional information about the Fund has been filed with
the Securities and Exchange Commission and is available upon request and without
charge by calling or writing the Fund at the above address. The "Statement of
Additional Information" bears the same date as this Prospectus and is
incorporated by reference into this Prospectus in its entirety.
Lebenthal Asset Management, Inc. is the Manager of the Fund and Lebenthal & Co.,
Inc. is Distributor of its shares. Lebenthal Asset Management, Inc. is a
registered investment adviser. Lebenthal & Co., Inc. is a registered
broker-dealer and investment adviser and member of the National Association of
Securities Dealers, Inc.
This Prospectus should be read and retained
by investors for future reference.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
345352.2
<PAGE>
<TABLE>
TABLE OF FEES AND EXPENSES
<CAPTION>
Shareholder Transaction Expenses
- --------------------------------
(as a percentage of offering price)
Lebenthal New York Lebenthal New Jersey Lebenthal Taxable
Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund
------------------- -------------------- -------------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases 4.50% 4.50% 4.50%
Sales Load on Reinvestment Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average net assets)
Lebenthal New York* Lebenthal New Jersey Lebenthal Taxable
Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund
------------------- -------------------- -------------------
Management Fees (including Advisory Fee) -
After Fee Waiver 0.23% 0.00% 0.00%
12b-1 Fees - After Fee Waiver 0.25% 0.00% 0.00%
Other Expenses - After Reimbursement 0.61% 0.60% 0.60%
- - Administration Fees - After Fee Waiver .13% 0.13% 0.13%
Total Fund Operating Expenses - After Fee 1.09% 0.60% 0.60%
Waivers and Reimbursements
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end
of each time period:
Lebenthal New York Municipal Bond Fund $56 $79 $103 $172
Lebenthal New Jersey Municipal Bond Fund $51 $64 $77 $117
Lebenthal Taxable Municipal Bond Fund $51 $64 $77 $117
</TABLE>
*NO FEES OR OTHER EXPENSES WILL BE WAIVED OR REIMBURSED TO THE NEW YORK
PORTFOLIO.
- -------------------------------------------------------------------------------
The purpose of the above fee table is to assist an investor in understanding the
various costs and expenses that an investor in each of the Portfolios will bear
directly or indirectly. The sales load is a one-time charge paid at the time of
purchase of the shares. An investor may be entitled to a reduction in such sales
loads. For more information concerning the reduction in sales loads see "How to
Purchase and Redeem Shares." The Manager may, at its discretion, waive all of a
portion of their fees under the Management Contract. Absent such waiver, the
Management Fee for the New Jersey Portfolio and the Taxable Portfolio would have
been .25% and .25%, respectively, of average daily net assets. With respect to
the New York Portfolio, the Distributor may, at its discretion, waive all or a
portion of its fee under the Distribution Agreement. With respect to the New
Jersey Portfolio and the Taxable Portfolio, the Distributor may, at its
discretion, waive all or a portion of its reimbursement or service fee under the
Distribution Agreement and the Shareholder Servicing Agreement. Absent such
waivers ,the maximum reimbursement under the Distribution Agreement would have
been .10% of average daily net assets and the service fee under the Shareholder
Servicing Agreement would have been .25% of average daily net assets. The
reimbursement to the Distributor under the Distribution Agreement for The New
Jersey and The Taxable Portfolio is an asset-based sales charge and as a result
long-term shareholders of the Portfolio may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc. (the "NASD"). The Manager has
voluntarily reimbursed the New Jersey and Taxable Portfolio for certain Other
Expenses, including the Administration Fee of .13% of average daily net assets.
Absent such reimbursements and waivers, Other Expenses for each of the
Portfolios would have been 3.53% and 1.99%, respectively, and Total Fund
Operating Expenses would have been 4.13% and 2.59%, respectively. For further
discussion of these fees see "Management of the Fund" and "Distribution and
Service Plan" herein. The figures reflected in this example should not be
considered as a representation of past or future expenses. Actual expenses may
be greater or lesser than those shown above and the 5% annual return used in the
example is a hypothetical rate.
-2-
345352.2
<PAGE>
SELECTED FINANCIAL INFORMATION
(for a share outstanding throughout the period)
The following selected financial information of Lebenthal New York Municipal
Bond Fund has been audited by McGladrey & Pullen, LLP, Independent Certified
Public Accountants, whose report thereon appears in the Statement of Additional
Information.
<TABLE>
Lebenthal New York
Municipal Bond Fund
-----------------------------------------------------------------------
<CAPTION>
Year Year Year Year June 24, 1991
Ended Ended Ended Ended (Inception) to
November 30, November 30, November 30, November 30, November 30, 1991
1995 1994+++ 1993 1992
------------ ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding
throughout the period)
Net asset value, beginning of
period............................$ 6.84 $ 8.03 $ 7.54 $ 7.19 $ 7.16
------- ------- -------
Income from investment operations:
Net investment income............. 0.43 0.41 0.44 0.47 0.14
Net realized and unrealized
gain (loss) on investments....... 1.15 ( 1.15) 0.50 0.35 0.03
---------- -------- ------- ------- -------
Total from investment operations.. 1.58 ( .74) 0.94 0.82 0.17
---------- --------- ------- ------- -------
Less distributions:
Dividends from net investment
income...........................( 0.43) ( 0.41) ( 0.44) ( 0.47) ( 0.14)
Distributions from net realized
gain on investments............ -- ( 0.04) ( 0.01) -- --
------------ -------- -------- ------- ------
Total distributions...............( 0.43) ( 0.45) ( 0.45) ( 0.47) ( 0.14)
----------- -------- -------- -------- --------
Net asset value, end of period....$ 7.99 $ 6.84 $ 8.03 $ 7.54 $ 7.19
========== ======= ======= ======= =======
Total Return (without deduction
of sales load) l23.56% ( 9.62%) 12.63% 11.68% 2.36%+
Ratios/Supplemental Data:
Net assets, end of period
(000's o$itted).................. 105,579 $75,326 $ 80,727 $ 39,350 $ 14,549
Ratios to average net assets:
Expenses....................... 0.99% 0.64%++ 0.20%++ 0.17%++ 0%*++
Net investment income.......... 5.63% 5.44%++ 5.42%++ 6.08%++ 6.08%*++
Portfolio turnover................ 148.88% 192.91% 7.88% 8.14% 0%
Bank loans........................
Amount outstanding at end
of period..................... $1,737
Average amount of bank loans
outstanding during the
period (000).................. 1,857
Average number of shares
outstanding during the period. 11,866
Average amount of debt per share
during the period............. 0.16
</TABLE>
_____________________
* Annualized
++ Not Annualized ++ For the New York Portfolio advisory, management,
administration, and distribution fees of .38%, .58%, .62% and .775% of
average net assets, respectively, were waived during each period; and
expenses were reimbursed equivalent to .08%, .34%, .65% and 1.78% of
average net assets.
+++ Effective August 15, 1994, the investment advisor changed to Lebenthal
Asset Management, Inc.
-3-
345352.2
<PAGE>
<TABLE>
SELECTED FINANCIAL INFORMATION
(for a share outstanding throughout the period)
The following selected financial information of Lebenthal New Jersey Municipal
Bond Fund and Lebenthal Taxable Municipal Bond Fund has been audited by
McGladrey & Pullen, LLP, Independent Certified Public Accountants, whose report
thereon appears in the Statement of Additional Information.
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Lebenthal New Jersey Lebenthal Taxable
Municipal Bond Fund Municipal Bond Fund
-----------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Year Year Year Year
Ended Ended++ Ended Ended
November 30, 1995 November 30, 1994 November 30, 1995 November 30, 1994++
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.............. $5.95 $7.16 $6.34 $7.16
----- ----- ----- -----
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------------------------
Net investment income............................. 0.36 0.32 0.53 0.44
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments...................... 0.75 (1.21) 0.88 (0.82)
---- ------ ---- ------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations.................. 1.11 (.89) 1.41 (0.38)
---- ----- ---- ------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------
Dividends from net investment income.............. (0.36) (0.32) (0.53) (0.44)
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments............................. -- -- -- --
--- --- --- --
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Total distributions............................... (0.36) (0.32) (0.53) (0.44)
------ ------ ------ ------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $6.70 $5.95 $7.22 $6.34
===== ===== ===== =====
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Total Return (without deduction of sales load).... 19.10% (12.70%) 23.11% (5.45%)
- -------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)......... $3,358 $2,145 $8,686 $2,990
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -------------------------------------------------------------------------------------------------------------------
Expenses....................................... 0.60%+ 0.60%+ 0.60%+ 0.60%+
- -------------------------------------------------------------------------------------------------------------------
Net investment income.......................... 5.64%+ 4.97%+ 7.57%+ 6.74%+
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover............................. 61.69% 291.60% 84.74% 93.73%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
+ For the New Jersey Portfolio advisory, management, administration and
distribution fees of 0.63% and 0.68% of average net assets were waived
during the years ended November 30, 1995 and 1994, respectively, and
expenses were reimbursed equivalent to 2.90% and 3.55% of average net
assets, respectively. For the Taxable Portfolio advisory, management,
administration and distribution fees of 0.63% and 0.68% of average net
assets were waived during the years ended November 30, 1995 and 1994,
respectively, and expenses were reimbursed equivalent to 1.36% and 2.32% of
average net assets, respectively.
++ Effective August 15, 1994, the investment adviser changed to Lebenthal
Asset Management, Inc.
-4-
345352.2
<PAGE>
INTRODUCTION
Lebenthal Funds, Inc. (the "Fund") is an open-end, management investment company
currently consisting of two non-diversified portfolios and one diversified
portfolio. The New York Portfolio, the New Jersey Portfolio and the Taxable
Portfolio are sometimes referred to herein as the "Portfolios" or the
"Portfolio". This is a summary of each Portfolio's fundamental investment
policies which are set forth in full under "Investment Objectives, Policies and
Risks" herein and in the Statement of Additional Information and may not be
changed without approval of a majority of each of the Portfolio's outstanding
shares. Each of the Portfolio's investments are subject to market risk. Of
course no assurance can be given that the objectives of any of the Portfolios
will be achieved.
The Lebenthal New York Municipal Bond Fund (the "New York Portfolio") and the
Lebenthal New Jersey Municipal Bond Fund (the "New Jersey Portfolio") are
non-diversified municipal bond funds whose investment objectives are to maximize
income exempt under current law, in the opinion of bond counsel to the issuer at
the date of issuance, from regular Federal income tax and from New York State
and New York City personal income taxes, with respect to the New York Portfolio,
and from New Jersey gross income tax with respect to the New Jersey Portfolio,
consistent with preservation of capital and with consideration given to
opportunities for capital gain by investing principally in long-term, investment
grade tax-exempt securities of New York State, with respect to the New York
Portfolio, and the State of New Jersey, with respect to the New Jersey
Portfolio, Puerto Rico and other U.S. territories, and their political
subdivisions, municipalities and public authorities as described under
"Investment Objectives, Policies and Risks" herein. The New York and New Jersey
Portfolios will each attempt to invest 100%, and as a matter of fundamental
policy invest at least 80%, of the value of its net assets in municipal bond
obligations the interest on which is, in the opinion of bond counsel to the
issuer at the date of issuance, exempt from regular Federal income tax and New
York State and City personal income taxes and New Jersey gross income tax,
respectively. The New York and New Jersey Portfolios each also reserves the
right to invest on a temporary basis during adverse market conditions, as
determined by the Adviser, up to 100% of the value of its net assets in taxable
obligations. Income derived from taxable obligations will be subject to Federal
income tax and New York State and City personal income taxes and New Jersey
gross income tax, for each respective Portfolio. (See "Federal Income Taxes"
herein.) Interest on certain municipal securities purchased by the New York and
New Jersey Portfolios may be a preference item for purposes of the Federal
alternative minimum tax.
The Lebenthal Taxable Municipal Bond Fund (the "Taxable Portfolio") is a
diversified municipal bond fund whose investment objectives are to maximize
income consistent with preservation of capital and with consideration given to
opportunities for capital gain by investing principally in taxable long-term
investment grade securities with average maturities of over 10 years issued by
state and municipal governments and by their political subdivisions and public
authorities as described under "Investment Objectives, Policies and Risks"
herein. The Taxable Portfolio will attempt to invest 100%, and as a matter of
fundamental policy invests at least 65%, of the value of its total assets in
taxable municipal bond obligations. The interest on the municipal obligations is
includable in gross income for Federal income tax purposes and may be subject to
personal income taxes imposed by any state of the United States or any political
subdivision thereof, or by the District of Columbia. Shares of the Taxable
Portfolio may be particularly appropriate, therefore, for retirement plans such
as Individual Retirement Accounts. (See "Retirement Plans.") Investors should
consult their tax advisors concerning the taxability of interest on the
municipal obligations.
The Portfolios' manager is Lebenthal Asset Management, Inc. (the "Manager"), a
wholly owned subsidiary of Lebenthal & Co. Inc. The Manager is a registered
investment adviser providing fixed-income investment advisory services to
individuals, institutions and other investment advisers. The New York
Portfolio's shares are distributed through Lebenthal & Co., Inc. (the
"Distributor") with whom the Fund, on behalf of the New York Portfolio, has
entered into a Distribution Agreement pursuant to the Portfolio's plan adopted
under Rule 12b-1 of the Investment Company Act of 1940, as amended (the "1940
Act"). The New Jersey and Taxable Portfolios' shares are distributed through the
Distributor with whom the Fund, on behalf of the New Jersey and the Taxable
Portfolio, has entered into a Shareholder Servicing Agreement and Distribution
Agreement pursuant to the Portfolios' plan adopted under Rule 12b-1 of the 1940
Act. (See "Distribution and Service Plan".) The Portfolios' administrator is
State Street Bank and Trust Company (the "Administrator") with whom the Fund has
entered into an Administration Agreement. (See "Management of the Fund" herein.)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may purchase and redeem shares of the Fund's common
stock based on their net asset value next determined after receipt of the order.
An investor's order will be executed as of the Fund's next net asset value
determination which is made as of the earlier of 4:00 p.m., New York City time,
or the close of the New York Stock Exchange, Inc. ("NYSE") on each
-5-
345352.2
<PAGE>
Fund Business Day. (See "How to Purchase and Redeem Shares" and "Net Asset
Value" herein.) Dividends from net investment income are declared by the Fund
daily and paid on the twelfth day of each month or, if the twelfth day is not a
Fund Business Day, on the preceding Fund Business Day. Net capital gains, if
any, will be distributed at least annually in accordance with the Internal
Revenue Code of 1986 (the "Code"), as amended, and other applicable statutory
and regulatory requirements. All dividends and distributions of capital gains
can either be automatically invested in additional shares of a Portfolio
immediately upon payment thereof, received in cash or can be deposited into one
or more of the Fund's other portfolios. (See "Dividends and Distributions"
herein.) Shareholders may elect to redeem shares and receive payment from the
Portfolios of a specified amount automatically on a monthly basis.
Investors should consider the greater risk of each of the Portfolio's
concentration versus the safety that comes with a less concentrated investment
portfolio. The Fund intends that the New York Portfolio be concentrated in New
York Municipal Obligations, the New Jersey Portfolio be concentrated in New
Jersey Municipal Obligations and the Taxable Portfolio consist primarily of
Taxable Municipal Obligations (each as defined below). Summaries of special risk
factors affecting the States of New York and New Jersey are set forth under "New
York Risk Factors" and "New Jersey Risk Factors" herein and the Statement of
Additional Information. A summary of special risk factors affecting Taxable
Municipal Obligations is set forth under "Investment Objectives, Policies and
Risks" herein and the Statement of Additional Information. Investment in the New
York, New Jersey and Taxable Portfolios should be made with an understanding of
the risks which an investment in New York, New Jersey and Taxable Municipal
Obligations may entail. Payment of interest and preservation of capital are
dependent upon the continuing ability of New York and New Jersey and other
issuers and/or obligors of state, municipal and public authority debt
obligations to meet their obligations thereunder.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Fund is an open-end, management investment company comprised of two
non-diversified portfolios: Lebenthal New York Municipal Bond Fund and Lebenthal
New Jersey Municipal Bond Fund and one diversified portfolio: Lebenthal Taxable
Municipal Bond Fund.
The following investment objectives of each of the Portfolios described in this
section may not be changed unless approved by the holders of a majority of the
outstanding shares of the Portfolio that would be affected by such a change. As
used in this Prospectus, the term "majority of the outstanding shares" of a
Portfolio means, respectively, the vote of the lesser of (i) 67% or more of the
shares of the Portfolio present at a meeting, if the holders of more than 50% of
the outstanding shares of the Portfolio are present or represented by proxy or
(ii) more than 50% of the outstanding shares of the Portfolio.
The New York and The New Jersey Portfolios -- The New York and the New Jersey
Portfolios are non-diversified, municipal bond funds whose investment objectives
are to maximize income exempt from regular Federal income tax and from New York
State and New York City personal income taxes and New Jersey gross income tax,
respectively, to the extent consistent with the preservation of capital and with
consideration given to opportunities for capital gain. There can be no assurance
that the Portfolios' investment objectives will be achieved.
The New York and New Jersey Portfolios' assets will be invested primarily in
long-term investment grade tax-exempt securities issued by or on behalf of the
States of New York and New Jersey, respectively, other states, Puerto Rico and
other U.S. territories and possessions of the United States, and their
authorities, agencies, instrumentalities and political subdivisions ("Municipal
Obligations"). The average maturity of the Municipal Obligations in which the
New York and New Jersey Portfolios invest is expected to be 15 to 25 years.
Securities with longer maturities are more likely to lead to a greater degree of
market fluctuations in the value of such securities than do securities with
shorter maturities. The New York and New Jersey Portfolios attempt to invest
100%, and as a matter of fundamental policy, invest at least 80% of the value of
their net assets in securities the interest on which is, in the opinion of bond
counsel to the issuer at the date of issuance, exempt from regular Federal
income tax and from the personal income taxes of New York State and New York
City ("New York Municipal Obligations") and from New Jersey gross income tax
("New Jersey Municipal Obligations"), respectively, with remaining maturities of
one year or more. The New York and New Jersey Portfolios may also invest up to
20% of the value of their net assets in tax-exempt securities of issuers outside
New York State and the State of New Jersey, respectively, if such securities
bear interest which is exempt from regular Federal income tax and personal
income taxes of either State. The New York and New Jersey Portfolios also
reserve the right to invest up to 20% of the value of their net assets in
securities, the interest on which is exempt from regular Federal income tax
-6-
345352.2
<PAGE>
but not New York State and City personal income taxes and New Jersey gross
income tax, respectively, and other taxable obligations. Although the Supreme
Court has determined that Congress has the authority to subject the interest on
municipal bonds to regular Federal income taxation, existing law excludes such
interest from regular Federal income tax. However, such tax-exempt interest may
be subject to the Federal alternative minimum tax. Securities, the interest
income on which may be subject to the Federal alternative minimum tax, may be
purchased by the New York and New Jersey Portfolios without limit. (See "Federal
Income Taxes" herein.)
The New York and New Jersey Portfolios will invest principally, without
percentage limitations, in tax-exempt securities which on the date of investment
are within the four highest credit ratings of Moody's Investors Service
("Moody's") (Aaa, Aa, A, Baa for bonds; MIG-1, MIG-2, MIG-3, MIG-4 for notes;
P-1, P-2, P-3 for commercial paper; VMIG-1, VMIG-2, VMIG-3, VMIG-4 for variable
and floating demand notes); Standard & Poor's Corporation ("S&P") (AAA, AA, A,
BBB for bonds; SP-1, SP-2, SP-3 for notes and variable and floating demand
notes; A-1, A-2, A-3, B for commercial paper); or Fitch Investors Service, Inc.,
("Fitch") (AAA, AA, A, BBB for bonds; F-1, F-2, F-3 for notes, variable floating
demand notes and commercial paper). Although bonds and notes rated in the fourth
credit rating category are commonly referred to as investment grade, they may
have speculative characteristics. Such characteristics may under certain
circumstances lead to a greater degree of market fluctuations in the value of
such securities than do higher rated tax-exempt securities of similar
maturities. In addition, changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. The Fund will not necessarily
dispose of a security that falls below investment grade upon the Manager's
determination as to whether retention of such a security is consistent with the
Fund's investment objectives. A detailed discussion of such characteristics and
circumstances and their effect upon the New York and New Jersey Portfolios
appears in the Statement of Additional Information under the heading
"Description of the Portfolios' Investment Securities." A description of the
credit ratings is contained in Appendix A to the Statement of Additional
Information. The New York and New Jersey Portfolios may invest in tax-exempt
securities which are not rated or which do not fall into the credit ratings
noted above if, based upon credit analysis by the Manager, it is believed that
such securities are of comparable quality.
In unusual circumstances during adverse market conditions, as determined by the
Manager, the New York and New Jersey Portfolios may invest up to 100% of the
value of their net assets on a temporary basis in securities, the interest on
which is exempt from regular Federal income tax, but not New York State and City
personal income taxes and New Jersey gross income tax, respectively, and in
fixed-income securities, the interest on which is subject to regular Federal,
state and local income tax, pending the investment or reinvestment in tax-exempt
securities of proceeds of sales of shares or sales of portfolio securities or in
order to avoid the necessity of liquidating portfolio investments to meet
redemptions of shares by investors or where market conditions due to rising
interest rates or other adverse factors warrant temporary investing for
defensive purposes. Investments in taxable securities will be substantially in
securities issued or guaranteed by the United States government (such as bills,
notes and bonds), its agencies, instrumentalities or authorities, highly-rated
corporate debt securities (rated AA, or better, by S&P or Fitch or Aa3, or
better, by Moody"s); prime commercial paper (rated A-1+ by S&P, P-1 by Moody's
or F-1+ by Fitch) and certificates of deposit of the 100 largest domestic banks
(in terms of assets) that are subject to regulatory supervision by the United
States government or state governments and the 50 largest foreign banks in terms
of assets with branches or agencies in the United States. Investments in
certificates of deposit of foreign banks and foreign branches of United States
banks may involve certain risks, including different regulation, use of
different accounting procedures, political or other economic developments,
exchange controls, or possible seizure or nationalization of foreign deposits.
The New York Portfolio may purchase Municipal Obligations consisting of general
obligation bonds, revenue bonds and private activity bonds (also known as
industrial revenue bonds). A general discussion of these types of bonds is set
forth in "Municipal Obligations" in the Statement of Additional Information.
The New York and New Jersey Portfolios may invest in participation interests
purchased from banks in variable rate tax-exempt securities owned by banks.
Participations are frequently backed by an irrevocable letter of credit or
guarantee of a bank that the Manager has determined meet the prescribed quality
standards for the Portfolio. The Manager will monitor the pricing, quality and
liquidity of the variable rate demand instruments held by each Portfolio,
including the securities supported by bank letters of credit or guarantees, on
the basis of published financial information, reports of rating agencies and
other analytical services to which the Manager may subscribe. Participation
interests will be purchased only if, in the opinion of counsel, interest income
on such interests will be tax-exempt when distributed as dividends to
shareholders. For further information, see the Statement of Additional
Information.
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The Taxable Portfolio. The Taxable Portfolio is a diversified municipal bond
fund whose investment objectives are to maximize income to the extent consistent
with the preservation of capital and with consideration given to opportunities
for capital gain. There can be no assurance that the Taxable Portfolio's
investment objectives will be achieved.
The Taxable Portfolio's assets will be invested primarily in taxable long-term
investment grade securities issued by or on behalf of states and municipal
governments, other U.S. territories and possessions of the United States, and
their authorities, agencies, instrumentalities and political subdivisions
("Taxable Municipal Obligations"). The average maturity of the Taxable Municipal
Obligations in which the Taxable Portfolio invests is currently expected to be
over 10 years. The Taxable Portfolio attempts to invest 100%, and as a matter of
fundamental policy invests at least 65%, of the value of its total assets in
taxable securities with remaining maturities of one year or more. The interest
on the Taxable Municipal Obligations is includable in gross income for federal
income tax purposes and may be subject to personal income taxes imposed by any
state of the United States or any political subdivision thereof, or by the
District of Columbia. Shares of the Taxable Portfolio may be particularly
appropriate, therefore, for retirement plans such as Individual Retirement
Accounts. (See "Retirement Plans.") Investors should consult their tax advisors
concerning the taxability of interest on the Municipal Obligations.
The Taxable Portfolio will invest principally, without percentage limitations,
in securities which on the date of investment are within the four highest credit
ratings of Moody's (Aaa, Aa, A, Baa for bonds; MIG-1, MIG-2, MIG-3, MIG-4 for
notes; P-1, P-2 for commercial paper) or S&P (AAA, AA, A, BBB for bonds; SP-1,
SP-2 for notes; A, A-1 for commercial paper). Although bonds and notes rated in
the fourth credit rating category are commonly referred to as investment grade,
they may have speculative characteristics. In addition, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. The Fund will not necessarily dispose of a security that falls below
investment grade based upon the Manager's determination as to whether retention
of such a security is consistent with the Fund's investment objectives. A
detailed discussion of such characteristics and circumstances and their effect
upon the Taxable Portfolio appears in the Statement of Additional Information
under the heading "Description of the Portfolio's Investment Securities." A
description of the credit ratings is contained in Appendix A to the Statement of
Additional Information. The Taxable Portfolio may invest in securities which are
not rated or which do not fall into the credit ratings noted above if, based
upon credit analysis by the Manager, it is believed that such securities are of
comparable quality.
In unusual circumstances during adverse market conditions, as determined by the
Manager, the Taxable Portfolio may assume a temporary defensive position in
which the Taxable Portfolio may also invest in securities issued or guaranteed
by the United States Government (such as bills, notes and bonds), its agencies,
instrumentalities or authorities, tax-exempt securities, highly-rated corporate
debt securities (rated AA, or better, by S&P or Aa3, or better, by Moody's);
prime commercial paper (rated A-1+ by S&P or P-1 by Moody's) and certificates of
deposit of the 100 largest domestic banks (in terms of assets) that are subject
to regulatory supervision by the U.S. Government or state governments and the 50
largest foreign banks in terms of assets with branches or agencies in the United
States. Investments in certificates of deposit of foreign banks and foreign
branches of U.S. banks may involve certain risks, including different
regulation, use of different accounting procedures, political or other economic
developments, exchange controls, or possible seizure or nationalization of
foreign deposits.
Portfolios - Generally. Each Portfolio may also purchase municipal leases which
may be considered illiquid securities. Investments by each Portfolio in illiquid
securities will not exceed 15% of the Portfolio's net assets. At this time, each
Portfolio does not have a current intention of investing more than 5% of its net
assets in municipal leases which are deemed to be illiquid. In the event a
Portfolio invests more than 5% of its net assets in municipal leases, the Board
of Directors must consider certain factors in determining the liquidity and
proper valuations of these obligations. For further information, see the
Statement of Additional Information.
Each Portfolio may purchase floating rate and variable rate put option
securities including participation interests therein. Floating and variable rate
put option securities bear a variable interest rate which generally is
determined by the bond remarketing agent based on current market conditions,
although certain issuers may set rates using a designated base rate or a
specified percentage thereof. The rate of interest used will be that rate which
would enable the securities to be remarketed. These securities have a put
feature which allows the holder to demand payment of the obligation on short
notice at par plus accrued interest. Frequently, these securities are backed by
letters of credit or similar liquidity facilities provided by banks.
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Each Portfolio may purchase securities on a when-issued or delayed delivery
basis. Delivery of and payment for these securities may occur a month or more
after the date of the purchase commitment. The securities are subject to market
fluctuation during this period and no interest accrues to the Portfolio until
settlement. Each Portfolio maintains with the custodian a separate account with
a segregated portfolio of liquid high grade debt securities in an amount at
least equal to these commitments. For further information, see the Statement of
Additional Information.
When each Portfolio purchases Municipal Obligations, it may also acquire
stand-by commitments from banks and other financial institutions with respect to
such Municipal Obligations. Under a stand-by commitment, a bank or broker-dealer
agrees to purchase at the Portfolio's option a specified Municipal Obligation at
a specified price with same day settlement. A stand-by commitment is the
equivalent of a "put" option acquired by the Portfolio with respect to a
particular Municipal Obligation held in the Portfolio. For further information,
see the Statement of Additional Information.
The Fund has adopted the following fundamental investment restrictions which
apply to each Portfolio and which may not be changed unless approved by a
majority of the outstanding shares of each Portfolio of the Fund's shares that
would be affected by such a change. Each Portfolio is subject to further
investment restrictions that are set forth in the Statement of Additional
Information. Each Portfolio may not:
1. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Portfolio's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Portfolio's total assets,
the Portfolio will not make any investments. Interest paid on borrowings
will reduce net income.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
3. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"). The Portfolio will not
invest more than 15% of its net assets in repurchase agreements maturing in
more than seven days, variable rate demand instruments exercisable in more
than seven days and securities that are not readily marketable.
4. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that there shall be no limitation on the purchase
of New York Municipal Obligations with respect to the New York Portfolio
and New Jersey Obligations with respect to the New Jersey Portfolio and
other obligations issued or guaranteed by the United States government, its
agencies or instrumentalities.
5. Invest in securities of other investment companies, except the Portfolio
may purchase unit investment trust securities where such unit trusts meet
the investment objectives of the Portfolio and then only up to 5% of the
Portfolio's net assets, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and further except as permitted by
Section 12(d) of the Act.
Purchases and sales are made for each Portfolio whenever necessary, in the
Manager's opinion, to meet each Portfolio's objectives. For the fiscal year
ended November 30, 1995, the annual portfolio turnover rate was 148.88%, 61.69%
and 84.74% for the New York Portfolio, the New Jersey Portfolio and the Taxable
Portfolio, respectively. Portfolio turnover may involve the payment by the
Portfolios of dealer spreads or underwriting commissions, and other transaction
costs, on the sale of securities, as well as on the reinvestment of the proceeds
in other securities. In order to qualify as a regulated investment company, less
than 30% of the Portfolios' gross income must be derived from the sale or other
disposition of stock, securities or certain other investments held for less than
three months. Although increased portfolio turnover may increase the likelihood
of additional capital gains for the Portfolios, each Portfolio expects to
satisfy the 30% income test.
As non-diversified investment companies, the New York and New Jersey Portfolios
are not subject to any statutory restriction under the 1940 Act with respect to
investing their assets in one or relatively few issuers. This
non-diversification may present greater risks than in the case of a diversified
company. For a discussion of these risks, see "Investment Objectives, Policies
and Risks" herein and in the Statement of Additional Information. However, the
New York and New Jersey Portfolios intend to maintain qualification as a
"regulated investment company" under
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Subchapter M of the Code. The New York and New Jersey Portfolios will be
restricted in that at the close of each quarter of the taxable year, at least
50% of the value of each of their total assets must be represented by cash,
government securities, investment company securities and other securities
limited in respect of any one issuer to not more than 5% in value of the total
assets of the New York and New Jersey Portfolios and to not more than 10% of the
outstanding voting securities of such issuer. In addition, at the close of each
quarter of its taxable year, not more than 25% in value of the New York and New
Jersey Portfolios' total assets may be invested in securities of one issuer
other than U.S. government securities. The limitations described in this
paragraph regarding qualification as a "regulated investment company" are not
fundamental policies and may be revised to the extent applicable Federal income
tax requirements are revised. (See "Federal Income Taxes" herein.)
As a diversified investment company, 75% of the assets of the Taxable Portfolio
is subject to the following limitations: (a) the Taxable Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the United States government and its agencies and
instrumentalities, and (b) the Taxable Portfolio may not own more than 10% of
the outstanding voting securities of any one issuer. The classification of the
Taxable Portfolio as a diversified investment company is a fundamental policy of
the Taxable Portfolio and may be changed only with the approval of the holders
of a majority of the Taxable Portfolio's outstanding shares.
NEW YORK RISK FACTORS
The primary purpose of investing in a portfolio of New York Municipal
Obligations is the special tax treatment accorded New York resident individual
investors. Investment in the New York Portfolio should be made with an
understanding of the risks which an investment in New York Municipal Obligations
may entail. However, payment of interest and preservation of principal are
dependent upon the continuing ability of the New York issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk of the Portfolio's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of New York issues
with those of more diversified portfolios including out-of-state issues before
making an investment decision. For additional information, please refer to the
Statement of Additional Information.
This summary is included for the purpose of providing a general description of
New York State and New York City credit and financial conditions. For a more
complete description of these risk factors, see "New York Risk Factors" in the
Statement of Additional Information.
In recent years, New York State (the "State") and certain of its municipalities
and state agencies (the "Agencies") and New York City (the "City") have
experienced financial difficulties which have jeopardized the credit standings
and impaired the borrowing abilities of the State and the respective Agencies,
and have contributed to higher interest rates on, and lower market prices for,
debt obligations issued by them.
The City's general obligation bonds are rated Baa1 by Moody's. S&P has rated the
City's general obligation bonds BBB+. Fitch has rated them A-. Such ratings
reflect only the view of Moody's, S&P and Fitch, from which an explanation of
the significance of such ratings may be obtained. The State's general obligation
long-term indebtedness is rated A and the State's outstanding limited liability
State lease purchase and contractual obligations are rated Baa1 by Moody's. S&P
has rated the State's general obligation bonds A-. There is no assurance that
such ratings will continue for any given period of time or that they will not be
revised downward or withdrawn entirely. Any such downward revision or withdrawal
could have an adverse effect on the market prices of the City's general
obligation bonds.
The fiscal health of the State is closely related to the fiscal health of its
localities, particularly the City, which have required and continue to require
significant financial assistance from the State. Over the long term, the State
and the City face serious potential economic problems. The State has long been
one of the wealthiest states in the nation. For decades, however, the State
economy has grown more slowly than that of the nation as a whole, resulting in
the gradual erosion of its relative economic affluence. The causes of this
relative decline are varied and complex, in many cases, involving national and
international developments beyond the State's control. Part of the reason for
the long-term relative decline in the State economy has been attributed to the
combined State-local tax burden, which is among the highest in the United
States. The existence of this tax burden limits the State's ability to impose
higher taxes in the event of future financial difficulties. Recently, attempts
have been made to bring the rate of growth in the public sector
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<PAGE>
in the State into line with the slower expansion in the private economy. Prior
to those efforts, annual increases in expenditures at both the State and local
levels exceeded the increases in revenues generated by economic growth and were
therefore financed in part through discretionary tax increases at both levels of
government.
The burdens of State and local taxation, in combination with a number of other
causes of regional economic dislocation, may have contributed to the decisions
of businesses and individuals to relocate outside, or not locate within, the
State. The State undertook a series of tax reductions and other programs which
are intended both to limit expansion in the public sector and encourage
expansion in the private sector in order to make possible a reversal of these
trends. However, no immediate reversal of the erosion of the State's economic
position relative to the nation as a whole has been projected.
The effect of inflation on costs and the State's tax reduction program, the
possible failure to receive Federal funds in expected amounts, especially in
light of the cost of the proposed State assumption of the local share of
Medicaid costs, and anticipated weakness in the State and Federal economies may
make realization of balanced State budgets in future years more difficult than
in recent years.
NEW JERSEY RISK FACTORS
The primary purpose of investing in a portfolio of New Jersey Municipal
Obligations is the special tax treatment accorded New Jersey resident individual
investors. Investment in the Portfolio should be made with an understanding of
the risks which an investment in New Jersey Municipal Obligations may entail.
However, payment of interest and preservation of principal are dependent upon
the continuing ability of the New Jersey issuers and/or obligors of state,
municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk of the Portfolio's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of New Jersey issues
with those of more diversified portfolios including out-of-state issues before
making an investment decision. For additional information, please refer to the
Statement of Additional Information.
This summary is included for the purpose of providing a general description of
the credit and financial conditions of the State of New Jersey. For a more
complete description of these risk factors, see "New Jersey Risk Factors" in the
Statement of Additional Information.
The combination of the northeast region's cyclical adjustment and the national
recession which officially began in July 1990 (according to the National Bureau
of Economic Research) adversely affected the growth of New Jersey's economy. New
Jersey experienced declines in its construction and manufacturing sectors and
overall increases in the rates of unemployment. In the wake of the continued
expansion of the national economy which began in late 1993, New Jersey's economy
has experienced a protracted recovery that in 1994 began to generate internal
momentum due to increases in employment and income levels. Although employment
growth in New Jersey has occurred in a variety of employment sectors, business
services and trade sectors have been the greatest generators of employment
growth in New Jersey while manufacturing jobs continued to trend downward albeit
at a more moderate pace. Other evidence of New Jersey's improving economy can be
found in increased home-building above the depressed levels of 1990 through 1992
and rising consumer spending.
New Jersey's Constitution and budget and appropriations system require a
balanced budget. Pursuant to the State Constitution, no money may be drawn from
the State Treasury except for appropriations made by law. In addition, all
moneys for the support of State purposes must be provided for in one general
appropriation law covering one and the same fiscal year. No general
appropriations law or other law appropriating money for any State purpose may be
enacted if the total amount of appropriations for the fiscal year exceed the
total revenue anticipated for that fiscal year. The State's current Fiscal Year
ends June 30, 1996.
The primary method for State financing of capital projects is through the sale
of the general obligation bonds of the State. These bonds are backed by the full
faith and credit of the State. State tax revenues and certain other fees are
pledged to meet the principal and interest payments required to fully pay the
debt. No general obligation debt can be issued by the State without prior voter
approval. The aggregate outstanding general obligation bonded indebtedness of
the State as of June 30, 1995 was $3.647 billion. Other State-related
obligations, including lease financings, "moral"
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obligations, State-supported school district bonds and bonds subject to State
contracts or guarantees amounted to $4.818 billion as of June 30, 1995.
New Jersey's local finance system is regulated by various statutes designed to
assure that all local governments and their issuing authorities remain on a
sound financial basis. Regulatory and remedial statutes are enforced by the
Division of Local Government Services (the "Division") in the State Department
of Community Affairs. The Local Budget Law imposes specific budgetary procedures
upon counties and municipalities ("local units"). Every local unit must adopt an
operating budget which is balanced on a cash basis, and items of revenue and
appropriation must be examined by the Director of the Division. The accounts of
each local unit must be independently audited by a registered municipal
accountant.
The Local Government Cap Law (the "Cap Law") generally limits the year-to-year
increase of the total appropriations of any municipality and the tax levy of any
county to either 5% or an index rate determined annually by the Director,
whichever is less. Certain exceptions exist to the Cap Law's limitation on
increases in appropriations. The principal exceptions to these limitations are
municipal and county appropriations to pay debt service requirements; to comply
with certain other State or Federal mandates; amounts approved by referendum;
and, in the case of municipalities only, to fund the preceding year's cash
deficit or to reserve for shortfalls in tax collections.
The Local Budget Law limits the amount of tax anticipation notes that may be
issued by local units and requires the repayment of such notes within 120 days
of the end of the fiscal year (six months in the case of counties) in which
issued. No local unit is permitted to issue bonds for the payment of current
expenses (other than Fiscal Year Adjustment Bonds described more fully below).
Local units may not issue bonds to pay outstanding bonds, except for refunding
purposes, and then only with the approval of the Local Finance Board. Local
units may issue bond anticipation notes for temporary periods not exceeding in
the aggregate approximately ten years from the date of first issue. The debt
that any local unit may authorize is limited to a percentage of its equalized
valuation basis, which is the average of the equalized value of all taxable real
property and improvements within the geographic boundaries of the local unit for
each of the three most recent years.
Chapter 75 of the Pamphlet Laws of 1991 signed into law on March 28, 1991
required certain municipalities and permits all other municipalities to adopt
the State fiscal year in place of the existing calendar fiscal year.
Municipalities that change fiscal years must adopt a six-month transition year
budget funded by Fiscal Year Adjustment Bonds. Notes issued in anticipation of
Fiscal Year Adjustment Bonds, including renewals, can only be issued for up to
one year unless the Local Finance Board permits the municipality to renew them
for a further period. The Local Finance Board must confirm the actual deficit
experienced by the municipality. The municipality then may issue Fiscal Year
Adjustment Bonds to finance the deficit on a permanent basis.
New Jersey's school districts operate under the same comprehensive review and
regulation as do its counties and municipalities. Certain exceptions and
differences are provided, but the State supervision of school finance closely
parallels that of local governments. The State Department of Education has been
empowered with the necessary and effective authority in extreme cases to take
over the operation of local school districts which cannot or will not correct
severe and complex educational deficiencies.
School district bonds and temporary notes are issued in conformity with the
School Bond Law. Schools are subject to debt limits and to State regulation of
their borrowing. The debt limitation on school district bonds depends upon the
classification of the school district, but may be as high as 4% of the average
equalized valuation basis of the constituent municipality. In certain cases
involving school districts in cities with populations exceeding 100,000, the
debt limit is 8% of the average equalized valuation basis of the constituent
municipality, and in cities with populations in excess of 80,000, the debt limit
is 6% of the aforesaid average equalized valuation.
In 1982, school districts were given an alternative to the traditional method of
bond financing capital improvements pursuant to the Lease Purchase Law. The
Lease Purchase Law permits school districts to acquire a site and school
buildings through a lease purchase agreement with a private lessor corporation.
The lease purchase agreement does not require voter approval. The rent payments
attributable to the lease purchase agreement are subject to annual appropriation
by the school district and are required to be included in the annual current
expense budget of the school district. Furthermore, the rent payments
attributable to the lease purchase agreement do not constitute debt of the
school district and therefore do not impact on the school district's debt
limitation. Lease purchase agreements in excess of five years require the
approval of the Commissioner and the Local Finance Board.
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The Local Authorities Fiscal Control Law provides for State supervision of the
fiscal operations and debt issuance practices of independent local authorities
and special taxing districts by the State Department of Community Affairs. The
Local Authorities Fiscal Control Law applies to all autonomous public bodies
created by counties or municipalities, which are empowered to issue bonds, to
impose facility or service charges, or to levy taxes in their districts. This
encompasses most autonomous local authorities (sewerage, municipal utilities,
parking, pollution control, improvement, etc.) and special taxing districts
(fire, water, sewer, street lighting, etc.). The Local Finance Board exercises
approval power over the creation of new authorities and special districts as
well as their dissolution. The Local Finance Board also reviews, conducts public
hearings and issues findings and recommendations on any proposed project
financing of an authority or district, and on any proposed financing agreement
between a municipality or county and an authority or special district. The
Director reviews and approves annual budgets of authorities and special
districts.
MANAGEMENT OF THE FUND
The Manager. The Fund's Board of Directors, which is responsible for the overall
management and supervision of the Fund, has employed Lebenthal Asset Management,
Inc. (the "Manager") to serve as Manager of the New York, New Jersey and Taxable
Portfolios of the Fund. The Manager, with its principal office at 120 Broadway,
New York, New York 10271-0005, is a wholly owned subsidiary of Lebenthal & Co.,
Inc. The Manager, a registered investment adviser providing fixed-income
investment advisory services to individuals, institutions and other investment
advisers, is under the leadership of James L. Gammon, President and Director of
the Manager. James A. Lebenthal, chairman and director of the Manager, is a
controlling person of the Manager. The Manager was at November 30, 1995 manager,
Adviser or supervisor with respect to assets aggregating in excess of
$141,839,740. Mr. Gammon is primarily responsible for the day-to-day management
of the Fund's portfolios. Mr. Gammon, President and Director of the Manager
since February 1994, has over 24 years experience in municipal bond portfolio
management. From March 1984 to July 1993, Mr. Gammon was Senior Vice President
and Senior Portfolio Manager at Loews/CNA Holdings, Inc. with $12.5 billion
under his management. From 1977 to 1984 he managed the $221 million Elfun Tax
Exempt Income Fund. The Fund's Annual Report contains information regarding the
Fund's performance and, is available, without charge, upon request.
Pursuant to the Management Contracts the Manager manages the portfolio of
securities of each of the Portfolios and makes decisions with respect to the
purchase and sale of investments, subject to the general control of the Fund's
Board of Directors. For its services under the Management Contracts, the Manager
is entitled to receive a management fee, calculated daily and payable monthly,
equal to .25% of each of the Portfolio's average daily net assets not in excess
of $50 million, .225% of such assets between $50 million and $100 million plus
.20% of such assets in excess of $100 million. The Manager may, at its
discretion, waive all or a portion of its fees under the Management Contracts.
There can be no assurance that such fees will be waived in the future.
The Manager provides persons satisfactory to the Fund's Board of Directors to
serve as officers of the Fund. Such officers, as well as certain other employees
and directors of the Fund, may be directors, officers or employees of the
Manager or its affiliates. Due to the services performed by the Manager and the
Administrator, the Fund currently has no employees and its officers are not
required to devote full-time to the affairs of the Fund. The Statement of
Additional Information contains general background information regarding each
Director and principal officer of the Fund.
The Administrator. The Administrator for each Portfolio is State Street Bank and
Trust Company (the "Administrator"), a Massachusetts trust company, which has
its principal office at 225 Franklin Street, Boston, Massachusetts 02111.
The Administrator also serves as administrator of other mutual funds.
Pursuant to the Administration Agreement with each Portfolio, the Administrator
provides all administrative services reasonably necessary for the Portfolios,
other than those provided by the Manager, subject to the supervision of the
Fund's Board of Directors. These services include the day-to-day administration
of matters related to the operation of the Portfolios such as maintenance of
their records, preparation of reports, compliance testing of the Portfolios'
activities and supervision of the performance of accounting services and
calculation of net asset value and yield by Investors Fiduciary Trust Company,
the Portfolios' accounting agent. The personnel rendering such services may be
employees of the Administrator or its affiliates. Because of the services
rendered to the Portfolios by the Administrator, and the Manager, each Portfolio
itself may not require any employees other than its officers, none of whom
receive compensation from the Portfolio.
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For the services rendered to each Portfolio by the Administrator, the Fund pays
the Administrator a fee, computed daily and payable monthly, equal to .08% per
annum of the average daily net assets of each of the Portfolios up to $125
million, .06% per annum of such assets of each of the Portfolios of the next
$125 million and .04% per annum of such assets in excess of $100 million. There
is a minimum annual fee payable of $165,000.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) daily and
pays dividends on the twelfth day of each month or, if the twelfth day is not a
Fund Business Day, on the preceding Fund Business Day. There is no fixed
dividend rate. In computing these dividends, interest earned and expenses are
accrued daily.
Net realized capital gains, if any, are distributed at least annually in
accordance with the Code, as amended, and other applicable statutory and
regulatory requirements. All dividends and distributions of capital gains are
automatically invested in additional shares of a Portfolio immediately upon
payment thereof, received in cash or can be deposited into one or more of the
Fund's other Portfolios. Shareholders will be permitted to elect the payment
option of their choice on the subscription form for share purchases.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. (See "Investments Through
Participating Organizations" herein.) All other investors, and investors who
have accounts with Participating Organizations but who do not wish to invest in
the Fund through their Participating Organizations, may invest in the Fund
directly or through a Lebenthal & Co., Inc. brokerage account. (See "Direct
Purchase and Redemption Procedures" herein.) The minimum initial investment for
all investors in the Portfolio is $1,000. Initial investments may be made in any
amount in excess of the applicable minimum. The minimum amount for subsequent
investments is $100.
The price paid for shares of the Fund is the public offering price, that is, the
next determined net asset value of the shares plus a sales load. The sales load
is a one-time charge paid at the time of purchase of shares, most of which
ordinarily goes to the investor's broker-dealer to compensate him for the
services provided the investor.
Sales loads are determined in accordance with the following sales load schedule:
Sales Charge Dealer Discount
as % of as % of
Amount of Purchase Sales Load Net Amount Invested Offering Price
------------------ ---------- ------------------- --------------
Less than $50,000............ 4.50% 4.71% 4.25%
$50,000 up to $99,000........ 4.00% 4.17% 3.75%
$100,000 up to $249,999...... 3.50% 3.63% 3.25%
$250,000 up to $499,999...... 2.75% 2.83% 2.50%
$500,000 up to 999,999....... 2.00% 2.04% 1.75%
$1,000,000 up to $2,499,999.. 1.00% 1.01% .75%
$2,500,000 or more........... .50% .50% .25%
REDUCTION OR ELIMINATION OF SALES LOADS
Volume Discounts. Volume discounts are provided if the total amount being
invested in shares of the Portfolio reaches the levels indicated in the above
sales load schedule. Volume discounts are also available to investors making
sufficient additional purchases of Portfolio shares. The applicable sales charge
may be determined by adding to the total current value of shares already owned
in the Portfolio the value of new purchases computed at the offering price on
the day the additional purchase is made. For example, if an investor previously
purchased, and still holds, shares of the Portfolio worth $95,000 at the current
offering price and purchases an additional $5,000 worth of shares of the
Portfolio, the sales
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<PAGE>
charge applicable to the new purchase would be that applicable to the $100,000
to $249,999 bracket in the above sales load schedule.
Reinvestment of Dividends and Distributions. There is no sales load on purchases
of Portfolio shares made by reinvestment of dividends and distributions paid by
the Portfolio. Reinvestment will be made at net asset value (i.e., without the
imposition of a sales load) on the day on which the dividend or distribution is
payable.
Unit Investment Trusts. Unit holders of unit investment trusts sold by the
Distributor may invest distributions received from such unit investment trusts
in shares of the Portfolio at no sales load. The absence of a sales load
reflects the reduced sales effort required to sell shares to this group of
investors.
Letter of Intent. Any investor may sign a Letter of Intent, enclosed in this
Prospectus, stating an intention to make purchases of shares totaling a
specified amount within a period of thirteen months. Purchases within the
thirteen-month period can be made at the reduced sales load applicable to the
total amount of the intended purchase noted in the Letter of Intent. If a larger
purchase is actually made during the period, then a downward adjustment will be
made to the sales charge based on the actual purchase size. Any shares purchased
within 90 days preceding the actual signing of the Letter of Intent are eligible
for the reduced sales charge and the appropriate price adjustment will be made
on those share purchases. A number of shares equal to 4.50% of the dollar amount
of intended purchases specified in the Letter of Intent is held in escrow by the
Distributor until the purchases are completed. Dividends and distributions on
the escrowed shares are paid to the investor. If the intended purchases are not
completed during the Letter of Intent period, the investor is required to pay
the Distributor an amount equal to the difference between the regular sales load
applicable to a single purchase of the number of shares actually purchased and
the sales load actually paid. If such payment is not made within 20 days after
written request by the Distributor, then the Distributor has the right to redeem
a sufficient number of escrowed shares to effect payment of the amount due. Any
remaining escrowed shares are released to the investor's account. Agreeing to a
Letter of Intent does not obligate you to buy, or the Fund to sell, the
indicated amount of shares. You should read the Letter of Intent carefully
before signing.
Mutual Funds. Shareholders of any open-end management investment company who
purchased such shares through a Lebenthal & Co., Inc. broker can utilize the
redemption or sales proceeds from the redemption or sale of such shares to
purchase shares of the Portfolio at no sales load for a period of 12 months from
the date of this Prospectus. Investment of the redemption or sales proceeds into
shares of the Portfolio must occur within 60 calendar days from the date of
redemption or sale.
Investors 35 Years of Age or Younger. Investors purchasing their shares through
Lebenthal & Co. Inc., and who are 35 years of age or younger will be charged a
reduced sales load of .50% for single investments of at least $1,000. The
reduction of a sales load reflects the Fund's interest to offer a savings
vehicle for investors in this age bracket.
IRA Account Holders. Investors holding individual retirement accounts ("IRAs")
either directly or through a custodian with Lebenthal & Co., Inc. may elect to
reinvest the interest earned on securities in these accounts, in shares of the
Taxable Portfolio at net asset value, without a sales charge. The minimum
initial investment of $1,000 and the minimum subsequent investment of $100 will
be waived. In addition, for those individuals who wish to purchase shares of the
Taxable Portfolio in an IRA, the Fund offers an IRA plan through State Street
Bank & Trust Company at full sales load but with no minimum investment and an
annual custodial fee of $12.
Financial Planners. Investors purchasing their shares through certain financial
planners and intermediaries that assess a charge and have accounts with such
clients will not be charged a sales load. The absence of a sales load reflects
the reduced sales effort required to sell shares to this group of investors.
Employees of the Distributor and Participating Organizations. Employees (and
their immediate families) of Lebenthal & Co., Inc. or any Participating
Organization may purchase shares of the Portfolio at no sales load. The absence
of a sales load reflects the reduced sales effort required to sell shares to
this group of investors.
Sales and Redemptions
The Fund sells and redeems its shares on a continuing basis based on their net
asset value and does not impose a charge for redemptions. All transactions in
Fund shares are effected through State Street Bank & Trust Company, the
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<PAGE>
Fund's transfer agent, which accepts orders for purchases and redemptions from
Participating Organizations and from the Distributor.
Orders received as of the earlier of 4:00 p.m., New York City time, or the close
of business of the NYSE on any Fund Business Day will be executed at the public
offering price determined on that day. Orders received after the earlier of 4:00
p.m., New York City time, or the close of the NYSE on any Fund Business Day,
will be executed at the public offering price determined on the next Fund
Business Day. Shares will be issued upon receipt of payment by the Fund. Fund
shares begin accruing income on the day after the shares are issued to an
investor. The Fund reserves the right to reject any subscription for its shares.
Certificates for Fund shares will not be issued to those who invest in the Fund.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals. Unless
other instructions are given in proper form to the Fund as transfer agent, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. For shareholders investing through a Lebenthal & Co., Inc., brokerage
account, redemption proceeds will be credited to their brokerage account.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the NYSE is closed (other than
customary weekend and holiday closings) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by the Fund of its portfolio
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or for such other period as the Securities and Exchange Commission may
by order permit for the protection of the shareholders of the Fund.
Redemption orders received before the earlier of 4:00 p.m., New York City time,
or the close of the NYSE on any Fund Business Day will be executed at the net
asset value per share determined on that day. Redemption orders received after
such time will be executed at the net asset value determined on the following
Fund Business Day. Fund shares continue to receive dividends through the day of
redemption. Normally redemption proceeds will be paid within seven days.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $1,000.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase his total net
asset value to at least $1,000.
The redemption of shares may result in the Investor's receipt of more or less
than he paid for his shares and, thus, in a taxable gain or loss to the
investor.
Direct Purchase and Redemption Procedures. The following purchase and redemption
procedures apply to investors who wish to invest in the Fund directly or through
a brokerage account maintained at Lebenthal & Co., Inc. and not through
Participating Organizations. These investors may obtain a current prospectus and
Lebenthal & Co., Inc. account application necessary to open an account by
telephoning Lebenthal & Co., Inc. at the following numbers:
Within New York City (212) 425-6116
Outside New York City (toll free) (800) 221-5822
Initial Purchases of Shares. Checks are accepted subject to collection at full
value in United States currency.
Mail: To purchase shares of the Fund, send a check made payable to "Lebenthal &
Co., Inc., Agent" including the Lebenthal account number _ _ _ _ _ _ to:
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Lebenthal Funds, Inc.
Lebenthal _____ Municipal Bond Fund
120 Broadway
New York, New York 10271-0005
Bank Wire: To purchase shares of the Fund using the wire system for transmittal
of money among banks, investors should first telephone the Fund at (212)
425-6116 to obtain a Fund account number. The investors should then instruct a
member commercial bank to wire their money immediately to:
Chase Manhattan Bank
ABA# 021-000021
f/a/o Donaldson, Lufkin & Jenrette Securities Corp.
Pershing Division
Acct# 930-1-032992
For Lebenthal Funds, Inc.
Lebenthal _____ Municipal Bond Fund
A/C Name__________________
Lebenthal A/C # _ _ _ _ _ _
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before the earlier of 4:00 p.m., New York
City time, or the close of the NYSE on that same day. There may be a charge by
the investor's bank for transmitting the money by bank wire. The Fund does not
charge investors in the Fund for its receipt of wire transfers.
Subsequent Purchases of Shares. Subsequent purchases can be made by bank wire,
as indicated above, or by mailing a check to:
Lebenthal Funds, Inc.
Lebenthal _____ Municipal Bond Fund
120 Broadway
New York, New York 10271-0005
The minimum amount for subsequent purchases of shares is $100. All payments
should clearly indicate the shareholder's account number.
Redemption of Shares. A redemption order is executed immediately following, and
at a price determined in accordance with, the next determination of net asset
value per share following receipt by the Fund of the redemption order (and any
supporting documentation which it may require). Redemption payments will not be
effected unless the check (including a certified or cashier's check) used for
investment has been cleared for payment by the investor's bank, which may take
up to 10 days after investment.
Written Requests. Shareholders may make a redemption in any amount by sending a
written request addressed to:
Lebenthal Funds, Inc.
Lebenthal _____ Municipal Bond Fund
c/o Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271-0005
All requests for redemption should clearly indicate the Lebenthal account number
_ _ _ _ _. Normally the redemption proceeds are credited to the shareholder's
Lebenthal brokerage account.
Investment through Participating Organizations. Participant Investors may, if
they wish, invest in the Fund through the Participating Organizations with which
they have accounts. "Participating Organizations" are securities brokers, banks
and financial institutions or other industry professionals or organizations
which have entered into shareholder servicing agreements with the Distributor
with respect to investment of their customer accounts in the Fund. When
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<PAGE>
instructed by its customer to purchase or redeem Fund shares, the Participating
Organization, on behalf of the customer, transmits to the Fund as transfer agent
a purchase or redemption order.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers
accounts. Also Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of the Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such confirmations and statements will receive them from the Fund
directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. Therefore, an investor may consider
investing in the Fund directly. A Participant Investor should read this
Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Manager's
position that banks are not prohibited from acting in other capacities for
investment companies, such as providing administrative and shareholder account
maintenance services and receiving compensation from the Distributor for
providing such services. However, this is an unsettled area of the law and if a
determination contrary to the Manager's position is made by a bank regulatory
agency or court concerning shareholder servicing and administration payments to
banks from the Distributor, any such payments will be terminated and any shares
registered in the banks names, for their underlying customers, will be
reregistered in the name of the customers at no cost to the Fund or its
shareholders. In addition, state securities laws on this issue may differ from
the interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
In the case of qualified Participating Organizations, orders received by the
Fund before the earlier of 4:00 p.m., New York City time, or the close of the
NYSE on a Fund Business Day, will be executed on that day. Orders received after
such time will not result in execution until the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
The following purchase and redemption procedures now apply to Participant
Investors who wish to invest in the Fund through the Participating Organizations
with which they have accounts. Participant Investors should refer to the general
procedures applicable to direct investors contained in this prospectus. Requests
for assistance or additional information should be directed to the Fund at (800)
828-3246.
Bank Wire: To purchase shares of the Fund using the wire system for transmittal
of money among banks, Participant Investors should instruct a member commercial
bank to wire their money immediately to:
State Street Bank & Trust Co.
ABA# 011000028 For Credit to Account 99051971
FAO: [ ]/Lebenthal Funds Inc.
Lebenthal__________Municipal Bond Fund
A/C Name____________________
Lebenthal A/C #____________
Purchase By Check: For Participant Investors subsequent purchases can be made by
bank wire, as indicated above, or by mailing a check to:
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<PAGE>
Lebenthal Funds Inc.
Lebenthal__________Municipal Bond Fund
P.O. Box 419722
Kansas City, MO 64141-9722
Systematic Investment Plan. Shareholders may elect to purchase shares of the
Fund through the establishment of an Automatic Investment Plan of a specified
amount of $100 or more automatically, on a monthly basis. The minimum investment
required to open an Automatic Investment Plan account is $1,000. An Automatic
Investment Authorization Form (available on request from the transfer agent or
the Distributor) provides for funds to be automatically drawn on a shareholder's
bank account and deposited in his or her Fund account ($100 per month minimum).
The shareholder's bank may charge a nominal fee in connection with the
establishment and use of automatic deposit services. Accordingly, the net yield
to investors who invest through the Systematic Investment Plan may be less than
by investing in the Fund directly. The election may also be made, changed or
terminated at any later time by the participant by sending a written request to
the Fund's transfer agent or Distributor.
Systematic Withdrawal Plan. Shareholders may elect to redeem shares and receive
payment from the Fund of a specified amount of $50 or more automatically on a
monthly basis. A specified amount plan payment is made by the Fund on the
twelfth day of each month. Whenever such twelfth day of a month is not a Fund
Business Day, the payment date is the Fund Business Day immediately preceding
the twelfth day of the month. In order to make a payment, a number of shares
equal in aggregate net asset value to the payment amount are redeemed at their
net asset value on the Fund Business Day three days prior to the date of
payment. TO THE EXTENT THAT THE REDEMPTIONS TO MAKE PLAN PAYMENTS EXCEED THE
NUMBER OF SHARES PURCHASED THROUGH REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS,
THE REDEMPTIONS REDUCE THE NUMBER OF SHARES PURCHASED ON ORIGINAL INVESTMENT,
AND MAY ULTIMATELY LIQUIDATE A SHAREHOLDER'S INVESTMENT. A SHAREHOLDER MAY
RECOGNIZE A GAIN OR A LOSS UPON REDEMPTION OF SHARES TO THE EXTENT THE AMOUNT
RECEIVED UPON REDEMPTION EXCEEDS OR IS LESS THAN HIS BASIS IN THE SHARES
REDEEMED. This election is only available to investors who at time of election
own shares with a net asset value of $10,000. The election to receive automatic
withdrawal payments may be made at the time of the original subscription by so
indicating on the subscription order form. The election may also be made,
changed or terminated at any later time by the participant by sending a written
request to the Fund's transfer agent.
EXCHANGE PRIVILEGE
Shareholders of each Portfolio are entitled to exchange some or all of their
shares for shares in any of the Fund's portfolios: Lebenthal New York Municipal
Bond Fund, Lebenthal New Jersey Bond Fund or Lebenthal Taxable Municipal Bond
Fund. In the future, the exchange privilege program may be extended to other
investment companies managed by Lebenthal & Co., Inc.
There is no charge for the exchange privilege or limitation as to frequency of
exchange. The minimum amount for an exchange is $1,000, except that shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the portfolio into which the
exchange is being made. Shares are exchanged at their respective net asset
values.
The exchange privilege provides shareholders of any Portfolio with a convenient
method to shift their investment among different portfolios when they feel such
a shift is desirable. The exchange privilege is available to shareholders
residing in any state in which shares of the portfolios being acquired may
legally be sold. Shares may be exchanged only between portfolio accounts
registered in identical names. Before making an exchange, the investor should
review the current prospectus of the portfolio into which the exchange is to be
made. An exchange pursuant to the exchange privilege is treated for Federal
income tax purposes as a sale on which a shareholder may realize a taxable gain
or loss. An additional Prospectus may be obtained by contacting Lebenthal Funds,
Inc. at the address or telephone number set forth on the cover page of this
Prospectus.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
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<PAGE>
Lebenthal Funds, Inc.
Lebenthal _____ Municipal Bond Fund
c/o Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271-0005
or, for shareholders who have elected that option, by telephone. The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time.
Dollar Cost Averaging Program. Shareholders may elect to have a specified amount
automatically exchanged, either monthly or quarterly, from one of their accounts
through Lebenthal & Co., Inc. into one or more Lebenthal Fund portfolios. The
account from which exchanges are to be made must have a value of at least
$10,000 when a shareholder elects to begin this program, and the exchange
minimum is $100 per transaction. The net asset value of shares purchased under
this program may vary, and may be more or less advantageous than if shares were
purchased directly on dates other than the date specified in the program. There
is no charge for entering the Dollar Cost Averaging program, and exchanges made
pursuant to this program are not subject to an exchange fee. Sales charges may
apply, as described under the caption "How to Purchase and Redeem Shares."
Telephone Exchanges and Redemptions. Arrangements have been made for the
acceptance of instructions by telephone to exchange or redeem shares in
book-entry form if certain preauthorizations or indemnifications are accepted
and are on file. Shareholders who elect the telephone exchange or redemption
option bear the risk of any loss, damages, expense or cost arising from their
election of the telephone exchange option, including risk of unauthorized use,
provided however, that the Fund shall employ reasonable procedures to confirm
that all telephone instructions are genuine. For this purpose, the Fund will
employ such procedures to confirm that telephone or telecopy exchange or
redemption instructions are genuine, and will require that shareholders electing
such options provide a form of personal identification. The failure of the Fund
to employ such procedures may cause the Fund to be liable for losses incurred by
investors due to telephone or telecopy exchange or redemption based upon
unauthorized or fraudulent instructions. Further information and telephone
exchange or redemption forms are available from the transfer agent or
Distributor.
Shareholders holding shares in book-entry form may redeem their shares by
telephoning the transfer agent prior to 4:00 p.m. Eastern time. Redemption
proceeds must be payable to the record holder of the shares and mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request. The minimum amount for a wire transfer is $1,000. If at any time
the Fund determines it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified. Information on this service
is included in the application and is available from the transfer agent or the
Distributor.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Fund's Board of Directors has adopted a
distribution and service plan on behalf of each Portfolio (the "Plan") and,
pursuant to the Plan, the New York Portfolio and the Distributor have entered
into a Distribution Agreement and the New Jersey and Taxable Portfolios and the
Distributor have entered into a Distribution Agreement and a Shareholder
Servicing Agreement.
The New York Portfolio. Under the Distribution Agreement, the Distributor, as
agent for the Fund, will solicit orders for the purchase of the New York
Portfolio's shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Fund as principal. Under the
Distribution Agreement, the Distributor receives from the Portfolio a service
fee equal to .25% per annum of the New York Portfolio's average daily net assets
(the "Service Fee") for providing shareholder servicing and the maintenance of
shareholder accounts and that provides that the Distributor may make payments
from time to time from the Service Fee received to pay the costs of, and to
compensate others, including Participating Organizations for performing such
shareholder servicing functions on behalf of the New York Portfolio. The Service
Fee is accrued daily and paid monthly.
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The Plan and the Distribution Agreement provide that, in addition to the Service
Fee, the New York Portfolio will pay for (i) telecommunications expenses
including the cost of dedicated lines and CRT terminals, incurred by the
Distributor in carrying out its obligations under the Distribution Agreement and
(ii) preparing, printing and delivering the Fund's Prospectus to existing
shareholders of the Fund and preparing and printing subscription application
forms for shareholder accounts.
The Plan and the Management Contract provide that the Distributor may make
payments from time to time from its own resources, which may include the Service
Fee, the Management Fee, and past profits for the following purposes: (i) to
defray the costs of, and to compensate others, including Participating
Organizations with whom the Distributor has entered into written agreements, for
performing shareholder servicing and related administrative functions on behalf
of the New York Portfolio, (ii) to compensate certain Participating
Organizations for providing assistance in distributing the New York Portfolio's
shares, (iii) to pay the cost of printing and distributing the New York
Portfolio's prospectus to prospective investors, and (iv) to defray the cost of
the preparation and printing of brochures and other promotional materials,
mailings to prospective shareholders, advertising, and other promotional
activities, including the salaries and/or commissions of sales personnel in
connection with the distribution of the New York Portfolio's shares.
The Distributor, in its sole discretion, will determine the amount of such
payments made pursuant to the Plan, provided that such payments will not
increase the amount which the New York Portfolio is required to pay to the
Distributor for any fiscal year under the Distribution Agreement and the
Management Contract in effect for that year.
The New Jersey Portfolio and The Taxable Portfolio. For its services under the
Shareholder Servicing Agreements, the Distributor receives from the New Jersey
and Taxable Portfolios a fee equal to .25% per annum of the Portfolios' average
daily net assets (the "Shareholder Servicing Fee"). The fee is accrued daily and
paid monthly and any portion of the fee may be deemed to be used by the
Distributor for purposes of (i) shareholder servicing and maintenance of
shareholder accounts and (ii) for payments to participating organizations with
respect to servicing their clients or customers who are shareholders of the New
Jersey and Taxable Portfolios.
Under the Distribution Agreements, the Distributor, as agent for the New Jersey
and Taxable Portfolios, will solicit orders for the purchase of the New Jersey
and Taxable Portfolios' shares, provided that any subscriptions and orders will
not be binding on a Portfolio until accepted by the Portfolio as principal. In
addition, the Distribution Agreements provide for reimbursement to the
Distributor by the New Jersey and Taxable Portfolios for its distribution,
promotional and advertising costs incurred in connection with the distribution
of the New Jersey and Taxable Portfolios' shares in an amount not to exceed .10%
per annum of each of the New Jersey and Taxable Portfolios' average daily net
assets. To the extent the Distributor does not take reimbursement for such
expenses in a current fiscal year, it is precluded from taking any reimbursement
for such amounts in a future fiscal year. The Plans, the Shareholder Servicing
Agreements and the Distribution Agreements provide that, in addition to the
Shareholder Servicing Fee and advertising reimbursement, the New Jersey and
Taxable Portfolios will pay for (i) telecommunications expenses including the
cost of dedicated lines and CRT terminals incurred by the Distributor in
carrying out its obligations under the Shareholder Servicing Agreements, and
(ii) typesetting, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing the printing subscription application
forms for shareholder accounts. The expenses enumerated in this paragraph shall
not exceed an amount equal to .05% per annum of each of the New Jersey and
Taxable Portfolio's average daily net assets.
The Plans and the Management Contracts provide that the Manager may make
payments from time to time from its own resources, which may include the
management fee and past profits for the following purposes: to defray the costs
of and to compensate others, including participating organizations with whom the
Distributor has entered into written agreements, for performing shareholder
servicing and related administrative functions on behalf of the New Jersey and
Taxable Portfolios, to compensate certain participating organizations for
providing assistance in distributing the Portfolios' shares; to pay the costs of
printing and distributing the Fund's prospectus to prospective investors; and to
defray the cost of the preparation and printing of brochures and other
promotional materials, mailings to prospective shareholders, advertising, and
other promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Portfolios' shares. The
Distributor, in its sole discretion, will determine the amount of such payments
made pursuant to the Plans, provided that such payments made pursuant to the
Plans will not increase the amount which the New Jersey and Taxable Portfolios
are required to pay to the Distributor or the Manager for any fiscal year under
the Shareholder Servicing Agreements or the Management Contracts in effect for
that year.
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FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code as a regulated investment company
that distributes "exempt-interest dividends" as defined in the Code. The Fund's
policy is to distribute as dividends each year 100% (and in no event less than
90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends designated as derived from the interest earned on Municipal
Obligations are "exempt-interest dividends" and are not subject to regular
Federal income tax, although such "exempt-interest dividends" may be subject to
Federal alternative minimum tax. Dividends paid from taxable income, if any, and
distributions of any realized short-term capital gains (whether from tax-exempt
or taxable obligations) are taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares of the Fund. The Fund may realize long-term capital gains, and
may distribute "capital gain dividends" or have undistributed capital gain
income within the meaning of the Code. The Fund will inform shareholders of the
amount and nature of its income and gains in a written notice mailed to
shareholders not later than 60 days after the close of the Fund's taxable year.
For Social Security recipients, interest on tax-exempt bonds, including
tax-exempt interest dividends paid by the Fund, is to be added to adjusted gross
income for purposes of computing the amount of Social Security benefits
includible in gross income. Interest on certain "private activity bonds"
(generally, a bond issue in which more than 10% of the proceeds are used for a
non-governmental trade or business and which meets the private security or
payment test, or a bond issue which meets the private loan financing test)
issued after August 7, 1986 will constitute an item of tax preference subject to
the individual alternative minimum tax. Corporations will be required to include
as an item of tax preference for purposes of the alternative minimum tax, 75% of
the amount by which its adjusted current earnings (including generally,
tax-exempt interest) exceeds its alternative minimum taxable income (determined
without this tax item). In addition, in certain cases Subchapter S corporations
with accumulated earnings and profits from Subchapter C years will be subject to
a tax on "passive investment income," including tax-exempt interest.
With respect to variable rate demand instruments, including participation
certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner thereof and that the interest on the underlying Municipal Obligations
will be exempt from regular Federal income taxes to the Fund. Counsel has
pointed out that the Internal Revenue Service has announced that it will not
ordinarily issue advance rulings on the question of the ownership of securities
or participation interests therein subject to a put and could reach a conclusion
different from that reached by counsel. (See "Federal Income Taxes" in the
Statement of Additional Information.)
In South Carolina v. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds they issue and
may subject the interest on such bonds to Federal tax if not registered, and the
Court further held that there is no constitutional prohibition against the
Federal government's taxing the interest earned on state or other municipal
bonds. The Supreme Court decision affirms the authority of the Federal
government to regulate and control bonds such as Municipal Obligations and to
tax such bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on Municipal Obligations in
accordance with Section 103 of the Code.
NEW YORK INCOME TAXES
The exemption of interest income for Federal income tax purposes does not
necessarily result in an exemption under the income or other tax laws of any
state or local taxing authority. However, to the extent that dividends are
derived from interest on New York Municipal Obligations, the dividends will also
be excluded from a New York resident shareholder's gross income for New York
State and New York City personal income tax purposes. N.Y. Tax Reg. Section
116.2(a). This exclusion does not result in a corporate shareholder being exempt
for New York State and New York City franchise tax purposes. Shareholders should
consult their own tax advisers about the status of distributions from the Fund
in their own states and localities.
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NEW JERSEY INCOME TAXES
The exemption of interest income for Federal income tax purposes does not
necessarily result in an exemption under the income or other tax laws of any
state or local taxing authority. The Fund intends to be a "qualified investment
fund" within the meaning of the New Jersey gross income tax. The primary
criteria for constituting a "qualified investment fund" are that (1) such fund
is an investment company registered with the Securities and Exchange Commission
which, for the calendar year in which the distribution is paid, has no
investments other than interest-bearing obligations, obligations issued at a
discount, and cash and cash items, including receivables and financial options,
futures, forward contracts, or other similar financial instruments relating to
interest-bearing obligations, obligations issued at a discount or bond indexes
related thereto and (2) at the close of each quarter of the taxable year, such
fund has not less than 80% of the aggregate principal amount of all of its
investments, excluding financial options, futures, forward contracts, or other
similar financial instruments relating to interest-bearing obligations,
obligations issued at a discount or bond indexes related thereto to the extent
such instruments are authorized under the regulated investment company rules
under the Code, cash and cash items, which cash items shall include receivables,
in New Jersey Municipal Obligations. Additionally, a qualified investment fund
must comply with certain continuing reporting requirements.
In the opinion of McCarter & English, special New Jersey tax counsel to the
Fund, assuming that the Fund constitutes a qualified investment fund and that
the Fund complies with the reporting obligations under New Jersey law with
respect to qualified investment funds, (a) distributions paid by the Fund to a
New Jersey resident individual shareholder will not be subject to the New Jersey
gross income tax to the extent that the distributions are attributable to income
received as interest on or gain from New Jersey Municipal Obligations, and (b)
gain from the sale of shares in the Fund by a New Jersey resident individual
shareholder will not be subject to the New Jersey gross income tax. Shareholders
should consult their own tax Advisers about the status of distributions from the
Fund in their own states and localities.
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on August 17, 1990. The authorized capital
stock of the Fund consists of twenty billion shares of stock having a par value
of one tenth of one cent ($.001) per share. The Fund's Board of Directors is
authorized to divide the unissued shares into separate series of stock, each
series representing a separate, additional investment portfolio. The Board
currently has authorized the division of the unissued shares into four series.
Shares of all series will have identical voting rights, except where, by law,
certain matters must be approved by a majority of the shares of the affected
series. Each share of any series of shares when issued has equal dividend,
distribution, liquidation and voting rights within the series for which it was
issued, and each fractional share has those rights in proportion to the
percentage that the fractional share represents of a whole share. Shares will be
voted in the aggregate. There are no conversion or preemptive rights in
connection with any shares of the Fund. All shares, when issued in accordance
with the terms of the offering, will be fully paid and nonassessable. Shares are
redeemable at net asset value, at the option of the shareholder. As of February
29, 1996, the amount of shares owned by all officers and directors of the Fund,
as a group, was less than 1% of the outstanding shares of each of the
Portfolios.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. The Fund does not issue
certificates evidencing Fund shares.
GENERAL INFORMATION
The Fund is registered with the Securities and Exchange Commission as an
open-end, management investment company. The Fund prepares semi-annual unaudited
and annual audited reports which include a list of investment securities held by
the Fund and which are sent to shareholders.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the Fund's
revised investment advisory agreement with respect to a particular class or
series of stock, (c) for approval of revisions to the Fund's distribution
agreement with respect to a particular class or series of stock, and (d) upon
the written request of holders or shares entitled to cast not less than 25% of
all the votes entitled to be cast at such meeting. Annual and
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other meetings may be required with respect to such additional matters relating
to the Fund as may be required by the Act, including the removal of Fund
director(s) and communication among shareholders, any registration of the Fund
with the Securities and Exchange Commission or any state, or as the directors
may consider necessary or desirable. Each director serves until the next meeting
of the shareholders called for the purpose of considering the election or
reelection of such director or of a successor to such director, and until the
election and qualification of his or her successor, elected at such a meeting,
or until such director sooner dies, resigns, retires or is removed by the vote
of the shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's Registration Statement filed with the Securities
and Exchange Commission, including the exhibits thereto. The Registration
Statement and the exhibits thereto may be examined at the Securities and
Exchange Commission and copies thereof may be obtained upon payment of certain
duplicating fees.
FUND PERFORMANCE
Each Portfolio may from time to time include its yield, total return, and
average annual total return in advertisements or information furnished to
present or prospective shareholders. Each Portfolio may also from time to time
include in advertisements the ranking of those performance figures relative to
such figures for groups of mutual funds categorized by Lipper Analytical
Services as having the same investment objectives.
Average annual total return is a measure of the average annual compounded rate
of return of $1,000 invested at the maximum public offering price over a
specified period, which assumes that any dividends or capital gains
distributions are automatically reinvested in the Portfolio rather than paid to
the investor in cash. Total return is calculated with the same assumptions and
shows the aggregate return on an investment over a specified period.
The formula for total return used by each Portfolio includes three steps: (1)
adding to the total number of shares purchased by the hypothetical investment in
the portfolio of $1,000 (assuming the investment is made at a public offering
price that includes the current maximum sales load of 4.50%) all additional
shares that would have been purchased if all dividends and distributions paid or
distributed during the period had been automatically reinvested; (2) calculating
the value of the hypothetical initial investment as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; and (3) dividing
this account value for the hypothetical investor by the amount of the initial
investment and annualizing the result for periods of less than one year.
Each Portfolio computes yield by annualizing net investment income per share for
a recent 30-day period and dividing that amount by a Portfolio's share's maximum
public offering price (reduced by any undeclared earned income expected to be
paid shortly as a dividend) on the last trading day of that period. The
Portfolio's yield will vary from time to time depending upon market conditions,
the composition of the Portfolio and operating expenses of the Portfolio.
The New York Portfolio may also advertise a tax equivalent yield for residents
of the State of New York wherein all or substantially all of the Portfolio's
dividends are not subject to New York income tax. The advertisement of a tax
equivalent yield reflects the taxable yield that a New York investor subject to
that state's or municipality's stated tax rate would have had to receive in
order to realize the same level of after-tax yield as an investment in the
Portfolio would have produced.
The New Jersey Portfolio may also advertise a tax equivalent yield for residents
of the State of New Jersey wherein all or substantially all of the New Jersey
Portfolio's dividends are not subject to New Jersey gross income tax. The
advertisement of a tax equivalent yield reflects the taxable yield that a New
Jersey investor subject to that state's or municipality's stated tax rate would
have had to receive in order to realize the same level of after-tax yield as an
investment in the New Jersey Portfolio would have produced.
Total return and yield may be stated with or without giving effect to any
expense limitations in effect for the Portfolio.
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NET ASSET VALUE
The net asset value of the Fund's shares is determined as of the earlier of 4:00
p.m., New York City time, or the close of the NYSE on each Fund Business Day.
Fund Business Day means weekdays (Monday through Friday) except customary
business holidays and Good Friday. It is computed by dividing the value of the
Fund's net assets (i.e., the value of its securities and other assets less its
liabilities, including expenses payable or accrued but excluding capital stock
and surplus) by the total number of shares outstanding.
Municipal Obligations are priced on the basis of valuations provided by a
pricing service approved by the Board of Directors, which uses information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. The valuations provided by such pricing service
will be based upon fair market value determined most likely on the basis of the
factors listed above. If a pricing service is not used, Municipal Obligations
will be valued at quoted prices provided by municipal bond dealers.
Non-tax-exempt securities for which transaction prices are readily available are
stated at market value (determined on the basis of the last reported sales
price, or a similar means). Short-term investments that will mature in 60 days
or less are stated at amortized cost, which approximates market value. All other
securities and assets are valued at their fair market value as determined in
good faith by the Board of Directors.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105-1716, is custodian for the Fund's cash and securities. The Fund's
custodian does not assist in, and is not responsible for, investment decisions
involving assets of the Fund. The Fund has retained State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02111, to provide personnel
and facilities to perform transfer agency related services for the Fund.
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MORE INFORMATION ON THE MUNICIPAL MARKET
Individuals considering an investment in the Fund should be aware that the
municipal securities market is "large, dynamic, and increasingly complex," to
quote an SEC Staff Report. Many diverse factors affect the yield, security, and
suitability of one's investment in the Fund. Among them:
Municipal Bonds raise money for public works. These are the indispensable roads,
sewers, schools, subways, airports, public buildings and facilities -
"Built-by-Bonds"-that provide the physical infrastructure for communal life and
the underpinnings for long range economic development of the community.
A Municipal Bond is evidence of collective debt. It shows that a local
governmental entity or authority needed money for a public purpose. It
represents the promise of the borrower to repay a fixed sum of money on a
definite future date at a fixed rate of interest. And that interest is free of
federal income tax and free in most states where issued from state and local
taxes in that state.
Investors are willing to lend, issuers are able to borrow at lower rates of
interest in the tax free bond market. Exemption from taxes reduces the interest
rate local governments must pay on their debt, because investors are willing to
accept a lower rate of interest on tax exempt debt than on taxable debt. The
Public Securities Association, the trade organization of dealers in government
securities, has estimated that the saving in borrowing costs on $984.90 billion
of Municipal Bonds issued between 1991 and 1995 will add up to $299.6 billion by
the year 2008, versus what it would have cost the states, their political
subdivisions, agencies, and authorities to borrow at prevailing corporate
interest rates.
Individuals investing their savings in municipal securities help improve the
rate of savings and investment in America. Economists believe that the root of
such economic ills as the deficit, low dollar, U.S. balance of payments problem,
poor productivity and crumbling infrastructure lies in the sharp decline in the
nation's savings rate in the 1980s and 1990s. Saving is the seedcorn of an
economy. You plant it, that is you invest it, it grows, and reproduces itself.
Through the lending/borrowing process your savings are converted into factories,
housing, roads, airports-productive investments that create jobs and real
wealth. All investment-public, private, municipal, corporate-begins with
savings. In advertising municipal securities as the "workhorse of investments,"
Lebenthal & Co., Inc. is alluding to municipal securities as a tool both for
building one's own future-and for digging roads, building schools, laying
sewers, producing power, providing housing, putting up hospitals, moving
commuters, paving runways, boring tunnels and rebuilding a more productive
America.
Tax exempt securities are owned primarily by individuals. There are
approximately $1.3 trillion worth of Municipal Bonds outstanding, approximately
$964 billion of them owned by individual investors, either through the direct
purchase of individual bonds or through their ownership of shares in mutual
funds like the Lebenthal Municipal Bond Funds. According to the Internal Revenue
Service, 4.7 million (4% out of 115 million tax returns) reported receiving
$46.5 billion of tax exempt income in 1993. Filers with adjusted gross incomes
of less than $100,000 accounted for 77% of all filers reporting tax exempt
income and 50.6% of all tax exempt income reported. Filers with adjusted gross
incomes of less than $50,000 accounted for 49% of returns reporting tax exempt
income and 28.6% of the tax exempt income reported. The municipal securities
market is increasingly dominated by the individual investor. Households are the
largest holders of municipal debt.
Low borrowing cost for infrastructure has public policy implications. Until 1988
state and local bonds enjoyed constitutional protection from federal taxation.
In overruling the constitutional argument for the federal tax immunity in 1988,
the Supreme Court in South Carolina v. Baker said that now "states must find
their protection from congressional regulation through the national political
process." As a result, public policy considerations must justify the
preservation of tax exemption. Low cost of borrowing for indispensable public
works, saving citizens money in their capacity as local taxpayers are arguments
for tax exemption. The preservation of tax exemption is also served when
municipal securities are accessible to the average investor, and not perceived
as benefiting only the very wealthy. To quote the SEC Staff Report, "with the
changing income tax rates, persons of more moderate means increasingly have
invested in municipal securities." For the long term saving goals of a great and
growing number of individuals and families, tax exempt securities are a viable
alternative to taxable savings instruments.
Comparing a tax free return to a taxable return is only one test of suitability.
From time to time, the Fund will show how much taxable investments, such as bank
CDs, would have to yield for the after-tax return to equal yields in the tax
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free bond market. Tax free to taxable yield comparisons are made on the basis of
arithmetic alone and do not take into account significant differences of
security, liquidity, and suitability that may exist between the instruments
being compared. For example bank Cds are federally insured. And there is a
penalty, but no market risk, for early redemption, whereas the resale value of
Fund shares will rise or fall with changes in interest rates in general or with
changes in the creditworthiness of the underlying bonds in the Fund portfolio.
There is "market risk" in selling before maturity. The words "safe," "safety,"
and "secure" as used in bonds apply to creditworthiness: the assuredness of
receiving your interest right along and getting your principal back at the end.
But anyone considering an investment in municipal securities must accept market
fluctuation-and possible loss in resale value before maturity-as facts of life.
This is because the resale value of a fixed income security will adjust to
changing interest rates and the yields available from comparable new issues in
the market. As a rule of thumb, generally if interest rates are higher when you
go to sell than they were when you bought your bond, you will get less than you
paid. ("Yields up, price down.") Also generally, if interest rates are lower
when you sell than when you bought, you will make money. ("Yields down, price
up.")
There are two broad categories of creditworthiness: general obligation bonds and
revenue bonds. General obligations are secured by tax collections, revenue bonds
by earnings. When a bond is secured by the power of a governmental issuer to
levy taxes on real estate without limitation as to rate or amount, and when the
issuer pledges all its resources to pay principal and interest, the bond is said
to be a full faith and credit general obligation. The laws governing the
issuance of general obligation bonds intend for the bondholder to be paid in
full and on time. And such bonds have earned for all Municipal Bonds their
reputation for safety. There is another type of Municipal Bond-the revenue bond.
As the name implies, revenue bonds are secured by tolls, rentals, mortgage
payments, tuitions, fees, that is by earnings of the project so financed. Their
strength is the commercial viability of the project and power of the issuer to
levy user charges. Tax collections or earnings, they are both cashflow. And
cashflow is the collateral behind municipal securities.
Municipal securities are creatures of law. They depend on law. They must conform
to statutory requirements, the most desirable of which is that the people voted
for the issue. The issuer must not exceed the legal debt limit, and every law
governing the birth of a bond must be carefully followed when a municipality is
borrowing money. All this must be attested to by the legal opinion of reputable
and recognized attorneys specializing in municipal law.
There are over one million combinations of issuer, issue, interest rate, and
maturity to choose from. Moody's Investors Service puts out a 19-pound,
three-volume manual rating 20,619 states and local entities whose bonds are in
the hands of the public. An issuer generally has more than one issue of bonds
outstanding. And each issue is like many in one, made up of "maturities"-blocks
of bonds that come due in staggered years from now to the year 2025 and longer.
The possible combinations provide flexibility in tailoring a Municipal Bond
portfolio to the needs of the individual-or, for some people-result in the
decision to buy a fund of bonds and let the fund manager do the picking and
choosing.
Boiling choice down to four investment decisions. Before recommending specific
municipal securities, an investment adviser does some digging. Are you likely to
jump in and out of your bonds? Do you really need the income now? When do you
plan to retire? What about heirs? How much is the peace and comfort of a
triple-A rating worth to you in cold cash? Are you investing for children's
education? Are you using municipals to build up an estate? Are you living on the
interest and leaving your principal to your survivors? Should you reduce your
estate and your estate taxes through an orderly invasion of your capital? These
personal characteristics and financial objectives translate into the four basic
investment decisions: (1) Long versus short; (2) high coupon rate versus low or
even zero coupon rate; (3) rating versus yield; and (4) individual bonds versus
packages of bonds, like unit investment trusts or mutual funds.
Individual Municipal Bonds have a fixed maturity. A mutual fund of Municipal
Bonds does not. A Municipal Bond is a contract for the future delivery of money
- - a fixed sum at a definite date in the future. Like any fixed income security,
individual bonds fluctuate in market value with interest rates and changing
market conditions. But hold your bond to maturity, cash it in at the end, and
you are promised getting back full face value - in 2, 5, 10, 30 years whatever
the due date engraved on the books of the issuer. On the other hand, the bonds
in a fund portfolio are candidates for buy, sell, and hold every day. The
Lebenthal New York Municipal Bond Fund is nominally a portfolio of long term
bonds. But a 30-year bond in the portfolio may have an effective "maturity" no
longer than the number of days, weeks, months, the Adviser decides to hold it in
the portfolio. The Adviser does not sit there waiting for bonds in the portfolio
to mature. He or she trades them in and out of the Fund portfolio
opportunistically, seeking to maximize
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tax free income consistent with the preservation of capital, and to take gains
or, in falling markets, to minimize losses. There can be no guarantee of any
level of Fund performance. And in selling their shares, shareholders may make
money or lose money, depending on when they bought their shares, market
conditions, and Fund performance.
Your own needs determine which is better for you. The buyer of individual bonds
targets a maturity, is quoted a yield to that maturity, and the price the buyer
pays locks in that return to maturity. If the buyer holds to maturity,
fluctuating interest rates and changing prices in the resale market prior to
maturity are not a factor in the yield to maturity. Between getting interest
right along and cashing in the bond for full face value at the end, the
individual bond buyer winds up with the yield to maturity originally bargained
for.
In a mutual fund, the shareholder seeks a higher total return than might be
currently available in the targeted maturity, fixed yield-to-maturity market -
as a result of reinvestment of dividends, interest being earned on interest, and
portfolio management, i.e. active bond trading in the Fund portfolio. There can
be no assurance of a particular Fund yield, because the bonds in the portfolio
change. They are being added to, or disposed or and replaced with other bonds,
when the portfolio manager sees an opportunity to realize gains or, in a
declining market, minimize losses. Nor can there be any guarantee the Fund will
achieve its objectives. When you sell your shares you may get more for them than
you paid. You may get less. It depends on current market conditions, whether
interest rates are higher or lower than when you bought your shares, and the
ability of Management to anticipate markets and know when to buy, sell, or hold.
An open end fund for open end savings goals. If you know you are going to need
your money for a specific purpose on a specific date in the future, buy a fixed
income security and target the maturity date. The Lebenthal New York Municipal
Bond Fund is for more general open-ended objectives like building up an estate
or saving for retirement. The Fund can pay out interest every month, free of New
York and regular federal income tax. Or, it can reinvest your monthly interest
in additional Fund shares...so your interest earns interest...and each month
that interest earns still more tax free interest, and builds upon itself.
The principle of "total return." With the Lebenthal New York Municipal Bond
Fund, you measure investment return by adding up the coupon interest from the
underlying bonds in the Fund plus the value of that interest being reinvested in
additional shares every month plus (or minus) any ups (or downs) in the market
value of your accumulating shares. Your philosophy should be that regular
investing and time will build net worth. There can be no guarantee the Fund will
achieve its objectives.
Price down, yield up. In the infamous 1994 bond market decline, nothing was
spared. Not individual bonds. Not the Lebenthal New York Municipal Bond Fund.
But all is not lost when the market declines. Bond prices down means that bond
yields are up. Buying new shares at the lower price is called dollar cost
averaging. The Fund takes your new money and invests it for you at higher rates.
As for old bonds in the portfolio, the interest being spun off and reinvested
right along now buys more Fund shares than if the price were higher. So that if,
as, and when - and should the price go up again - you now have that many more
shares to go along for the ride and move up in market value. As events have
shown, compounding does not protect against fluctuating bond prices and losses
in the resale value of your shares. A decline in the value of the underlying
bonds in the Fund portfolio could more than offset the positive impact of any
gains from compounding. But your thinking when you buy the Fund should be the
philosophy of the long haul: dollar cost averaging, plus interest on interest,
plus time will conspire to build growth. If you invest when you have the funds,
over the long haul you will hit some markets, you will miss some markets. Your
bet is that time and regular investing will smooth out the bumps. No guarantee,
just a fighting chance.
Count The Shares, Give It Time. With automatic dividend reinvestment, every
month your shares spin off new shares on an amount that is growing all the time.
Value per share may fluctuate, but the quantity of shares you own is always
growing -- in good markets and bad.
Here are two graphs showing the hypothetical growth of $10,000 over a 14 year 3
month period. For the first four years nine months up to the dotted line, the
graphs depict the actual performance record of the Lebenthal New York Municipal
Bond Fund. Beyond the dotted line, the graphs seemingly step through the looking
glass and hypothesize through March 2005 a mirror image of the Fund's past
performance, in order to show the hypothetical effects of compounding for two
additional four-year nine-month periods. Past isn't prologue, and the graphs
should not be construed as an indication of anticipated future performance.
Their sole purpose is to illustrate how the interest dividend, when plowed back
into additional fund shares, builds and rebuilds on itself over time.
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In our example, $10,000 Without Reinvestment would grow to $18,558* by March
2005: $880 coming from appreciation in share value, $8,128 from straight
interest. With Reinvestment, that same $10,000 would grow to $22,999* -- an
additional $4,259, 52% more interest -- when straight interest is reinvested and
allowed to accumulate and build.
Compounding does not protect against fluctuating bond prices, and a decline in
value per share could negate the positive effect of any growth in the number of
shares owned. Whether you make money or lose money down the road when you sell
your shares will depend on the going resale price per share times the number of
shares you then own. It stands to reason that the more shares you have
accumulated through reinvestment over time, the bigger the multiplier that will
be working for you when you do decide to sell.
So, if you go into a fund and sign up for reinvestment for long term saving
goals, don the mantel of the long term saver. When you get your statement every
month showing current share value, count the growing number of shares you own,
not just price. And give it time. Time is the soulmate of automatic reinvestment
- -- and the best friend a long term saver's got.
- ----------------------
* Reflects maximum 4 1/2% load which reduces the amount of the $10,000 purchase
price that is actually working for you to $9,550.
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<TABLE>
Lebenthal NY Municipal Bond Fund
Return from Inception through December 12, 2003
Initial Investment $10,000 @ NAV of $7.16 @ 4.5% load.
<CAPTION>
Dividend With reinvestment
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Date # of Shares NAV Per Share Dividend Appreciation Apprec. Value Val bef int on int. Total Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/23/91 1333.798883 7.16 0 0.00 0.00 9,550.00 9,550.00 9,550.00 9,550.00
7/30/91 1333.798883 7.16 0 0.00 0.00 9,550.00 9,550.00 9,550.00 9,550.00
8/30/91 1333.798883 7.18 0 0.00 26.68 9,576.68 9,576.68 9,576.68 9,576.68
9/30/91 1333.798883 7.23 0 0.00 66.69 9,643.37 9,643.37 9,643.37 9,643.37
10/15/91 1333.798883 7.24 0.081165 108.26 13.93 9,657.29 9,549.03 9,657.29 9,657.29
11/15/91 1348.751616 7.25 0.039913 53.83 13.19 9,670.48 9,616.65 9,778.14 9,778.74
12/13/91 1356.176819 7.2 0.03566 48.36 -67.84 9,602.64 9,554.28 9,763.34 9,764.73
1/15/92 1362.893661 7.3 0.043577 59.39 136.35 9,738.99 9,679.60 9,946.78 9,949.44
2/14/92 1371.02939 7.2 0.040341 55.31 -137.13 9,601.86 9,546.55 9,867.54 9,871.70
3/13/92 1378.711153 7.19 0.03571 49.23 -13.82 9,588.04 9,538.80 9,907.42 9,913.19
4/15/92 1385.558688 7.32 0.042228 58.51 180.17 9,768.21 9,709.70 10,134.64 10,142.60
5/15/92 1393.551771 7.34 0.03823 53.28 27.84 9,796.06 9,742.78 10,218.71 10,228.95
6/15/92 1400.810012 7.39 0.038959 54.57 70.05 9,866.10 9,811.53 10,339.42 10,352.27
7/15/92 1408.194877 7.6 0.03774 53.15 295.72 10,161.82 10,108.68 10,686.91 10,702.57
8/14/92 1415.187677 7.68 0.036943 52.28 113.21 10,275.04 10,222.75 10,850.26 10,868.93
9/15/92 1421.995135 7.56 0.039309 55.90 -170.63 10,104.41 10,048.51 10,728.45 10,750.58
10/15/92 1429.388945 7.48 0.036617 52.34 -114.37 9,990.04 9,937.70 10,666.47 10,692.10
11/13/92 1436.386263 7.5 0.037898 54.44 28.74 10,018.77 9,964.34 10,743.66 10,773.18
12/15/92 1443.644418 7.56 0.040037 57.80 86.64 10,105.41 10,047.61 10,880.34 10,914.25
1/15/93 1451.289814 7.59 0.039611 57.49 43.54 10,148.95 10,091.46 10,977.02 11,015.59
2/16/93 1458.863864 7.76 0.040323 58.83 248.02 10,396.97 10,338.14 11,277.48 11,321.10
3/15/93 1466.444504 7.84 0.03220502 47.23 117.26 10,514.22 10,466.99 11,449.29 11,497.18
4/15/93 1472.46834 7.92 0.03695672 54.42 117.84 10,632.06 10,577.64 11,609.23 11,662.24
5/14/93 1479.339249 7.92 0.03470091 51.33 -0.02 10,632.04 10,580.71 11,658.58 11,716.64
6/15/93 1485.820867 7.93 0.03817522 56.72 14.89 10,646.93 10,590.21 11,719.00 11,782.86
7/15/93 1492.973645 8.05 0.03540769 52.86 179.14 10,826.07 10,773.20 11,949.22 12,018.72
8/12/93 1499.540446 8.08 0.03332042 49.97 44.97 10,871.04 10,821.07 12,041.53 12,116.56
9/10/93 1505.724273 8.24 0.03395517 51.13 240.93 11,111.96 11,060.84 12,326.59 12,407.45
10/12/93 1511.929022 8.26 0.03722778 56.29 30.27 11,142.23 11,085.94 12,401.35 12,488.84
11/12/93 1518.743279 8.07 0.03634388 55.20 -288.58 10,853.65 10,798.46 12,162.34 12,256.55
12/10/93 1525.583059 8.14 0.06828199 104.17 107.05 10,960.71 10,856.54 12,311.49 12,418.80
1/12/94 1538.380337 8.18 0.03569939 54.92 61.27 11,021.98 10,967.06 12,469.63 12,584.24
2/11/94 1545.094179 8.1 0.03247062 50.17 -123.64 10,898.34 10,848.17 12,394.05 12,515.53
3/11/94 1551.288027 7.73 0.03055611 47.40 -574.00 10,324.34 10,276.94 11,863.57 11,991.69
4/12/94 1557.420152 7.48 0.03498975 54.49 -389.33 9,935.01 9,880.52 11,513.82 11,649.76
5/12/94 1564.705411 7.35 0.03382227 52.92 -203.42 9,731.58 9,678.66 11,357.08 11,500.83
6/10/94 1571.905668 7.65 0.03298171 51.84 471.58 10,203.16 10,151.32 11,873.72 12,025.33
7/12/94 1578.68268 7.4 0.03526982 55.68 -394.66 9,808.50 9,752.82 11,522.27 11,682.51
8/12/94 1586.206984 7.44 0.03543375 56.21 63.45 9,871.95 9,815.74 11,632.46 11,801.64
9/12/94 1593.761456 7.43 0.03671245 58.51 -15.93 9,856.02 9,797.51 11,663.19 11,841.92
10/12/94 1601.636407 7.28 0.03409199 54.60 -240.27 9,615.75 9,561.15 11,472.30 11,660.16
11/11/94 1609.136816 6.69 0.03542356 57.00 -949.40 8,666.35 8,609.35 10,567.75 10,765.36
12/12/94 1617.657196 6.91 0.03542446 57.30 355.89 9,022.24 8,964.94 10,970.59 11,178.26
1/12/95 1625.950197 7.15 0.03634219 59.09 390.24 9,412.48 9,353.39 11,407.52 11,625.80
2/10/95 1634.214615 7.43 0.03522892 57.57 457.58 9,870.07 9,812.49 11,913.60 12,142.48
3/10/95 1641.96315 7.5 0.03173394 52.11 114.91 9,984.98 9,932.87 12,076.31 12,314.96
4/12/95 1648.910611 7.61 0.03935962 64.90 181.44 10,166.42 10,101.52 12,297.46 12,548.51
5/12/95 1657.438929 7.63 0.03585845 59.43 33.12 10,199.54 10,140.11 12,383.87 12,646.53
6/12/95 1665.228339 7.74 0.0387476 64.52 183.20 10,382.75 10,318.22 12,613.67 12,889.17
7/12/95 1673.56472 7.83 0.03538429 59.22 150.60 10,533.34 10,474.13 12,816.77 13,104.29
<PAGE>
8/12/95 1681.12767 7.57 0.03593691 62.54 -437.09 10,096.26 10,033.72 12,425.97 12,726.42
9/12/95 1689.389109 7.78 0.03720068 58.21 354.76 10,451.01 10,392.80 12,831.02 13,143.72
10/12/95 1696.871353 7.81 0.03445734 54.54 50.89 10,501.90 10,447.36 12,928.45 13,252.82
11/12/95 1703.854537 7.87 0.03214072 61.78 102.27 10,604.17 10,542.39 13,071.84 13,409.62
12/12/95 1711.704162 7.98 0.03625694 60.74 188.29 10,792.45 10,731.72 13,308.49 13,659.68
1/12/96 1719.315195 7.99 0.03548279 60.78 17.19 10,809.65 10,748.86 13,372.79 13,737.61
2/12/96 1726.922314 8.12 0.0353518 56.52 224.48 11,034.13 10,977.61 13,645.19 14,022.87
3/12/96 1733.88283 7.82 0.03272839 56.75 -520.17 10,513.95 10,457.21 13,168.44 13,559.22
4/12/96 1741.139504 7.82 0.03272839 61.55 0.02 10,513.97 10,452.42 13,210.81 13,615.99
5/12/96 1749.010657 8.12 0.0353518 62.06 524.71 11,038.69 10,976.63 13,782.34 14,202.25
6/12/96 1756.653487 7.99 0.03548279 63.69 -228.36 10,810.33 10,746.64 13,600.71 14,035.95
7/12/96 1764.624811 7.98 0.03625694 56.72 -17.68 10,792.65 10,735.93 13,632.87 14,081.96
8/12/96 1771.732118 7.87 0.03214072 61.05 -194.88 10,597.77 10,536.72 13,479.62 13,943.80
9/12/96 1779.48932 7.81 0.03445734 66.20 -106.75 10,491.02 10,424.82 13,417.34 13,898.10
10/12/96 1787.965404 7.78 0.03720068 64.25 -53.65 10,437.37 10,373.12 13,413.57 13,910.65
11/12/96 1796.224266 7.57 0.03593691 63.56 -377.22 10,060.15 9,996.59 13,084.24 13,597.69
12/12/96 1804.620319 7.83 0.03538429 69.92 469.24 10,529.39 10,459.46 13,598.79 14,130.48
1/12/97 1813.550678 7.74 0.0387476 65.03 -163.25 10,366.14 10,301.11 13,488.27 14,037.16
2/12/97 1821.952631 7.63 0.03585845 71.71 -200.39 10,165.75 10,094.04 13,333.69 13,901.80
3/12/97 1831.351236 7.61 0.03935962 58.12 -36.69 10,129.07 10,070.95 13,352.93 13,936.82
4/12/97 1838.988005 7.5 0.03173384 64.79 -202.27 9,926.80 9,862.01 13,190.98 13,792.67
5/12/97 1847.62608 7.43 0.03522892 67.15 -129.33 9,797.47 9,730.32 13,107.76 13,728.13
6/12/97 1856.663331 7.15 0.03634219 65.77 -519.88 9,277.59 9,211.82 12,636.51 13,275.40
7/12/97 1865.862114 6.91 0.03542446 66.10 -447.82 8,829.77 8,763.68 12,235.62 12,893.35
8/12/97 1875.427306 6.69 0.03542356 66.43 -412.60 8,417.17 8,350.74 11,869.92 12,546.85
9/12/97 1885.357696 7.28 0.03409199 64.28 1112.37 9,529.54 9,465.27 13,029.93 13,725.65
10/12/97 1894.186762 7.43 0.03671245 69.54 284.15 9,813.70 9,744.16 13,357.78 14,074.08
11/12/97 1903.546148 7.44 0.03543375 67.45 19.03 9,832.72 9,765.27 13,426.16 14,162.65
12/12/97 1912.611978 7.4 0.03526982 67.46 -76.51 9,756.22 9,688.76 13,396.69 14,153.59
1/12/98 1921.727854 7.65 0.03298171 63.38 480.42 10,236.64 10,173.26 13,925.18 14,701.47
2/12/98 1930.013066 7.35 0.03382227 65.28 -579.01 9,657.63 9,592.35 13,389.39 14,185.84
3/12/98 1938.894348 7.48 0.03498975 67.84 252.07 9,909.70 9,841.86 13,685.56 14,503.19
4/12/98 1947.964057 7.73 0.03055611 59.52 486.97 10,396.67 10,337.14 14,221.60 15,058.00
5/12/98 1955.664213 8.1 0.03247062 63.50 723.62 11,120.29 11,056.79 14,984.55 15,841.14
6/12/98 1955.664213 8.18 0.03569937 69.82 92.98 10,489.65 10,419.83 15,118.83 15,997.63
7/12/98 1964.199174 8.14 0.06828199 134.12 -78.30 10,411.34 10,277.22 15,067.30 15,989.14
8/12/98 1980.675762 8.07 0.03634388 71.99 -138.91 10,272.43 10,200.45 15,039.00 15,984.35
9/12/98 1989.595891 8.26 0.03722778 74.07 378.04 10,650.47 10,576.40 15,464.61 16,434.37
10/12/98 1998.56299 8.24 0.03395517 67.86 -40.00 10,610.47 10,542.61 15,476.11 16,468.44
11/12/98 2006.798615 8.08 0.03332042 66.87 -321.10 10,289.37 10,222.51 15,200.45 16,215.20
12/12/98 2015.07428 8.05 0.03540769 71.35 -60.44 10,228.94 10,157.59 15,182.75 16,221.63
1/12/99 2023.937525 7.93 0.03817522 77.26 -242.85 9,986.08 9,908.82 14,984.90 16,050.13
2/12/99 2033.680812 7.92 0.03470091 70.57 -20.36 9,965.72 9,895.15 15,017.52 16,107.03
3/12/99 2042.591238 7.92 0.03695672 75.49 0.02 9,965.74 9,890.25 15,061.91 16,177.62
4/12/99 2052.122484 7.84 0.03220502 66.09 -164.21 9,801.53 9,735.44 14,950.05 16,088.89
5/12/99 2060.552158 7.76 0.040323 83.09 -164.78 9,636.74 9,553.65 14,822.05 15,990.20
6/12/99 2071.259329 7.59 0.039611 82.04 -352.13 9,284.62 9,202.57 14,523.80 15,721.16
7/12/99 2082.068901 7.56 0.040037 83.36 -62.46 9,222.16 9,138.80 14,513.43 15,740.74
8/12/99 2093.095329 7.5 0.037898 79.32 -125.60 9,096.55 9,017.23 14,442.41 15,698.50
9/12/99 2103.671879 7.48 0.036617 77.03 -42.08 9,054.47 8,977.44 14,451.46 15,735.74
<PAGE>
10/12/99 2113.970028 7.56 0.039309 83.10 169.14 9,223.61 9,140.51 14,666.96 15,981.91
11/12/99 2124.961833 7.68 0.036943 78.50 254.98 9,478.59 9,400.09 14,975.81 16,319.99
12/12/99 2135.183508 7.6 0.03774 80.58 -170.81 9,307.78 9,227.20 14,853.26 16,227.68
1/12/00 2145.78638 7.39 0.038959 83.60 -450.61 8,857.16 8,773.57 14,451.59 15,857.65
2/12/00 2157.098652 7.34 0.03823 82.47 -107.86 8,749.30 8,666.84 14,395.86 15,833.38
3/12/00 2168.333786 7.32 0.03571 77.43 -43.39 8,705.92 8,628.48 14,405.13 15,872.46
4/12/00 2178.911819 7.19 0.03571 77.81 -283.26 8,422.65 8,344.84 14,169.12 15,666.63
5/12/00 2189.733646 7.2 0.040341 88.34 21.93 8,444.58 8,356.25 14,234.33 15,766.37
6/12/00 2202.002542 7.3 0.043577 95.96 220.23 8,664.81 8,568.86 14,505.06 16,074.94
7/12/00 2215.14729 7.2 0.03566 78.99 -221.58 8,443.24 8,364.24 14,348.02 15,949.32
8/12/00 2226.118423 7.25 0.039913 88.85 111.34 8,554.57 8,465.72 14,502.73 16,139.65
9/12/00 2238.373742 7.24 0.081165 181.68 -22.09 8,532.49 8,350.81 14,496.08 16,206.41
10/12/00 2263.467334 7.24 0.081165 183.71 0.00 8,532.49 8,348.77 14,602.30 16,388.09
11/12/00 2288.842241 7.25 0.039913 91.35 22.59 8,555.08 8,463.72 14,770.48 16,594.40
12/12/00 2301.44287 7.2 0.03566 82.07 -115.10 8,439.97 8,357.90 14,712.23 16,570.65
1/12/01 2312.841405 7.3 0.043577 100.79 231.35 8,671.32 8,570.53 14,982.98 16,884.06
2/12/01 2326.6478 7.2 0.040341 93.86 -232.69 8,438.63 8,344.77 14,811.02 16,752.15
3/12/01 2339.683814 7.19 0.03571 83.55 -23.43 8,415.20 8,331.65 14,845.53 16,822.58
4/12/01 2351.304135 7.32 0.03571 83.97 305.67 8,720.87 8,636.91 15,198.42 17,211.81
5/12/01 2362.774773 7.34 0.03823 90.33 47.27 8,768.15 8,677.82 15,290.32 17,343.05
6/12/01 2375.08116 7.39 0.038959 92.53 118.76 8,886.91 8,794.38 15,458.84 17,552.14
7/12/01 2387.602241 7.6 0.03774 90.11 501.40 9,388.30 9,298.19 16,013.00 18,146.06
8/12/01 2399.458571 7.68 0.036943 88.64 191.95 9,580.26 9,491.61 16,255.69 18,428.13
9/12/01 2411.000654 7.56 0.039309 94.77 -289.31 9,290.95 9,196.18 16,012.68 18,227.46
10/12/01 2423.536901 7.48 0.036617 88.74 -193.91 9,097.04 9,008.30 15,873.65 18,128.33
11/12/01 2435.400892 7.5 0.037898 92.30 48.72 9,145.76 9,053.46 15,969.36 18,265.79
12/12/01 2447.707135 7.56 0.040037 98.00 146.88 9,292.64 9,194.64 16,163.94 18,504.97
1/12/02 2460.669946 7.59 0.039611 97.47 73.82 9,366.46 9,268.99 16,291.12 18,676.79
2/12/02 2473.51179 7.76 0.040323 99.74 420.51 9,786.97 9,687.23 16,763.14 19,194.76
3/12/02 2486.364807 7.84 0.03220502 80.07 198.85 9,985.82 9,905.75 17,024.61 19,493.35
4/12/02 2496.578255 7.92 0.03695672 92.27 199.77 10,185.59 10,093.32 17,261.48 19,773.19
5/12/02 2508.227919 7.92 0.03470091 87.04 -0.02 10,185.57 10,098.53 17,312.98 19,865.44
6/12/02 2519.217539 7.93 0.03817522 96.17 25.22 10,210.79 10,114.62 17,379.98 19,977.70
7/12/02 2531.345116 8.05 0.03540769 89.63 303.74 10,514.53 10,424.90 17,737.49 20,377.61
8/12/02 2542.479164 8.08 0.03332042 84.72 76.26 10,590.79 10,506.07 17,863.11 20,543.50
9/12/02 2552.963876 8.24 0.03395517 86.69 408.48 10,999.27 10,912.59 18,314.91 21,036.70
10/12/02 2563.484061 8.26 0.03722778 95.43 51.30 11,050.57 10,955.14 18,407.12 21,174.69
11/12/02 2575.037671 8.07 0.03634388 93.59 -489.27 10,561.30 10,467.71 17,968.17 20,780.85
12/12/02 2586.634556 8.14 0.06828199 176.62 181.33 10,742.63 10,566.01 18,157.53 21,055.76
1/12/03 2608.332413 8.18 0.03569937 93.12 104.07 10,846.70 10,753.58 18,392.72 21,336.45
2/12/03 2619.715765 8.1 0.03247062 85.06 -209.61 10,637.09 10,552.03 18,234.48 21,219.96
3/12/03 2630.217468 7.73 0.03055611 80.37 -973.21 9,663.88 9,583.51 17,306.72 20,331.82
4/12/03 2640.614521 7.48 0.03498975 92.39 -660.13 9,003.76 8,911.36 16,681.24 19,752.06
5/12/03 2652.966719 7.35 0.03382227 89.73 -344.90 8,658.86 8,569.13 16,384.12 19,499.55
6/12/03 2665.174794 7.65 0.03298171 87.90 799.56 9,458.41 9,370.51 17,229.49 20,388.84
7/12/03 2676.665255 7.4 0.03526982 94.41 -669.16 8,789.25 8,694.85 16,600.87 19,807.58
8/12/03 2689.422755 7.44 0.03543375 95.30 107.58 8,896.83 8,801.54 16,754.82 20,009.57
9/12/03 2702.231402 7.43 0.03671245 99.21 -27.01 8,869.82 8,770.62 16,772.87 20,077.85
10/12/03 2715.583426 7.28 0.03409199 92.58 -407.36 8,462.46 8,369.88 16,417.60 19,769.70
11/12/03 2728.30041 6.69 0.03542356 96.65 -1609.71 6,852.75 6,756.10 14,851.08 18,252.57
12/12/03 2742.746764 6.91 0.03542446 97.16 603.41 7,456.16 7,359.00 15,501.22 18,952.62
1/12/04 2756.807592 7.15 0.03634219 100.19 661.65 8,117.81 8,017.62 16,208.32 19,711.43
2/12/04 2770.81996 7.43 0.03522892 97.61 775.83 8,893.64 8,796.03 17,033.71 20,587.45
3/12/04 2783.957644 7.5 0.03173384 88.35 194.85 9,088.50 9,000.15 17,280.16 20,879.92
4/12/04 2795.737066 7.61 0.03935962 110.04 307.59 9,396.09 9,286.05 17,618.56 21,275.86
5/12/04 2810.196875 7.63 0.03585845 100.77 56.18 9,452.27 9,351.50 17,731.83 21,442.08
6/12/04 2823.403862 7.74 0.0387476 109.40 310.60 9,762.87 9,653.47 18,085.48 21,853.45
7/12/04 2837.538244 7.83 0.03538429 100.40 255.36 10,018.22 9,917.82 18,397.03 22,218.20
8/12/04 2850.361268 7.57 0.03593691 102.43 -741.10 9,277.12 9,174.69 17,701.84 21,577.51
9/12/04 2863.892731 7.78 0.03720068 106.54 601.43 9,878.56 9,772.02 18,348.78 22,281.37
10/12/04 2877.586659 7.81 0.03445734 99.15 86.31 9,964.87 9,865.71 18,488.43 22,474.22
11/12/04 2890.282431 7.87 0.03214072 92.90 173.40 10,138.27 10,045.37 18,710.96 22,746.78
12/12/04 2902.086213 7.98 0.03625694 105.22 319.27 10,457.53 10,352.31 19,066.26 23,158.94
1/12/05 2915.271772 7.99 0.03548279 103.44 29.15 10,486.68 10,383.24 19,144.52 23,293.30
2/12/05 2928.218202 8.12 0.0353518 103.52 380.67 10,867.35 10,763.83 19,572.26 23,777.42
3/12/05 2940.966698 7.82 0.03272839 96.25 -882.32 9,985.03 9,888.78 18,740.86 22,998.62
12386.22 1062.40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dividend Without reinvestment Div earn Running
-----------------------------------------------------------------
Date # of Shares NAV Per Share Dividend Appreciation Total Value Value + Div on Div Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/23/91 1333.798883 7.16 0 0.00 0.00 9,550.00 9,550.00 0.00 0.00
7/30/91 1333.798883 7.16 0 0.00 0.00 9,550.00 9,550.00 0.00 0.00
8/30/91 1333.798883 7.18 0 0.00 26.68 9,576.68 9,576.68 0.00 0.00
9/30/91 1333.798883 7.23 0 0.00 66.69 9,643.37 9,643.37 0.00 0.00
10/15/91 1333.798883 7.24 0.081165 108.26 13.34 9,656.70 9,764.96 0.00 0.00
11/15/91 1348.751616 7.25 0.039913 53.24 13.34 9,670.04 9,831.54 0.60 0.60
12/13/91 1356.176819 7.2 0.03566 47.56 -66.69 9,603.35 9,812.41 0.80 1.39
1/15/92 1362.893661 7.3 0.043577 58.12 133.38 9,736.73 10,003.91 1.27 2.66
2/14/92 1371.02939 7.2 0.040341 53.81 -133.38 9,603.35 9,924.34 1.50 4.16
3/13/92 1378.711153 7.19 0.03571 47.63 -13.34 9,590.01 9,958.63 1.60 5.77
4/15/92 1385.558688 7.32 0.042228 56.32 173.39 9,763.41 10,188.35 2.19 7.95
5/15/92 1393.551771 7.34 0.03823 50.99 26.68 9,790.08 10,266.02 2.28 10.24
6/15/92 1400.810012 7.39 0.038959 51.96 66.69 9,856.77 10,384.67 2.61 12.85
7/15/92 1408.194877 7.6 0.03774 50.34 280.10 10,136.87 10,715.10 2.81 15.66
8/14/92 1415.187677 7.68 0.036943 49.27 106.70 10,243.58 10,871.08 3.01 18.66
9/15/92 1421.995135 7.56 0.039309 52.43 -160.06 10,083.52 10,763.46 3.47 22.13
10/15/92 1429.388945 7.48 0.036617 48.84 -106.70 9,976.82 10,705.59 3.50 25.63
11/13/92 1436.386263 7.5 0.037898 50.55 26.68 10,003.49 10,782.82 3.89 29.52
12/15/92 1443.644418 7.56 0.040037 53.40 80.03 10,083.52 10,916.25 4.40 33.92
1/15/93 1451.289814 7.59 0.039611 52.83 40.01 10,123.53 11,009.09 4.65 38.57
2/16/93 1458.863864 7.76 0.040323 53.78 226.75 10,350.28 11,289.62 5.04 43.61
3/15/93 1466.444504 7.84 0.03220502 42.96 106.70 10,456.98 11,439.28 4.27 47.89
4/15/93 1472.46834 7.92 0.03695672 49.29 106.70 10,563.69 11,595.28 5.12 53.01
5/14/93 1479.339249 7.92 0.03470091 46.28 0.00 10,563.69 11,641.56 5.05 58.06
6/15/93 1485.820867 7.93 0.03817522 50.92 13.34 10,577.03 11,705.82 5.80 63.86
7/15/93 1492.973645 8.05 0.03540769 47.23 160.06 10,737.08 11,913.10 5.64 69.50
8/12/93 1499.540446 8.08 0.03332042 44.44 40.01 10,777.09 11,997.56 5.52 75.02
9/10/93 1505.724273 8.24 0.03395517 45.29 213.41 10,990.50 12,256.25 5.84 80.86
10/12/93 1511.929022 8.26 0.03722778 49.65 26.68 11,017.18 12,332.58 6.63 87.49
11/12/93 1518.743279 8.07 0.03634388 48.48 -253.42 10,763.76 12,127.64 6.72 94.21
12/10/93 1525.583059 8.14 0.06828199 91.07 93.37 10,857.12 12,312.08 13.10 107.31
1/12/94 1538.380337 8.18 0.03569939 47.62 53.35 10,910.47 12,413.05 7.30 114.61
2/11/94 1545.094179 8.1 0.03247062 43.31 -106.70 10,803.77 12,349.65 6.86 121.47
3/11/94 1551.288027 7.73 0.03055611 40.76 -493.51 10,310.27 11,896.90 6.65 128.12
4/12/94 1557.420152 7.48 0.03498975 46.67 -333.45 9,976.82 11,610.12 7.82 135.94
5/12/94 1564.705411 7.35 0.03382227 45.11 -173.39 9,803.42 11,481.84 7.81 143.75
6/10/94 1571.905668 7.65 0.03298171 43.99 400.14 10,203.56 11,925.97 7.85 151.61
7/12/94 1578.68268 7.4 0.03526982 47.04 -333.45 9,870.11 11,639.56 8.64 160.24
8/12/94 1586.206984 7.44 0.03543375 47.26 53.35 9,923.46 11,740.18 8.94 169.19
9/12/94 1593.761456 7.43 0.03671245 48.97 -13.34 9,910.13 11,775.81 9.54 178.73
10/12/94 1601.636407 7.28 0.03409199 45.47 -200.07 9,710.06 11,621.21 9.13 187.86
11/11/94 1609.136816 6.69 0.03542356 47.25 -786.94 8,923.11 10,881.51 9.75 197.62
12/12/94 1617.657196 6.91 0.03542446 47.25 293.44 9,216.55 11,222.20 10.06 207.67
1/12/95 1625.950197 7.15 0.03634219 48.47 320.11 9,536.66 11,590.78 10.62 218.29
2/10/95 1634.214615 7.43 0.03522892 46.99 373.46 9,910.13 12,011.24 10.58 228.87
3/10/95 1641.96315 7.5 0.03173394 42.33 93.37 10,003.49 12,146.93 9.78 238.65
4/12/95 1648.910611 7.61 0.03935962 52.50 146.72 10,150.21 12,346.14 12.40 251.05
5/12/95 1657.438929 7.63 0.03585845 47.83 26.68 10,176.89 12,420.65 11.61 262.66
6/12/95 1665.228339 7.74 0.0387476 51.68 146.72 10,323.60 12,619.05 12.84 275.50
7/12/95 1673.56472 7.83 0.03538429 47.20 120.04 10,443.65 12,786.29 12.02 287.52
8/12/95 1681.12767 7.57 0.03593691 49.62 -346.79 10,096.86 12,489.12 12.92 300.44
9/12/95 1689.389109 7.78 0.03720068 45.96 280.10 10,376.96 12,815.17 12.25 312.70
10/12/95 1696.871353 7.81 0.03445734 42.87 40.01 10,416.97 12,898.06 11.67 324.37
11/12/95 1703.854537 7.87 0.03214072 48.36 80.03 10,497.00 13,026.44 13.42 337.78
12/12/95 1711.704162 7.98 0.03625694 47.33 146.72 10,643.72 13,220.49 13.41 351.19
1/12/96 1719.315195 7.99 0.03548279 47.15 13.34 10,657.05 13,280.98 13.63 364.82
2/12/96 1726.922314 8.12 0.0353518 43.65 173.39 10,830.45 13,498.03 12.87 377.69
3/12/96 1733.88283 7.82 0.03272839 43.65 -400.14 10,430.31 13,141.54 13.09 390.78
4/12/96 1741.139504 7.82 0.03272839 47.15 0.00 10,430.31 13,188.69 14.40 405.18
5/12/96 1749.010657 8.12 0.0353518 47.33 400.14 10,830.45 13,636.16 14.73 419.91
6/12/96 1756.653487 7.99 0.03548279 48.36 -173.39 10,657.05 13,511.12 15.33 435.25
7/12/96 1764.624811 7.98 0.03625694 42.87 -13.34 10,643.72 13,540.65 13.85 449.09
8/12/96 1771.732118 7.87 0.03214072 45.96 -146.72 10,497.00 13,439.90 15.09 464.18
9/12/96 1779.48932 7.81 0.03445734 49.62 -80.03 10,416.97 13,409.49 16.58 480.76
10/12/96 1787.965404 7.78 0.03720068 47.93 -40.01 10,376.96 13,417.40 16.32 497.08
11/12/96 1796.224266 7.57 0.03593691 47.20 -280.10 10,096.86 13,184.50 16.36 513.45
12/12/96 1804.620319 7.83 0.03538429 51.68 346.79 10,443.65 13,582.97 18.24 531.69
1/12/97 1813.550678 7.74 0.0387476 47.83 -120.04 10,323.60 13,510.76 17.20 548.89
2/12/97 1821.952631 7.63 0.03585845 52.50 -146.72 10,176.89 13,416.54 19.21 568.11
3/12/97 1831.351236 7.61 0.03935962 42.33 -26.68 10,150.21 13,432.19 15.79 583.90
4/12/97 1838.988005 7.5 0.03173384 46.99 -146.72 10,003.49 13,332.46 17.80 601.69
5/12/97 1847.62608 7.43 0.03522892 48.47 -93.37 9,910.13 13,287.57 18.67 620.37
6/12/97 1856.663331 7.15 0.03634219 47.25 -373.46 9,536.66 12,961.35 18.52 638.89
7/12/97 1865.862114 6.91 0.03542446 47.25 -320.11 9,216.55 12,688.49 18.85 657.74
8/12/97 1875.427306 6.69 0.03542356 47.25 -293.44 8,923.11 12,442.30 19.19 676.92
9/12/97 1885.357696 7.28 0.03409199 45.47 786.94 9,710.06 13,274.71 18.80 695.73
10/12/97 1894.186762 7.43 0.03671245 48.97 200.07 9,910.13 13,523.75 20.57 716.30
11/12/97 1903.546148 7.44 0.03543375 47.26 13.34 9,923.46 13,584.35 20.19 736.49
12/12/97 1912.611978 7.4 0.03526982 47.04 -53.35 9,870.11 13,578.04 20.41 756.90
1/12/98 1921.727854 7.65 0.03298171 43.99 333.45 10,203.56 13,955.48 19.39 776.29
2/12/98 1930.013066 7.35 0.03382227 45.11 -400.14 9,803.42 13,600.45 20.17 796.46
3/12/98 1938.894348 7.48 0.03498975 46.67 173.39 9,976.82 13,820.52 21.17 817.63
4/12/98 1947.964057 7.73 0.03055611 40.76 333.45 10,310.27 14,194.72 18.77 836.40
5/12/98 1955.664213 8.1 0.03247062 43.31 493.51 10,803.77 14,731.54 20.19 856.59
6/12/98 1955.664213 8.18 0.03569937 47.62 106.70 10,910.47 14,885.86 22.20 878.79
7/12/98 1964.199174 8.14 0.06828199 91.07 -53.35 10,857.12 14,923.58 43.04 921.84
8/12/98 1980.675762 8.07 0.03634388 48.48 -93.37 10,763.76 14,878.69 23.51 945.35
9/12/98 1989.595891 8.26 0.03722778 49.65 253.42 11,017.18 15,181.76 24.41 969.76
10/12/98 1998.56299 8.24 0.03395517 45.29 -26.68 10,990.50 15,200.38 22.57 992.33
11/12/98 2006.798615 8.08 0.03332042 44.44 -213.41 10,777.09 15,031.41 22.42 1,014.76
12/12/98 2015.07428 8.05 0.03540769 47.23 -40.01 10,737.08 15,038.63 24.12 1,038.88
1/12/99 2023.937525 7.93 0.03817522 50.92 -160.06 10,577.03 14,929.49 26.35 1,065.22
2/12/99 2033.680812 7.92 0.03470091 46.28 -13.34 10,563.69 14,962.43 24.29 1,089.51
3/12/99 2042.591238 7.92 0.03695672 49.29 0.00 10,563.69 15,011.73 26.19 1,115.71
4/12/99 2052.122484 7.84 0.03220502 42.96 -106.70 10,456.98 14,947.98 23.13 1,138.84
5/12/99 2060.552158 7.76 0.040323 53.78 -106.70 10,350.28 14,895.06 29.30 1,168.14
6/12/99 2071.259329 7.59 0.039611 52.83 -226.75 10,123.53 14,721.14 29.21 1,197.36
7/12/99 2082.068901 7.56 0.040037 53.40 -40.01 10,083.52 14,734.53 29.96 1,227.31
8/12/99 2093.095329 7.5 0.037898 50.55 -80.03 10,003.49 14,705.05 28.78 1,256.09
9/12/99 2103.671879 7.48 0.036617 48.84 -26.68 9,976.82 14,727.22 28.19 1,284.28
10/12/99 2113.970028 7.56 0.039309 52.43 106.70 10,083.52 14,886.35 30.67 1,314.95
11/12/99 2124.961833 7.68 0.036943 49.27 160.06 10,243.58 15,095.68 29.23 1,344.18
12/12/99 2135.183508 7.6 0.03774 50.34 -106.70 10,136.87 15,039.31 30.24 1,374.42
1/12/00 2145.78638 7.39 0.038959 51.96 -280.10 9,856.77 14,811.18 31.63 1,406.05
2/12/00 2157.098652 7.34 0.03823 50.99 -66.69 9,790.08 14,795.48 31.47 1,437.53
3/12/00 2168.333786 7.32 0.03571 47.63 -26.68 9,763.41 14,816.43 29.80 1,467.33
4/12/00 2178.911819 7.19 0.03571 47.63 -173.39 9,590.01 14,690.67 30.18 1,497.51
5/12/00 2189.733646 7.2 0.040341 53.81 13.34 9,603.35 14,757.82 34.53 1,532.04
6/12/00 2202.002542 7.3 0.043577 58.12 133.38 9,736.73 14,949.32 37.83 1,569.87
7/12/00 2215.14729 7.2 0.03566 47.56 -133.38 9,603.35 14,863.50 31.43 1,601.30
8/12/00 2226.118423 7.25 0.039913 53.24 66.69 9,670.04 14,983.43 35.62 1,636.92
9/12/00 2238.373742 7.24 0.081165 108.26 -13.34 9,656.70 15,078.35 73.42 1,710.34
10/12/00 2263.467334 7.24 0.081165 108.26 0.00 9,656.70 15,186.60 75.46 1,785.79
11/12/00 2288.842241 7.25 0.039913 53.24 13.34 9,670.04 15,253.18 38.12 1,823.91
12/12/00 2301.44287 7.2 0.03566 47.56 -66.69 9,603.35 15,234.05 34.51 1,858.42
1/12/01 2312.841405 7.3 0.043577 58.12 133.38 9,736.73 15,425.55 42.66 1,901.08
2/12/01 2326.6478 7.2 0.040341 53.81 -133.38 9,603.35 15,345.98 40.05 1,941.13
3/12/01 2339.683814 7.19 0.03571 47.63 -13.34 9,590.01 15,380.27 35.92 1,977.05
4/12/01 2351.304135 7.32 0.03571 47.63 173.39 9,763.41 15,601.30 36.34 2,013.39
5/12/01 2362.774773 7.34 0.03823 50.99 26.68 9,790.08 15,678.96 39.34 2,052.73
6/12/01 2375.08116 7.39 0.038959 51.96 66.69 9,856.77 15,797.62 40.57 2,093.29
7/12/01 2387.602241 7.6 0.03774 50.34 280.10 10,136.87 16,128.05 39.77 2,133.07
8/12/01 2399.458571 7.68 0.036943 49.27 106.70 10,243.58 16,284.03 39.37 2,172.43
9/12/01 2411.000654 7.56 0.039309 52.43 -160.06 10,083.52 16,176.41 42.34 2,214.78
10/12/01 2423.536901 7.48 0.036617 48.84 -106.70 9,976.82 16,118.54 39.90 2,254.68
11/12/01 2435.400892 7.5 0.037898 50.55 26.68 10,003.49 16,195.77 41.75 2,296.43
12/12/01 2447.707135 7.56 0.040037 53.40 80.03 10,083.52 16,329.20 44.60 2,341.03
1/12/02 2460.669946 7.59 0.039611 52.83 40.01 10,123.53 16,422.04 44.64 2,385.66
2/12/02 2473.51179 7.76 0.040323 53.78 226.75 10,350.28 16,702.57 45.96 2,431.62
3/12/02 2486.364807 7.84 0.03220502 42.96 106.70 10,456.98 16,852.23 37.12 2,468.74
4/12/02 2496.578255 7.92 0.03695672 49.29 106.70 10,563.69 17,008.23 42.97 2,511.71
5/12/02 2508.227919 7.92 0.03470091 46.28 0.00 10,563.69 17,054.51 40.75 2,552.46
6/12/02 2519.217539 7.93 0.03817522 50.92 13.34 10,577.03 17,118.77 45.25 2,597.72
7/12/02 2531.345116 8.05 0.03540769 47.23 160.06 10,737.08 17,326.05 42.40 2,640.12
8/12/02 2542.479164 8.08 0.03332042 44.44 40.01 10,777.09 17,410.51 40.27 2,680.39
9/12/02 2552.963876 8.24 0.03395517 45.29 213.41 10,990.50 17,669.20 41.40 2,721.79
10/12/02 2563.484061 8.26 0.03722778 49.65 26.68 11,017.18 17,745.53 45.78 2,767.57
11/12/02 2575.037671 8.07 0.03634388 48.48 -253.42 10,763.76 17,540.59 45.11 2,812.68
12/12/02 2586.634556 8.14 0.06828199 91.07 93.37 10,857.12 17,725.03 85.55 2,898.23
1/12/03 2608.332413 8.18 0.03569937 47.62 53.35 10,910.47 17,826.00 45.50 2,943.73
2/12/03 2619.715765 8.1 0.03247062 43.31 -106.70 10,803.77 17,762.60 41.75 2,985.48
3/12/03 2630.217468 7.73 0.03055611 40.76 -493.51 10,310.27 17,309.85 39.61 3,025.09
4/12/03 2640.614521 7.48 0.03498975 46.67 -333.45 9,976.82 17,023.07 45.73 3,070.82
5/12/03 2652.966719 7.35 0.03382227 45.11 -173.39 9,803.42 16,894.79 44.62 3,115.44
6/12/03 2665.174794 7.65 0.03298171 43.99 400.14 10,203.56 17,338.92 43.91 3,159.35
7/12/03 2676.665255 7.4 0.03526982 47.04 -333.45 9,870.11 17,052.51 47.36 3,206.71
8/12/03 2689.422755 7.44 0.03543375 47.26 53.35 9,923.46 17,153.13 48.03 3,254.75
9/12/03 2702.231402 7.43 0.03671245 48.97 -13.34 9,910.13 17,188.76 50.24 3,304.98
10/12/03 2715.583426 7.28 0.03409199 45.47 -200.07 9,710.06 17,034.16 47.11 3,352.09
11/12/03 2728.30041 6.69 0.03542356 47.25 -786.94 8,923.11 16,294.46 49.40 3,401.49
12/12/03 2742.746764 6.91 0.03542446 47.25 293.44 9,216.55 16,635.15 49.91 3,451.40
1/12/04 2756.807592 7.15 0.03634219 48.47 320.11 9,536.66 17,003.73 51.72 3,503.12
2/12/04 2770.81996 7.43 0.03522892 46.99 373.46 9,910.13 17,424.19 50.62 3,553.74
3/12/04 2783.957644 7.5 0.03173384 42.33 93.37 10,003.49 17,559.88 46.02 3,599.76
4/12/04 2795.737066 7.61 0.03935962 52.50 146.72 10,150.21 17,759.09 57.54 3,657.30
5/12/04 2810.196875 7.63 0.03585845 47.83 26.68 10,176.89 17,833.60 52.94 3,710.24
6/12/04 2823.403862 7.74 0.0387476 51.68 146.72 10,323.60 18,032.00 57.72 3,767.96
7/12/04 2837.538244 7.83 0.03538429 47.20 120.04 10,443.65 18,199.23 53.21 3,821.17
8/12/04 2850.361268 7.57 0.03593691 47.93 -346.79 10,096.86 17,900.38 54.50 3,875.67
9/12/04 2863.892731 7.78 0.03720068 49.62 280.10 10,376.96 18,230.10 56.92 3,932.59
10/12/04 2877.586659 7.81 0.03445734 45.96 40.01 10,416.97 18,316.07 53.19 3,985.79
11/12/04 2890.282431 7.87 0.03214072 42.87 80.03 10,497.00 18,438.97 50.03 4,035.81
12/12/04 2902.086213 7.98 0.03625694 48.36 146.72 10,643.72 18,634.04 56.86 4,092.67
1/12/05 2915.271772 7.99 0.03548279 47.33 13.34 10,657.05 18,694.71 56.12 4,148.79
2/12/05 2928.218202 8.12 0.0353518 47.15 173.39 10,830.45 18,915.25 56.37 4,205.16
3/12/05 2940.966698 7.82 0.03272839 43.65 -400.14 10,430.31 18,558.77 52.60 4,257.76
8,128.46 880.31 4,257.76
</TABLE>
<PAGE>
LEBENTHAL FUNDS, INC.
LETTER OF INTENT (L.O.I.)
Although I am not obligated to invest and Lebenthal Funds Inc. (the "Fund") is
not obligated to sell, it is my intention to invest over a 13 month period (the
"L.O.I. Period") in an aggregate amount of shares of the Fund at least equal to
that which is checked below, thereby entitling me to the reduced sales load
applicable to such aggregate amount.
Lebenthal New York Municipal Bond Fund
Sales Sales
Aggregate Amount Load Aggregate Amount Load
---------------- ----- ---------------- -----
|_| $50,000.00 - $99,999.99 4.00% |_| $100,000.00 - $249,999.99 3.50%
|_| $250,000.00 - $499,999.99 2.75% |_| $500,000.00 - $999,999.99 2.00%
|_| $1,000,000.00 - $2,499,999.00 1.00% |_| $2,500,000.00 or more .50%
Lebenthal New Jersey Municipal Bond Fund
Sales Sales
Aggregate Amount Load Aggregate Amount Load
---------------- ----- ---------------- -----
|_| $50,000.00 - $99,999.99 4.00% |_| $100,000.00 - $249,999.99 3.50%
|_| $250,000.00 - $499,999.99 2.75% |_| $500,000.00 - $999,999.99 2.00%
|_| $1,000,000.00 - $2,499,999.00 1.00% |_| $2,500,000.00 or more .50%
Lebenthal Taxable Municipal Bond Fund
Sales Sales
Aggregate Amount Load Aggregate Amount Load
---------------- ----- ---------------- -----
|_| $50,000.00 - $99,999.99 4.00% |_| $100,000.00 - $249,999.99 3.50%
|_| $250,000.00 - $499,999.99 2.75% |_| $500,000.00 - $999,999.99 2.00%
|_| $1,000,000.00 - $2,499,999.00 1.00% |_| $2,500,000.00 or more .50%
I understand that purchases made within the last 90 days will be included as
part of my intended investment.
In addition, I understand that a number of shares with a value equal to 4.50% of
the dollar amount of intended purchases specified herein will be held in escrow
(the "Escrowed Shares") by Lebenthal & Co., Inc. (the "Distributor") until the
purchases are completed and that dividends and distributions on the Escrowed
Shares will be paid to me. During the escrow period, I grant to the Distributor
a security interest in the Escrowed Shares. If the intended purchases are not
completed during the L.O.I. Period, I understand that I will be required to pay
the Distributor an amount equal to the difference between the regular sales load
applicable to a single purchase of the number of shares actually purchased and
the sales load actually paid. If such payment is not made within 20 days after
written request to me by the Distributor, I agree that the Distributor has the
right to redeem a sufficient number of Escrowed Shares to effect payment of the
amount due. Any remaining Escrowed Shares will be released to my account.
Lebenthal New York Municipal Bond Fund
_________________________ ________________________
Shareholder Name Account Number
Lebenthal New Jersey Municipal Bond Fund
_________________________ ________________________
Shareholder Name Account Number
Lebenthal Taxable Municipal Bond Fund
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Shareholder Name Account Number
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345352.2
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120 Broadway, New York, NY 10271
LEBENTHAL (212) 425-6116
FUNDS, INC. OUTSIDE NYC TOLL FREE 1-800-221-5822
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STATEMENT OF ADDITIONAL INFORMATION
March 29, 1996
This Statement of Additional Information, although not in itself a prospectus,
expands upon and supplements the information contained in the current
Prospectus of Lebenthal Funds, Inc. (the "Fund"). Lebenthal New York Municipal
Bond Fund (the "New York Portfolio"), Lebenthal Taxable Municipal Bond Fund
(the "Taxable Portfolio") and Lebenthal New Jersey Municipal Bond Fund (the
"New Jersey Portfolio") (the New York Portfolio, the Taxable Portfolio and the
New Jersey Portfolio together are referred to herein as the "Portfolio" or the
"Portfolios"), dated March 29, 1996, and should be read in conjunction with
the Prospectus. The Portfolios' Prospectus may be obtained from any
Participating Organization or by writing or calling the Fund. This Statement
of Additional Information is incorporated by reference into the Prospectus in
its entirety.
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Table of Contents
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The Portfolios and Their Objectives...............2 Net Asset Value.................................29
Investment Objectives, Policies and Fund Performance................................29
Risks of the New York and New Jersey Portfolios2 Manager ........................................31
Investment Objectives, Policies Management of the Fund..........................33
and Risks of the Taxable Portfolio............3 Distribution and Service Plans..................35
Description of the Portfolios' Description of Common Stock.....................37
Investment Securities.........................4 Federal Income Taxes............................37
Municipal Obligations.........................4 New York Income Taxes...........................40
Floating Rate and Variable Rate Securities....6 New Jersey Income Taxes.........................40
When-Issued Securities........................6 Custodian, Transfer Agent and
Stand-by Commitments..........................7 Dividend Agent................................41
Taxable Securities............................8 Description of Security Ratings
Repurchase Agreements.........................8 and Notes.....................................42
New York Risk Factors...........................8 Advertising Material..............................
New Jersey Risk Factors........................16 Tax Equivalent Yield Tables.......................
Investment Restrictions..........................28 Independent Auditor's Report......................
Portfolio Transactions...........................29 Financial Statements..............................
How to Purchase and Redeem Shares................29
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THE PORTFOLIOS AND THEIR OBJECTIVES
As stated in the Prospectus, the Fund is an open-end, management investment
company currently consisting of three portfolios, the Lebenthal New York
Municipal Bond Fund (the "New York Portfolio"), the Lebenthal Taxable
Municipal Bond Fund (the "Taxable Portfolio") and the Lebenthal New Jersey
Municipal Bond Fund (the "New Jersey Portfolio") (the New York Portfolio, the
Taxable Portfolio and the New Jersey Portfolio together are referred to herein
as the "Portfolio" or the "Portfolios"). The New York Portfolio and the New
Jersey Portfolio are non-diversified portfolios, whereas the Taxable Portfolio
is a diversified portfolio. The investment objectives of the Portfolios
described in this section may not be changed unless approved by the holders of
a majority of the outstanding shares of the respective Portfolio that would be
affected by such a change. As used in this Prospectus, the term "majority of
the outstanding shares" of the Portfolio means the vote of the lesser of (i)
67% or more of the shares of the Portfolio present at a meeting, if the
holders of more than 50% of the outstanding shares of the Portfolio are
present or represented by proxy or (ii) more than 50% of the outstanding
shares of the Portfolio.
As non-diversified investment companies, the New York Portfolio and the New
Jersey Portfolio are not subject to any statutory restriction under the
Investment Company Act of 1940 (the "1940 Act") with respect to investing
their assets in one or relatively few issuers. This non-diversification may
present greater risks than in the case of a diversified company. As a
diversified investment company, 75% of the assets of the Taxable Portfolio is
subject to the following limitations: (a) the Portfolio may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the United States government and its agencies and
instrumentalities, and (b) the Portfolio may not own more than 10% of the
outstanding voting securities of any one issuer. The classification of the
Taxable Portfolio as a diversified investment company is a fundamental policy
of the Portfolio and may be changed only with the approval of the holders of a
majority of such Portfolio's outstanding shares.
The Fund intends to maintain its qualification as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). The Fund will be restricted in that at the close of each quarter
of the taxable year, at least 50% of the value of the assets of each Portfolio
must be represented by cash, government securities, investment company
securities and other securities limited in respect of any one issuer to not
more than 5% in value of the assets of each Portfolio and to not more than 10%
of the outstanding voting securities of such issuer. In addition, at the close
of each quarter of its taxable year, not more than 25% in value of each
Portfolio's total assets may be invested in securities of one issuer other
than U.S. government securities. The limitations described in this paragraph
regarding qualification as a "regulated investment company" are not
fundamental policies and may be revised to the extent applicable Federal
income tax requirements are revised.
(See "Federal Income Taxes" herein.)
Investment Objectives, Policies and Risks of the New York and New Jersey
Portfolios
The New York and New Jersey Portfolios are each a municipal bond fund. The New
York and New Jersey Portfolios' investment objectives are to maximize income,
exempt from regular Federal income tax and from New York State and New York
City personal income taxes (the "New York Income Tax"), with respect to the
New York Portfolio, and from New Jersey gross income tax, with respect to the
New Jersey Portfolio, consistent with preservation of capital and with
consideration given to opportunities for capital gain. No assurance can be
given that these objectives will be achieved. The following discussion expands
upon the description of the New York and New Jersey Portfolios' investment
objectives, policies and risks in the Prospectus. The New York and New Jersey
Portfolios each provide tax free income that when reinvested into additional
shares of the New York and New Jersey Portfolios, respectively, provide
investors growth by increasing the value of their total investment.
The New York and New Jersey Portfolios' assets will be invested primarily in
long term investment grade tax-exempt securities issued by or on behalf of the
State of New York with respect to the New York Portfolio, and the State of New
Jersey, with respect to the New Jersey Portfolio and other states, Puerto Rico
and other United States territories and possessions, and their authorities,
agencies, instrumentalities and political subdivisions ("Municipal
Obligations"). The average maturity of the Municipal Obligations in which the
New York and New Jersey Portfolios will invest is 15-25 years. The New York
and New Jersey Portfolios each attempts to invest 100%, and as a matter of
fundamental policy invests at least 80%, of the value of its net assets in
securities with remaining maturities of one year or more the interest on which
is, in the opinion of bond counsel to the issuer at the date of issuance,
exempt from regular Federal income tax and from New York State and New York
City personal income taxes ("New York Municipal Obligations") with respect to
the New York Portfolio, and from New Jersey gross income tax ("New Jersey
Municipal Obligations") with respect to the New Jersey Portfolio. The New York
and New Jersey Portfolios may each also invest in tax-exempt securities of
issuers outside New York State or the State of New Jersey, respectively, if
such securities bear interest which is exempt from regular Federal income tax
and New York State and City personal income taxes or New Jersey gross income
tax, respectively. The New York and New Jersey Portfolios each also reserves
the right to invest up to 20% of the value of its net assets in securities,
the interest on which is exempt from regular Federal income tax but not New
York State and City personal income taxes with respect to the New York
Portfolio, and New Jersey gross income tax with respect to
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the New Jersey Portfolio, and other taxable obligations. Although the Supreme
Court has determined that Congress has the authority to subject the interest
on municipal bonds to regular Federal income taxation, existing law excludes
such interest from regular Federal income tax. However, such tax-exempt
interest may be subject to the Federal alternative minimum tax. Securities,
the interest income on which may be subject to the Federal alternative minimum
tax, may be purchased by the New York and New Jersey Portfolios without limit.
(See "Federal Income Taxes" herein.)
The New York and New Jersey Portfolios will invest principally, without
percentage limitations, in tax-exempt securities which on the date of
investment are within the four highest credit ratings of Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa, A, Baa for bonds; MIG-1, MIG-2, MIG-3,
MIG-4 for notes; P-1, P-2, P-3 for commercial paper; VMIG-1, VMIG-2, VMIG-3,
VMIG-4 for variable and floating demand notes), Standard & Poor's Corporation
("S&P") (AAA, AA, A, BBB for bonds; SP-1, SP-2, SP-3 for notes and for
variable and floating demand notes; A-1, A-2, A-3, B for commercial paper) or
Fitch Investors Service, Inc. ("Fitch") (AAA, AA, A, BBB for bonds; F-1, F-2,
F-3 for notes, variable and floating demand notes and commercial paper).
Although bonds and notes rated in the fourth credit rating category are
commonly referred to as investment grade they may have speculative
characteristics. In addition, changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. The Fund will
not necessarily dispose of a security that falls below investment grade upon
the Manager's determination as to whether retention of such a security is
consistent with the Fund's investment objectives. A detailed discussion of
such characteristics and circumstances and their effect upon the New York and
New Jersey Portfolios appears under the heading "Description of the New York
and New Jersey Portfolios' Investment Securities." A description of the credit
ratings appears under the heading "Description of Ratings". The New York and
New Jersey Portfolios may invest in tax-exempt securities which are not rated
or which do not fall into the credit ratings noted above if, based upon credit
analysis by the Adviser, it is believed that such securities are of comparable
quality.
In unusual circumstances during adverse market conditions, as determined by
the Manager, the New York and New Jersey Portfolios may each assume a
temporary defensive position in which the New York or New Jersey Portfolio,
respectively, may invest up to 100% of the value of its net assets on a
temporary basis in securities, the interest on which is exempt from regular
Federal income tax, but not New York State and City personal income taxes,
with respect to the New York Portfolio, and New Jersey gross income tax, with
respect to the New Jersey Portfolio, and in fixed-income securities, the
interest on which is subject to regular Federal, state or local income tax,
pending the investment or reinvestment in tax-exempt securities of proceeds of
sales of shares or sales of portfolio securities or in order to avoid the
necessity of liquidating portfolio investments to meet redemptions of shares
by investors or where market conditions due to rising interest rates or other
adverse factors warrant temporary investing for defensive purposes.
Investments in taxable securities will be substantially in securities issued
or guaranteed by the United States government (such as bills, notes and
bonds), its agencies, instrumentalities or authorities, highly- rated
corporate debt securities (rated AA or better by S&P and Fitch, or Aa3 or
better by Moody's); prime commercial paper (rated A-1+ by S&P, F-1+ by Fitch
or P-1 by Moody's) and certificates of deposit of the 100 largest domestic
banks in terms of assets which are subject to regulatory supervision by the
United States government or state governments and the 50 largest foreign banks
in terms of assets with branches or agencies in the United States. Investments
in certificates of deposit of foreign banks and foreign branches of United
States banks may involve certain risks, including different regulations, use
of different accounting procedures, political or other economic developments,
exchange controls, or possible seizure or nationalization of foreign deposits.
Investment in the Portfolios should be made with an understanding of the risk
which an investment in New York Municipal Obligations or New Jersey Municipal
Obligations, as the case may be, may entail. Payment of interest and
preservation of capital are dependent upon the continuing ability of New York
and New Jersey issuers and/or obligors of state, municipal and public
authority debt obligations to meet their obligations thereunder. Investors
should consider the greater risk of the Portfolio's concentration versus the
safety that comes with a less concentrated investment portfolio.
Investment Objectives, Policies and Risks of the Taxable Portfolio
The Taxable Portfolio is a taxable municipal bond fund. The Taxable
Portfolio's investment objectives are to maximize income consistent with
preservation of capital and with consideration given to opportunities for
capital gain. No assurance can be given that these objectives will be
achieved. The following discussion expands upon the description of the Taxable
Portfolio's investment objectives, policies and risks in the Prospectus.
The Taxable Portfolio's assets will be invested primarily in long term
investment grade taxable securities issued by or on behalf of states and
municipal governments, other United States territories and possessions of the
United States, and their authorities, agencies, instrumentalities and
political subdivisions ("Taxable Municipal Obligations"). The average maturity
of the Taxable Municipal Obligations in which the Taxable Portfolio will
invest is over 10 years. The Taxable Portfolio attempts to invest 100%,
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and as a matter of fundamental policy invests at least 65%, of the value of
its total assets in taxable securities with remaining maturities of one year
or more. The interest on the Taxable Municipal Obligations is includable in
gross income for federal income tax purposes and may be subject to personal
income taxes imposed by any state of the United States or any political
subdivision thereof, or by the District of Columbia. (See "Federal Income
Taxes" herein.)
The Taxable Portfolio will invest principally, without percentage limitations,
in securities which on the date of investment are within the four highest
credit ratings of Moody's (Aaa, Aa, A, Baa for bonds; MIG-1, MIG-2, MIG-3,
MIG-4 for notes; P-1, P-2, P-3 for commercial paper; VMIG-1, VMIG-2, VMIG-3,
VMIG-4 for variable and floating demand notes), S&P (AAA, AA, A, BBB for
bonds; SP-1, SP-2, SP-3 for notes and for variable and floating demand notes;
A-1, A-2, A-3, B for commercial paper) or Fitch (AAA, AA, A, BBB for bonds;
F-1, F-2, F-3 for notes, variable and floating demand notes and commercial
paper). Although bonds and notes rated in the fourth credit rating category
are commonly referred to as investment grade they may have speculative
characteristics. In addition, changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. The Fund will
not necessarily dispose of a security that falls below investment grade upon
the Manager's determination as to whether retention of such a security is
consistent with the Fund's investment objectives. A detailed discussion of
such characteristics and circumstances and their effect upon the Taxable
Portfolio appears under the heading "Description of the Taxable Portfolio's
Investment Securities." A description of the credit ratings appears under the
heading "Description of Ratings." The Taxable Portfolio may invest in
securities which are not rated or which do not fall into the credit ratings
noted above if, based upon credit analysis by the Manager, it is believed that
such securities are of comparable quality.
In unusual circumstances during adverse market conditions, as determined by
the Manager, the Taxable Portfolio may assume a temporary defensive position
in which the Taxable Portfolio may invest up to 100% of the value of its net
assets on a temporary basis in securities issued or guaranteed by the United
States government (such as bills, notes and bonds), its agencies,
instrumentalities or authorities, tax-exempt securities, highly-rated
corporate debt securities (rated AA or better by S&P and Fitch, or Aa3 or
better by Moody's); prime commercial paper (rated A-1+ by S&P, F-1+ by Fitch
or P-1 by Moody's) and certificates of deposit of the 100 largest domestic
banks in terms of assets which are subject to regulatory supervision by the
United States government or state governments and the 50 largest foreign banks
in terms of assets with branches or agencies in the United States. Investments
in certificates of deposit of foreign banks and foreign branches of United
States banks may involve certain risks, including different regulations, use
of different accounting procedures, political or other economic developments,
exchange controls, or possible seizure or nationalization of foreign deposits.
Investment in the Portfolio should be made with an understanding of the risks
which an investment in Municipal Obligations may entail. However, payment of
interest and preservation of principal are dependent upon the continuing
ability of the obligors of state, municipal and public authority debt
obligations to meet their obligations thereunder.
DESCRIPTION OF THE PORTFOLIOS' INVESTMENT SECURITIES
Municipal Obligations
(1) Municipal Bonds include long term, and for the Taxable Portfolio, taxable,
obligations that are rated Baa or better at the date of purchase by
Moody's, or BBB or better by S&P or Fitch or, if not rated, are of
comparable quality as determined by the Manager on the basis of the
Manager's credit evaluation of the obligor or credit enhancement issued in
support of the obligation. Municipal Bonds are debt obligations of states,
cities, counties, municipalities and municipal agencies (all of which are
generally referred to as "municipalities") 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, to refund outstanding obligations and to obtain 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 faith, credit and taxing power for the payment
of principal and interest. Issuers of general obligation bonds include
states, counties, cities, towns and other governmental units. 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" are issued by
public authorities to provide funding for various privately operated
industrial facilities (hereinafter referred to as "industrial revenue
bonds" or "IRBs"). Interest on the IRBs contained in the New York
Portfolio and New Jersey Portfolio is generally exempt, with certain
exceptions, from regular Federal income tax pursuant to Section 103(a) of
the Code, provided the issuer and corporate obligor thereof continue to
meet certain
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conditions. (See "Federal Income Taxes" herein.) IRBs are, in most cases,
revenue bonds and do not generally constitute the pledge of the credit of
the issuer of such bonds. The payment of the principal and interest on
IRBs usually depends solely on the ability of the user of the facilities
financed by the bonds or the other guarantor to meet its financial
obligations and, in certain instances, the pledge of real and personal
property as security for payment. If there is no established secondary
market for a particular IRB, the IRB or the participation certificates in
the IRB purchased by the Portfolio will be supported by letters of credit,
guarantees or insurance that meet the quality criteria of the respective
Portfolio and provide the demand feature which may be exercised by the
Portfolios at any time to provide liquidity. Shareholders should note that
the Portfolios may invest in IRBs acquired in transactions involving a
Participating Organization.
(2) Municipal Notes include notes with remaining maturities of one year or
less that are rated MIG-1, MIG-2, MIG-3 or MIG-4 at the date of purchase
by Moody's, SP-1, SP-2 or SP-3 by S&P or F-1, F-2 or F-3 by Fitch or, if
not rated, are of comparable quality as determined by the Board of
Directors of the Fund. The principal kinds of Municipal Notes include tax
anticipation notes, bond anticipation notes, revenue anticipation notes
and project notes. Notes sold in anticipation of collection of taxes, a
bond sale or receipt of other revenues are usually general obligations of
the issuing municipality or agency. Project notes are issued by local
agencies and are guaranteed by the United States Department of Housing and
Urban Development. Project notes are also secured by the full faith and
credit of the United States.
(3) Municipal Commercial Paper includes commercial paper that is rated Prime-1
or Prime-2 by Moody's, A-1 or A-2 by S&P or F-1 or F-2 by Fitch or, if not
rated, is of comparable quality as determined by the Board of Directors of
the Fund. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are
often issued to meet seasonal working capital needs of municipalities or
to provide interim construction financing and are paid from general
revenues of municipalities or are refinanced with long-term debt. In most
cases Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the Commercial Paper.
(4) Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. These types of municipal leases are
considered illiquid and are subject to the 15% limitation on investments
in illiquid securities as set forth under "Investment Restrictions"
herein. (See "Investment Restrictions" herein.) Municipal leases
frequently have special risks not normally associated with general
obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased
asset to pass eventually to the governmental issuer) have evolved as a
means for governmental issuers to acquire property and equipment without
meeting the constitutional and statutory requirements for the issuance of
debt. The debt-issuance limitations of many state constitutions and
statutes are deemed to be inapplicable because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. To
reduce this risk, the Portfolios will only purchase municipal leases
subject to a non-appropriation clause where the payment of principal and
accrued interest is backed by an unconditional irrevocable letter of
credit, a guarantee, insurance or other comparable undertaking of an
approved financial institution. These types of municipal leases may be
considered illiquid and are subject to the 15% limitation of investments
in illiquid securities set forth under "Investment Restrictions" herein.
The Board of Directors may adopt guidelines and delegate to the Adviser or
the Manager of the Portfolios, as the case may be, the daily function of
determining and monitoring the liquidity of municipal leases. In making
such determination, the Board and the Adviser or the Manager of the
Portfolios, as the case may be, may consider such factors as the frequency
of trades for the obligation, the number of other potential buyers and the
nature of the marketplace for the obligations, including the time needed
to dispose of the obligations and the method of soliciting offers. If the
Board determines that any municipal leases are illiquid, such leases will
be subject to the 15% limitation on investments in illiquid securities.
(5) Each Portfolio may also purchase any other Federal tax-exempt and, where
applicable, New York or New Jersey income tax-exempt obligations issued by
or on behalf of states and municipal governments and their authorities,
agencies, instrumentalities and political subdivisions, whose inclusion in
a Portfolio would be consistent with such Portfolio's investment
objectives and policies. Subsequent to its purchase by a Portfolio, a
rated Municipal Obligation may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Portfolio. Neither
event will require sale of such Municipal Obligation by the applicable
Portfolio but the Adviser (as defined below) will consider such event in
determining
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whether such Portfolio should continue to hold the Municipal Obligation.
To the extent that the ratings given to the Municipal Obligation or other
securities held by such Portfolios are altered due to changes in either
the Moody's, S&P's or Fitch's ratings systems (see "Description of
Ratings" herein for an explanation of S&P, Moody and Fitch ratings), the
Adviser will adopt such changed ratings as standards for its future
investments in accordance with the investment policies contained in the
Prospectus.
Floating Rate and Variable Rate Securities
The Portfolios may purchase floating rate and variable rate put option
securities including participation interests therein. Floating and variable
rate put option securities bear a variable interest rate which generally is
determined by the bond remarketing agent based on current market conditions,
although certain issuers may set rates using a designated base rate or a
specified percentage thereof. The rate of interest used will be that rate
which would enable the securities to be remarketed. These securities have a
put feature which allows the holder to demand payment of the obligation on
short notice at par plus accrued interest. Frequently, these securities are
backed by letters of credit or similar liquidity facilities provided by banks.
The New York Portfolio and the New Jersey Portfolio may invest in
participation interests purchased from banks in variable rate tax-exempt
securities owned by banks. A participation interest gives the purchaser an
undivided interest in the tax-exempt security in the proportion that such
Portfolio's participation interest bears to the total principal amount of the
tax-exempt security and provides a demand repurchase feature described above.
Participations are frequently backed by an irrevocable letter of credit or
guarantee of a bank that the Manager has determined meets the prescribed
quality standards for the Portfolio. The Portfolio has the right to sell the
instrument back to the bank and draw on the letter of credit on demand, on
seven days' notice, for all or any part of such Portfolio's participation
interest in the tax-exempt security, plus accrued interest. The New York
Portfolio or the New Jersey Portfolio intend to exercise the demand under the
letter of credit only (1) upon a default under the terms of the documents of
the tax-exempt security, (2) as needed to provide liquidity in order to meet
redemptions, or (3) to maintain the investment quality of the portfolio. Banks
will retain a service and letter of credit fee and a fee for issuing
repurchase commitments in an amount equal to the excess of the interest paid
on the tax-exempt securities over the negotiated yield at which the
instruments are purchased by the Portfolio.
The Manager will monitor the pricing, quality and liquidity of the variable
rate demand instruments held by the Portfolios, on the basis of published
financial information, reports of rating agencies and other analytical
services to which the Manager may subscribe. Participation interests will be
purchased only if, in the opinion of counsel, interest income on such
interests will be tax-exempt when distributed as dividends to shareholders.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on the Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the
Portfolio's commitment to purchase. Although each Portfolio will only make
commitments to purchase when-issued Municipal Obligations with the intention
of actually acquiring them, each Portfolio may sell these securities before
the settlement date if deemed advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in a Portfolio are subject to changes in value (both generally changing in the
same way, that is, both experiencing appreciation when interest rates decline
and depreciation when interest rates rise) based upon the public's perception
of the creditworthiness of the issuer and changes, real or anticipated, in the
level of interest rates. Purchasing Municipal Obligations on a when-issued
basis can involve a risk that the yields available in the market when the
delivery takes place may actually be higher or lower than those obtained in
the transaction itself. A segregated account of the Fund consisting of cash or
liquid high-grade debt securities equal to the amount of the when-issued
commitments will be established at the respective Portfolio's custodian banks.
For the purpose of determining the adequacy of the securities in the account,
the deposited securities will be valued at market value. If the market value
of such securities declines, additional cash or highly liquid securities will
be placed in the account daily so that the value of the account will equal the
amount of such commitments by the Portfolio. On the settlement date of the
when-issued securities, the Portfolio will meet its obligations from
then-available cash flow, sale of securities held in the separate account,
sale of other securities or, although it would not normally expect to do so,
from sale of the when-issued securities themselves (which may have a value
greater or lesser than the Portfolio's payment obligations). Sale of
securities to meet such obligations may result in the realization of capital
gains or losses, which are not exempt from Federal income tax.
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Stand-by Commitments
When each Portfolio purchases Municipal Obligations it may also acquire
stand-by commitments from banks and other financial institutions with respect
to such Municipal Obligations. Under a stand-by commitment, a bank or
broker-dealer agrees to purchase at the Portfolio's option a specified
Municipal Obligation at a specified price with same day settlement. A stand-by
commitment is the equivalent of a "put" option acquired by one of the
Portfolios with respect to a particular Municipal Obligation held in such
Portfolio.
The amount payable to a Portfolio upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Portfolio paid on the acquisition),
less any amortized market premium or plus an amortized market or original
issue discount during the period the Portfolio owned the security, plus (2)
all interest accrued on the security since the last interest payment date
during the period the security was owned by the Portfolio. Absent unusual
circumstances relating to a change in market value, the Portfolio would value
the underlying Municipal Obligation at amortized cost. Accordingly, the amount
payable by a bank or dealer during the time a stand-by commitment is
exercisable would be substantially the same as the market value of the
underlying Municipal Obligation.
The right of each Portfolio to exercise a stand-by commitment would be
unconditional and unqualified. A stand-by commitment would not be transferable
by the Portfolio although it could sell the underlying Municipal Obligation to
a third party at any time.
Each Portfolio expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary and advisable, the Portfolio may pay for stand-by commitments either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in each Portfolio would not
exceed 1/2 of 1% of the value of such Portfolio's total assets calculated
immediately after each stand-by commitment was acquired.
Each Portfolio would enter into stand-by commitments only with banks and other
financial institutions that, in the Adviser's opinion, present minimal credit
risks and, where the issuer of the Municipal Obligation does not have a
sufficient quality rating, only where the issuer of the stand-by commitment
has received a sufficient quality rating from an unaffiliated nationally
recognized rating organization or, if not rated, presents a minimal risk of
default as determined by the Board of Directors. Each Portfolio's reliance
upon the credit of these banks and broker-dealers would be supported by the
value of the underlying Municipal Obligations held by such Portfolio that were
subject to the commitment.
Each Portfolio intends to acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The purpose of this practice is to permit a Portfolio to be
fully invested in securities the interest on which, excluding the Taxable
Portfolio, is exempt from regular Federal income taxes while preserving the
necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions and to purchase at a later date securities other
than those subject to the stand-by commitment.
The acquisition of a stand-by commitment would not affect the valuation or
assumed maturity of the underlying Municipal Obligations which will continue
to be valued in accordance with the amortized cost method. Stand-by
commitments acquired by each Portfolio would be valued at zero in determining
net asset value. In those cases in which one of the Portfolios paid directly
or indirectly for a stand-by commitment, its cost would be reflected as
unrealized depreciation for the period during which the commitment is held by
such Portfolio. Stand-by commitments would not affect the dollar-weighted
average maturity of the Portfolio. The maturity of a security subject to a
stand-by commitment is longer than the stand-by repurchase date.
The stand-by commitments that each Portfolio may enter into are subject to
certain risks, which include the ability of the issuer of the commitment to
pay for the securities at the time the commitment is exercised, the fact that
the commitment is not marketable by such Portfolio, and that the maturity of
the underlying security will generally be different from that of the
commitment.
In addition, a Portfolio may apply to the Internal Revenue Service for a
ruling, or seek from its counsel an opinion, that interest on Municipal
Obligations subject to stand-by commitments will be exempt from regular
Federal income taxation (see "Federal Income Taxes" herein). In the absence of
a favorable tax ruling or opinion of counsel, a Portfolio will not engage in
the purchase of securities subject to stand-by commitments. The New Jersey
Portfolio may apply to the New Jersey Division of Taxation for a ruling that
income from the stand-by commitments will be exempt from the New Jersey Gross
Income Tax.
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Taxable Securities
Although the New York Portfolio and the New Jersey Portfolio will attempt to
invest 100% of their net assets in tax-exempt Municipal Obligations, the New
York Portfolio and the New Jersey Portfolio may invest up to 100% of the value
of its net assets on a temporary basis, and the Money Fund may invest up to
20% of the value of its net assets, in securities of the kind described below,
the interest income on which is subject to Federal and New Jersey income tax,
as determined by the Manager that the Portfolio may assume a temporary
defensive position due to adverse market conditions. The Taxable Portfolio
will attempt to invest 100% and as a matter of fundamental policy invests at
least 65% of its total assets in Taxable Municipal Obligations.
For purposes of the New York Portfolio and the New Jersey Portfolio,
investments in taxable securities will be substantially in securities issued
or guaranteed by the United States government (such as bills, notes and
bonds), its agencies, instrumentalities or authorities, highly-rated corporate
debt securities (rated AA, or better, by S&P or Fitch or Aa3, or better, by
Moody's); prime commercial paper (rated A-1+ by S&P, P-1 by Moody's or F-1+ by
Fitch) and certificates of deposit of the 100 largest domestic banks in terms
of assets which are subject to regulatory supervision by the United States
government or state governments and the 50 largest foreign banks in terms of
assets with branches or agencies in the United States. Investments in
certificates of deposit of foreign banks and foreign branches of United States
banks may involve certain risks, including different regulations, use of
different accounting procedures, political or other economic developments,
exchange controls, or possible seizure or nationalization of foreign deposits.
(See "Federal Income Taxes.") For purposes of the Taxable Portfolio, taxable
securities will be substantially in Taxable Municipal Obligations as well as
the securities described in this paragraph.
Repurchase Agreements
Each Portfolio may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Portfolio would acquire an
underlying debt instrument for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase and the
Portfolio to resell the instrument at a fixed price and time, thereby
determining the yield during the Portfolio's holding period. This results in a
fixed rate of return insulated from market fluctuation during such period. A
repurchase agreement is subject to the risk that the seller may fail to
repurchase the security. Repurchase agreements may be deemed to be loans under
the 1940 Act. All repurchase agreements entered into by each Portfolio shall
be fully collateralized at all times during the period of the agreement in
that the value of the underlying security shall be at least equal to the
amount of the loan, including the accrued interest thereon, and the Portfolio
or its custodian shall have possession of the collateral, which the Fund's
Board of Directors believes will give it a valid, perfected security interest
in the collateral. In the event of default by the seller under a repurchase
agreement construed to be a collateralized loan, the underlying securities are
not owned by the Portfolio but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Portfolio may suffer
time delays and incur costs in connection with the disposition of the
collateral. The Fund's Board of Directors believes that the collateral
underlying repurchase agreements may be more susceptible to claims of the
seller's creditors than would be the case with securities owned by the
Portfolio. It is expected that repurchase agreements will give rise to income
which will not qualify as tax-exempt income when distributed by the Portfolio.
Each Portfolio will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with illiquid securities held by
such Portfolio exceeds 15% of such Portfolio's net assets. (See Investment
Restriction Number 6 herein.) Repurchase agreements are subject to the same
risks described herein for stand-by commitments.
NEW YORK RISK FACTORS
This summary is included for the purpose of providing a general description of
New York State's (the "State") and New York City (the "City") credit and
financial condition. The information set forth below is derived from the
official statements and/or preliminary drafts of official statements prepared
in connection with the issuance of State and City municipal bonds. The Fund
has not independently verified this information.
State Economic Trends. Over the long term, the State of New York (the "State")
and the City of New York (the "City") face serious potential economic
problems. The City accounts for approximately 41% of the State's population
and personal income, and the City's financial health affects the State in
numerous ways. The State historically has been one of the wealthiest states in
the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of generally less
affluent residents. Regionally, the older Northeast cities have suffered
because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent
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on the specialized services traditionally available almost exclusively in the
City. In recent years the State's economic position has improved in a manner
consistent with that for the Northeast as a whole.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes
to develop and maintain their transportation networks, public schools and
colleges, public health systems, other social services and recreational
facilities. Despite these benefits, the burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its localities may
take to encourage economic growth and achieve balanced budgets, reductions in
Federal spending could materially and adversely affect the financial condition
and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.3 million, is an
international center of business and culture. Its non-manufacturing economy is
broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total employment
earnings. Additionally, the City is the nation's leading tourist destination.
The City's manufacturing activity is conducted primarily in apparel and
publishing.
The national economic downturn which began in July 1990 adversely affected the
local economy, which had been declining since late 1989. As a result, the City
experienced job losses in 1990 and 1991 and real Gross City Product (GCP) fell
in those two years. For the 1992 fiscal year, the City closed a projected
budget gap of $3.3 billion in order to achieve a balanced budget as required
by the laws of the State. Beginning in calendar year 1992, the improvement in
the national economy helped stabilize conditions in the City. Employment
losses moderated toward year-end and real GCP increased, boosted by strong
wage gains. The City's current four-year financial plan assumes that, after
noticeable improvements in the City's economy during calendar year 1994,
economic growth will slow in calendar years 1995 and 1996 with local
employment increasing modestly. During the 1995 fiscal year, the City
experienced substantial shortfalls in payments of non-property tax revenues
from those forecasted.
For each of the 1981 through 1994 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"), and the City's 1995 fiscal year results are projected to
be balanced in accordance with GAAP. The City was required to close
substantial budget gaps in recent years in order to maintain balanced
operating results. For fiscal year 1995, the City has adopted a budget which
has halted the trend in recent years of substantial increases in City spending
from one year to the next. There can be no assurance that the City will
continue to maintain a balanced budget as required by State law without
additional tax or other revenue increases or reductions in City services,
which could adversely affect the City's economic base.
Pursuant to the laws of the State, the City prepares an annual four-year
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City
is required to submit its financial plans to review bodies, including the New
York State Financial Control Board ("Control Board"). If the City were to
experience certain adverse financial circumstances, including the occurrence
or the substantial likelihood and imminence of the occurrence of an annual
operating deficit of more than $100 million or the loss of access to the
public credit markets to satisfy the City's capital and seasonal financing
requirements, the Control Board would be required by State law to exercise
powers, among others, of prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to balance
its budget and to meet its cash requirements. There can be no assurance that
there will not be reductions in State aid to the City from amounts currently
projected or that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline and that such reductions or delays will not have
adverse effects on the City's cash flow or expenditures.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1996 through 1999 fiscal
years (the "1996-1999 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. 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. Such assumptions and contingencies include the
condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees
consistent with those assumed in the Financial Plan, employment growth, the
results of a pending actuarial audit of the City's pension system which is
expected to significantly increase the City's annual pension costs, the
ability to implement proposed reductions in City
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personnel and other cost reduction initiatives, which may require in certain
cases the cooperation of the City's municipal unions, revenue generating
transactions and provision of State and Federal aid and mandate relief.
Implementation of the Financial Plan is also dependent upon the City's ability
to market its securities successfully in the public credit markets. The City's
financing program for fiscal years 1996 through 1999 contemplates the issuance
of $9.7 billion of general obligation bonds primarily to reconstruct and
rehabilitate the City's infrastructure and physical assets and to make other
capital investments. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes will be subject to prevailing
market conditions, and no assurance can be given that such sales will be
completed. If the City were unable to sell its general obligation bonds and
notes, it would be prevented from meeting its planned capital and operating
expenditures.
The City submitted to the Control Board on July 21, 1995 a fourth quarter
modification to the City's financial plan for the 1995 fiscal year, which
projects a balanced budget in accordance with GAAP for the 1995 fiscal year,
after taking into account a discretionary transfer of $75 million. On July 11,
1995, the City submitted to the Control Board the Financial Plan for the 1996
through 1999 fiscal years, which relates to the City, the Board of Education
("BOE") and the City University of New York ("CUNY"). The Financial Plan is
based on the City's expense and capital budgets for the City's 1996 fiscal
year, which were adopted on June 14, 1995, and sets forth proposed actions by
the City for the 1996 fiscal year to close substantial projected budget gaps
resulting from lower than projected tax receipts and other revenues and
greater than projected expenditures. In addition to substantial proposed
agency expenditure reductions and productivity, efficiency and labor
initiatives negotiated with the City's labor unions, the Financial Plan
reflects a strategy to substantially reduce spending for entitlements for the
1996 and subsequent fiscal years.
The 1996-1999 Financial Plan projects revenues and expenditures for the 1996
fiscal year balanced in accordance with GAAP. The projections for the 1996
fiscal year reflect proposed actions to close a previously projected gap of
approximately $3.1 billion for the 1996 fiscal year. The proposed actions in
the Financial Plan for the 1996 fiscal year include (i) a reduction in
spending of $400 million, primarily affecting public assistance and Medicaid
payments by the City; (ii) expenditure reductions in agencies, totalling $1.2
billion; (iii) transitional labor savings, totalling $600 million; and (iv)
the phase-in of the increased annual pension funding cost due to revisions
resulting from an actuarial audit of the City pension systems, which would
reduce such costs in the 1996 fiscal year. Other proposed actions include (i)
welfare savings of $100 million from increased fraud detection; (ii) $170
million of additional expenditure reductions in agencies and HHC; (iii) a
delay in the proposed reduction in the commercial rent tax, which would
increase projected revenues by $62 million in the 1996 fiscal year; (iv) an
increase of $75 million in projected tax collections for the 1996 fiscal year;
(v) $50 million of proposed additional State aid not included in the adopted
State budget and $75 million of proposed additional Federal aid; (vi) certain
revenue initiatives, including the proposed sale of delinquent tax liens and
the U.N. Plaza Hotel for $104 million; and (vii) savings from the proposed
refunding of outstanding debt, totalling $50 million.
The proposed agency spending reductions include the reduction of City
personnel through attrition, government efficiency initiatives, procurement
initiatives and labor productivity initiatives. The substantial agency
expenditure reductions proposed in the Financial Plan may be difficult to
implement, and the Financial Plan is subject to the ability of the City to
implement proposed reductions in City personnel and other cost reduction
initiatives. In addition, certain initiatives are subject to negotiation with
the City's municipal unions, and various actions, including proposed
anticipated State aid totalling $50 million are subject to approval by the
Governor and State Legislature.
The City annually prepares a modification to its financial plan in October or
November which amends the financial plan to accommodate any revisions to
forecast revenues and expenditures and to specify any additional gap-closing
initiatives to the extent required to offset decreases in projected revenues
or increases in projected expenditures (the "First Quarter Modification").
Subsequent to the preparation of the Financial Plan, the City has agreed to
pay for a portion of the cost of student transit passes, which will result in
a $45 million increase in expenditures for the 1996 fiscal year. In addition,
the City is in the process of identifying any additional spending requirements
or revenue losses affecting the 1996 fiscal year. In October or November,
1995, the Mayor is expected to publish the First Quarter Modification for the
1996 fiscal year.
The Financial Plan also sets forth projections for the 1997 through 1999
fiscal years and outlines a proposed gap-closing program to eliminate
projected gaps of $888 million, $1.5 billion and $1.4 billion for the 1997,
1998 and 1999 fiscal years, respectively, after successful implementation of
the $3.1 billion gap-closing program for the 1996 fiscal year.
The projections for the 1996 through 1999 fiscal years assume (i) agreement
with the City's unions with respect to approximately $100 million of savings
to be derived from efficiencies in management of employee health insurance
programs and other health benefit related savings for each of the 1996 through
1999 fiscal years to be negotiated with the City's unions; (ii) $200 million
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of additional anticipated State aid and $75 million of additional anticipated
Federal aid in each of the 1997 through 1999 fiscal years; (iii) that HHC and
BOE will each be able to identify actions to offset substantial revenue
shortfalls reflected in the Financial Plan, including approximately $254
million annual reduction in revenues for HHC, which results from the reduction
in Medicaid payments proposed by the State and the City, without any increase
in City subsidy payments to HHC; (iv) the continuation of the current
assumption of no wage increases after fiscal year 1995 for City employees
unless offset by productivity increases; (v) $130 million of additional
revenues as a result of increased rent payments for the City's airports
proposed by the City, which is subject to further discussion with the Port
Authority; and (vi) savings of $45 million in each of the 1997 through 1999
fiscal years which would result from the State Legislature's enactment of
proposed tort reform legislation. In addition, the 1996-1999 Financial Plan
anticipates the receipt of substantial amounts of Federal aid. Certain Federal
legislative proposals contemplate significant reductions in Federal spending,
including proposed Federal welfare reform, which could result in caps on, or
block grants of, Federal programs.
The proposed gap-closing actions, a substantial number of which are not
specified in detail, include additional agency expenditure reductions,
primarily resulting from a partial hiring freeze, totalling between $388
million and $684 million in each of the 1997 through 1999 fiscal years;
reductions in expenditures resulting from proposed procurement initiatives
totalling between $50 million and $100 million in each of the 1997 through
1999 fiscal years; revenue initiatives totalling between $100 million and $200
million in each of the 1997 through 1999 fiscal years; the availability in
each of the 1997, 1998 and 1999 fiscal years of $100 million of the general
reserve appropriated in the prior year; and additional reduced expenditures
resulting from further revisions in entitlement programs to reduce City
expenditures by $250 million, $400 million and $400 million in the 1997, 1998
and 1999 fiscal years, respectively, which may be subject to State or Federal
approval.
On July 10, 1995, Standard & Poor's revised downward its rating on City
general obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief,
a history of cash flow difficulties caused by State budget delays and
continued high debt levels. Fitch Investors Service, Inc. continues to rate
the City general obligation bonds A-. Moody's rating for City general
obligation bonds is Baa1.
In January 1993, the City announced a settlement with a coalition of 19
municipal unions for a 39-month period that extends into fiscal year 1995. The
settlement resulted in a total net expenditure increase of 8.25% of covered
employee payroll over a 39- month period, ending March 31, 1995, for most of
these employees. Subsequently, the City reached agreement with all of its
major bargaining units on terms which are generally consistent with the
coalition agreement.
Contracts with all of the City's municipal unions either expired in the 1995
fiscal year or will expire in the 1996 fiscal year. The Financial Plan
provides no additional wage increases for City employees after the 1995 fiscal
year. Each 1% wage increase for all union contracts commencing in the 1995 or
1996 fiscal year would cost the City an additional $141 million for the 1996
fiscal year and $161 million each year thereafter above the amounts provided
for in the Financial Plan. The terms of wage settlements could be determined
through the impasse procedure in the New York City Collective Bargaining Law,
which can impose a binding settlement.
The projections and assumptions contained in the 1996-1999 Financial Plan are
subject to revision which may involve substantial change, and no assurance can
be given that these estimates and projections, which include actions which the
City expects will be taken but which are not within the City's control, will
be realized.
From time to time, the Control Board staff, the Municipal Assistance
Corporation for the City of New York ("MAC"), Office of the State Deputy
Comptroller ("OSDC"), the City Comptroller and others issue reports and make
public statements regarding the City's financial condition, commenting on,
among other matters, the City's financial plans, projected revenues and
expenditures and actions by the City to eliminate projected operating
deficits. Some of these reports and statements have warned that the City may
have underestimated certain expenditures and overestimated certain revenues
and have suggested that the City may not have adequately provided for future
contingencies. Certain of these reports have analyzed the City's future
economic and social conditions and have questioned whether the City has the
capacity to generate sufficient revenues in the future to meet the costs of
its expenditure increases and to provide necessary services. It is reasonable
to expect that such reports and statements will continue to be issued and to
engender public comment.
On July 24, 1995, the City Comptroller issued a report on the Financial Plan.
The report concluded that the Financial Plan includes total risks of $749
million to $1.034 billion for the 1996 fiscal year. These risks include (i)
possible tax revenue shortfalls
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of $53 million; (ii) a possible $20 million to $60 million shortfall in
savings resulting from unspecified improvements in the City's health benefits
system; (iii) a potential shortfall of up to $40 million in projected savings
from an early retirement program; (iv) the receipt of $125 million of
unspecified additional Federal and State assistance; (v) up to $203 million of
projected savings from the public assistance eligibility review and electronic
signature program for public assistance recipients; (vi) $93 million of
greater than projected expenditures for overtime; (vii) $284 million of
greater than projected expenditures and lower than projected revenues at BOE;
and (viii) the receipt of $130 million of lease payments from the Port
Authority. Other potential uncertainties identified in the report include the
projected $253.6 million deficit for the Health and Hospitals Corporation
("HHC"), $160 million of the $600 million in labor savings for the 1996 fiscal
year which are yet to be identified, and the impact on the City of a possible
reduction in Federal entitlement programs. Subsequently, the City Comptroller
stated that an additional $129 million of anticipated State and Federal
assistance for BOE might not be received by BOE.
With respect to the 1997 through 1999 fiscal years, the report noted that the
gap-closing program in the Financial Plan does not include information about
how the City will implement the various gap-closing programs, and that the
entitlement cost containment and revenue initiates will require approval of
the State legislature. Taking into account the same categories of risks for
the 1997 through 1999 fiscal years as the report identified for the 1996
fiscal year and the uncertainty concerning the gap-closing program, the report
estimated that the Financial Plan includes total risks of $2.0 billion to $2.5
billion in the 1997 fiscal year, $2.8 billion to $3.3 billion in the 1998
fiscal year and $2.9 billion to $3.4 billion in the 1999 fiscal year. The
report further noted that the City Comptroller continues to oppose the
proposed sale of the water system, primarily because of the unwillingness of
the City to guarantee that $1 billion from the $2.3 billion in proceeds of the
sale will be used only to fund capital and not operating expenses, and
concerns about the jurisdiction and composition of the Water Board once title
to the Water Board has been transferred.
In early December, 1994, the City Comptroller issued a report which noted that
the City is currently seeking to develop and implement plans which will
satisfy the Federal Environmental Protection Agency that the water supplied by
the City watershed areas does not need to be filtered. The City Comptroller
noted that, if the City is ordered to build filtration plants, they could cost
as much as $4.57 billion to construct, with annual debt service and operating
costs of more than $500 million, leading to a water rate increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting that the
capacity of the City to issue general obligation debt could be greatly reduced
in future years due to the decline in value of taxable real property. The
report noted that, under the State constitution, the City is permitted to
issue debt in an amount not greater than 10% of the average full value of
taxable real estate for the current year and preceding four years, that the
latest estimates produced by the State Board of Equalization and Assessment
relating to the full value of real property, using data from a 1992 survey,
indicate a 19% decline in the market value of taxable real property from the
previous survey in 1990, and that the State Board has decided to use a
projected annual growth rate of 8.84%, as compared to its previous projection
of 14% for estimating full value after 1992. The report concludes that the
City will be within the projected legal debt incurring limit in the 1996
fiscal year. However, the report concluded that, based on the most likely
forecast of full value of real property, the debt incurring power of the City
would be curtailed in the 1997 and 1998 fiscal years substantially. The City
Comptroller recommended, among other things, prioritization of capital
projects to determine which can be delayed or cancelled, and better
maintenance of the City's physical plant and infrastructure, which would
result in less capital spending for repair and replacement of capital
structures.
On July 21, 1995, the staff of the Control Board issued a report on the
Financial Plan which identified risks of $873 million, $2.1 billion, $2.8
billion and $2.8 billion for the 1996 through 1999 fiscal years, respectively.
With respect to the 1996 fiscal year, the principal risks included (i)
possible shortfalls in projected tax revenues totaling $50 million, (ii) the
possibility that revenue actions and expenditure reduction initiatives for BOE
totaling $266 million might not be successfully implemented, (iii) possible
shortfalls totaling $172 million in proposed welfare savings from increased
fraud detection, and (iv) uncertainty concerning the $50 million of proposed
additional State aid and $75 million of proposed additional Federal aid, the
proposed receipt of $130 million of increased rent payments for the City's
airports and the $100 million of savings to be derived from health
benefit-related savings, which are subject to negotiations with or approvals
by other parties. Additional risks identified for the 1997 through 1999 fiscal
years include the possibility of additional tax revenue shortfalls,
uncertainty concerning the ability of the City to implement the gap-closing
actions for such years and uncertainty concerning the projected receipt of
additional anticipated State aid. Other areas of concern identified in the
report included the projected deficit at HHC of approximately $400 million,
reflecting the impact on HHC of the entitlement reductions contained in the
State budget and the City's reduction in the subsidy provided to HHC, and the
assumption in the Financial Plan that the City will realize the full $400
million of projected savings in public assistance and Medicaid payments
enacted at the State level. The report noted that substantially more
information is needed concerning the proposed gap-closing actions for the
1997-1999 fiscal years.
On June 14, 1995, the staff of the OSDC issued a report on the Financial Plan
with respect to the 1995 fiscal year. The report noted that, during the 1995
fiscal year, the City faced adverse financial developments totaling over $2
billion resulting from the
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inability to initiate approximately 35% of the City's gap-closing program, as
well as newly-identified spending needs and revenue shortfalls resulting from
the adverse impact on the City's personal income, general corporation and
other tax revenues of the policy of the Federal Reserve of increasing
short-term interest rates and the related downturn in the bond market and
profits and bonus income on Wall Street. The report noted that the City relied
heavily on one-time actions to offset these adverse developments, using $2
billion in one-time resources in the 1995 fiscal year, or nearly double the
1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the Financial Plan.
The report concluded that there remains a budget gap for the 1996 fiscal year
of $392 million, largely because the City and its unions have yet to reach an
agreement on how to achieve $160 million in unspecified labor savings and the
remaining $100 million in recurring health insurance savings from last year's
agreement. The report also identified a number of issues that present a net
potential risk of $409 million to the City's revenue and expenditure forecasts
for the 1996 fiscal year, including risks of (i) $160 million associated with
anticipated increases in Federal and State assistance, (ii) $130 million
relating to projected Port Authority airport lease payments, and (iii) $100
million with respect to unfunded BOE mandates. The report also identified
several other concerns regarding the 1996 fiscal year, including concerns that
(i) detailed programs have not yet been fully developed to meet the $564
million and $400 million cost- reduction targets established for BOE and HHC,
respectively, (ii) State and City initiatives to reduce public assistance and
Medicaid costs, which are expected to reduce City costs by $745 million in the
1996 fiscal year, will require close monitoring to ensure that financial
targets are met; (iii) the City has not provided sufficient assurances that
the bond proceeds from its proposed sale of the water and sewer system would
be used strictly for capital spending purposes; and (iv) the Financial Plan
makes no provision for wage increases in the collective bargaining agreements
between the City and its unions, which generally will expire by October, 1995.
The report further noted that growth in City revenues is being constrained by
the weak economy in the City, which is likely to be compounded by the slowing
national economy, and that there is a likelihood of a national recession
during the course of the Financial Plan. Moreover, the report noted that State
and Federal budgets are undergoing tumultuous changes, and that the potential
for far-reaching reductions in intergovernmental assistance is clearly on the
horizon, with greater uncertainty about the impact on City finances and
services.
A substantial portion of the capital improvements in the City are financed by
indebtedness issued by MAC. MAC was organized in 1975 to provide financing
assistance for the City and also to exercise certain review functions with
respect to the City's finances. MAC bonds are payable out of certain State
sales and compensating use taxes imposed within the City, State stock transfer
taxes and per capita State aid to the City. Any balance from these sources
after meeting MAC debt service and reserve fund requirements and paying MAC's
operating expenses is remitted to the City or, in the case of the stock
transfer taxes, rebated to the taxpayers. The State is not, however, obligated
to continue the imposition of such taxes or to continue appropriation of the
revenues therefrom to MAC, nor is the State obligated to continue to
appropriate the State per capita aid to the City which would be required to
pay the debt service on certain MAC obligations. MAC has no taxing power and
MAC bonds do not create an enforceable obligation of either the State or the
City. As of June 30, 1995, MAC had outstanding an aggregate of approximately
$4.882 billion of its bonds.
New York State and its Authorities. The State's current fiscal year commenced
on April 1, 1995, and ends on March 31, 1996, and is referred to herein as the
State's 1995-96 fiscal year. The prior fiscal year, which ended on March 31,
1995, is referred to herein as the State's 1994-95 fiscal year. The State's
budget for the 1995-96 fiscal year was enacted by the Legislature on June 7,
1995, more than two months after the start of the fiscal year. Prior to
adoption of the budget, the Legislature enacted appropriations for
disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year was formulated on June 20, 1995 and
is based on the State's budget as enacted by the Legislature and signed into
law by the Governor.
The 1995-96 budget is the first to be enacted in the administration of the
Governor, who assumed office on January 1. It is the first budget in over half
a century which proposed and, as enacted, projects an absolute year-over-year
decline in General Fund disbursements. Spending for State operations is
projected to drop even more sharply, by 4.6 percent. Nominal spending from all
State funding sources (i.e., excluding Federal aid) is proposed to increase by
only 2.5 percent from the prior fiscal year, in contrast to the prior decade
when such spending growth averaged more than 6.0 percent annually.
In his Executive Budget, the Governor indicated that in the 1995-96 fiscal
year, the State Financial Plan, based on then-current law governing spending
and revenues, would be out of balance by almost $4.7 billion, as a result of
the projected structural deficit resulting from the ongoing disparity between
sluggish growth in receipts, the effect of prior-year tax changes, and the
rapid acceleration of spending growth; the impact of unfunded 1994-95
initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts, to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million
to the then projected imbalance or budget gap, bringing the total to
approximately $5 billion.
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This gap is projected to be closed in the 1995-96 State Financial Plan based
on the enacted budget, through a series of actions, mainly spending reductions
and cost containment measures and certain reestimates that are expected to be
recurring, but also through the use of one-time solutions. The State Financial
Plan projects (i) nearly $1.6 billion in savings from cost containment,
disbursement reestimates, and other savings in social welfare programs,
including Medicaid, income maintenance and various child and family care
program; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, State University of New York ("SUNY") and
City University of New York ("CUNY"), mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in
revenue measures, primarily a new Quick Draw Lottery game, changes to tax
payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
There are risks and uncertainties concerning the future-year impact of tax
reductions and other measures in 1995-96 budget.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. For example, various proposals
relating to Federal tax and spending policies that are currently being
publicly discussed and debated could, if enacted, have a significant impact on
the State's financial condition in the current and future fiscal years.
Because of the uncertainty and unpredictability of the changes, their impact
cannot, as a practical matter, be included in the assumptions underlying the
State's projections at this time.
The State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, Federal fiscal and monetary
policies, the level of interest rates, and the condition of the world economy,
which could have an adverse effect on the State. There can be no assurance
that the State economy will not experience results in the current fiscal year
that are worse than predicted, with corresponding material and adverse effects
on the State's projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based on
the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages and employment have been particularly
important. The projection of receipts from most tax or revenue sources is
generally made by estimating the change in yield of such tax or revenue source
caused by economic and other factors, rather than by estimating the total
yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year estimates for
taxes that are based on a computation of annual liability, such as the
business and personal income taxes, are consistent with estimates of total
liability under such taxes.
Projections of total State disbursements are based on assumptions relating to
economic and demographic factors, levels of disbursements for various services
provided by local governments (where the cost is partially reimbursed by the
State), and the results of various administrative and statutory mechanisms in
controlling disbursements for State operations. Factors that may affect the
level of disbursements in the fiscal year include uncertainties relating to
the economy of the nation and the State, the policies of the Federal
government, and changes in the demand for and use of State services.
The State Division of the Budget ("DOB") believes that its projections of
receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from the projections set forth
below, and those projections may be changed materially and adversely from time
to time.
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 DOB of national and State
economic activity. DOB forecasts that national economic growth will 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 overall rate of growth of the national economy during calendar year 1995
will be slightly below the "consensus" of a widely followed survey of national
economic forecasters. Growth in the
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real gross domestic product during 1995 is 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 are expected to exert a drag on economic growth.
Inflation, as measured by the Consumer Price Index, is projected to remain
about 3 percent due to moderate wage growth and foreign competition. Personal
income and wages are projected to increase by about 6 percent or more.
New York's economy is expected to continue to expand modestly during 1995, but
there will be a pronounced slow-down during the course of the year. Although
industries that export goods and services abroad are expected to benefit from
the lower dollar, growth will be slowed by government cutbacks at all levels.
On an average annual basis, employment growth will be about the same as 1994.
Both personal income and wages are expected to record moderate gains in 1995.
Bonus payments in the securities industry are expected to increase from last
year's depressed level.
As noted above, the financial condition of the State is affected by several
factors, including the strength of the State and regional economy and actions
of the Federal government, as well as State actions affecting the level of
receipts and disbursements. Owing to these and other factors, the State may,
in future years, face substantial potential budget gaps resulting from a
significant disparity between tax revenues projected from a lower recurring
receipts base and the future costs of maintaining State programs at current
levels. Any such recurring imbalance would be exacerbated if the State were to
use a significant amount of nonrecurring resources to balance the budget in a
particular fiscal year. To address a potential imbalance for a given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the
State Constitution the Governor is required to propose a balanced budget each
year. To correct recurring budgetary imbalances, the State would need to take
significant actions to align recurring receipts and disbursements in future
fiscal years. There can be no assurance, however, that the State's actions
will be sufficient to preserve budgetary balance in a given fiscal year or to
align recurring receipts and disbursements in future fiscal years.
The General Fund is the general operating fund of the State and is used to
account for all financial transactions, except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1995-96 fiscal year, the General Fund is expected to account for
approximately 49 percent of total governmental-fund receipts and 51 percent of
total governmental-fund disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or
increasing the level of support for State programs. The 1995-96 enacted budget
combines significant tax and program reductions which will, in the current and
future years, lower both the recurring receipts base (before the effect of any
economic stimulus from such tax reductions) and the historical annual growth
in State program spending. The three-year plan to reduce State personal income
taxes will decrease State tax receipts by an estimated $1.7 billion in State
fiscal year 1996-97 in addition to the amount of reduction in State fiscal
year 1995-96. Further significant reductions in the personal income tax are
scheduled for the 1997-98 State fiscal year. Other tax reductions enacted in
1994 and 1995 are estimated to cause an additional reduction in receipts of
over $500 million in 1996-97, as compared to the level of receipts in 1995-96.
Similarly, many actions taken to reduce disbursements in the State's 1995-96
fiscal year are expected to provide greater reductions in State fiscal year
1996-97. These include actions to reduce the State workforce, reduce Medicaid
and welfare expenditures and slow community mental hygiene program
development. The net impact of these and other factors is expected to produce
a potential imbalance in receipts and disbursements in State fiscal year
1996-97. The Governor has indicated that in the 1996-97 Executive Budget he
will propose to close this potential imbalance primarily through General Fund
expenditure reductions and without increases in taxes or deferrals of
scheduled tax reductions. On October 2, 1995, the State Comptroller released a
report in which he reaffirmed his estimate that the State will face a budget
gap of at least $2.7 billion for the 1996-97 fiscal year and a projected gap
of at least $3.9 billion for the 1997-98 fiscal year.
On January 13, 1992, Standard & Poor's reduced its ratings on the State's
general obligation bonds from A to A-and, in addition, reduced its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. Standard & Poor's also continued its negative rating outlook
assessment on State general obligation debt. On April 26, 1993, Standard &
Poor's revised the rating outlook assessment to stable. On February 14, 1994,
Standard & Poor's raised its outlook to positive and, on July 13, 1995,
confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings on
outstanding limited-liability State lease purchase and contractual obligations
from A to Baa1. On July 3, 1995, Moody's reconfirmed its A rating on the
State's general obligation long-term indebtedness.
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The fiscal stability of the State is related to the fiscal stability of its
authorities, which generally have responsibility for financing, constructing
and operating revenue-producing public benefit facilities. The authorities are
not subject to the constitutional restrictions on the incurrence of debt which
apply to the State itself and may issue bonds and notes within the amounts of,
and as otherwise restricted by, their legislative authorization. As of
September 30, 1994, there were 18 authorities that had outstanding debt of
$100 million or more, and the aggregate outstanding debt, including refunding
bonds, of these 18 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 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.
The Metropolitan Transit Authority ("MTA"), a State agency, oversees the
operation of the City's subway and bus system by its affiliates, the New York
City Transit Authority and Bronx Surface Transit Operating Authority (the
"Transit Authority" or "TA") and commuter rail and bus lines serving the New
York metropolitan area. Fare revenues from such operations have been
insufficient to meet expenditures, and the MTA depends heavily upon a system
of State, local, Triborough Bridge and Tunnel Authority ("TBTA") and, to the
extent available, Federal support. Over the past several years, the State has
enacted several taxes, including a surcharge on the profits of banks,
insurance corporations and general business corporations doing business in the
12 county region served by the MTA and a special one-quarter of 1% regional
sales and use tax, that provide additional revenues for mass transit purposes
including 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 for 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. 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
MTA 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 MTA 1992-96 Capital Program, or parts thereof, will not be delayed or
reduced. If the MTA Capital Program is delayed or reduced, ridership and far
revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional assistance.
Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally
involve state programs and miscellaneous tort, real property, and contract
claims. 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.
NEW JERSEY RISK FACTORS
The information summarized below describes some of the more significant
aspects relating to New Jersey's credit and financial condition. The sources
of such information are the official statements of issuers located in New
Jersey as well as other publicly available documents.
Certain Economic Information. New Jersey is the ninth largest state in
population and the fifth smallest in land area. With an average of 1,062
people per square mile, it is the most densely populated of all the states.
The State's economic base is diversified consisting of a variety of
manufacturing, construction and service industries, supplemented by rural
areas with
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selective commercial agriculture. Historically, New Jersey's average per
capita income has been well above the national average, and in 1993 the State
ranked second among the states in per capita personal income ($26,732).
The Fund is susceptible to political, economic or regulatory factors affecting
issuers of the New Jersey securities. The following information provides only
a brief summary of some of the complex factors affecting the financial
situation in New Jersey (the "State") and is derived from sources that are
generally available to investors and is believed to be accurate. It is based
in part on information obtained from various State and local agencies in New
Jersey. No independent verification has been made of any of the following
information.
The onset of the national recession (which officially began in July 1990
according to the National Bureau of Economic Research) caused an acceleration
of New Jersey's job losses in construction and manufacturing. In addition, the
national recession caused an employment downturn in such previously growing
sectors as wholesale trade, retail trade, finance, utilities and trucking and
warehousing. Reflecting the downturn, the rate of unemployment in the State
rose from a low of 3.6% during the first quarter of 1989 to a recessionary
peak of 8.4% during 1992. Since then, the unemployment rate fell to 6.9%
during the first quarter of 1995.
New Jersey's Budget and Appropriation System. The State operates on a fiscal
year beginning July 1 and ending June 30. Pursuant to the State Constitution,
no money may be drawn from the State Treasury except for appropriations made
by law. In addition, all monies for the support of State government and all
other State purposes, as far as can be ascertained or reasonably foreseen,
must be provided for in one general appropriation law covering one and the
same fiscal year. No general appropriations law or other law appropriating
money for any State purpose shall be enacted if the amount of money
appropriated therein, together with all other prior appropriations made for
the same fiscal year, exceeds the total amount of revenue on hand and
anticipated to be available for such fiscal year, as certified by the
Governor.
In addition to the Constitutional provisions, the New Jersey Statutes contain
provisions concerning the budget and appropriation system. On or before
October 1 in each year, each department, board, commission, officer or other
agency of the State must file with the Budget Director a request for
appropriation or permission to spend specifying all expenditures proposed to
be made by such spending agency during the following fiscal year. The Budget
Director then examines each request and determines the necessity or
advisability of the appropriation request. On or before December 31 of each
year, the Budget Director submits the requests, together with her findings,
comments and recommendations, to the Governor. It is then the responsibility
of the Governor to examine and consider all requests and formulate her budget
recommendations.
The Governor's Budget Message must embody the proposed complete financial
program of the State government for the next ensuing fiscal year and must set
forth in detail each source of anticipated revenue and the purposes of
recommended expenditures for each spending agency. After a process of
legislative committee review, the budget, in the form of an appropriations
bill, must be approved by the Senate and Assembly and must be submitted to the
Governor for review. Upon such submissions, the Governor may approve the bill,
revise the estimate of anticipated revenues contained therein, delete or
reduce appropriation items contained in the bill through the exercise of her
line-item veto power, or veto the bill in its entirety. Like any gubernatorial
veto, such action may be reversed by a two-thirds vote of each House of the
State Legislature.
During the course of the fiscal year, the Governor may take steps to reduce
State expenditures if it appears that revenues have fallen below those
originally anticipated. There are additional means by which the Governor may
ensure that the State does not incur a deficit. Under the State Constitution,
no supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation.
General Obligation Bonds. The primary method for State financing of capital
projects is through the sale of the general obligation bonds of the State.
These bonds are backed by the full faith and credit of the State. State tax
revenues and certain other fees are pledged to meet the principal and interest
payments and, if provided, redemption premium payments, if any, required to
repay the bonds. As of June 30, 1995, there was a total authorized bond
indebtedness of approximately $9.48 billion, of which $3.65 billion was issued
and outstanding, $4.0 billion was retired (including bonds for which provision
for payment has been made through the sale and issuance of refunding bonds)
and $1.83 billion was unissued. The appropriation for debt service obligation
for such outstanding indebtedness is $466.3 million for Fiscal Year 1996. In
addition to payment from bond proceeds, capital construction can also be
funded by appropriation of current revenues on a pay-as-you go basis. In
Fiscal Year 1996, the amount appropriated to this purpose is $217.1 million.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning. This permanent commission was
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established in November 1975, and is charged with the preparation of the State
Capital Improvement Plan, which contains proposals for State spending for
capital projects.
Tax and Revenue Anticipation Notes. In fiscal year 1992 New Jersey initiated a
program under which it issued tax and revenue anticipation notes to aid in
providing effective cash flow management to fund imbalances which occur in the
collection and disbursement of the General Fund and Property Tax Relief Fund
revenues. For fiscal year 1995, the State issued $800 million tax and revenue
anticipation notes that matured in June 1995. It is anticipated that this
program will continue in fiscal year 1996. Such tax and revenue anticipation
notes do not constitute a general obligation of New Jersey or a debt or
liability within the meaning of the New Jersey Constitution. Such notes
constitute special obligations of New Jersey payable solely from moneys on
deposit in the General Fund and Property Tax Relief Fund which are
attributable to New Jersey's 1995 fiscal year and are legally available for
such payment.
Lease Financing. The State has entered into a number of leases relating to the
financing of certain real property and equipment. The State leases the Richard
J. Hughes Justice Complex in Trenton from the Mercer County Improvement
Authority (the "Authority"). On August 8, 1991 the Authority defeased
outstanding lease bonds originally issued to finance construction of the
Richard J. Hughes Justice Complex through the issuance of custody receipts
(the "Custody Receipts") in the aggregate principal amount of $98,760,000. The
rental is sufficient to cover the debt service on the Authority's Custody
Receipts. The State's obligation to pay the rentals is subject to
appropriations being made by the State Legislature.
The State has also entered into a lease agreement, as lessee, with the New
Jersey Economic Development Authority, as lessor (EDA) to lease (i) office
buildings that house the New Jersey Division of Motor Vehicles, New Jersey
Network (the State's public television station) and a branch of the United
States Postal Service and a parking facility and (ii) approximately 13 acres
of real property and certain infrastructure improvements thereon located in
the City of Newark. The rental payments required to be made by the State under
such lease agreements are sufficient to cover debt service on bonds issued by
the EDA to finance the acquisition and construction of such projects and other
amounts payable to the EDA, including certain administrative expenses of the
EDA, and such rental payments are subject to annual appropriation by the State
Legislature.
The State has also entered into a sublease with the EDA to lease two parking
lots, certain infrastructure improvements and related elements located at
Liberty State Park in the City of Jersey City. The rental payments required to
be made by the State under such sublease agreement will be sufficient to cover
debt service on bonds issued by the EDA and other amounts payable to the EDA,
and such rental payments are subject to appropriation by the State
Legislature.
The State also leases several office buildings, facilities and improvements
from the New Jersey Building Authority on a basis similar to that described
above. The Building Authority bonds are secured by annual rentals from the
State which are subject to annual appropriations by the State legislature.
Beginning in April 1984, the State, acting through the Director of the
Division of Purchase and Property, entered into a series of lease purchase
agreements which provide for the acquisition of equipment and real property to
be used by various departments and agencies of the State. To date, the State
has completed eleven lease purchase agreements which have resulted in the
issuance of Certificates of Participation totaling $749,350,000. A Certificate
of Participation evidences a proportionate interest of the owner thereof in
the lease payments to be made by the State under the terms of the agreement.
The agreements relating to these transactions provide for semi-annual rental
payments. The State's obligation to pay rentals due under these leases is
subject to annual appropriations being made by the State Legislature. The
majority of proceeds from these transactions have been or will be used to
acquire equipment or services for the State and its agencies. The State
intends to continue to use this financing technique for a substantial portion
of its future equipment requirements.
State Supported School and County College Bonds. Legislation provides for
future appropriations for State aid to local school districts equal to debt
service on a maximum principal amount of $280,000,000 of bonds issued by such
local school districts for construction and renovation of school facilities
and for State aid to counties equal to debt service on up to $80,000,000 of
bonds issued by counties for construction of county college facilities. The
New Jersey Legislature is not legally bound to make such future
appropriations, but has done so to date on all outstanding obligations issued
under these laws.
"Moral Obligation" Financing. The authorizing legislation for certain New
Jersey entities provides for specific budgetary procedures with respect to
certain obligations issued by such entities. Pursuant to such legislation, a
designated official is required to certify any deficiency in a debt service
reserve fund maintained to meet payments of principal of and interest on the
obligations, and a New Jersey appropriation in the amount of the deficiency is
to be made. However, the New Jersey Legislature is not legally bound to make
such an appropriation. Bonds issued pursuant to authorizing legislation of
this type are sometimes
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referred to as "moral obligation" bonds. There is no statutory limitation on
the amount of "moral obligation" bonds which may be issued by eligible New
Jersey entities.
The following table sets forth the "moral obligation" bonded indebtedness
issued by New Jersey entities as of June 30, 1995:
<TABLE>
<CAPTION>
Maximum Annual Debt Service
Outstanding Subject to Moral Obligation
<S> <C> <C>
New Jersey Housing and Mortgage $554,390,156.41 $50,775,490.73
Finance Agency
South Jersey Port Corporation 86,525,000.00 7,379,256.00
Higher Education Assistance 94,996,064.00 9,792,628.13
Authority ---------------------- ----------------------
$735,911,220.41 $67,947,374.86
</TABLE>
Higher Education Assistance Authority. The Higher Education Assistance
Authority ("HEAA") has issued $94,996,064 aggregate principal amount of
revenue bonds. It is anticipated that the HEAA's revenues will be sufficient
to cover debt service on its bonds.
New Jersey Housing and Mortgage Finance Agency. Neither the New Jersey Housing
and Mortgage Finance Agency nor its predecessors, the New Jersey Housing
Finance Agency and the New Jersey Mortgage Finance Agency, have had a
deficiency in a debt service reserve fund which required New Jersey to
appropriate funds to meet its "moral obligation." It is anticipated that this
agency's revenues will continue to be sufficient to cover debt service on its
bonds.
South Jersey Port Corporation. New Jersey has periodically provided the South
Jersey Port Corporation (the "Corporation") with funds to cover all debt
service and property tax requirements, when earned revenues are anticipated to
be insufficient to cover these obligations. For calendar years 1986 through
1993, the State has made appropriations totaling $18,137,565 to pay property
taxes and for calendar years 1989 through 1995, the State has made
appropriations totalling $20,988,519.25 to pay debt service.
New Jersey Sports and Exposition Authority. On March 2, 1992, the New Jersey
Sports and Exposition Authority ("Sports Authority") issued $147,490,000 in
New Jersey guaranteed bonds and defeased all previously outstanding New Jersey
guaranteed bonds of the Sports Authority. New Jersey officials have stated the
belief that the revenue of the Sports Authority will be sufficient to provide
for the payment of debt service on these obligations without recourse to New
Jersey's guarantee.
Legislation enacted in 1992 authorizes the Sports Authority to issue bonds for
various purposes payable from New Jersey appropriations. Pursuant to this
legislation, the Sports Authority and the New Jersey Treasurer have entered
into an agreement ("State Contract") pursuant to which the Sports Authority
will undertake certain projects, including the refunding of certain
outstanding bonds of the Sports Authority, and the New Jersey Treasurer will
credit to the Sports Authority Fund amounts from the General Fund sufficient
to pay debt service and other costs related to the bonds. The payment of all
amounts under the State Contract is subject to and dependent upon
appropriations being made by the New Jersey Legislature. As of June 30, 1995
there were approximately $473,410,000 aggregate principal amount of Sports
Authority bonds outstanding the debt service on which is payable from amounts
under the State Contract.
New Jersey Transportation Trust Fund Authority. In July 1984, New Jersey
created the New Jersey Transportation Trust Fund Authority ("TTFA"), an
instrumentality of New Jersey organized and existing under the New Jersey
Transportation Trust Fund Authority Act of 1984, as amended (the "TFA Act")
for the purpose of funding a portion of New Jersey's share of the cost of
improvements to New Jersey's transportation system. Pursuant to the TFA Act,
the TTFA, the New Jersey Treasurer and the Commissioner of Transportation
executed a contract ("Contract") which provides for the payment of certain
amounts to the TTFA. The payment of all such amounts is subject to and
dependent upon appropriations being made by the New Jersey Legislature and
there is no requirement that the Legislature make such appropriation.
Pursuant to the TFA Act, the aggregate principal amount of the TTFA's bonds,
notes or other obligations which may be issued in any one fiscal year
generally may not exceed $700 million plus amounts carried over from the prior
fiscal year. These bonds are special obligations of the TTFA payable from the
payments made by New Jersey pursuant to the Contract.
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Economic Recovery Fund Bonds. Legislation enacted during 1992 by New Jersey
authorizes the EDA to issue bonds for various economic development purposes.
Pursuant to that legislation, EDA and the New Jersey Treasurer have entered
into an agreement ("ERF Contract") through which EDA has agreed to undertake
the financing of certain projects and the New Jersey Treasurer has agreed to
credit to the Economic Recovery Fund from the General Fund amounts equivalent
to payments due to New Jersey under an agreement with the Port Authority of
New York and New Jersey. The payment of all amounts under the ERF Contract is
subject to and dependent upon appropriations being made by the New Jersey
Legislature.
Market Transition Facility Bonds. Legislation enacted in June 1994 authorizes
the EDA to issue bonds to pay the current and anticipated liabilities and
expenses of the Market Transition Facility, which issued private passenger
automobile insurance policies for drivers who could not be insured by private
insurance companies on a voluntary basis. On July 26, 1994 the EDA issued
$700,270,000 aggregate principal amount of Market Transition Facility Senior
Lien Revenue Bonds. The EDA and the State Treasurer have entered into an
agreement which provides for the payment to the EDA of amounts on deposit in
the DMV Surcharge Fund to pay debt service on the bonds. Such payments are
subject to and dependent upon appropriations being made by the State
Legislature.
Educational Facilities Authority. Legislation enacted in 1993 authorizes the
Educational Facilities Authority ("EFA") to issue bonds to finance the
purchase of equipment to be leased to institutions of higher learning. On
August 17, 1994 the EFA issued $100,000,000 aggregate principal amount of
Higher Education Leasing Fund Program bonds. The EFA and the State Treasurer
have entered into an agreement which provides to the EFA amounts required to
pay debt service on the bonds. Such payments are subject to and dependent upon
appropriations being made by the State Legislature. Other legislation enacted
in 1993 created the Higher Education Facilities Trust Fund from which the EFA
makes grants to institutions of higher education. The legislation authorizes
the EFA to issue bonds to finance the grants, and limits the total outstanding
principal amount of such bonds of $220,000,000. On November 29, 1995 the EFA
issued $220,000,000 aggregate principal amount of Higher Education Facilities
Trust Fund Bonds. These bonds are secured by payments made to the EFA by the
State, which are subject to annual appropriation by the State Legislature.
Municipal Finance. New Jersey's local finance system is regulated by various
statutes designed to assure that all local governments and their issuing
authorities remain on a sound financial basis. Regulatory and remedial
statutes are enforced by the Division of Local Government Services (the
"Division") in the State Department of Community Affairs.
Counties and Municipalities. The Local Budget Law (N.J.S.A. 4OA: 4-1 et seq.)
imposes specific budgetary procedures upon counties and municipalities ("local
units"). Every local unit must adopt an operating budget which is balanced on
a cash basis, and items of revenue and appropriation must be examined by the
Director of the Division (the "Director"). The accounts of each local unit
must be independently audited by a registered municipal accountant. State law
provides that budgets must be submitted in a form promulgated by the Division
and further provides for limitations on estimates of tax collection and for
reserves in the event of any shortfalls in collections by the local unit. The
Division reviews all municipal and county annual budgets prior to adoption for
compliance with the Local Budget Law. The Director is empowered to require
changes for compliance with law as a condition of approval; to disapprove
budgets not in accordance with law; and to prepare the budget of a local unit,
within the limits of the adopted budget of the previous year with suitable
adjustments for legal compliance, if the local unit is unwilling to prepare a
budget in accordance with law. This process insures that every municipality
and county annually adopts a budget balanced on a cash basis, within
limitations on appropriations or tax levies, respectively, and making adequate
provision for principal of and interest on indebtedness falling due in the
fiscal year, deferred charges and other statutory expenditure requirements.
The Director also oversees changes to local budgets after adoption as
permitted by law, and enforces regulations pertaining to execution of adopted
budgets and financial administration. In addition to the exercise of
regulatory and oversight functions, the Division offers expert technical
assistance to local units in all aspects of financial administration,
including revenue collection and cash management procedures, contracting
procedures, debt management and administrative analysis.
The Local Government Cap Law (N.J.S.A. 4OA: 4-45.1 et seq.) ("Cap Law")
generally limits the year-to-year increase of the total appropriations of any
municipality and the tax levy of any county to either 5% or an index rate
determined annually by the Director, whichever is less. However, where the
index percentage rate exceeds 5%, the Cap Law permits the governing body of
any municipality or county to approve the use of a higher percentage rate up
to the index rate. Further, where the index percentage rate is less than 5%,
the Cap Law also permits the governing body of any municipality or county to
approve the use of a higher percentage rate up to 5%. Regardless of the rate
utilized, certain exceptions exist to the Cap Law's limitation on increases in
appropriations. The principal exceptions to these limitations are: municipal
and county appropriations to pay debt service requirements; to comply with
certain other State or federal mandates; appropriations of private and public
dedicated funds; amounts approved by referendum; and, in the case of
municipalities only, to fund the preceding year's cash deficit or to reserve
for shortfalls in tax collections, and amounts required pursuant to
contractual obligations for specified services. The Cap Law was re-enacted in
1990 with amendments and made a permanent part of the Municipal Finance
System.
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State law also regulates the issuance of debt by local units. The Local Budget
Law limits the amount of tax anticipation notes that may be issued by local
units and requires the repayment of such notes within 120 days of the end of
the fiscal year (six months in the case of the counties) in which issued. The
Local Bond Law (N.J.S.A. 4OA: 2-1 et seq.) governs the issuance of bonds and
notes by the local units. No local unit is permitted to issue bonds for the
payment of current expenses (other than Fiscal Year Adjustment Bonds described
more fully below). Local units may not issue bonds to pay outstanding bonds,
except for refunding purposes, and then only with the approval of the Local
Finance Board. Local units may issue bond anticipation notes for temporary
periods not exceeding in the aggregate approximately ten years from the date
of first issue. The debt that any local unit may authorize is limited to a
percentage of its equalized valuation basis, which is the average of the
equalized value of all taxable real property and improvements within the
geographic boundaries of the local unit, as annually determined by the
Director of the Division of Taxation, for each of the three most recent years.
In the calculation of debt capacity, the Local Bond Law and certain other
statutes permit the deduction of certain classes of debt ("statutory
deductions") from all authorized debt of the local unit ("gross capital debt")
in computing whether a local unit has exceeded its statutory debt limit.
Statutory deductions from gross capital debt consist of bonds or notes (i)
authorized for school purposes by a regional school district or by a
municipality or a school district with boundaries coextensive with such
municipality to the extent permitted under certain percentage limitations set
forth in the School Bond Law (as hereinafter defined); (ii) authorized for
purposes which are self liquidating, but only to the extent permitted by the
Local Bond Law; (iii) authorized by a public body, other than the local units
the principal of and interest on which is guaranteed by the local unit, but
only to the extent permitted by law; (iv) that are bond anticipation notes;
(v) for which provision for payment has been made; or (vi) authorized for any
other purpose for which a deduction is permitted by law. Authorized net
capital debt (gross capital debt minus statutory deductions) is limited to
3.5% of the equalized valuation basis in the case of municipalities and 2% of
the equalized valuation basis in the case of counties. The debt limit of a
county or municipality, with certain exceptions, may be exceeded only with the
approval of the Local Finance Board.
Chapter 75 of the Pamphlet Laws of 1991 signed into law on March 28, 1991
required certain municipalities and permits all other municipalities to adopt
the State fiscal year in place of the existing calendar fiscal year.
Municipalities that change fiscal years must adopt a six month transition year
budget funded by Fiscal Year Adjustment Bonds. Notes issued in anticipation of
Fiscal Year Adjustment Bonds, including renewals, can only be issued for up to
one year unless the Local Finance Board permits the municipality to renew them
for a further period of time. The Local Finance Board must confirm the actual
deficit experienced by the municipality. The municipality then may issue
Fiscal Year Adjustment Bonds to finance the deficit on a permanent basis.
State law authorizes State officials to supervise fiscal administration in any
municipality which is in default on its obligations; which experiences severe
tax collection problems for two successive years; which has a deficit greater
than 4% of its tax levy for two successive years; which has failed to make
payments due and owing to the State, county, school district or special
district for two consecutive years; which has an appropriation in its annual
budget for the liquidation of debt which exceeds 25% of its total operating
appropriations (except dedicated revenue appropriations) for the previous
budget year; or which has been subject to a judicial determination of gross
failure to comply with the Local Bond Law, the Local Budget Law or the Local
Fiscal Affairs Law which substantially jeopardizes its fiscal integrity. State
officials are authorized to continue such supervision for as long as any of
the conditions exist and until the municipality operates for a fiscal year
without incurring a cash deficit.
There are 567 municipalities and 21 counties in New Jersey. During 1993, 1994
and 1995 no county exceeded its statutory debt limitations or incurred a cash
deficit in excess of 4% of its tax levy. Only two municipalities had a cash
deficit greater than 4% of their tax levies for 1994 and 1995. The number of
municipalities which exceeded statutory debt limits was six as of December 31,
1994. No New Jersey municipality or county has defaulted on the payment of
interest or principal on any outstanding debt obligation since the 1930's.
School Districts. All New Jersey school districts are coterminous with the
boundaries of one or more municipalities. They are characterized by the manner
in which the board of education, the governing body of the school district,
takes office. Type I school districts, most commonly found in cities, have a
board of education appointed by the mayor or the chief executive officer of
the municipality constituting the school district. In a Type II school
district, the board of education is elected by the voters of the district.
Nearly all regional and consolidated school districts are Type II school
districts.
The State Department of Education has been empowered with the necessary and
effective authority to abolish an existing school board and create a
State-operated school district where the existing school board has failed or
is unable to take the corrective actions necessary to provide a thorough and
efficient system of education in that school district pursuant to N.J.S.A.
18A:7A-1 et seq. (the "School Act"). The State operated school district
operated under the direction of a State appointed superintendent has all of
the powers and authority of the local board of education and of the local
district superintendent. Pursuant to the authority granted under the School
Act, on October 4, 1989, the State Board of Education ordered the creation of
a State operated school district in the City of Jersey City. Similarly, on
August 7, 1991, the State Board of Education ordered the creation
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of a State operated school district in the City of Paterson and on July 5,
1995 ordered the creation of a State-operated school district in the City of
Newark.
School Budgets. In every school district having a board of school estimate,
the board of school estimate examines the budget request and fixes the
appropriation amounts for the next year's operating budget after a public
hearing at which the taxpayers and other interested persons shall have an
opportunity to raise objections and to be heard with respect to the budget.
This board, whose composition is fixed by statute, certifies the budget to the
municipal governing bodies and to the local board of education. If the local
board of education disagrees, it must appeal to the State Commissioner of
Education (the "Commissioner") to request changes.
In Type II school districts without a board of school estimate, the elected
board of education develops the budget proposal and, after public hearing,
submits it to the voters of such district for approval. Previously authorized
debt service is not subject to referendum in the annual budget process. If
approved, the budget goes into effect. If defeated, the governing body of each
municipality in the school district has approximately 20 days to determine the
amount necessary to be appropriated for each item appearing in such budget.
Should the governing body fail to certify any amount determined by the board
of education to be necessary for any item rejected at the election, the board
of education may appeal the action to the Commissioner.
The State laws governing the distribution of State aid to local school
districts limit the annual increase of a school district's net current expense
budget. The Commissioner certifies the allowable amount of increase for each
school district but may grant a higher level of increase in certain limited
instances. A school district may also submit a proposal to the voters to raise
amounts above the allowable amount of increase. If defeated, such a proposal
is subject to further review or appeal to the Commission only if the County
Superintendent determines that additional funds are required to provide a
thorough and efficient education. The Supreme Court of New Jersey has ordered
that the State Legislature adopt a new funding formula by September 1996 that
would provide for substantially equivalent expenditures in the poor urban
districts and wealthy suburban districts.
In Type I or Type II school districts which have failed monitoring over a
period of time by the State because of continued educational deficiencies, and
are implementing an approved corrective action plan, the Commissioner is
required to determine the cost to the school district of the implementation of
those portions of the corrective action plan which are directly responsive to
the district's deficiencies as identified in the monitoring process. Where
appropriate, the Commissioner is required to reallocate funds within the
district's budget to support the corrective action plan. The Commissioner is
also required to determine the amount of additional revenue needed to
implement the corrective action plan, and to recertify the budget for the
district.
In State operated school districts, the State District Superintendent has the
responsibility for the development of the budget subject to appeal by the
governing body of the municipality to the Commissioner and the Director of the
Division of Local Government Services in the State Department of Community
Affairs. Based upon his review, the Director is required to certify the amount
of revenues which can be raised locally to support the budget of the State
operated district. Any difference between the amount which the Director
certifies, and the total amount of local revenues required by the budget
approved by the Commissioner, is to be paid by the State in the fiscal year in
which the expenditures are made subject to the availability of appropriations.
School District Bonds. School district bonds and temporary notes are issued in
conformity with N.J.S.A 18A: 24-1 et seq. ("School Bond Law") which closely
parallels the Local Bond Law. Although school districts are exempted from the
5% down payment provision generally applied to bonds issued by municipalities
and counties, they are subject to debt limits (which vary depending on the
type of school system provided) and to State regulation of their borrowing.
The debt limitation on school district bonds depends upon the classification
of the school district but may be as high as 4% of the average equalized
valuation basis of the constituent municipality. In certain cases involving
school districts in cities with populations exceeding 100,000, the debt limit
is 8% of the average equalized valuation basis of the constituent
municipality, and in cities with population in excess of 80,000 the debt limit
is 6% of the aforesaid average equalized valuation.
School bonds are authorized by (i) an ordinance adopted by the governing body
of a municipality within a Type I school district; (ii) adoption of a proposal
by resolution by the board of education of a Type II school district having a
board of school estimate; (iii) adoption of a proposal by resolution by the
board of education and approval of the proposal by the legal voters of any
other Type II school district; or (iv) adoption of a proposal by resolution by
a capital project control board for projects in a State operated school
district. If school bonds will exceed the school district borrowing capacity,
a school district (other than a regional school district) may use the balance
of the municipal borrowing capacity. If the total amount of debt exceeds the
school district's borrowing capacity and any available remaining municipal
borrowing capacity, the Commissioner and the Local Finance Board must approve
the proposed authorization before it is submitted to the voters. All
authorizations of debt in a Type II school district without a board of school
estimate require an approving referendum, except where, after hearing, the
Commissioner and the
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State Board of Education determine that the issuance of such debt is necessary
to meet the constitutional obligation to provide a thorough and efficient
system of public schools. When such obligations are issued, they are issued
by, and in the name of, the school district.
In Type I and II school districts with a board of school estimate, that board
examines the capital proposal of the board of education and certifies the
amount of bonds to be authorized. When it is necessary to exceed the borrowing
capacity of the municipality, the approval of a majority of the legally
qualified voters of the municipality is required, together with the approval
of the Commissioner and the Local Finance Board. When such bonds are issued
for a Type I school district, they are issued by the municipality and
identified as school bonds. When bonds are issued by a Type II school district
having a board of school estimate, they are issued by, and in the name of, the
school district.
All authorizations of debt must be reported to the Division of Local
Government Services by a supplemental debt statement prior to final approval.
School District Lease Purchase Financings. In 1982, school districts were
given an alternative to the traditional method of bond financing capital
improvements pursuant to N.J.S.A. 18A: 20-4.2(f) ("Lease Purchase Law"). The
Lease Purchase Law permits school districts to acquire a site and school
building through a lease purchase agreement with a private lessor corporation.
The lease purchase agreement does not require voter approval. The rent
payments attributable to the lease purchase agreement are subject to annual
appropriation by the school district and are required, pursuant to N.J.A.C. 6:
22A- 1.2(h), to be included in the annual current expense budget of the school
district. Furthermore, the rent payments attributable to the lease purchase
agreement do not constitute debt of the school district and therefore do not
impact on the school district's debt limitation. Lease purchase agreements in
excess of five years require the approval of the Commissioner and the Local
Finance Board.
Qualified Bonds. In 1976, legislation was enacted (P.L. 1976, c. 38 and c. 39)
which provides for the issuance by municipalities and school districts of
"qualified bonds." Whenever a local board of education or the governing body
of a municipality determines to issue bonds, it may file an application with
the Local Finance Board, and, in the case of a local board of education, the
Commissioner, to qualify bonds pursuant to P.L. 1976, c. 38 or c. 39. Upon
approval of such an application and after receipt of a certificate stating the
name and address of the paying agent for such bonds, the maturity schedule,
interest rates and payment dates, the State Treasurer shall, in the case of
qualified bonds for school districts, withhold from the school aid payable to
such municipality or school district and, in the case of qualified bonds for
municipalities, withhold from the amount of business personal property tax
replacement revenues, gross receipts tax revenues, municipal purposes tax
assistance fund distributions, State urban aid, State revenue sharing, and any
other funds appropriated as State aid and not otherwise dedicated to specific
municipal programs, payable to such municipalities, an amount sufficient to
cover debt service on such bonds. These "qualified bonds" are not direct,
guaranteed or moral obligations of the State, and debt service on such bonds
will be provided by the State only if the above mentioned appropriations are
made by the State. Total outstanding indebtedness for "qualified bonds" as of
June 30, 1995 consisted of $224,492,700 by various school districts and
$903,760,316 by various municipalities.
New Jersey School Bond Reserve Act. The New Jersey School Bond Reserve Act
(N.J.S.A. 18A: 56-17 et seq.) establishes a school bond reserve within the
constitutionally dedicated Fund for the Support of Free Public Schools. Under
this law the reserve is maintained at an amount equal to 1.5% of the aggregate
outstanding bonded indebtedness of counties, municipalities or school
districts for school purposes (exclusive of bonds whose debt service is
provided by State appropriations), but not in excess of monies available in
such Fund. If a municipality, county or school district is unable to meet
payment of the principal of or interest on any of its school bonds, the
trustee of the school bond reserve will purchase such bonds at the face amount
thereof or pay the holders thereof the interest due or to become due. At June
30,1995, the book value of the Fund's assets aggregated $88,736,798 and the
reserve, computed as of June 30, 1995, amounted to $38,811,015. There has
never been an occasion to call upon this Fund.
Local Financing Authorities. The Local Authorities Fiscal Control Law
(N.J.S.A. 4OA: 5A-l et seq.) provides for State supervision of the fiscal
operations and debt issuance practices of independent local authorities and
special taxing districts by the State Department of Community Affairs. The
Local Authorities Fiscal Control Law applies to all autonomous public bodies
created by counties or municipalities, which are empowered to issue bonds, to
impose facility or service charges, or to levy taxes in their districts. This
encompasses most autonomous local authorities (sewerage, municipal utilities,
parking, pollution control, improvement, etc.) and special taxing districts
(fire, water, etc.). Authorities which are subject to differing state or
federal financial restrictions are exempted, but only to the extent of that
difference.
Financial control responsibilities over local authorities and special
districts are assigned to the Local Finance Board and the Director of the
Division of Local Government Services. The Local Finance Board exercises
approval power over the creation
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of new authorities and special districts as well as their dissolution. The
Local Finance Board also reviews, conducts public hearings and issues findings
and recommendations on any proposed project financing of an authority or
district, and on any proposed financing agreement between a municipality or
county and an authority or special district. The Local Finance Board
prescribes minimum audit requirements to be followed by authorities and
special districts in the conduct of their annual audits. The Director reviews
and approves annual budgets of authorities and special districts. As of June
30, 1994, there were 196 locally created authorities with a total outstanding
capital debt of $7 billion (figures do not include housing authorities and
redevelopment agencies).
Litigation. The following are cases pending or threatened as of December 1,
1995 in which the State has the potential for either a significant loss of
revenue or a significant unanticipated expenditure.
New Jersey Education Association et. al v. State of New Jersey et. al. This
case represents a challenge to amendments to the pension laws enacted on June
30, 1994 (P.L. 1994, Chapter 62), which concerned the funding of the Teachers
Pension and Annuity Fund ("TPAF"), the Public Employee's Retirement System
("PERS"), the Police and Fireman's Retirement System ("PFRS"), the State
Police Retirement ("SPRS") and the Judicial Retirement System ("JRS"). The
complaint was filed in the United States District Court of New Jersey on
October 17, 1994. The statute, P.L. 1994, Chapter 62 (Chapter 62), as enacted,
made several changes affecting these retirement systems including changing the
actuarial funding method to projected unit credit; continuing the prefunding
of post-retirement medical benefits but at a reduced level for TPAF and PERS;
revising the employee member contribution rate to a flat 5% for TPAF and PERS;
extending the phase in period for the revised TPAF actuarial assumptions;
changing the phase-in period for funding of cost-of-living adjustment and
reducing the inflation assumption for the Cost of Living Adjustment ("COLA")
for all retirement systems; and decreasing the average salary increase
assumption for all retirement systems. Plaintiffs allege that the changes
resulted in lower employer contributions in order to reduce a general budget
deficit. The complaint further alleges that certain provisions of Chapter 62
violate the contract, due process, and taking clauses of the United States and
New Jersey Constitutions, and further constitute a breach of the State's
fiduciary duty to participants in TPAF and PERS. Plaintiffs seek to
permanently enjoin the State from administering, enforcing or otherwise
implementing Chapter 62. An adverse determination against the State would have
a significant impact upon the Fiscal Year 1996 budget. The State filed a
motion to dismiss and a motion for summary judgment.
On October 6, 1995, the Court issued its opinion in which it dismissed the
State as a party to the action. The only defendant is State Treasurer Clymer.
The claims surviving the motion are: (1) breach of trust and fiduciary duty
(against the Treasurer in both his individual and official capacities); (2)
violation of Due Process (against the Treasurer in both his individual and
official capacities); and (3) a 42 U.S.C. ss.1983 claim (against the Treasurer
in his individual capacity). The State has filed a motion for reconsideration
or, in the alternative, for certification to the Third Circuit Court of
Appeals, of the remaining claims.
County/State Disputes Concerning Social Security Recoveries
There are presently several cases pending in the State courts challenging the
methods by which the State Department of Human Services shares with county
governments the maintenance recoveries and costs for residents in State
psychiatric hospitals and residential facilities for the developmentally
disabled. In County of Essex v. Waldman, et al., Essex County challenged the
State's policy of sharing federal Social Security recoveries on a 50%-50%
basis with the County. Essex County maintains that State law has, since 1980,
required that 100% of the recoveries be paid to the County. On December 6,
1990, the Appellate Division upheld the trial court's ruling allowing the
County to receive 100% of recoveries, but refused to allow recovery
retroactive to 1980, instead fixing January 25, 1989 as the effective date of
the ruling as to Essex County. A petition for certification by the County of
Essex, and a cross-petition by the State, were denied by the New Jersey
Supreme Court on May 28, 1991. The Counties of Morris, Passaic, Middlesex,
Hudson, Bergen, Union, Cumberland, Monmouth, Mercer, Hunterdon and Camden all
filed similar actions which were stayed (except in the cases of Hudson and
Camden) pending the outcome in the County of Essex case, and all actions
(except in the case of Mercer) are now on appeal. Retroactive recoveries in
those cases may also be limited, as in the County of Essex matter. By
administrative order dated July 22, 1991, the Commissioner determined that
State liability to all counties (with the exception of Essex County) would run
as of December 6, 1990. The Counties of Bergen, Burlington, Camden,
Cumberland, Hunterdon, Hudson, Middlesex, Monmouth, Morris, Passaic and Union
have appealed that administrative order in the Superior Court, Appellate
Division.
In March 1994, the Appellate Division ruled that all counties were entitled to
100% of social security benefits and other maintenance recoveries received by
the State and were entitled to credits for payments made to the State for the
maintenance of Medicare and Medicaid - eligible county residents in State
facilities for the mentally ill and developmentally disabled from the
respective dates in 1989 of the trial court's decisions in County of Essex v.
Waldman (April 14, 1989) and County of Essex v. Commissioner, Department of
Human Services, et al. (September 25, 1989). In May 1994, the Appellate
Division granted the State's Motion for Reconsideration and modified its
earlier ruling. A request by several counties asking the Court to reconsider
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the modification was denied. The State and several counties have filed
separate notices of Petition for Certification asking the New Jersey Supreme
Court to review portions of the case. In February 1995, the State and all but
one county resolved the cost- sharing disputes involved in the Appellate
Division ruling, and the Supreme Court dismissed the pending appeals by the
State and several counties. The one county that did not agree to settle its
claim has filed for administrative review.
New Jersey Hospital Association, et al. v. Waldman, et. al. This case is a
challenge by the New Jersey Hospital Association and certain hospitals of the
adequacy of Medicaid reimbursement for hospital services. Plaintiffs allege
that the Department of Human Services ("DHS") and various State entities and
representatives (collectively referred to as the "State") have violated
certain reimbursement standards established by the Boren Amendment to Title
XIX of the Social Security Act. Plaintiffs seek a preliminary injunction
preventing the recently amended rate regulations from being implemented. If
enjoined, the State will expend an additional $154,000,000 for hospital rates
in calendar year 1995, half of which is paid by federal funds. Plaintiffs are
further seeking a declaration that the State violated federal law and a
permanent injunction against DHS requiring it to comply with federal law
concerning the setting of rates. Plaintiffs also seek costs and attorneys'
fees. A Motion for Preliminary Injunction was filed on March 23, 1995, and was
denied on May 25, 1995. The New Jersey Hospital Association has appealed the
denial to the United States Court of Appeals for the Third Circuit. Oral
argument was heard by the Court of Appeals on September 15, 1995 and a
decision is pending. The action for declaratory relief and a permanent
injunction will be stayed during the appeal.
Beth Israel Hospital et al. v. Essential Health Services Commission. This case
represents a challenge by eleven New Jersey hospitals to the .53% assessment
authorized by the Health Care Reform Act of 1992, specifically N.J.S.A.
26:2H-18.62. Amounts collected pursuant to the assessment are paid into the
hospital and other health care initiatives account of the Health Care Subsidy
Fund, to be used for various health care programs. Specifically, the funds are
currently used for those programs previously established pursuant to N.J.S.A.
26:2H-18.47. In this appeal of the assessment, filed with the Appellate
Division on December 6, 1993, appellants argue that collection of the
assessment is invalid in the absence of Hospital Rate Setting Commission
approval of the approved revenue base used in the calculation. At the same
time, appellates filed an application for injunctive relief, seeking to stay
any collection, which application was denied. In a decision dated July 10,
1995, the Appellate Division rejected appellants' contention that the
respondents were prohibited from collecting the assessment. However, the court
also found that the hospitals had not been afforded an opportunity to be heard
on the assessment, and thus remanded the case to the Essential Health Services
Commission for a hearing.
New Jersey Hospital Association, et al. v. Leonard Fishman. This case
represents an appeal, in addition to the cases described above, by the New
Jersey Hospital Association and 67 individual hospitals seeking the refund of
$20,752,918 in amounts previously paid by the hospitals into the Health Care
Cost Reduction Fund, pursuant to the .53% assessment authorized by the Health
Care Cost Reduction Act of 1991. Appellants argue that they are entitled to
the refund as per the Appellate Division's prior opinion in the case of
Barnett Memorial Hospital v. Commissioner of Health. In that case the
Appellate Division determined that the amounts collected by the Department
during Fiscal Year 92 and Fiscal Year 93 pursuant to the .53% assessment had
effectively constituted a doubling of the amounts intended by the Legislature.
The court thus ordered a refund to the 16 hospitals who were appellants in
that case. The 67 hospitals in the present case now seek the same relief as
afforded the Barnett appellants. In a decision dated August 1, 1995, the court
rejected appellant's request for a refund. The court ruled that appellant's
appeal had been filed in an untimely manner and was thus time-barred. In
addition, the court held that, under the voluntary payment rule and general
principles of retroactivity, appellants were not entitled to a refund of
monies paid to the Department of Health.
Fair Automobile Insurance Reform Act Litigation
On March 12, 1990, the Fair Automobile Insurance Reform Act of 1990 ("FAIR
Act") was enacted into law. It recently was amended by L. 1994, c. 57. The
FAIR Act substantially altered New Jersey's statutory scheme governing private
passenger automobile insurance. The New Jersey Automobile Full Insurance
Underwriting Association ("JUA"), an unincorporated non-profit association
created in 1983 to provide automobile insurance to those unable to secure such
coverage in the voluntary market, was precluded from issuing or renewing
automobile insurance policies after October 1, 1990. The FAIR Act included
provisions governing the transition of drivers insured by the JUA first to the
Market Transition Facility ("MTF") and then to the voluntary market and, to
the extent such coverage is not available, to an Assigned Risk Plan. The FAIR
Act also provided for the imposition of taxes and assessments to meet the
financial obligations of the JUA, which are not debts, liabilities or
obligations of the State. The FAIR Act's revenue raising measures were not
reflected in the current budget because the anticipated revenues are to be
applied by statute to the JUA financial obligations. L. 1994, c. 57 provides
for application of these anticipated revenues to the MTF. The FAIR Act also
provides for the making of assessments by the New Jersey Property Liability
Insurance Guaranty Association upon property and casualty liability insurers
in order to raise $160 million dollars per year for the period 1990 to 1997.
The funds will also be used for JUA and MTF.
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Litigation challenging the FAIR Act is virtually completed. Only one "as
applied" challenge to the Fair Act surtax and assessment provisions remains.
Miscellaneous protective claims for refunds are pending against the surtax.
State Farm alleged that its constitutional rights were violated and that it
was entitled to refunds of FAIR Act surtaxes and assessments. The State Farm
matter was decided in favor of the State and its petition for certification to
the Supreme Court was denied.
Tort, Contract and Other Claims
At any given time, there are various numbers of claims and cases pending
against the State, State agencies and employees, seeking recovery of monetary
damages that are primarily paid out of the fund created pursuant to the New
Jersey Tort Claims Act (N.J.S.A. 59: 1-1, et seq.). The State does not
formally estimate its reserve representing potential exposure for these claims
and cases. The State is unable to estimate its exposure for these claims and
cases. In addition, at any given time, there are various numbers of contract
and other claims against the State and State agencies, including environmental
claims asserted against the State, among other parties, arising from the
alleged disposal of hazardous waste. Claimants in such matter are seeking
recovery of monetary damages or other relief which, if granted, would require
the expenditure of funds. The State is unable to estimate its exposure for
these claims.
At any given time, there are various numbers of claims and cases pending
against the University of Medicine and Dentistry and its employees, seeking
recovery of monetary damages that are primarily paid out of the Self Insurance
Reserve Fund created pursuant to the New Jersey Tort Claims Act. An
independent study estimated an aggregate potential exposure of $66.5 million
for tort and medical malpractice claims pending as of December 31, 1994. In
addition, at any given time, there are various numbers of contract and other
claims against the University of Medicine and Dentistry, seeking recovery of
monetary damages or other relief which, if granted, would require the
expenditure of funds. The State is unable to estimate its exposure for these
claims.
County of Passaic v. State of New Jersey. This action filed by the County of
Passaic, the Passaic County Utilities Authority, and the Passaic County
Pollution Control Financing Authority ('plaintiffs'), alleges tort and
contractual claims against the State and the NJDEP associated with a resource
recovery facility which plaintiffs had once planned to build. The plaintiffs
allege that the State and the NJDEP violated a 1984 consent order concerning
the construction of a resource recovery facility in Passaic County.
Plaintiffs' complaint alleged approximately $30 million in damages against the
State and the NJDEP. On March 17, 1995, the court granted the State's motion
for summary judgment, dismissing all counts of plaintiffs' complaint against
the State and the NJDEP, with prejudice. The court found that there was no
legal obligation or duty on the part of the State or the NJDEP concerning the
project. Plaintiffs have filed an appeal of the court's decision. The State
intends to vigorously defend this appeal.
Pelletier, et al. v. Waldman, et al. In this case, several Medicaid eligible
children and the Association for Children of New Jersey challenge the adequacy
of Medicaid reimbursement for services rendered by doctors and dentists to
Medicaid eligible children. Plaintiffs allege that the Department of Human
Services, Division of Medical Assistance and Health Services has, by virtue of
unreasonably low Medicaid payment rates to doctors and dentists, failed to
attract a sufficient number of medical professionals to provide adequate
access to health care services for Medicaid eligible children. Plaintiffs
intend to seek class action certification on behalf of all New Jersey Medicaid
eligible children. Plaintiffs seek a declaration that the Department of Human
Services has violated federal law by setting rates that do not provide access
to the Medicaid Early and Periodic Screening Diagnosis and Treatment ("EPSDT")
program and an injunction against the Department requiring it to comply with
federal law in the setting of such rates. Plaintiffs also seek costs and
attorneys' fees. A final decision in favor of the plaintiffs could require the
State to make substantial expenditures. The Complaint was filed on June 9,
1993. An answer was filed on behalf of the State defendants; the parties are
currently in mediation.
Robert E. Brennan v. Richard Barry et. al. On May 19, 1993 plaintiff Robert
Brennan filed suit against two members of the New Jersey Bureau of Securities,
Richard Barry, the Supervisor of Enforcement and Jared Silverman, Bureau
Chief. Brennan's complaint alleges various causes of action for defamation and
injury to reputation under section 1983 and state law. Plaintiff also alleges
claims of abuse of process and improper disclosure of private facts based on
the Bureau's ongoing investigation of certain publicly traded securities. The
State's motion for summary judgment was granted on January 11, 1995. Brennan
has filed a notice of appeal. The State is unable to estimate its exposure for
this claim and intends to defend this suit vigorously.
Camden Co. v. Waldman, et al. Fifteen counties seek a portion of the $412
million in federal funds that the State received for disproportionate share
hospital payments made to psychiatric facilities during July 1, 1988 through
July 1, 1991. Camden County contends that the Essex decisions mandate sharing
of the federal funding. These decisions dealt with sharing maintenance costs
when there have been social security and Medicaid payment recoveries. The
State will contend that under a recently approved Medicaid state plan
amendment and federal law, the State does not have to share the federal
funding because it already paid
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the counties their portion of disproportionate share hospital payments. The
actions against the Attorney General and State Treasurer were dismissed and
the matter was transferred to the Appellate Division.
Similar law suits were filed by Middlesex, Monmouth, Atlantic, Union, Hudson,
Ocean, Mercer, Somerset, Morris, Sussex, Cape May, Essex, Warren and Passaic
counties. The Middlesex, Monmouth, Atlantic, Union, Ocean, Mercer, Morris,
Warren and Hudson County cases were transferred to the Appellate Division. The
Atlantic, Camden and Monmouth counties cases have been consolidated. Cape May
has joined in the existing calendar matters. The other counties, Essex, Warren
and Passaic, have recently had their cases transferred to the Appellate
Division, but have not sought to join in the existing matters. With the
exception of Essex, Warren and Passaic, the remaining matters will be heard on
a back to back basis by the Appellate Division. The State and counties have
filed their briefs. The State has requested oral argument because of the
complicated nature of the issues and the large amount of money involved.
Interfaith Community Organization v. Shinn, et al. In late October, 1993, the
Interfaith Community Organization ("ICO") a coalition of churches and church
leaders in Hudson County, filed suit on behalf of the ICO's membership and the
citizens of Hudson County against the Governor, the Commissioner of the
Department of Environmental Protection ("DEP"), Commissioner of the Department
of Health ("DOH"), and Lance Miller, Assistant Commissioner of DEP. The
multicount complaint alleged violations of numerous laws, allegedly resulting
from the existence of chromium contamination in the State-owned Liberty State
Park in Jersey City. It also asserted the alleged failure by DEP and DOH to
properly conduct remediation and health screens in Hudson County concerning
chromium contamination. No immediate relief was sought, but injunctive and
monetary relief was asked for.
In June 1994, ICO hired a law firm to represent it in this matter. The firm
filed amended complaints, naming only Commissioner Shinn of DEP and Governor
Whitman as defendants and alleges only Clean Water Act and Resource
Conservation Recovery Act ("RCRA") violations at Liberty State Park. Under the
"citizen suit" provisions of these federal acts, plaintiff is seeking
remediation, health studies and attorneys fees. The State is unable to
estimate its exposure for this claim. In March, 1995, ICO filed another
lawsuit over the shipments of soil from the I-287 Wetlands Mitigation Project
to Liberty State Park. The defendants in that suit are Commissioner Shinn,
Governor Whitman, Commissioner Wilson of the Department of Transportation
("DOT") and R.W. Vogel, Inc., the transporter of the soil. The new suit seeks
a declaration that the CWA is being violated and demands cessation of all
construction at Liberty State Park and penalties against Vogel. That suit is
the subject of a consolidation motion. The State intends to defend these suits
vigorously.
Waste Management of Pennsylvania et al v. Shinn et al. This action filed in
federal district court by Waste Management of Pennsylvania, Inc. and its
affiliate Geological Reclamation Operations and Waste Systems, Inc.
("Plaintiffs") seeks declaratory and injunctive relief and compensatory
damages in excess of $19 million from Department of Environmental Protection
Commissioner Robert C. Shinn, Jr. and former Acting Commissioner Jeanne M.
Fox, ("Defendants") individually and in their official capacity. These claims
are based on alleged violations of the Commerce Clause and the Contracts
Clause of the United States Constitution as a result of the issuance by
Defendants of two emergency redirection orders and a draft permit. The State's
position is that none of the contracts to which the Plaintiffs are a party
entitle them to any relief and that therefore none of their constitutional
rights have been impaired by the Commissioners' actions. Moreover, all of the
administrative agency actions which form the gravamen of the federal complaint
are currently the subject of review in either New Jersey appellate courts or
within the Department. The State intends to vigorously defend this action in
the proper forum.
American Trucking Associations, Inc. and Tri-State Motor Transit, Co. v. State
of New Jersey: The American Trucking Associations, Inc. ("ATA") and Tri-State
Motor Transit, Co. filed a complaint in the Tax Court on March 23, 1994
against the State of New Jersey and certain state officials challenging the
constitutionality of annual A-901 hazardous and solid waste licensure renewal
fees collected by the Department of Environmental Protection ("DEP"). A-901
refers to the Assembly bill number which was adopted in 1983 as an amendment
to the Solid Waste Management Act N.J.S.A. 13:1E-1 et seq., and codified at
N.J.S.A. 13:1E-126 et seq., establishing a requirement that all persons and
entities engaged in solid and hazardous waste activities in the State of New
Jersey be investigated prior to the issuance of a license. Plaintiffs are
alleging that the A-901 renewal fees discriminate against interstate commerce
in violation of the Commerce Clause of the United States Constitution; that
the fees are not used for the purposes for which they are levied; and that the
fees do not reflect the duration or complexity of the services rendered by the
government entities receiving the fees as required under the A-901 statute.
Plaintiffs are seeking a declaration that the fees are unconstitutional; a
permanent injunction enjoining the future collection of the fees; a refund of
all annual A-901 renewal fees and all fines and penalties collected pursuant
to enforcement of these provisions; and attorneys' fees and costs.
Plaintiffs are also seeking class certification of their action.
The DEP currently collects approximately $3.5 to $4 million in A-901 fees
annually. In previous years, the total amount of fees collected was higher
because the number of applicants and licensees subject to the fees was much
larger. It is presently unknown what portion of the A-901 fees are paid by
haulers engaged in interstate commerce, and what percentage of the monies
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are renewal fees as opposed to initial application fees. Consequently, the
State is unable to estimate its exposure for this claim and intends to defend
this suit vigorously.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to each Portfolio (except where application to only a particular
Portfolio is specified) and which may not be changed unless approved by a
majority of the outstanding shares of the Portfolio that would be affected by
such a change. The Portfolios may not:
(1) Make portfolio investments other than as described under "Investment
Objectives, Policies and Risks" of the respective Portfolio or any other
form of taxable or Federal tax-exempt investment, where applicable, which
meets the Portfolio's quality criteria, as determined by the Board of
Directors and which is consistent with the Portfolio's objectives and
policies.
(2) Borrow Money. This restriction shall not apply to borrowing from banks
for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 15% of the value of the
Portfolio's total assets (including the amount borrowed) valued at market
less liabilities (not including the amount borrowed) at the time the
borrowing was made. While borrowings exceed 5% of the value of a
Portfolio's total assets, such Portfolio will not make any investments.
Interest paid on borrowings will reduce net income.
(3) Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
(4) Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options, except to the extent that securities subject to a demand
obligation and stand-by commitments may be purchased as set forth under
"Investment Objectives, Policies and Risks" of the respective Portfolio.
(5) Underwrite the securities of other issuers, except insofar as the
Portfolio may be deemed an underwriter under the Securities Act of 1933
in disposing of a portfolio security.
(6) Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"). These Portfolios will
not invest more than an aggregate of 15% of their net assets in a
repurchase agreement maturing in more than seven days, variable rate
demand instruments exercisable in more than seven days and securities
that are not readily marketable.
(7) Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Portfolio from investing in Municipal Obligations
secured by real estate or interests in real estate.
(8) Make loans to others, except through the purchase of portfolio
investments, including repurchase agreements, as described under
"Investment Objectives, Policies and Risks" of the respective Portfolio.
(9) For purposes of the New York Portfolio and the New Jersey Portfolio,
purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
(10) Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that there shall be no limitation on the New
York Portfolio to purchase New York Municipal Obligations or on the New
Jersey Portfolio to purchase New Jersey Municipal Obligations and other
obligations issued or guaranteed by the United States government, its
agencies or instrumentalities. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate
from those of the government creating the issuing entity and a security
is backed only by the assets and revenues of the entity, the entity would
be deemed to be the sole issuer of the security. Similarly, in the case
of an industrial revenue bond, if that bond is backed only by the assets
and revenues of the non-governmental user, then such non-governmental
user would be deemed to be the sole issuer. If, however, in either case,
the creating government or some other entity, such as an insurance
company or other corporate obligor, guarantees a security or a bank
issues a letter of credit, such a guarantee or letter of credit would be
considered a separate security and would be treated as an issue of such
government, other entity or bank.
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(11) Invest in securities of other investment companies, except that (i) the
Portfolios may purchase unit investment trust securities where such unit
investment trusts meet the investment objectives of the Portfolios and
then only up to 5% of the Portfolios' net assets, except as they may be
acquired as part of a merger, consolidation or acquisition of assets and
(ii) with respect to the New York Portfolio, the New Jersey Portfolio and
the Taxable Portfolio as permitted by Section 12(d) of the 1940 Act.
(12) Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with any permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Portfolio's assets will not
constitute a violation of such restriction.
PORTFOLIO TRANSACTIONS
Each Portfolio's purchases and sales of portfolio securities usually are
principal transactions. Portfolio securities are normally purchased directly
from the issuer, from banks and financial institutions or from an underwriter
or market maker for the securities. There usually are no brokerage commissions
paid for such purchases. Neither Portfolio expects to pay brokerage
commissions. Any transaction for which a Portfolio pays a brokerage commission
will be effected at the best price and execution available. Purchases from
underwriters of portfolio securities include a commission or concession paid
by the issuer to the underwriter, and purchases from dealers serving as market
makers include the spread between the bid and asked price. Each Portfolio
purchases participation certificates in variable rate Municipal Obligations
with a demand feature from banks or other financial institutions at a
negotiated yield to the respective Portfolio based on the applicable interest
rate adjustment index for the security. The interest received by the Portfolio
is net of a fee charged by the issuing institution for servicing the
underlying obligation and issuing the participation certificate, letter of
credit, guarantee or insurance and providing the demand repurchase feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the respective Portfolios rather than by any
formula. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. No preference in purchasing
portfolio securities will be given to banks or dealers that are Participating
Organizations. The Manager will seek the most favorable price and execution,
and, consistent with such policy, may give consideration to research,
statistical and other services furnished by brokers or dealers to the Manager
for its use.
Investment decisions for each Portfolio will be made independently from those
for any other investment companies or accounts that may be or become managed
by the Manager or its affiliates. If, however, the Fund and other investment
companies or accounts managed by the Manager are simultaneously engaged in the
purchase or sale of the same security, the transactions may be averaged as to
price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by the Portfolio or the size
of the position obtainable for the Portfolio. In addition, when purchases or
sales of the same security for the Portfolio and for other investment
companies managed by the Manager occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price advantage available to
large denomination purchasers or sellers.
No portfolio transactions are executed with the Manager or its affiliates
acting as principal. In addition, neither Portfolio will buy bankers'
acceptances, certificates of deposit or commercial paper from the Manager or
its affiliates.
HOW TO PURCHASE AND REDEEM SHARES
The material relating to the purchase and redemption of shares in the
Prospectus are herein incorporated by reference.
NET ASSET VALUE
The Fund does not determine net asset value per share on the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of the shares of the New York Portfolio, the Taxable
Portfolio and the New Jersey Portfolio is determined as of the earlier of 4:00
p.m., New York City time and the close of the New York Stock Exchange on each
Fund Business Day. It is computed by dividing the value of such Portfolio's
net assets (i.e., the value of its securities and other assets less its
liabilities, including expenses payable or accrued but excluding capital stock
and surplus) by the total number of shares outstanding.
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Municipal Obligations, Taxable Municipal Obligations and New Jersey Municipal
Obligations are stated on the basis of valuations provided by a pricing
service approved by the directors, which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. The valuations provided by such pricing service will be
based upon fair market value determined most likely on the basis of the
factors listed above. If a pricing service is not used, municipal obligations
will be valued at quoted prices provided by municipal bond dealers. Non
tax-exempt securities for which transaction prices are readily available are
stated at market value (determined on the basis of the last reported sales
price or a similar means). Short-term investments that will mature in 60 days
or less are stated at amortized cost which approximates market value. All
other securities and assets are valued at their fair market value as
determined in good faith by the Board of Directors.
FUND PERFORMANCE
Total Return and Average Annual Total Return. The Portfolios may from time to
time advertise a total return or average annual total return. Average annual
total return is a measure of the average annual compounded rate of return of
$1,000 invested at the maximum public offering price in such Portfolio over a
specified period, which assumes that any dividends or capital gains
distributions are automatically reinvested in such Portfolio rather than paid
to the investor in cash. Total return is calculated with the same assumptions
and shows the aggregate return on an investment over a specified period. The
formula for total return used by the Portfolios includes three steps: (1)
adding to the total number of shares purchased by the hypothetical investment
in a Portfolio of $1,000 (assuming the investment is made at a public offering
price that includes the current maximum sales load of 4.50% for the New York
Portfolio, 4.50% for the Taxable Portfolio or 4.50% for the New Jersey
Portfolio) all additional shares that would have been purchased if all
dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the value of the hypothetical
initial investment as of the end of the period by multiplying the total number
of shares owned at the end of the period by the net asset value per share on
the last trading day of the period; and (3) dividing this account value for
the hypothetical investor by the amount of the initial investment. The average
annual total return for the specified period is then determined by calculating
the annual rate required for the hypothetical initial investment to grow to
the account value at the end of the specified period. Total return or average
annual return may be stated with or without giving effect to any expense
limitations in effect for the Portfolio. The New York Portfolio's total return
for the twelve months ended November 30, 1995 was 18.04%. The New York
Portfolio's average annual compounded total return from June 24, 1991
(inception) to November 30, 1995 was 7.39%. The New Jersey Portfolio's total
return for the twelve months ended November 30, 1995, was 13.75% and the
average annual compounded total return from December 1, 1993 (inception) to
November 30, 1995, was 0.37%. The Taxable Portfolio's total return for the
twelve months ended November 30, 1995, was 17.55% and the average annual
compounded total return from December 1, 1993 (inception) to November 30,
1995, was 5.41%.
Yield. The Portfolios compute yield by annualizing net investment income per
share for a recent thirty-day period and dividing that amount by a Portfolio
share's maximum public offering price (reduced by any undeclared earned income
expected to be paid shortly as a dividend) on the last trading day of that
period. Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed
by mortgages or other assets) and may include recognition of a pro rata
portion of the stated dividend rate of dividend paying portfolio securities. A
Portfolio's yield will vary from time to time depending upon market
conditions, the composition of the Portfolio and operating expenses of the
Portfolio. These factors, possible differences in the methods used in
calculating yield and the tax exempt status of distributions should be
considered when comparing a Portfolio's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of the Portfolio's shares and to
the relative risks associated with the investment objectives and policies of
the Portfolio. Yield may be stated with or without giving effect to any
expense limitations in effect for the Portfolio. The New York , New Jersey and
Taxable Portfolios' yield for the thirty-day period ended November 30, 1995
was 4.84% 5.26% and 7.12%, respectively.
The New York Portfolio and the New Jersey Portfolio may also advertise a tax
equivalent yield for residents of the States of New York and New Jersey,
respectively, wherein all or substantially all of the Portfolio's dividends
are not subject to applicable state's income tax. The Portfolio's
advertisement of a tax equivalent yield reflects the taxable yield that a New
York or New Jersey investor subject to that state's or municipality's highest
marginal tax rate would have had to receive in order to realize the same level
of after-tax yield as an investment in such a Portfolio would have produced.
Tax equivalent yield is calculated by dividing the portion of the Portfolio's
yield that is not subject to New York State or municipal taxes or New Jersey
gross income tax (calculated as described above) by the result of subtracting
the highest marginal tax rate from 1, and adding the resulting figure to that
portion, if any, of the Portfolio's yield that is subject to state or
municipal income tax. The New York and New Jersey Portfolios' taxable
equivalent yield for the period ended November 30, 1995 was 11.56% and 11.29%,
respectively.
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The New York Portfolio and the New Jersey Portfolio may also advertise a tax
equivalent yield for one or more states and municipalities wherein all or
substantially all of the Portfolio's dividends are not subject to Federal
income tax. The Portfolio's advertisement of a tax equivalent yield reflects
the taxable yield that an investor subject to the highest Federal marginal tax
rate would have had to receive in order to realize the same level of after-tax
yield as an investment in such Portfolio would have produced. Tax equivalent
yield is calculated by dividing that portion of the Portfolio's yield that is
not subject to regular Federal taxes (calculated as described above) by the
result of subtracting the highest marginal tax rate from 1, and adding the
resulting figure to that portion, if any, of the Portfolio's yield that is
subject to regular Federal income tax.
General. At any time in the future, yields and total return may be higher or
lower than past yields and total return and there can be no assurance that
past results will continue. Investors in a Portfolio are specifically advised
that share prices, expressed as the net asset values per share, will vary just
as yields will vary. An investor's focus on the yield of the Portfolio to the
exclusion of the consideration of the share price of the Portfolio may result
in the investor's misunderstanding the total return he or she may derive from
the Portfolio.
A Portfolio may from time to time include its yield and total return in
advertisements or information furnished to present or prospective
shareholders. A Portfolio may also from time to time include in advertisements
the ranking of those performance figures relative to such figures for groups
of mutual funds categorized by Lipper Analytical Services as having the same
investment objectives. A Portfolio may also use total return and yield to
compare its performance against the U.S. Bureau of Labor Statistics Consumer
Price Index, which is a statistical measure of changes over time in the prices
of goods and services in major United States household expenditure groups.
MANAGER
The Manager of the Fund is Lebenthal Asset Management, Inc. The Manager, with
its principal office at 120 Broadway, New York, New York 10271, is a wholly
owned subsidiary of Lebenthal & Co., Inc. The Manager, a registered investment
adviser providing fixed-income investment advisory services to individuals,
institutions and other investment advisers, is under the leadership of James
L. Gammon, President and Director of the Manager. James A. Lebenthal, Chairman
and Director of the Manager, is a "controlling person" of the Manager. The
Manager was at November 30, 1995 manager, advisor or supervisor with respect
to assets aggregating in excess of $141,839,740 million. James L. Gammon is
primarily responsible for the day-to-day management of the Fund's Portfolios.
Mr. Gammon, President and Director of the Manager since February 1994, has
over 23 years experience in municipal bond portfolio management. From March
1984 to July 1993 Mr. Gammon was Senior Vice President and Senior Portfolio
Manager at Loews/CNA Holdings, Inc. with $12.5 billion under his management.
From 1977 to 1984 he managed the $221 million Elfun Tax Exempt Income Fund.
The Fund's Annual Report contains information regarding the Fund's performance
and, is available, without charge, upon request.
Pursuant to the Management Contracts, the Manager manages the portfolio of
securities of each of the Portfolios and makes decisions with respect to the
purchase and sale of investments, subject to the general control of the Fund's
Board of Directors. For its services under the Management Contracts, the
Manager is entitled to receive a management fee for its services, calculated
daily and payable monthly, equal to .25% of each of the Portfolios' average
daily net assets not in excess of $50 million, .225% of such assets between
$50 million and $100 million and .20% of such assets in excess of $100
million.
The Management Contracts for each Portfolio were approved by the Board of
Directors, including a majority of the directors who are not interested
persons (as defined in the Act) of the Fund or the Distributor, on June 9,
1994 for the New York Portfolio, the Taxable Portfolio and the New Jersey
Portfolio. The Management Contracts for the New York Portfolio, the Taxable
Portfolio and the New Jersey Portfolio were approved by a majority of each of
the Portfolio's shareholders at a meeting held on August 9, 1994.
The Management Contract for each Portfolio has a term which extends to July
31, 1996, and may be continued in force thereafter for successive twelve-month
periods beginning each August 1, provided that such continuance is
specifically approved annually by majority vote of each of the Portfolio's
outstanding voting securities or by its Board of Directors, and in either case
by a majority of the directors who are not parties to the Management Contracts
or interested persons of any such party, by votes cast in person at a meeting
for the purpose of voting on such matter.
The Management Contract for each Portfolio is terminable without penalty by
such Portfolio on sixty days' written notice when authorized either by
majority vote of its outstanding voting shares or by a vote of a majority of
its Board of Directors, or by the Manager on sixty days' written notice, and
will automatically terminate in the event of its assignment. The Management
Contract for each Portfolio provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Manager,
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or of reckless disregard of its obligations thereunder, the Manager shall not
be liable for any action or failure to act in accordance with its duties
thereunder.
For the New York Portfolio's fiscal year ended November 30, 1995, the fee
payable to the Manager was $214,981, none of which was waived. The New York
Portfolio's net assets at the close of business on November 30, 1995, totaled
$105,579,087. For the New York Portfolio's fiscal year ended November 30,1994,
the fee payable to the Lebenthal & Co., Inc. under the previous Management
Agreement was $86,929, all of which was waived. The New York Portfolio's net
assets at the close of business on November 30, 1994, totaled $75,325,848. For
the New York Portfolio's fiscal year ended November 30, 1993, the fee payable
to Lebenthal & Co. Inc. under the Management Agreement was $89,034, all of
which was waived. The New York Portfolio's net assets at the close of business
on November 30, 1993 totaled $80,726,719. In addition, for the New York
Portfolio's fiscal year ended November 30,1994, the fee payable to the J. & W.
Seligman & Co. Incorporated under the previous Advisory Agreement was $139,195
none of which was waived. For the New York Portfolio's fiscal year ended
November 30, 1993, the fee payable to J. & W. Seligman & Co., Incorporated
under the Advisory Agreement was $146,051, of which $71,856 was waived. For
the New Jersey Portfolio's fiscal year ended November 30, 1995, the fee
payable to the Manager was $5,987, all of which was waived. The New Jersey
Portfolio's net assets at the close of business on November 30, 1995, totaled
$3,357,883. For the New Jersey Portfolio's fiscal year ended November 30,
1994, the fee payable to J. & W. Seligman Incorporated under the previous
Advisory Agreement was $2,893, $2,119 of which was waived, the fee payable to
Lebenthal & Co. Inc. under the former Management Agreement was $1,876, all or
which was waived, and the fee payable to the Manager under the new Management
Contract was $1,395, all of which was waived. For the Taxable Portfolio's
fiscal year ended November 30, 1995, the fee payable to the Manager was
$11,647, all of which was waived. The Taxable Portfolio's net assets at the
close of business on November 30, 1995, totaled $8,685,957. For the Taxable
Portfolio's fiscal year ended November 30, 1994, the fee payable to J. & W.
Seligman Incorporated under the previous Advisory Agreement was $4,191, $3,126
of which was waived, the fee payable to Lebenthal & Co. Inc. under the former
Management Agreement was $2,722, all of which was waived, and the fee payable
to the Manager under the new Management Contract was $2,042, all of which was
waived.
The Manager may, at its discretion, waive all or a portion of its fees under
each Management Agreement. There can be no assurance that such fees will be
waived in the future.
Expense Limitation
The Manager has agreed to reimburse the Taxable Portfolio and the New Jersey
Portfolio for their expenses (exclusive of interest, taxes, brokerage, and
extraordinary expenses) which in any year exceed the limits on investment
company expenses prescribed by any state in which such Portfolio's shares are
qualified for sale. For the purpose of this obligation to reimburse expenses,
a Portfolio's annual expenses are estimated and accrued daily, and any
appropriate estimated payments are made to it on a monthly basis. Subject to
the obligations of the Manager to reimburse a Portfolio for its excess
expenses as described above, such Portfolio has, under its respective
Management Contract, confirmed its obligation for payment of all its other
expenses, including taxes, brokerage fees and commissions, commitment fees,
certain insurance premiums, interest charges and expenses of the custodian,
transfer agent and dividend disbursing agent's fees, telecommunications
expenses, costs and expenses of fund bookkeeping agent, auditing and legal
expenses, costs of forming the corporation and maintaining corporate
existence, compensation of directors, officers and employees of the Fund and
costs of other personnel performing services for the Fund who are not officers
of the Manager or its affiliates, or the Administrator, costs of investor
services, shareholders' reports and corporate meetings, Securities and
Exchange Commission registration fees and expenses, state securities laws
registration fees and expenses, expenses of preparing and printing the Fund's
prospectus for delivery to existing shareholders and of printing application
forms for shareholder accounts, the fees payable to the Manager under the
Management Contract, the fees payable to the Distributor under the
Distribution Agreement and Shareholder Servicing Agreement (where applicable)
and the fees payable to the Administrator under the Administration Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein, and the management of the Fund intends to
do so whenever it appears advantageous to the Fund. A Portfolio's expenses for
employees and for such services are among the expenses subject to the expense
limitation described above.
Administrator
The Administrator for the New York Portfolio, the Taxable Portfolio and the
New Jersey Portfolio is State Street Bank and Trust Company (the
"Administrator"), a Massachusetts trust company, which has its principal
office at 225 Franklin Street, Boston, Massachusetts 02111. The Administrator
serves as administrator of other mutual funds.
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Pursuant to the Administration Agreement with the New York Portfolio, the
Taxable Portfolio and the New Jersey Portfolio, the Administrator provides all
administrative services reasonably necessary for such Portfolios, other than
those provided by the Manager, subject to the supervision of the Fund's Board
of Directors. Because of the services rendered to a Portfolio by the
Administrator, and the Manager, the Portfolio itself may not require any
employees other than its officers, none of whom receive compensation from the
Portfolio.
Under the Administration Agreement with the New York Portfolio, the Taxable
Portfolio and the New Jersey Portfolio, the Administrator provides
administrative services including, without limitation: (i) services of
personnel competent to perform such administrative and clerical functions as
are necessary to provide effective administration of the Portfolio; (ii)
assisting Fund officers in preparing Portfolio tax returns; (iii) in
conjunction with Fund counsel, preparing and filing all Blue Sky filings,
reports and renewals; (iv) coordinating the preparation and distribution of
all materials for directors, including the agenda for meetings and all
exhibits thereto, and actual and projected quarterly summaries; (v)
coordinating the activities of the Portfolio's Manager, Custodian, Legal
Counsel and Independent Accountants; (vi) monitoring daily and periodic
compliance with respect to all requirements and restrictions of the 1940 Act,
the Internal Revenue Code and the Prospectus; (vii) monitoring daily the
Portfolio's accounting services agent's calculation of all income and expense
accruals, sales and redemptions of capital shares outstanding; (viii)
evaluating expenses, projecting future expenses, and processing payments of
expenses; (ix) monitoring and evaluating performance of bookkeeping and
related services by Investors Fiduciary Trust Company, the bookkeeping agent
for the Portfolio.
For the services rendered to such Portfolios by the Administrator, the Fund
pays the Administrator a fee, computed daily and payable monthly, equal to
.08% per annum of the average daily net assets of the respective Portfolio up
to $100 million, .06% per annum of the average daily net assets of each of the
Portfolios of the next $125 million and .04% of such assets of each of the
Portfolios in excess of $250 million. There is a minimum annual fee payable of
$165,000. Fees paid to Reich & Tang Asset Management L.P., the former
Administrator under the then current Administrative Services Agreement were as
follows: for the New York Portfolio's fiscal year ended November 30, 1995, the
fee payable was $112,489, none of which was waived, for the New York
Portfolio's fiscal year ended November 30,1994, the fee payable was $101,572,
none of which was waived, for the New York Portfolio's fiscal year ended
November 30, 1993, the fee payable was $74,195 of which $37,098 was waived,
for the New Jersey Portfolio's fiscal year ended November 30, 1995, the fee
payable was $2,994, all of which was waived, for the New Jersey Portfolio's
fiscal year ended November 30, 1994, the fee payable was $2,214, all of which
was waived, for the Taxable Portfolio's fiscal year ended November 30, 1995,
the fee payable was $5,824, all of which was waived, for the Taxable
Portfolio's fiscal year ended November 30, 1994, the fee payable was $3,220,
all of which was waived.
The Administration Agreement has an initial term which extends to December 1,
1996. Thereafter the Agreement is terminable at any time, without the payment
of any penalty, by the Fund or the Administrator on sixty days' written
notice.
MANAGEMENT OF THE FUND
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Mr. Lebenthal may be deemed an
"interested person" of the Fund, as defined in the 1940 Act, on the basis of
his affiliation with Lebenthal Asset Management, Inc.
James A. Lebenthal, 68 - Chairman of the Board and Director of the Fund, has
been Chairman and Director of Lebenthal & Co., Inc. since 1978, Chairman and
Director of the Manager since 1994 and President of Lebenthal, The Ad Agency,
Inc. since 1978. His address is 120 Broadway, New York, New York 10271.
Victor Chang, 58 - Director of the Fund, formed Victor Chang Associates and
V.C. Management Co., Inc. in 1980 and is President of both organizations which
are in the business of providing financial analysis and economic consulting.
His address is 30 Broad Street, New York, New York 10004.
Donald G. Conrad, 66 - Director of the Fund, is the President and owner of the
Hartford Whalers professional hockey team since 1988 and the Vice Chairman and
owner of Independent Energy Corp. since 1989. Mr. Conrad is a retired chief
investment officer and chief financial officer of Aetna Life & Casualty with
which he was affiliated since 1970. His address is 26 West Hale Drive, West
Hartford, Connecticut 06119.
Francis P. Gallagher, 74 - Director of the Fund is a retired officer of
Kidder, Peabody & Co., Inc. with which he was affiliated since 1973. His
address is 10 Hanover Square, New York, New York 10005.
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Robert R. Godfrey, 48 - Director of the Fund is founder and Chairman of N/W
Capital, Inc., a principal and financial advisory firm since March, 1995.
Prior to that he was Executive Vice President of MBIA, Inc. and its
predecessor organization from December 1985 until March 1995. His address is
1177 High Ridge Road, Stamford, CT 06905.
Alexandra Lebenthal, 32 - President of the Fund, has been President of
Lebenthal & Co., Inc. since 1995 and Director of Sales since 1994. Ms.
Lebenthal was affiliated with Kidder Peabody from 1986 to 1988 where she
worked in the unit investment trust department and the municipal institutional
sales department. She graduated from Princeton University in 1986 with an A.B.
in U.S. History. Her address is 120 Broadway, New York, New York 10271.
Hiram Lazar, 31 - Secretary of the Fund, is Vice-President of Lebenthal & Co.,
Inc. where he has been employed since 1992. His address is 120 Broadway, New
York, New York 10271.
James E. McGrath, 45 - Treasurer of the Fund, has been Senior Vice President
of Lebenthal & Co., Inc. since 1990 and a director since 1994, and Executive
Vice President and Director of the Manager since 1995. Mr. McGrath was a
Senior Vice President of Kidder Peabody where he was affiliated since 1968.
His address is 120 Broadway, New York, New York 10271.
The New York Portfolio, the New Jersey Portfolio and the Taxable Portfolio
paid an aggregate remuneration of $9,109, and $256 and $509 to its directors
with respect to the period ended November 30, 1995, all of which consisted of
aggregate directors' fees paid to the disinterested directors, pursuant to the
terms of the Investment Management Contract (See "Manager" herein).
<TABLE>
<CAPTION>
COMPENSATION TABLE
1) 2) 3) 4) 5)
Name of Person, Aggregate Pension or Retirement Estimated Annual Total
Position Compensation from Benefits Accrued as Benefits upon Compensation
Registrant for Fiscal Part of Fund Expenses Retirement from Fund Paid to
Year Directors*
<S> <C> <C> <C> <C>
Victor Chang,
Director $2,814 0 0 $2,814
Donald G. Conrad,
Director $2,826 0 0 $2,876
Francis P. Gallagher,
Director $2,826 0 0 $2,826
Robert F. Godfrey, $1,566 0 0 $1,566
Director
</TABLE>
* The total compensation paid to such persons by the Fund for the fiscal year
ending November 30, 1995.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund
and New York law are passed upon by Battle Fowler LLP, 75 East 55th Street,
New York, New York 10022.
Matters in connection with New Jersey law are passed upon by McCarter &
English, Four Gateway Center, 100 Mulberry Street, Newark, New Jersey
07101-0652.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017,
independent certified public accountants, have been selected as auditors for
the Fund.
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DISTRIBUTION AND SERVICE PLANS
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with
a plan permitted by the Rule. The Fund's Board of Directors has adopted
distribution and service plans on behalf of each Portfolio the "Plan" or
"Plans").
The New York Portfolio
Pursuant to its Plan, the New York Portfolio and the Distributor have entered
into a Distribution Agreement. Under the Distribution Agreement, the
Distributor, as agent for the Fund, will solicit orders for the purchase of
the New York Portfolio's shares, provided that any subscriptions and orders
will not be binding on the Fund until accepted by the Fund as principal. Under
the Distribution Agreement, the Distributor receives from the New York
Portfolio a fee equal to .25 of 1% per annum of the Fund's average daily net
assets the "Service Fee").
The Service Fee is accrued daily and paid monthly. For providing shareholder
servicing and the maintenance of shareholder accounts and that provides that
the Distributor may make payment from time to time from the Service Fee
received to pay the costs of, and to compensate others, including
Participating Organizations for performers such shareholder servicing
functions on behalf of the Portfolio.
The Plan and the Distribution Agreement provide that, in addition to the
Service Fee, the New York Portfolio will pay for i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor in carrying out its obligations under the Distribution
Agreement and ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan and the Distribution Agreement provide that the Distributor may make
payments from time to time from its own resources, which may include the
Service Fee and past profits for the following purposes: i) to defray the
costs of, and to compensate others, including Participating Organizations with
whom the Distributor has entered into written agreements, for performing
shareholder servicing and related administrative functions on behalf of the
New York Portfolio, ii) to compensate certain Participating Organizations for
providing assistance in distributing the New York Portfolio's shares, iii) to
pay the cost of printing and distributing the New York Portfolio's prospectus
to prospective investors, and iv) to defray the cost of the preparation and
printing of brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other promotional activities, including the
salaries and/or commissions of sales personnel in connection with the
distribution of the New York Portfolio's shares. The Distributor, in its sole
discretion, will determine the amount of such payments made pursuant to the
Plan, provided that such payments will not increase the amount which the New
York Portfolio is required to pay to the Distributor for any fiscal year under
the Distribution Agreement in effect for that year.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the New York Portfolio or the
Distributor and Participating Organizations or other organizations must be in
a form satisfactory to the Fund's Board of Directors. In addition, the Plan
requires the Fund and the Distributor to prepare, at least quarterly, written
reports setting forth all amounts expended for distribution purposes by the
New York Portfolio and the Distributor pursuant to the Plan and identifying
the distribution activities for which those expenditures were made.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the shareholders or by the Board of Directors,
including a majority of directors who are not interested persons of the Fund
and who have no direct or indirect interest in the operation of the Plan or in
the agreements related to the Plan. The Board of Directors most recently
approved the Plan on October 26, 1995 to be effective until November 30, 1996.
The Plan was approved by the shareholders of the Portfolio at their first
meeting held on June 23, 1992. The Plan further provides that it may not be
amended to increase materially the costs which may be spent by the Fund for
distribution pursuant to the Plan without shareholder approval, and the other
material amendments must be approved by the directors in the manner described
in the preceding sentence. The Plan may be terminated at any time by a vote of
a majority of the disinterested directors of the Fund or the New York
Portfolio's shareholders.
For the New York Portfolio's fiscal year ended November 30, 1995, the total
amount spent pursuant to the Plan was $69,789 none of which was paid by the
Portfolio to the Distributor pursuant to the Distribution Agreement, and all
of which was paid by the Distributor which may be deemed an indirect payment
by the Portfolio). Of the total amount paid to the Distributor, the
Distributor utilized $58,172 on compensation to sales personnel and $8,371 on
advertising and $3,246 on Prospectus printing. For the New York Portfolio's
fiscal year ended November 30, 1994, the total amount spent pursuant to the
Plan was $182,432, none of which was paid by the Portfolio to the Distributor
pursuant to the Distribution Agreement, and all of which was paid by
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the Distributor which may be deemed an indirect payment by the Portfolio). Of
the total amount paid to the Distributor, the Distributor utilized $71,977 on
compensation to sales personnel and $98,990 on advertising and $11,465 on
Prospectus printing. For the fiscal year ended November 30, 1993, the total
amount spent pursuant to the Plan was $120,687, none of which was paid by the
Portfolio to the Distributor pursuant to the Distribution Agreement and all of
which was paid by the Distributor which may be deemed an indirect payment by
the Portfolio). Of the total amount paid to the Distributor, the Distributor
utilized $40,434 on compensation to sales personnel and $80,253 on
advertising.
The Taxable Portfolio and the New Jersey Portfolio
Pursuant to each Portfolio's Plan, the Taxable Portfolio and the New Jersey
Portfolio have each entered into a Distribution Agreement and a Shareholder
Servicing Agreement.
For its services under the respective Portfolio's Shareholder Servicing
Agreement, the Distributor receives from each of the Taxable Portfolio and the
New Jersey Portfolio a service fee equal to .25% per annum of the respective
Portfolio's average daily net assets the "Shareholder Servicing Fee"). The fee
is accrued daily and paid monthly and any portion of the fee may be deemed to
be used by the Distributor for purposes of i) shareholder servicing and
maintenance of shareholder accounts and ii) for payments to Participating
Organizations with respect to servicing their clients or customers who are
shareholders of the Portfolio.
Under each Portfolio's Distribution Agreement, the Distributor, for nominal
consideration and as agent for the respective Portfolio, will solicit orders
for the purchase of the respective Portfolio's shares, provided that any
subscriptions and orders will not be binding on the Portfolio until accepted
by the Portfolio as principal. In addition, the Distribution Agreement
provides for reimbursement to the Distributor by the Portfolio for its
distribution, promotional and advertising costs incurred in connection with
the distribution of the respective Portfolio's shares in an amount not to
exceed .10% per annum of the respective Portfolio's average daily net assets.
To the extent the Distributor does not take reimbursements for such expenses
in a current fiscal year, it is precluded from taking any reimbursement for
such amounts in a future fiscal year.
The Plan, the Shareholder Servicing Agreement and the Distribution Agreement
provide that, in addition to the Shareholder Servicing Fee and advertising
reimbursement, each Portfolio will pay for i) telecommunications expenses
including the cost of dedicated lines and CRT terminals incurred by the
Distributor in carrying out its obligations under the Shareholder Servicing
Agreement, and ii) typesetting, printing and delivering each Portfolio's
prospectus to existing shareholders of the Portfolio and preparing the
printing subscription application forms for shareholder accounts. The expenses
enumerated in this paragraph shall not exceed an amount equal to .05% per
annum of the Portfolio's average daily net assets.
Each Portfolio's Plan and Management Contract provide that the Manager may
make payments from time to time from its own resources, which may include the
management fee and past profits for the following purposes: i) to defray the
costs of and to compensate others, including participating organizations with
whom the Distributor has entered into written agreements, for performing
shareholder servicing and related administrative functions on behalf of the
Portfolio, ii) to compensate certain participating organizations for providing
assistance in distributing the Portfolio's shares; iii) to pay the costs of
printing and distributing the Portfolio's prospectus to prospective investors;
and iv) to defray the cost of the preparation and printing of brochures and
other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the
Portfolio's shares. The Distributor, in its sole discretion, will determine
the amount of such payments made pursuant to the Plan, provided that such
payments made pursuant to the Plan will not increase the amount which each
Portfolio is required to pay to the Distributor or the Manager for any fiscal
year under the Shareholder Servicing Agreement or the Management Contract in
effect for that year.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the shareholders or by the Board of Directors,
including a majority of directors who are not interested persons of the Fund
and who have no direct or indirect interest in the operation of the Plan or in
the agreements related to the Plan. The Board of Directors most recently
approved the Plan on October 26, 1995 to be effective until November 30, 1996.
The Plan was approved by the shareholders of each Portfolio at their first
meetings each held on November 10, 1994. The Plan further provides that it may
not be amended to increase materially the costs which may be spent by the Fund
for distribution pursuant to the Plan without shareholder approval, and the
other material amendments must be approved by the directors in the manner
described in the preceding sentence. The Plan may be terminated at any time by
a vote of a majority of the disinterested directors of the Fund or the
shareholders of each respective Portfolio.
For the New Jersey Portfolio's fiscal year ended November 30, 1995, the total
amount spent pursuant to the Plan was $6,552, none of which was paid by the
Portfolio to the Distributor pursuant to the Distribution agreement and all of
which was paid by
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the Distributor which may be deemed an indirect payment by the Portfolio). For
the New Jersey Portfolio's fiscal year ended November 30, 1994, the total
amount spent pursuant to the Plan was $13,409, none of which was paid by the
Portfolio to the Distributor pursuant to the Distribution agreement and all of
which was paid by the Distributor which may be deemed an indirect payment by
the Portfolio). For the Taxable Portfolio's fiscal year ended November 30,
1995, the total amount spent pursuant to the Plan was $8,337, none of which
was paid by the Portfolio to the Distributor pursuant to the Distribution
agreement and all of which was paid by the Distributor which may be deemed an
indirect payment by the Portfolio). For the Taxable Portfolio's fiscal year
ended November 30, 1994, the total amount spent pursuant to the Plan was
$159,006, none of which was paid by the Portfolio to the Distributor pursuant
to the Distribution agreement and all of which was paid by the Distributor
which may be deemed an indirect payment by the Portfolio).
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on August 17,
1990 in Maryland, consists of twenty billion shares of stock having a par
value of one tenth of one cent $.001) per share. The Fund's Board of Directors
reclassified its authorized but unissued shares for the New Jersey Portfolio
and the Taxable Portfolio on August 25, 1993. Each share has equal dividend,
distribution, liquidation and voting rights and a fractional share has those
rights in proportion to the percentage that the fractional share represents a
whole share. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering, will be fully paid and
nonassessable. Shares are redeemable at net asset value at the option of the
shareholder. As of January 31, 1996, there were 13,759,379, 565,266 and
1,516,360 shares outstanding of the New York Portfolio, the New Jersey
Portfolio and the Taxable Portfolio respectively. As of January 31, 1996, the
amount of shares owned by all officers and directors of the Fund, as a group,
was less than 1% of the outstanding shares of each Portfolio.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect
any person or persons to the Board of Directors. The Fund does not issue
certificates evidencing Fund shares.
As a general matter, the Funds will not hold annual or other meetings of the
Funds' shareholders. This is because the By-laws of the Funds provide for
annual meetings only a) for the election of directors, b) for approval of the
Funds' revised investment advisory agreement with respect to a particular
class or series of stock, c) for approval of revisions to the Fund's
distribution agreement with respect to a particular class or series of stock,
and d) upon the written request of holders of shares entitled to cast not less
than 25% of all the votes entitled to be cast at such meeting. Annual and
other meetings may be required with respect to such additional matters
relating to the Fund as may be required by the Act, including the removal of
Fund directors) and communication among shareholders, any registration of the
Fund with the Securities and Exchange Commission or any state, or as the
Directors may consider necessary or desirable. Each Director serves until the
next meeting of the shareholders called for the purpose of considering the
election or reelection of such Director or of a successor to such Director,
and until the election and qualification of his or her successor, elected at
such a meeting, or until such Director sooner dies, resigns, retires or is
removed by the vote of the shareholders.
FEDERAL INCOME TAXES
The following is a general discussion of certain of the Federal income tax
consequences of the purchase, ownership and disposition of shares of the
Portfolios. The summary is limited to investors who hold the shares as
"capital assets" generally, property held for investment), and to whom special
categories of rules do not apply, such as foreign investors. Shareholders
should consult their tax advisers in determining the Federal, state, local and
any other tax consequences of the purchase, ownership and disposition of
shares.
The New York Portfolio and the New Jersey Portfolio
Each of the New York Portfolio and the New Jersey Portfolio each, a
"Tax-exempt Fund" and collectively, the "Tax-exempt Funds") has elected to
qualify under the Internal Revenue Code of 1986, as amended the "Code"), and,
with respect to the New York Portfolio, under New York law as a "regulated
investment company" that distributes "exempt-interest dividends". Each Tax-
exempt Fund intends to continue to qualify for regulated investment company
status so long as such qualification is in the best interests of its
shareholders. Such qualification relieves the Tax-exempt Fund of liability for
Federal income taxes to the extent its earnings are distributed in accordance
with the applicable provisions of the Code.
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Each Tax-exempt Fund's policy is to distribute as dividends each year 100% and
in no event less than 90% of its tax-exempt interest income, net of certain
deductions. Exempt-interest dividends, as defined in the Code, are dividends
or any part thereof other than capital gain dividends) paid by the Tax-exempt
Fund that are attributable to interest on obligations, the interest on which
is exempt from regular Federal income tax, and designated by the Tax-exempt
Fund as exempt-interest dividends in a written notice mailed to the Tax-exempt
Fund's shareholders not later than 60 days after the close of its taxable
year. The percentage of the total dividends paid by the Tax-exempt Fund during
any taxable year that qualifies as exempt-interest dividends will be the same
for all shareholders receiving dividends during the year.
Exempt-interest dividends are to be treated by the Tax-exempt Fund's
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code. If a shareholder receives an exempt-interest
dividend with respect to any share and such share has been held for six months
or less, then any loss on the sale or exchange of such share will be
disallowed to the extent of the amount of such exempt-interest dividend. The
Code provides that interest on indebtedness incurred, or continued, to
purchase or carry certain tax-exempt securities such as shares of the
Tax-exempt Fund is not deductible. Therefore, among other consequences, a
certain proportion of interest on indebtedness incurred, or continued, to
purchase or carry securities on margin may not be deductible during the period
an investor holds shares of the Tax-exempt Fund. For Social Security
recipients, interest on tax-exempt bonds, including exempt-interest dividends
paid by the Tax-exempt Fund, is to be added to adjusted gross income for
purposes of computing the amount of Social Security benefits includable in
gross income. Under P.L. 99-514, the amount of such interest received will
have to be disclosed on the shareholders' Federal income tax returns. Further,
under P.L. 99-514, taxpayers other than corporations are required to include
as an item of tax preference for purposes of the Federal alternative minimum
tax all tax-exempt interest on "private activity" bonds generally, a bond
issue in which more than 10% of the proceeds are used in a non-governmental
trade or business) (other than Section 501(c)(3) bonds) issued after August 7,
1986. Thus, this provision will apply to the portion of the exempt-interest
dividends from the Tax-exempt Fund's assets that are attributable to such
post-August 7, 1986 private activity bonds, if any of such bonds are acquired
by the Tax-exempt Fund. Corporations are required to increase their
alternative minimum taxable income for purposes of calculating their
alternative minimum tax liability by 75% of the amount by which the adjusted
current earnings (including tax-exempt interest) of the corporation exceeds
the alternative minimum taxable income determined without this provision). In
addition, in certain cases, Subchapter S corporations with accumulated
earnings and profits from Subchapter C years are subject to a minimum tax on
excess "passive investment income" which includes tax-exempt interest. A
shareholder is advised to consult his tax advisers with respect to whether
exempt-interest dividends retain the exclusion under Section 103 of the Code
if such shareholder would be treated as a "substantial user" or "related
person" under Section 147(a) of the Code with respect to some or all of the
"private activity bonds", if any, held by the Tax-exempt Fund.
The Tax-exempt Fund may realize short-term or long-term capital gains or
losses from its portfolio transactions. The Tax-exempt Fund may also realize
short-term or long-term capital gains upon the maturity or disposition of
securities acquired at discounts resulting from market fluctuations. In the
case of a Municipal Obligation acquired at a market discount, gain on the
disposition of the Municipal Obligation generally will be treated as ordinary
income to the extent of accrued market discount. Short-term capital gains will
be taxable to shareholders as ordinary income when they are distributed. Any
net capital gains (the excess of its net realized long-term capital gain over
its net realized short-term capital loss) will be distributed annually to the
Tax-exempt Fund's shareholders. The Tax-exempt Fund will have no tax liability
with respect to distributed net capital gains and the distributions will be
taxable to shareholders as long-term capital gains regardless of how long the
shareholders have held Tax- exempt Fund shares. However, Tax-exempt Fund
shareholders who at the time of such a net capital gain distribution have not
held their Tax-exempt Fund shares for more than 6 months, and who subsequently
dispose of those shares at a loss, will be required to treat such loss as a
long-term capital loss to the extent of the net capital gain distribution.
Distributions of net capital gain will be designated as a "capital gain
dividend" in a written notice mailed to the Tax-exempt Fund's shareholders not
later than 60 days after the close of the Tax-exempt Fund's taxable year.
Under the Revenue Reconciliation Act of 1993, for fiscal years beginning after
December 31, 1992, ordinary income is subject to a maximum tax rate of 39.6%,
and net capital gains are subject to a preferential rate in certain
circumstances.
Each Tax-exempt Fund intends to distribute at least 90% of its investment
company taxable income taxable income subject to certain adjustments exclusive
of the excess of its net long-term capital gain over its net short-term
capital loss) for each taxable year. Each Tax-exempt Fund will be subject to
Federal income tax on any undistributed investment company taxable income. To
the extent such income is distributed it will be taxable to shareholders as
ordinary income. Expenses paid or incurred by the Tax-exempt Fund will be
allocated between tax-exempt and taxable income in the same proportion as the
amount of the Tax- exempt Fund's tax-exempt income bears to the total of such
exempt income and its gross income (excluding from gross income the excess of
capital gains over capital losses). If the Tax-exempt Fund does not distribute
at least 98% of its ordinary income and 98% of its capital gain net income for
a taxable year, the Tax-exempt Fund will be subject to a nondeductible 4%
excise tax on the excess of such amounts over the amounts actually
distributed.
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A shareholder may recognize a taxable gain or loss if the shareholder sells or
redeems his shares. If the securities held by the Tax-exempt Fund appreciate
in value, purchasers of shares of the Tax-exempt Fund after the occurrence of
such appreciation will acquire such shares subject to the tax obligation that
may be incurred in the future when there is a sale of such shares.
If a shareholder fails to provide the Tax-exempt Fund with a current taxpayer
identification number, the Tax-exempt Fund generally is required to withhold
31% of taxable interest, dividend payments, and proceeds from the redemption
of shares of the Tax-exempt Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Tax-exempt Fund.
With respect to the variable rate demand instruments, including participation
certificates therein, each Tax-exempt Fund has obtained and is relying on the
opinion of Battle Fowler LLP, counsel to the Tax-exempt Funds, that it will be
treated for Federal income tax purposes as the owner thereof and the interest
on the underlying Municipal Obligations will be tax-exempt to the Tax- exempt
Fund. Counsel has pointed out that the Internal Revenue Service has announced
that it will not ordinarily issue advance rulings on the question of ownership
of securities or participation interests therein subject to a put and, as a
result, the Internal Revenue Service could reach a conclusion different from
that reached by counsel.
From time to time, proposals have been introduced before Congress to restrict
or eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Tax-exempt Funds to pay exempt-interest dividends would be
adversely affected and each Tax-exempt Fund would reevaluate its investment
objective and policies and consider changes in the structure.
In South Carolina v. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds they issue
and may subject the interest on such bonds to Federal tax if not registered,
and that there is no constitutional prohibition against the Federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the Federal government to
regulate and control bonds such as the Municipal Obligations and to tax such
bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations in
accordance with Section 103 of the Code.
The Taxable Portfolio
The Taxable Portfolio has elected to qualify under the Code as a "regulated
investment company." The Taxable Portfolio intends to continue to qualify for
regulated investment company status so long as such qualification is in the
best interests of its shareholders. Such qualification relieves the Taxable
Portfolio of liability for Federal income taxes to the extent its earnings are
distributed in accordance with the applicable provisions of the Code.
The Taxable Portfolio intends to distribute at least 90% of its investment
company taxable income taxable income subject to certain adjustments
(exclusive of the excess of its net long-term capital gain over its net
short-term capital loss) for each taxable year. The Taxable Portfolio will be
subject to Federal income tax on any undistributed investment company taxable
income. To the extent such income is distributed, it will be taxable to
shareholders as ordinary income. In the case of corporate shareholders, such
distributions are not expected to be eligible for the dividends-received
deduction. If the Taxable Portfolio does not distribute at least 98% of its
ordinary income and 98% of its capital gain net income for a taxable year, the
Taxable Portfolio will be subject to a nondeductible 4% excise tax on the
excess of such amounts over the amounts actually distributed.
The Taxable Portfolio may realize short-term or long-term capital gains or
losses from its portfolio transactions. The Taxable Portfolio may also realize
short-term or long-term capital gains upon the maturity or disposition of
securities acquired at discounts resulting from market fluctuations. A portion
of such gains may be taxable as ordinary income to the extent of accrued
market discount. Short-term capital gains will be taxable to shareholders as
ordinary income when they are distributed. Any net capital gains (the excess
of its net realized long-term capital gain over its net realized short-term
capital loss) will be distributed annually to the Taxable Portfolio's
shareholders. The Taxable Portfolio will have no tax liability with respect to
distributed net capital gains and the distributions will be taxable to
shareholders as long-term capital gains regardless of how long the
shareholders have held Taxable Portfolio shares. However, Taxable Portfolio
shareholders who at the time of such a net capital gain distribution have not
held their Taxable Portfolio shares for more than 6 months, and who
subsequently dispose of those shares at a loss, will be required to treat such
loss as a long-term capital loss to the extent of the net capital gain
distribution. Distributions of net capital gain will be designated as a
"capital gain dividend" in a written notice mailed to the Taxable Portfolio's
shareholders not later than 60 days after the close of the Taxable Portfolio's
taxable year. Under the Revenue Reconciliation Act of 1993, for
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fiscal years beginning after December 31, 1992, ordinary income is subject to
a maximum tax rate of 39.6%, and net capital gains are subject to a
preferential rate in certain circumstances.
A shareholder may recognize a taxable gain or loss if the shareholder sells or
redeems his shares. If the securities held by the Taxable Portfolio appreciate
in value, purchasers of shares of the Taxable Portfolio after the occurrence
of such appreciation will acquire such shares subject to the tax obligation
that may be incurred in the future when there is a sale of such shares.
The Tax Reform Act of 1986 contained a provision limiting miscellaneous
itemized deductions for individuals and certain other shareholders, such as
estates and trusts, to the extent such miscellaneous itemized deductions do
not exceed 2% of adjusted gross income for a taxable year. However, the
Revenue Reconciliation Act of 1989 provided an exemption from the limitation
for publicly-offered regulated investment companies. The Taxable Portfolio
currently qualifies and expects to continue to qualify as a publicly-offered
regulated investment company.
If a shareholder fails to provide the Taxable Portfolio with a current
taxpayer identification number, the Taxable Portfolio generally is required to
withhold 31% of taxable interest, dividend payments and proceeds from the
redemption of shares of the Taxable Portfolio.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Taxable Portfolio.
Entities that generally qualify for an exemption from Federal income tax, such
as many pension trusts and retirement plans, are nevertheless taxed under
Section 511 of the Code on "unrelated business taxable income." Unrelated
business taxable income is income from a trade or business regularly carried
on by the tax-exempt entity that is unrelated to the entity's exempt purpose.
Unrelated business taxable income generally does not include dividend or
interest income or gain from the sale of investment property, unless such
income is derived from property that is debt-financed or is dealer property. A
tax-exempt entity's dividend income from the Taxable Portfolio and gain from
the sale of shares in the Taxable Portfolio or the Taxable Portfolio's sale of
securities is not expected to constitute unrelated business taxable income to
such tax-exempt entity unless the acquisition of the share itself is
debt-financed or constitutes dealer property in the hands of the tax-exempt
entity.
Before investing in the Taxable Portfolio, the trustee or investment manager
of an employee benefit plan (e.g., a pension or profit sharing retirement
plan) should consider among other things (a) whether the investment is prudent
under the Employee Retirement Income Security Act of 1974 "ERISA"), taking
into account the needs of the plan and all of the facts and circumstances of
the investment in the Taxable Portfolio; (b) whether the investment satisfies
the diversification requirement of Section 404(a)(1)(C) of ERISA; and (c)
whether the assets of the Portfolio are deemed "plan assets" under ERISA and
the Department of Labor regulations regarding the definition of "plan assets."
Prospective tax-exempt investors are urged to consult their own tax advisers
prior to investing in the Taxable Portfolio.
NEW YORK INCOME TAXES
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. However, to the extent that dividends are derived from interest on
New York Municipal Obligations, the dividends will also be excluded from a New
York shareholder's gross income for New York State and New York City personal
income tax purposes. This exclusion will not result in a corporate shareholder
being exempt for New York State and New York City franchise tax purposes.
Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from each Portfolio and ownership of shares of each
Portfolio in their own states and localities.
NEW JERSEY INCOME TAXES
The exemption of interest income for Federal income tax purposes does not
necessarily result in an exemption under the income or other tax laws of any
state or local taxing authority. The Fund intends to be a "qualified
investment fund" within the meaning of the New Jersey gross income tax. The
primary criteria for constituting a "qualified investment fund" are that 1)
such fund is an investment company registered with the Securities and Exchange
Commission which, for the calendar year in which the distribution is paid, has
no investments other than interest-bearing obligations, obligations issued at
a discount, and cash and cash items, including receivables and financial
options, futures, forward contracts, or other similar financial instruments
relating to interest-bearing obligations, obligations issued at a discount or
bond indexes related thereto and 2) at the close of each quarter
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of the taxable year, such fund has not less than 80% of the aggregate
principal amount of all of its investments, excluding financial options,
futures, forward contracts, or other similar financial instruments relating to
interest-bearing obligations, obligations issued at a discount or bond indexes
related thereto to the extent such instruments are authorized under the
regulated investment company rules under the Code, cash and cash items, which
cash items shall include receivables, in New Jersey Municipal Obligations.
Additionally, a qualified investment fund must comply with certain continuing
reporting requirements.
In the opinion of McCarter & English, special New Jersey tax counsel to the
Fund, assuming that the Fund constitutes a qualified investment fund and that
the Fund complies with the reporting obligations under New Jersey law with
respect to qualified investment funds, a) distributions paid by the Fund to a
New Jersey resident individual shareholder will not be subject to the New
Jersey gross income tax to the extent that the distributions are attributable
to income received as interest on or gain from New Jersey Municipal
Obligations and b) gain from the sale of shares in the Fund by a New Jersey
resident individual shareholder will not be subject to the New Jersey gross
income tax. Shareholders should consult their own tax advisers about the
status of distributions from the Fund in their own states and localities.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Investors Fiduciary Trust Company is custodian for the Fund's cash and
securities. The custodian does not assist in, and is not responsible for,
investment decisions involving assets of the Fund. The Fund has retained State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02111, to perform transfer agency related services for the Fund.
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DESCRIPTION OF SECURITY RATINGS AND NOTES1
Moody's Investors Service, Inc. (Moody's)
Bonds
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements may 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 Aaa bonds because margins of
protection may not be as large 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.
Moody's applies numerical modifiers 1, 2 and 3) in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
Notes
Moody's ratings for state and tax-exempt notes and short-term loans are
designated Moody's Investment Grade MIG). The distinction is in recognition of
the difference between short-term and long-term credit risk. Loans bearing the
designation MIG-1 are of the best quality, enjoying strong protection by
established cash flows of funds for their servicing or by established and
broadbased access to the market for refinancing, or both. Loans bearing the
designation MIG-2 are of high quality, with margins of protection ample
although not as large as in the preceding group. Loans bearing the designation
MIG-3 are of favorable quality, with all security elements accounted for but
lacking the strength of the preceding grades. Market access for refinancing,
in particular, is likely to be less well established. Notes bearing the
designation MIG-4 are judged to be of adequate quality, carrying specific risk
but having protection commonly regarded as required of an investment security
and not distinctly or predominantly speculative.
Commercial Paper
Moody's Commercial Paper Ratings are opinions of the ability of issuers to
repay punctually promissory senior debt obligations not having an original
maturity in excess of one year. The designation Prime-1 or P-1 indicates the
highest quality repayment capacity of the rated issue.
The designation Prime-2 or P-2 indicates that the issuer has a strong capacity
for repayment of senior short-term promissory obligations. Earnings trends and
coverage ratios, while sound, may be subject to some variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Issuers rated "Not Prime" do not fall within any of the Prime rating
categories.
- --------
1 As described by the rating agencies.
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Standard & Poor's Corporation ("S&P")
Bonds
AAA: Bonds rated AAA are highest grade obligations. They possess the ultimate
degree of protection as to principal and interest.
AA: Bonds rated AA also qualify as high-grade obligations and, to a the
majority of instances, differ from AAA issues only to a small degree.
A: Bonds rated A are regarded as upper medium grade. They have considerable
investment strength but are not entirely free from adverse effects of changes
in economic and trade conditions. Interest and principal are regarded as safe.
They predominantly reflect money rates in their market behavior and, to some
extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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 bonds in this category than for bonds in higher rated
categories.
Municipal Notes
SP-1: Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given
a plus +) designation.
SP-2: Satisfactory capacity to pay principal and interest.
Commercial Paper
S&P Commercial Paper ratings are current assessments of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
Issues assigned A have the highest rating and are regarded as having the
greatest capacity for timely payment. The A-1 designation indicates that the
degree of safety regarding timely payment is very strong.
The ratings assigned by S&P may be modified by the addition of a plus +) or
minus -) sign to show relative standing within its major rating categories.
Description of Tax-Exempt Notes
Tax-Exempt Notes generally are used to provide for short-term capital needs
and generally have maturities of one year or less. Tax-Exempt Notes include:
Tax Anticipation Notes: Tax Anticipation Notes are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation of
various seasonal tax revenue, such as income, sales, use and business taxes,
and are payable from these specific future taxes.
Revenue Anticipation Notes: Revenue Anticipation Notes are issued in
expectation of receipt of other kinds of revenue, such as Federal revenues
available under the Federal Revenue Sharing Programs.
Bond Anticipation Notes: Bond Anticipation Notes are issued to provide interim
financing until long-term financing can be arranged. In most cases the
long-term bonds then provide the money for the repayment of the Notes.
Construction Loan Notes: Construction Loan Notes are sold to provide
construction financing. Permanent financing, the proceeds of which are applied
to the payment of Construction Loan Notes, is sometimes provided by a
commitment by the Government National Mortgage Association "GNMA") to purchase
the loan, accompanied by a commitment by the Federal Housing Administration to
insure mortgage advances thereunder. In other instances, permanent financing
is provided by commitments of banks to purchase the loan.
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Tax-Exempt Commercial Paper
Issues of Tax-Exempt 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, Tax-Exempt Commercial Paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or other institutions.
Fitch Investors Services, Inc. ("Fitch")
Tax-Exempt Bonds
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations
of a specific debt issue or class of debt in a timely manner.
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.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
AAA: Bonds considered to be investment grade and of the highest 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 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 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.
Tax-Exempt Notes and Commercial Paper
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
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The short-term rating places greater emphasis than a long-term rating on the
existences 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 F-1+ issues .
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.
F-3: Fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near-term adverse changes could cause these securities to be rated
below investment grade.
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Let it be said loud and clear there can be no assurance the Fund will achieve
its objectives. But if you've come into a lump sum of money and want
professionals to invest it, tend it, trade it and nurture it in Municipal
Bonds, the Lebenthal Municipal Bond Funds could be for you.
CONVERSATIONS FROM A DAY IN THE LIFE OF A MUNICIPAL BOND SALESMAN
A businessman calls and actually says he doesn't need more income. He can
hardly spend what he earns now. Here's money he wants to put away, not touch
the interest, and let it accumulate and build.
A father calls and says he's doing better than his parents, but only wishes he
could say the same for his kids. He wants to do something for them. He doesn't
want to see the interest chipped away by taxes. "Mitts off" he says. "This is
my kids' social security."
A grandfather calls. It's Peter's birthday. He could get Peter a fire truck.
Any sensible four year old would prefer a fire truck. But he wants to take
care of Peter's education and watch the interest pile up and earn more tax
free interest, month after month, year after year.
A man calls with the fruits of a life's work. He's just sold his business and
has an employment contract with the new owner into the next century. This is
money he'll probably never have to touch. But his heirs might. He wants to
build an estate for the future and let little acorns grow.
Not everyone is concerned with the amount of income an investment can provide
now. Many want to know about an investment's long term benefits. For example,
how much purchasing power will my money have tomorrow? How much will I be able
to leave my children? If you are as concerned with your net worth tomorrow as
you are with your cashflow today, instead of spending your interest, consider
reinvesting it in a Lebenthal Municipal Bond Fund -- and receiving your
interest every month or any distributions of principal or gains) in additional
fund shares.
When you opt for automatic reinvestment, instead of taking your distributions
in cash, they are being used to buy you more shares. The number of shares you
own accumulates and builds on an amount that is growing all the time.
For example, between October 12, 1993 and November 11, 1994 -- one of the
"worst" bond markets on record -- net asset value per share of the Lebenthal
New York Municipal Bond Fund fell from $8.26 to $6.69, a decline of $1.57 or a
decline of $1.96 from the Public Offering Price of $8.65 that prevailed on
October 12, 1993). And yet, $25,000 invested in the Fund at the P.O.P. of
$8.65 on October 12, 1993 would have grown from 2889.565 shares to 3077.762,
an increase of 188.1966 shares for the period.
OTHER IMPORTANT FACTS ABOUT THE FUND
The Lebenthal Municipal Bond Funds are integrated with the Lebenthal & Co.,
Inc. account system. All activity in your Fund account and your month-end
balance will appear on a monthly statement you get from Lebenthal & Co., Inc.
If you are already a Lebenthal bond customer, the Fund can automatically
receive payments of interest and principal from any bonds in your Lebenthal
Workhorse Account and put them to work instantly in the Fund. In other words
you can use the Fund for investment of new money or as an automatic
reinvestment vehicle for payments from bonds you already own.
Past performance is no guarantee of future results, and no particular level of
fund performance can be assured. But to further illustrate how shares grow
through reinvestment over time, at say, a hypothetical five percent (5%) a
year compounded monthly, every 1000 shares would become 1283 shares in five
years, 1647 shares in ten years, 2114 shares in fifteen years.
Compounding does not protect against fluctuating bond prices, and a decline in
value per share could negate the positive effect of growth in the number of
shares owned. But time can mitigate loss, because it stands to reason: the
more shares you have accumulated through reinvestment over time, the bigger
the multiple that will be working for you when you decide to sell.
Whether you make money or lose money down the road when you do sell your
shares, will depend on the number of shares you then owe as well as the going
resale price per share. So count the shares. And give it time.
Time is the soulmate of compound interest -- and the best friend a would-be
saver's got.
- -------------------------------------------------------------------------------
-46-
345175.2
<PAGE>
Lebenthal New York Municipal Bond Fund
- -------------------------------------------------------------------------------
<TABLE>
TAXABLE EQUIVALENT YIELD TABLE
(New York State and Federal)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Single $24,001 58,151 121,301 263,751
Return 58,150 121,300 263,750 and over
- ------------------------------------------------------------------------------------------------------------
Joint 40,101 96,901 147,701 263,751
Return 96,900 147,700 263,750 and over
- ------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ------------------------------------------------------------------------------------------------------------
Federal 28.00% 31.00% 36.00% 39.60%
Tax Rate
- ------------------------------------------------------------------------------------------------------------
State 7.125% 7.125% 7.125% 7.125%
Tax Rate
- ------------------------------------------------------------------------------------------------------------
Combined 33.130% 35.916% 40.560% 43.904%
Marginal
Tax Rate
- ------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields . . .
- ------------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------------
6.00% 8.97% 9.36% 10.09% 10.70%
- ------------------------------------------------------------------------------------------------------------
6.25% 9.35% 9.75% 10.51% 11.14%
- ------------------------------------------------------------------------------------------------------------
6.50% 9.72% 10.14% 10.94% 11.59%
- ------------------------------------------------------------------------------------------------------------
6.75% 10.09% 10.53% 11.36% 12.03%
- ------------------------------------------------------------------------------------------------------------
7.00% 10.47% 10.92% 11.78% 12.48%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
- -------------------------------------------------------------------------------
C/M 10675.0001 350714.1
<PAGE>
Lebenthal New York Municipal Bond Fund
- -------------------------------------------------------------------------------
<TABLE>
TAXABLE EQUIVALENT YIELD TABLE
(Federal, New York State and New York City)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Single $24,001 25,001 58,151 60,001 121,301 263,751
Return 25,000 58,150 60,000 121,300 263,750 and over
- ----------------------------------------------------------------------------------------------------------------------------
Joint 40,101 45,001 96,901 108,001 147,101 263,751
Return 45,000 96,900 108,000 147,700 263,750 and over
- ----------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ----------------------------------------------------------------------------------------------------------------------------
Federal 28.00% 28.00% 31.00% 31.00% 36.00% 39.60%
Tax Rate
- ----------------------------------------------------------------------------------------------------------------------------
State 7.125% 7.125% 7.125% 7.125% 7.125% 7.125%
Tax Rate
- ----------------------------------------------------------------------------------------------------------------------------
City 4.389% 4.400% 4.400% 4.457% 4.457% 4.457%
Tax Rate
- ----------------------------------------------------------------------------------------------------------------------------
Combined 36.291% 36.298% 38.952% 38.992% 43.412% 46.596%
Marginal
Tax Rate
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields . . .
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Tax Exempt Equivalent Taxable Investment Yield
Yield With Taxable Income Yields
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6.00% 9.42% 9.42% 9.83% 9.83% 10.60% 11.24%
- -------------------------------------------------------------------------------------------------------------------------------
6.25% 9.81% 9.81% 10.24% 10.25% 11.05% 11.70%
- -------------------------------------------------------------------------------------------------------------------------------
6.50% 10.20% 10.20% 10.65% 10.65% 11.49% 12.17%
- -------------------------------------------------------------------------------------------------------------------------------
6.75% 10.60% 10.60% 11.06% 11.06% 11.93% 12.64%
- -------------------------------------------------------------------------------------------------------------------------------
7.00% 10.99% 10.99% 11.47% 11.47% 12.37% 13.11%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
- ------------------------------------------------------------------------------
C/M 10675.0001 350714.1
<PAGE>
Lebenthal New Jersey Municipal Bond Fund
- ------------------------------------------------------------------------------
<TABLE>
TAXABLE EQUIVALENT YIELD TABLE
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single $24,000 -- 35,001 40,001 58,151 75,001 -- 121,301 263,751
Return 35,000 -- 40,000 58,150 75,000 121,300 -- 263,750 and over
- ----------------------------------------------------------------------------------------------------------------------------------
Joint 40,100 50,001 70,001 80,001 96,901 -- 147,701 150,001 263,751
Return 50,000 70,000 80,000 96,900 147,700 -- 150,000 263,750 and over
- ----------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ----------------------------------------------------------------------------------------------------------------------------------
Federal 28.00% 28.00% 28.00% 28.00% 31.00% 31.00% 36.00% 36.00% 39.60%
Tax Rate
- ----------------------------------------------------------------------------------------------------------------------------------
State 1.750% 2.450% 3.500% 5.525% 5.525% 6.370% 5.525% 6.370% 6.370%
Tax Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Combined 29.26% 29.76% 30.52% 31.98% 34.81% 35.40% 39.54% 40.08% 43.45%
Tax Rate
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields . . .
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Tax Exempt Equivalent Taxable Investment Yield Required to Match Tax Exempt Yield
Yield
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.00% 7.07% 7.12% 7.20% 7.35% 7.67% 7.74% 8.27% 8.34% 8.84%
5.50% 7.78% 7.83% 7.92% 8.09% 8.44% 8.51% 9.10% 9.18% 9.73%
6.00% 8.48% 8.54% 8.64% 8.82% 9.20% 9.29% 9.92% 10.01% 10.61%
6.50% 9.19% 9.25% 9.36% 9.56% 9.97% 10.06% 10.75% 10.85% 11.49%
7.00% 9.90% 9.97% 10.08% 10.29% 10.74% 10.84% 11.58% 11.68% 12.38%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
- -------------------------------------------------------------------------------
C/M 10675.0001 350714.1
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
INDEPENDENT AUDITOR'S REPORT
===============================================================================
The Board of Directors and Shareholders
Lebenthal Funds, Inc.
We have audited the accompanying statements of assets and liabilities and the
statements of investments of Lebenthal New York Municipal Bond Fund, Lebenthal
New Jersey Municipal Bond Fund, and Lebenthal Taxable Municipal Bond Fund,
series of Lebenthal Funds, Inc., as of November 30, 1995, and the related
statements of operations, the statements of changes in net assets and the
selected financial information for each of the periods indicated in the
accompanying financial statements. These financial statements and selected
financial information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
selected financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amount and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of Lebenthal New York Municipal Bond Fund, Lebenthal New Jersey
Municipal Bond Fund and Lebenthal Taxable Municipal Bond Fund, series of
Lebenthal Funds, Inc. as of November 30, 1995, the results of their operations,
the changes in their net assets and the selected financial information for the
periods indicated, in conformity with generally accepted accounting principles.
New York, New York
December 29, 1995
345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS
NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Face Value
Amount (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (95.53%)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
$1,285,000 Monroe County, NY IDA Civil Facility (DePaul Community Facility),
6.50%, due 2/01/24 $1,356,754
- ---------------------------------------------------------------------------------------------------------------------------------
300,000 New York City Unlimited Tax General Obligation, 7.750%, due 8/15/13 338,469
- ---------------------------------------------------------------------------------------------------------------------------------
2,350,000 New York, New York - Series C, 7.25%, due 8/15/24 2,542,912
- ---------------------------------------------------------------------------------------------------------------------------------
4,000,000 New York, New York - Series F, 6.625%, due 2/15/25 4,215,080
- ---------------------------------------------------------------------------------------------------------------------------------
2,400,000 New York State Dormitory Authority Revenue, 7.40%, due 8/01/30 2,719,896
- ---------------------------------------------------------------------------------------------------------------------------------
7,255,000 New York State Dormitory Authority Revenue (Highlands Center),
6.60%, due 2/01/34 7,717,143
- ---------------------------------------------------------------------------------------------------------------------------------
2,330,000 New York State Dormitory Authority Revenue (Presbyterian Residential Community),
6.50%, due 8/01/34 2,460,084
- ---------------------------------------------------------------------------------------------------------------------------------
750,000 New York State Dormitory Authority Revenue (State University Educational Facilities),
7.00%, due 5/15/16 808,170
- ---------------------------------------------------------------------------------------------------------------------------------
3,900,000 New York State Dormitory Authority Revenue (Nottingham Retirement Community),
6.125%, 7/01/25 3,974,958
- ---------------------------------------------------------------------------------------------------------------------------------
3,500,000 New York State Dormitory Authority Revenue (Jewish Geriatric) FHA - Insured Mortgage,
7.35%, due 8/01/29 3,972,080
- ---------------------------------------------------------------------------------------------------------------------------------
5,190,000 New York State Dormitory Authority Revenue
(Niagara Frontier Home) FHA - Insured Mortgage, 6.40%, 2/01/35 5,460,295
- ---------------------------------------------------------------------------------------------------------------------------------
1,000,000 New York State Dormitory Authority Revenue (St. Lukes Home Residential Health),
6.375%, 8/01/35 1,051,630
- ---------------------------------------------------------------------------------------------------------------------------------
6,000,000 New York State Dormitory Authority Revenue (Our Lady Of Consolidation Nursing Home),
FHA - Insured Mortgage, 6.05%, 8/01/35 6,059,400
- ---------------------------------------------------------------------------------------------------------------------------------
4,755,000 New York State Dormitory Authority Revenue (Geneva Nursing Home II),
FHA - Insured Mortgage, 6.20%, 8/01/35 4,910,108
- ---------------------------------------------------------------------------------------------------------------------------------
1,000,000 New York State Energy Research & Development Authority - Industrial Development
& Pollution Control (Brooklyn Union and Gas), MBIA, 6.75%, due 2/01/24 1,081,590
- ---------------------------------------------------------------------------------------------------------------------------------
6,000,000 New York State Energy Research & Development Authority - Electric Facilities Revenue -
(Consolidated Edison Company Project), 6.75%, due 1/15/27 6,312,900
- ---------------------------------------------------------------------------------------------------------------------------------
1,000,000 New York State Energy Research & Development Authority - Electric Facilities
Revenue - (Long Island Lighting Company Project), 7.15%, due 2/01/22 1,025,930
- ---------------------------------------------------------------------------------------------------------------------------------
500,000 New York State Energy Research & Development Authority - Pollution Control Revenue -
(Niagara Mohawk Power Corporation), FGIC, 6.625%, due 10/01/13 544,950
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------
Ratings
- ----------------------------------------------------
Face Standard
Amount Moody's & Poor's
- ----------------------------------------------------
MUNICIPAL BONDS (95.53%)
- ----------------------------------------------------
- ----------------------------------------------------
$1,285,000
Aa
- ----------------------------------------------------
300,000 Baa1 BBB+
- ----------------------------------------------------
2,350,000 Baa1 BBB+
- ----------------------------------------------------
4,000,000 Baa1 BBB+
- ----------------------------------------------------
2,400,000 Aa AAA
- ----------------------------------------------------
7,255,000
AA
- ----------------------------------------------------
2,330,000
AA
- ----------------------------------------------------
750,000
Baa1 BBB+
- ----------------------------------------------------
3,900,000
AA
- ----------------------------------------------------
3,500,000
AAA
- ----------------------------------------------------
5,190,000
AA
- ----------------------------------------------------
1,000,000
AA
- ----------------------------------------------------
6,000,000
AA
- ----------------------------------------------------
4,755,000
AA
- ----------------------------------------------------
1,000,000
Aaa AAA
- ----------------------------------------------------
6,000,000
A1 A+
- ----------------------------------------------------
1,000,000
Ba1 BB+
- ----------------------------------------------------
500,000
Aaa AAA
- ----------------------------------------------------
-i-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Face Value
Amount (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
$550,000 New York State Environmental Facilities Corp. Pollution Control Revenue -
(State Water Revolving Fund - Series C), 7.20%, due 3/15/11 $603,939
- ------------------------------------------------------------------------------------------------------------------------------------
1,750,000 New York State Medical Hospital Nursing Facilities, 6.60%, due 2/15/31 1,856,295
- ------------------------------------------------------------------------------------------------------------------------------------
1,500,000 New York State Housing Finance Agency Insured Multi-Family Mortgage Housing Revenue
- Series 1992C, 6.50%, due 8/15/24 1,546,020
- ------------------------------------------------------------------------------------------------------------------------------------
3,400,000 New York State Housing Finance Agency (Phillips Village Project) - Series A,
7.75%, due 8/15/17 3,770,838
- ------------------------------------------------------------------------------------------------------------------------------------
6,750,000 New York State Medical Care Facilities Finance Agency Revenue
(Hospital & Nursing Home FHA - Insured Mortgage - Series B), 6.60%, due 8/15/34 7,192,192
- ------------------------------------------------------------------------------------------------------------------------------------
175,000 New York State Medical Care Facilities Mental Health Service,
7.30%, due 2/15/21 191,538
- ------------------------------------------------------------------------------------------------------------------------------------
5,300,000 New York State Medical Care Facilities Finance Agency Revenue,
6.90%, due 8/15/34, AMBAC 5,869,803
- ------------------------------------------------------------------------------------------------------------------------------------
6,950,000 New York State Medical Care Facilities Finance Agency Revenue,
(FHA - Insured Mortgage Project-1995 - Series C), 6.375%, due on 8/15/29 7,269,422
- ------------------------------------------------------------------------------------------------------------------------------------
500,000 New York State Medical Care Facilities Finance Agency Revenue,
(New York Downtown Hospital - Series A), 6.70%, due 2/15/12 525,700
- ------------------------------------------------------------------------------------------------------------------------------------
2,600,000 New York State Medical Care Facilities Finance Agency Revenue,
(New York Downtown Hospital - Series A), 6.80%, due 2/15/20 2,754,570
- ------------------------------------------------------------------------------------------------------------------------------------
2,505,000 New York State Medical Care Facilities Finance Agency Revenue,
(FHA - Insured Mortgage Project - Series A), 6.50%, due 2/15/35 2,649,889
- ------------------------------------------------------------------------------------------------------------------------------------
2,000,000 New York State Medical Care Facilities Finance Agency Revenue,
(Brookdale Hospital Medical Center - Series A), 6.80%, due 8/15/12 2,118,900
- ------------------------------------------------------------------------------------------------------------------------------------
2,550,000 New York State Medical Care Facilities Finance Agency Revenue,
(Brookdale Hospital Medical Center - Series A), 6.85%, due 2/15/17 2,711,849
- ------------------------------------------------------------------------------------------------------------------------------------
5,000,000 New York State Medical Care Facilities Finance Agency Revenue
FHA Insured Mortgage Project - Series D, 6.375%, due 02/15/35 5,245,700
- ------------------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
95,045,000 Total Municipal Bonds (Cost $94,802,181) 100,859,004
- ------------------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------
Ratings
- -------------------------------------------------
Face Standard
Amount Moody's & Poor's
- -------------------------------------------------
MUNICIPAL BONDS (Continued)
- -------------------------------------------------
$550,000
Aa A+
- --------------------------------------------------
1,750,000 AAA
- --------------------------------------------------
1,500,000
Aa AAA
- --------------------------------------------------
3,400,000
A
- --------------------------------------------------
6,750,000
Aa
- --------------------------------------------------
175,000
Baa1 BBB+
- --------------------------------------------------
5,300,000
Aaa AAA
- --------------------------------------------------
6,950,000
Aa AA
- --------------------------------------------------
500,000
Baa BBB
- --------------------------------------------------
2,600,000
Baa BBB
- --------------------------------------------------
2,505,000
Aa AA
- --------------------------------------------------
2,000,000
Baa BBB
- --------------------------------------------------
2,550,000
Baa BBB
- --------------------------------------------------
5,000,000
Aa AA
- ------------------
- --------------------------------------------------
95,045,000
- ------------------
- -------------------------------------------------
- ---------------------------------------------------------------------------
Shares Market Value
- ---------------------------------------------------------------------------
Closed-End Funds (9.50%)
- ---------------------------------------------------------------------------
$196,722 Intercapital New York Quality $ 2,262,303
- ---------------------------------------------------------------------------
131,825 Munivest New York Insured Fund 1,598,378
-ii-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------
Closed-End Funds (Continued)
- ------------------------------------------------------------------------------------------------------
<C> <C> <C>
$229,074 Muniyield New York Insured Fund II $ 3,121,133
- ------------------------------------------------------------------------------------------------------
5,000 Muniyield New York Insured Fund III 66,250
- ------------------------------------------------------------------------------------------------------
160,000 Muniyield New York Insured Fund 2,360,000
- ------------------------------------------------------------------------------------------------------
54,547 Taurus Muni New York Holdings 620,472
- ------------------ ------------------
- ------------------------------------------------------------------------------------------------------
777,168 Total Closed-End Funds (Cost $9,032,057) 10,028,536
- ------------------
- ------------------------------------------------------------------------------------------------------
Total Investments (105.03%) (Cost $103,834,238+) 110,887,540
- ------------------------------------------------------------------------------------------------------
Liabilities in Excess of Cash and Other Assets (-5.03%) ( 5,308,453)
-------------------
- ------------------------------------------------------------------------------------------------------
Net Assets (100.00%) $ 105,579,087
===================
</TABLE>
+ Aggregate cost for federal income tax purposes is $103,854,498.
Aggregate unrealized appreciation and depreciation, based
on cost for federal income purposes, are $7,033,042 and $0.
-iii-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS
NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Face Value
Amount (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Bonds (85.05%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$125,000 Cape May County, New Jersey Industrial Pollution Control Financing Authority
Revenue - Atlantic City Electric Company Project A, MBIA, 7.20%, due 11/01/29 $143,267
- ------------------------------------------------------------------------------------------------------------------------------------
70,000 Essex County, New Jersey Import Authority Revenue Refunding Bond - Orange
School District - Series A, MBIA, 6.95%, due 07/01/14 80,179
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 Irvington, New Jersey Housing & Mortgage Finance Authority, 6.50%, due 02/01/24 103,014
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 New Jersey Economic Development Authority - American Airline, 7.10%, due 11/01/31 107,074
- ------------------------------------------------------------------------------------------------------------------------------------
250,000 New Jersey Economic Development Authority, Economic Development Revenue -
Bancroft Incorporated Obligation Group, 6.05%, due 12/01/25, Connie Lee 259,735
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 New Jersey Economic Development Authority, Economic Development Revenue
Refunding - Burlington Coat Factory, LOC First Fidelity Bank, 6.125%, due 09/01/10 157,055
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 New Jersey Economic Development Authority, Economic Development Revenue -
W.Y. Urban Holding Company, LOC NatWest Bank, Jersey City, 6.50%, due 06/01/15 158,312
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 New Jersey Economic Development Authority PSE&G, MBIA, 6.40%, due 05/01/32 106,897
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 New Jersey Economic Development Authority Water Facilities Revenue, FGIC, 6.875%
due 11/01/34 110,444
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 New Jersey Economic Development Authority AMT-Economic Growth - Series D,
LOC NatWest, 6.55%, due 08/01/14 105,244
- ------------------------------------------------------------------------------------------------------------------------------------
85,000 New Jersey Health Care Facilities Financing Authority Refunding Revenue
Irvington General Hospital Issue - Series 1994, FHA, 6.40%, due 08/01/25 89,007
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 New Jersey Health Care Facilities Financing Authority Revenue Bond - General
Hospital Center at Passaic, FSA, 6.75%, due 07/01/19 139,790
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 New Jersey Health Care Facilities Financing Authority Revenue Bond - Monmouth
Medical Center Issue - Series C, CGIC, 6.25%, due 07/01/24 106,282
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 New Jersey Health Care Facilities Financing Authority Revenue Bond - Newark
Beth Israel Medical Center, FSA, 6.00%, due 07/01/24 104,048
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 New Jersey State Educational Facilities Authority Revenue Bond - New Jersey
Institute Tech. Issue - Series A, MBIA, 6.00%, due 07/01/24 104,538
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 New Jersey State Housing & Mortgage Finance Agency Multi-Family Housing Revenue
Refunding - Presidential Plaza FHA-1, 7.00%, due 05/01/30 132,215
- ------------------------------------------------------------------------------------------------------------------------------------
300,000 New Jersey State Housing & Mortgage Finance Agency Multi-Family Housing
Revenue - Series A, AMBAC, 6.05%, due 11/01/20 304,929
</TABLE>
- --------------------------------------------
Ratings
- --------------------------------------------
Face Standard
Amount Moody's & Poor's
- ---------------------------------------------
Municipal Bonds (85.05%)
- ---------------------------------------------
$125,000
Aaa AAA
- ---------------------------------------------
70,000
Aaa AAA
- ---------------------------------------------
100,000 AAA
- ---------------------------------------------
100,000 Baa2 BB+
- ---------------------------------------------
250,000
AAA
- ---------------------------------------------
150,000
A1
- ---------------------------------------------
150,000
AA-
- ---------------------------------------------
100,000 Aaa AAA
- ---------------------------------------------
100,000
Aaa AAA
- ---------------------------------------------
100,000
AA-
- ---------------------------------------------
85,000
AAA
- ---------------------------------------------
125,000
Aaa AAA
- ---------------------------------------------
100,000
Aaa AAA
- ---------------------------------------------
100,000
Aaa AAA
- ---------------------------------------------
100,000
Aaa AAA
- ---------------------------------------------
125,000
AAA
- ---------------------------------------------
300,000
Aaa AAA
-iv-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL NEW JERSEY MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Face Value
Amount (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Bonds (Continued)
<S> <C> <C>
- ------------------ ---------------------------------------------------------------------------------------------------------------
$125,000 New Jersey State Housing & Mortgage Finance Agency Revenue Housing - Series A,
6.95%, due 11/01/13 $133,091
- ------------------ ---------------------------------------------------------------------------------------------------------------
150,000 New Jersey State Housing & Mortgage Finance Agency Revenue AMT - Home
Buyers - Series O, MBIA, 6.35%, due 10/01/27 154,773
- ------------------ ---------------------------------------------------------------------------------------------------------------
140,000 Newark, New Jersey Housing Finance Corporation Mortgage Revenue,
Refunding-SEC 8-FHA-Manor Apts-A, 7.50%, due 02/15/24 154,031
- ------------------ ---------------------------------------------------------------------------------------------------------------
100,000 Puerto Rico Housing Bank & Finance Agency Single Family Mortgage Revenue AMT -
Afford Housing Mortgage - Portfolio I, 6.25%, GNMA/FNMA/FHLMA College, due 04/01/29 101,860
- ------------------
- ------------------ ---------------------------------------------------------------------------------------------------------------
2,695,000 Total Municipal Bonds (Cost $2,683,552) 2,855,785
- ------------------
- ------------------ ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------
Ratings
- --------------------------------------------
Face Standard
Amount Moody's & Poor's
- ---------------------------------------------
- ------------------------------ -------------
$125,000
A+
- ------------------------------ -------------
150,000
Aaa AAA
- ------------------------------ -------------
140,000
AAA
- ------------------------------ -------------
100,000
Aaa AAA
- ------------------
- ------------------------------ -------------
2,695,000
- ------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------
Closed-End Funds (10.21%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
$ 14,100 Munivest New Jersey Fund $ 170,962
- ------------------------------------------------------------------------------------------------------------------
12,500 Muniyield New Jersey Fund 171,875
- ------------------ ------------------
- ------------------------------------------------------------------------------------------------------------------
26,600 Total Closed-End Funds (Cost $338,580) 342,837
- ------------------ ------------------
- ------------------------------------------------------------------------------------------------------------------
Total Investments (95.26%) (Cost $3,022,132+) 3,198,622
- ------------------------------------------------------------------------------------------------------------------
Cash and Other Assets, Net of Liabilities (4.74%) 159,261
------------------
- ------------------------------------------------------------------------------------------------------------------
Net Assets (100.00%) $ 3,357,883
===================
- ------------------------------------------------------------------------------------------------------------------
+ Aggregate cost for federal income tax purposes is identical.
Aggregate unrealized appreciation and depreciation are $176,490 and $0.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-v-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS
NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Face Value
Amount (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (91.25%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$150,000 All Saints Health System Taxable Bonds
9.00%, due 8/15/24, MBIA $ 169,359
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 Buffalo New York, GO, AMBAC Taxable Bonds
Series F, 9.05%, due 2/01/15 109,166
- ------------------------------------------------------------------------------------------------------------------------------------
285,000 California Housing Finance MHRB Taxable II
Series C, 8.10%, due 2/01/37 292,946
- ------------------------------------------------------------------------------------------------------------------------------------
2,000,000 Compton California Community Redevelopment Agency
Capital Appreciation Tax Allocation - Series C 0.00%, due 8/01/22, CGIC 288,020
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 Connecticut Health and Educational Maefair Health, Taxable Bonds
9.20%, due 11/01/24 180,144
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 Connecticut Health and Educational Facility Authority
Laurelwood Rehab & Skilled Nursing Project, 9.36%, due 11/01/24 146,104
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 Connecticut Health and Educational Facilities Authority Taxable Bonds,
Nursing Home Program Issue - Series 1994, 8.90%, due 11/01/24 174,854
- ------------------------------------------------------------------------------------------------------------------------------------
255,000 Connecticut Housing Finance Authority Housing Mortgage Finance
Program 1993 - Series G, 9.25%, due 5/15/27 283,601
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 Connecticut Development Authority Tax - Subseries B1
8.50%, due 8/15/14 104,262
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 Conyers GA Water & Sewer Revenue Bonds, AMBAC, 8.75%, due 7/01/15 139,024
- ------------------------------------------------------------------------------------------------------------------------------------
250,000 Cuyahoga County Ohio Economic Development Revenue
Taxable Gateway Arena PJ-Series A 8.625%, due 6/01/22 274,463
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 Idaho Housing Agency MFB, 8.50%, due 7/01/09 155,487
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 Illinois Housing AMBAC, 8.64%, due 12/01/21 153,323
- ------------------------------------------------------------------------------------------------------------------------------------
2,180,000 Kern County California Pension Obligation
Capital Appreciation Taxable, 0.00% due 8/15/18, MBIA 414,069
- ------------------------------------------------------------------------------------------------------------------------------------
325,000 Maryland State Community Development Administration MHRB Taxable Bonds
Department Housing & Community Development - F
9.10%, due 5/15/10 351,903
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 Memorial Health System Revenue Bond, MBIA, 8.375%, due 10/01/20 163,473
- ------------------------------------------------------------------------------------------------------------------------------------
200,000 Michigan State Housing Development Authority Multi-Family
Taxable Bonds - Series A 8.30%, due 11/01/15 210,930
- ------------------------------------------------------------------------------------------------------------------------------------
190,000 Minnesota State Housing Finance Agency Taxable Bonds
Rental Housing - Series A
8.70%, due 8/01/22 196,540
- ------------------------------------------------------------------------------------------------------------------------------------
60,000 Minnesota State Housing - Series B, 8.00%, due 2/01/18 61,555
- ------------------------------------------------------------------------------------------------------------------------------------
50,000 Minnesota State Housing Finance Agency - Taxable-Single Family Mortgage-G
8.05%, due 1/01/21 51,471
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------
Ratings
- -----------------------------------------------------
Face Standard
Amount Moody's & Poor's
- -----------------------------------------------------
MUNICIPAL BONDS (91.2
- -----------------------------------------------------
$150,000
Aaa AAA
- -----------------------------------------------------
100,000
Aaa AAA
- -----------------------------------------------------
285,000
Aaa AAA
- -----------------------------------------------------
2,000,000
Aaa AAA
- -----------------------------------------------------
150,000
A1 AA-
- -----------------------------------------------------
125,000
A1 AA-
- -----------------------------------------------------
150,000
A1 AA-
- -----------------------------------------------------
255,000
Aa AA
- -----------------------------------------------------
100,000
A+
- -----------------------------------------------------
125,000 Aaa AAA
- -----------------------------------------------------
250,000
A
- -----------------------------------------------------
150,000 A
- -----------------------------------------------------
150,000 Aaa AAA
- -----------------------------------------------------
2,180,000
Aaa AAA
- -----------------------------------------------------
325,000
Aa
- -----------------------------------------------------
150,000 Aaa AAA
- -----------------------------------------------------
200,000
Aaa AAA
- -----------------------------------------------------
190,000
A+
- -----------------------------------------------------
60,000 A+
- -----------------------------------------------------
50,000
A+
- -----------------------------------------------------
-vi-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL TAXABLE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Face Value
Amount (Note 1)
- --------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (Continued)
- --------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$100,000 New Hampshire State Housing and Finance Authority Single Family Mortgage
Revenue Bonds, - Series 1995-C, 9.40%, due 7/01/14 $107,859
- --------------------------------------------------------------------------------------------------------------------
240,000 New Jersey State Housing and Mortgage Finance Agency Rental Housing
Revenues - Taxable Bonds, - Series E, 8.95%, due 11/01/12 258,682
- --------------------------------------------------------------------------------------------------------------------
180,000 New York, New York - Series D, 9.625%, due 8/01/10 195,995
- --------------------------------------------------------------------------------------------------------------------
40,000 New York, New York Taxable Bonds, 9.90%, due 2/01/10 45,856
- --------------------------------------------------------------------------------------------------------------------
250,000 New York State Environment Facilities Corp. State Service Contract Revenue
Series A 9.625%, due 3/15/21 285,447
- --------------------------------------------------------------------------------------------------------------------
300,000 New York State Housing Finance Agency, 8.25%, due 5/15/35 308,943
- --------------------------------------------------------------------------------------------------------------------
110,000 New York State Housing Finance Agency Service Contract Obligation
Revenue - Series B, 8.60%, due 3/15/04 121,275
- --------------------------------------------------------------------------------------------------------------------
100,000 Pittsburgh Pennsylvania Urban Redevelopment
Authority, CGIC, 9.07%, due 9/01/14 117,016
- --------------------------------------------------------------------------------------------------------------------
300,000 Sacramento County, California, 0.00%, due 8/15/21, MBIA 250,836
- --------------------------------------------------------------------------------------------------------------------
120,000 Southeastern Pennsylvania Trans Authority, FGIC, 8.75%, due 3/01/20 136,501
- --------------------------------------------------------------------------------------------------------------------
300,000 Tampa Florida Sports Authority Taxable - LN - Arena
PJ Hillsboro, 8.07%, due 10/01/26, MBIA 320,184
- --------------------------------------------------------------------------------------------------------------------
375,000 Texas State Department Housing & Community
Taxable Mortgage - Series C1, 7.76%, due 9/01/17, MBIA 380,122
- --------------------------------------------------------------------------------------------------------------------
700,000 United Nations Development Corporation, 8.80%, due 7/01/26 747,712
- --------------------------------------------------------------------------------------------------------------------
365,000 Virginia State Housing Development Authority Multi-family
Taxable Bonds - Series A, 8.125% due 11/01/15 372,774
- --------------------------------------------------------------------------------------------------------------------
350,000 Wisconsin Housing & Economic Development Authority Home Ownership RB
Taxable Bonds - Series H, 7.875% due 3/01/26 356,513
- ------------------ --------------
- --------------------------------------------------------------------------------------------------------------------
10,975,000 Total Municipal Bonds (Cost $7,435,755) 7,926,409
- ------------------ --------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------
Ratings
- -----------------------------------------------
Face Standard
Amount Moody's & Poor's
- -----------------------------------------------
MUNICIPAL BONDS (Continued)
- ------------------------------ -------------
$100,000
Aa
- ------------------------------ -------------
240,000
A+
- ------------------------------ -------------
180,000 Baa1 BBB+
- ------------------------------ -------------
40,000 Baa1 BBB+
- ------------------------------ -------------
250,000
Baa1 BBB
- ------------------------------ -------------
300,000 AAA
- ------------------------------ -------------
110,000
Baa1 BBB
- ------------------------------ -------------
100,000
Aaa AAA
- ------------------------------ -------------
300,000 Aaa AAA
- ------------------------------ -------------
120,000 Aaa AAA
- ------------------------------ -------------
300,000
Aaa AAA
- ------------------------------ -------------
375,000
Aaa AAA
- ------------------------------ -------------
700,000 A
- ------------------------------ -------------
365,000
AA AA+
- ------------------------------ -------------
350,000
AA AA
- ------------------
- ------------------------------ -------------
10,975,000
- ------------------
- ------------------------------ -------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------------------
Closed-End Funds (9.51%)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 60,000 Blackrock Income Trust $ 405,000
- -------------------------------------------------------------------------------------------------------------------
46,761 Hyperion Total Return 420,849
- ------------------ ------------------
- -------------------------------------------------------------------------------------------------------------------
106,761 Total Closed-End Funds (Cost $834,911) 825,849
- ------------------ ------------------
- -------------------------------------------------------------------------------------------------------------------
Total Investments (100.76%) (Cost $8,270,666+) 8,752,258
- -------------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Cash and Other Assets (-0.76%) ( 66,301)
-------------------
- -------------------------------------------------------------------------------------------------------------------
Net Assets (100.00%) $ 8,685,957
===================
- -------------------------------------------------------------------------------------------------------------------
+ Aggregate cost for federal income tax purposes is $8,276,728.
Aggregate unrealized appreciation and depreciation, based
on cost for federal income tax purposes, are $493,733 and $18,203.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-vii-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Lebenthal New York Lebenthal New Jersey Lebenthal Taxable
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
Investment in securities
at value (cost $103,834,238,
$3,022,132 and 8,270,666).......................... $ 110,887,540 $ 3,198,622 $ 8,752,258
- ----------------------------------------------------------------------------------------------------------------------------------
Receivables:
- ----------------------------------------------------------------------------------------------------------------------------------
Capital shares sold................................ 1,455,436 106,061 335,357
- ----------------------------------------------------------------------------------------------------------------------------------
Interest........................................... 1,945,872 49,240 127,122
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends.......................................... -- -- 137
- ----------------------------------------------------------------------------------------------------------------------------------
Due from Manager................................... -- 26,026 11,642
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred organization expenses......................... 8,646 23,257 18,764
--------------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets.................................... 114,297,494 3,403,206 9,245,280
----------- --------- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------------
Payables:
- ----------------------------------------------------------------------------------------------------------------------------------
Securities purchased............................... 6,394,753 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Capital shares redeemed............................ 172,820 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends declared................................. 315,967 10,698 33,072
- ----------------------------------------------------------------------------------------------------------------------------------
Due to Administrator............................... 10,534 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Due to Distributor................................. 21,068 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Due to Manager..................................... 19,989 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Due to Custodian................................... 1,737,355 3,522 488,494
- ----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities................. 45,921 31,103 37,757
-------------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities............................... 8,718,407 45,323 559,323
------------- ----------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 105,579,087 $ 3,357,883 $ 8,685,957
=========== ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (Note 3)............................ 13,216,773 500,916 1,203,348
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, and redemption
price per share.................................... $ 7.99 $ 6.70 $ 7.22
- ----------------------------------------------------------------------------------------------------------------------------------
Maximum offering price per share*...................... $ 8.37 $ 7.02 $ 7.56
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The sales charge on the New York Bond Fund, the New Jersey Bond
Fund and the Taxable Bond Fund is 4.5% of the offering price on a
single sale of less than $50,000, reduced on sales of $50,000 or
more and certain other sales.
-viii-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1995
===============================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Lebenthal New York Lebenthal New Jersey Lebenthal Taxable
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
- --------------------------------------------------------------------------------------------------------------------------
Interest............................................. $ 5,360,054 $ 136,441 $ 345,428
- --------------------------------------------------------------------------------------------------------------------------
Dividends............................................ 599,835 12,912 35,287
------------ ---------- ----------
- --------------------------------------------------------------------------------------------------------------------------
Total income...................................... 5,959,889 149,353 380,715
----------- --------- ---------
- --------------------------------------------------------------------------------------------------------------------------
Expenses: (Note 2)
- --------------------------------------------------------------------------------------------------------------------------
Management fee....................................... 214,981 5,987 11,647
- --------------------------------------------------------------------------------------------------------------------------
Distribution fee..................................... 224,979 5,987 11,647
- --------------------------------------------------------------------------------------------------------------------------
Administration fee................................... 112,489 2,994 5,824
- --------------------------------------------------------------------------------------------------------------------------
Custodian fees....................................... 11,782 1,997 2,560
- --------------------------------------------------------------------------------------------------------------------------
Shareholder servicing and
related shareholder expenses...................... 102,568 17,604 18,033
- --------------------------------------------------------------------------------------------------------------------------
Interest............................................. 89,673 -- --
- --------------------------------------------------------------------------------------------------------------------------
Legal, compliance and filing fees.................... 60,889 9,903 12,999
- --------------------------------------------------------------------------------------------------------------------------
Audit and accounting fees............................ 44,597 45,205 50,074
- --------------------------------------------------------------------------------------------------------------------------
Director's fees...................................... 9,109 256 509
- --------------------------------------------------------------------------------------------------------------------------
Amortization of organization expenses................ 15,319 7,746 6,249
- --------------------------------------------------------------------------------------------------------------------------
Other................................................ 4,376 1,081 1,106
------------- ----------- -----------
- --------------------------------------------------------------------------------------------------------------------------
Total expenses.................................... 890,762 98,760 120,648
- --------------------------------------------------------------------------------------------------------------------------
Less: Reimbursement of expenses (Note 2).......... -- (69,431) (63,701)
- --------------------------------------------------------------------------------------------------------------------------
Fees waived.................................... -- ( 14,968) ( 29,118)
-------------- ---------- ----------
- --------------------------------------------------------------------------------------------------------------------------
Net expenses......................................... 890,762 14,361 27,829
-------------- ---------- ----------
- --------------------------------------------------------------------------------------------------------------------------
Net investment income.................................... 5,069,127 134,992 352,886
----------- --------- ---------
- --------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments......................... 1,283,011 36,790 10,392
- --------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation
of investments....................................... 11,953,235 221,012 585,669
---------- --------- ---------
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments.................................. 13,236,246 257,802 596,061
---------- --------- ---------
- --------------------------------------------------------------------------------------------------------------------------
Increase in net assets
from operations...................................... $ 18,305,373 $ 392,794 $ 948,947
========== ========= =========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
-ix-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED NOVEMBER 30, 1995 AND 1994
===============================================================================
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
Lebenthal New York Municipal
Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1994
------------------------ --------------
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income....................................... $ 5,069,127 $ 4,417,771
Net realized gain (loss) on
investments............................................ 1,283,011 ( 4,604,120)
Change in unrealized appreciation.......................... 11,953,235 ( 8,260,378)
---------------- ---------------
Increase (decrease)
in net assets from operations 18,305,373 ( 8,446,790)
Dividends from net investment income ( 5,069,127)* ( 4,417,708)*
Districutions from net realized gains
on investments -- ( 365,144)
Capital share transactions (Note 3) 17,016,993 7,828,771
---------------- -------------
Total increase (decrease)................................... 30,253,239 ( 5,400,871)
Net assets:
Beginning of year........................................... 75,325,848 80,726,719
------------ ----------
End of year................................................. $ 105,579,087 $ 75,325,848
=========== ==========
</TABLE>
- ------------------------------------------------------------------------------
* Designated as exempt interest dividends for federal income tax purposes.
- ------------------------------------------------------------------------------
-x-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- ------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED NOVEMBER 30, 1995 AND 1994
==============================================================================
<TABLE>
<CAPTION>
Lebenthal New Jersey Municipal Lebenthan Taxable Municipal
Bond Fund Bond Fund
1995 1994 1995 1994
---- ---- ---- ----
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C>
Operations:
Net investment income................. $ 134,992 $ 87,979 $ 352,886 $ 170,931
Net realized gain (loss) on
investments........................ 36,790 ( 315,519) 10,392 ( 246,621)
Change in unrealized appreciation..... 221,012 ( 44,522) 585,669 ( 104,077)
Increase (decrease)
in net assets from operations......... 392,794 ( 272,062) 948,947 ( 179,767)
Dividends from net investment income......... ( 134,992) ( 87,979) ( 352,886) ( 170,931)
Distributions from net realized gains
on investments........................ -- -- -- --
Capital share transactions (Note 3)........... 954,934 2,505,188 5,099,617 3,340,977
--------- --------- --------- ---------
Total increase (decrease).............. 1,212,736 2,145,147 5,695,678 2,990,279
Net assets:
Beginning of year...................... 2,145,147 -0- 2,990,279 -0-
---------- ------------- --------- ---------
End of year............................ $ 3,357,883 $ 2,145,147 $ 8,685,957 $ 2,990,279
========= ========= ========= =========
</TABLE>
-xi-
See Notes to Financial Statements
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Accounting Policies
Lebenthal Funds, Inc. (the "Company") is registered under the Investment Company
Act of 1940 as an open-end management investment company consisting of Lebenthal
New York Municipal Bond Fund (the "New York Bond Fund"), Lebenthal New Jersey
Municipal Bond Fund (the "New Jersey Bond Fund") and Lebenthal Taxable Municipal
Bond Fund (the "Taxable Bond Fund"). Its financial statements are prepared in
accordance with generally accepted accounting principles for investment
companies as follows:
a) Valuation of Securities -
Municipal obligations are stated on the basis of valuations provided by a
pricing service approved by the Board of Directors, which uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. The valuations provided by such pricing
service will be based upon fair market value determined most likely on the
basis of the factors listed above. If a pricing service is not used,
municipal obligations will be valued at quoted prices provided by municipal
bond dealers. Non-tax exempt securities for which transaction prices are
readily available are stated at market value (determined on the basis of the
last reported sales price, or a similar means). Short-term investments that
will mature in 60 days or less are stated at amortized cost, which
approximates market value. All other securities and assets are valued at
their fair market value as determined in good faith by the Board of
Directors.
b) Federal Income Taxes -
It is the policy of each Fund to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its tax-exempt and taxable income to its shareholders.
Therefore, no provision for Federal income tax is required.
c) Dividends and Distributions -
Dividends from investment income (excluding capital gains and losses, if
any, and amortization of market discount) are declared daily and paid
monthly. Distributions of net capital gains, if any, realized on sales of
investments are made after the close of the Fund's fiscal year, as declared
by the Fund's Board of Directors.
d) Organizational Expenses -
The New Jersey Bond Fund and the Taxable Bond Fund are amortizing
organization expenses by straight-line charges against income over the
period ending November 30, 1998.
-xii-
C/M 10675.0002 345617.2
<PAGE>
LEBENTHAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
Summary of Accounting Policies (Continued)
e) General -
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned and dividend income is recorded on the ex-dividend
date. Premiums and original issue discounts on securities purchased by the
New York Bond Fund, the New Jersey Bond Fund and the Taxable Bond Fund are
amortized over the life of the respective securities. Realized gains and
losses from securities transactions are recorded on the identified cost
basis.
2. Investment Advisory Fees and Other Transactions with Affiliates
For the New York Bond Fund, the New Jersey Bond Fund and the Taxable Bond Fund:
Under the Management Contract the Funds pay a management fee to Lebenthal Asset
Management, Inc. (its Manager), equal to .25% of the Fund's average daily net
assets up to $50 million; .225% of such assets between $50 million and $100
million; and .20% of such assets in excess of $100 million. The Manager
supervises all aspects of the Fund's operations. The Manager has agreed to
reimburse the Fund for its expenses (exclusive of interest, taxes, brokerage,
and extraordinary expenses) which in any year exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale. For the year ended November 30, 1995, the Manager
voluntarily waived management fees of $5,987 and $11,647 for the New Jersey Bond
Fund and the Taxable Bond Fund, respectively. In addition, although not required
to do so, the Manager has agreed to reimburse expenses for the New Jersey Bond
Fund and the Taxable Bond Fund amounting to $69,431 and $63,701, respectively.
Pursuant to the Administrative Services Agreement, the Fund pays Reich & Tang
Asset Management L.P., (its Administrator) a fee equal to .125% of the Fund's
average daily net assets up to $100 million and .10% of such assets in excess of
$100 million. For the year ended November 30, 1995, the Administrator
voluntarily waived administration fees for the New Jersey Bond Fund and the
Taxable Bond Fund of $2,994 and $5,824, respectively.
For all Funds:
Pursuant to a Distribution Plan adopted under Rule 12b-1 of the Investment
Company Act of 1940, the Company and Lebenthal & Co., Inc. (the Distributor)
have entered into a Distribution Agreement. For its services under the
Distribution Agreement, the Distributor receives from each Fund a fee equal to
.25% of the Fund's average daily net assets. For the year ended November 30,
1995, the Distributor voluntarily waived fees of $5,987 and $11,647 from the New
Jersey Bond Fund and the Taxable Bond Fund, respectively. There were no
additional expenses borne by the Company pursuant to the Distribution Plan.
-xiii-
C/M 10675.0002 345617.2
<PAGE>
- -------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
Investment Advisory Fees and Other Transactions with Affiliates (Continued)
Lebenthal & Co., Inc. retained commissions of $535,793 from the sales of shares
of the New York Bond, the New Jersey Bond Fund and the Taxable Bond Fund.
Included in the Statements of Operations under the caption "Shareholder
servicing and related shareholder expenses" are fees of $13,347, $424 and $537
for the New York Bond Fund, the New Jersey Bond Fund and the Taxable Bond Fund,
respectively, paid to Fundtech Services, L.P., an affiliate of Reich & Tang
Asset Management L.P. as servicing agent to the Funds.
Fees are paid to Directors of the Company who are unaffiliated with the
Managers, the Distributor or the Administrator on the basis of $2,000 per annum
plus $500 per meeting attended.
3. Capital Stock
At November 30, 1995, there were 20,000,000,000 shares of $.001 par value stock
authorized and capital paid in for the New York Bond Fund, the New Jersey Bond
Fund and the Taxable Bond Fund amounted to $101,846,956, $3,460,122 and
$8,440,594, respectively. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Lebenthal New York Municipal Bond Fund Lebenthal New York Municipal Bond Fund
Year Ended Year Ended
November 30, 1995 November 30, 1994
----------------------------------------- ------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold.................................. 3,626,833 $ 27,728,133 3,069,379 $ 23,445,492
Issued on reinvestment of dividends... 584,439 4,424,986 528,597 3,988,593
Redeemed.............................. ( 2,011,809) ( 15,136,126) ( 2,631,314) ( 19,605,314)
---------- ----------- ---------- -----------
Net increase (decrease)............... 2,199,463 $ 17,016,993 966,662 7,828,771
========== =========== ========== ===========
</TABLE>
-xiv-
C/M 10675.0002 345617.2
<PAGE>
- ------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
==============================================================================
<TABLE>
3. Capital Stock (Continued)
<CAPTION>
Lebenthal New Jersey Municipal Bond Fund Lebenthal New Jersey Municipal Bond Fund
Year Ended Year Ended
November 30, 1995 November 30, 1994
------------------------------------------ ------------------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold.................................. 320,760 $ 2,060,689 378,649 $ 2,606,421
Issued on reinvestment of dividends... 18,321 118,158 9,222 59,421
Redeemed.............................. ( 198,975) ( 1,223,913) ( 27,061) ( 160,654)
---------- ----------- --------- ----------
Net increase (decrease)............... 140,106 $ 954,934 360,810 $ 2,505,188
========== =========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Lebenthal Taxable Municipal Bond Fund Lebenthal Taxable Municipal Bond Fund
Year Ended Year Ended
November 30, 1995 November 30, 1994
---------------------------------------- -------------------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold................................... 928,692 $ 6,373,549 502,012 $ 3,537,995
Issued on reinvestment of dividends.... 39,468 270,713 12,689 85,390
Redeemed............................... ( 236,166) ( 1,544,645) ( 43,347) ( 282,408)
--------- ----------- ---------- -----------
Net increase (decrease)................ 731,994 $ 5,099,617 471,354 $ 3,340,977
========= =========== ========== ===========
</TABLE>
4. Investment Transactions
Purchases of investment securities for the New York Bond Fund, the New Jersey
Bond Fund, and the Taxable Bond Fund, other than short term obligations, were
$167,258,181, $3,235,046 and $9,344,665, respectively. Sales of investment
securities for the New York Bond Fund, the New Jersey Bond Fund and the Taxable
Bond Fund, other than short term obligations, were $142,019,560, $1,459,033 and
$4,078,655, respectively. Accumulated undistributed realized gains(losses) at
November 30, 1995 amounted to ($3,321,171), ($278,729) and ($236,229) for the
New York Bond Fund, the New Jersey Bond Fund and the Taxable Bond Fund,
respectively. Tax basis capital losses which may be carried forward to offset
future capital gains through November 30, 2002 amounted to ($3,290,709),
($278,729) and ($230,167) for the New York Bond Fund, the New Jersey Bond Fund,
and the Taxable Bond Fund, respectively.
5. Concentration of Credit Risk
The New York Bond Fund invests primarily in obligations of political
subdivisions of the state of New York and the New Jersey Bond Fund invests
primarily in obligations of political subdivisions of the state of New Jersey
and accordingly these funds are subject to the risk associated with the
non-performance of such issuers. The Fund maintains a policy of monitoring its
exposure by reviewing the creditworthiness of the issuers, as well as that of
the financial institutions issuing the letters of credit, and by limiting the
amount of holdings with letters of credit from one financial institution.
-xv-
C/M 10675.0002 345617.2
<PAGE>
- ------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
=============================================================================
6. Selected Financial Information:
<TABLE>
<CAPTION>
Lebenthal New York
Municipal Bond Fund
Year Year Year Year December 24, 1990
Ended Ended+++ Ended Ended (Inception) to
November 30, 1995 November 30, 1994 November 30, 1993 November 30, 1992 November 30, 1991
----------------- ----------------- ----------------- ----------------- ----------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 6.84 $ 8.03 $ 7.54 $ 7.19 $ 7.16
Income from investment operations:
Net investment income.......................... 0.43 0.41 0.44 0.47 0.14
Net realized and unrealized
gain/(loss) on investments................... 1.15 ( 1.15) 0.50 0.35 0.03
------- -------- ------- ------- -------
Total from investment operations............... 1.58 ( .74) 0.94 0.82 .17
Less distributions:
Dividends from net investment income........... ( 0.43) ( 0.41) ( 0.44) ( 0.47) ( 0.14)
Distributions from net realized
gain on investments........................ -- ( 0.04) ( 0.01) -- --
--------- --------- ---------- ---------- -----------
Total distributions............................ ( 0.43) ( 0.45) ( 0.45) ( 0.47) ( 0.14)
Net asset value, end of period................. $ 7.99 $ 6.84 $ 8.03 $ 7.54 $ 7.19
Total Return
(without deduction of sales load)............ 23.56% ( 9.62%) 12.63% 11.68% 2.36%
Ratios/Supplemental Data
Net assets, end of period (000)................ $105,579 $75,326 $80,727 $39,350 $14,549
Ratios to average net assets:
Expenses..................................... 0.99% 0.64%++ 0.20%++ 0.17%++ 0%*++
Net investment income........................ 5.63% 5.44%++ 5.42%++ 6.08%++ 6.08%*++
Portfolio turnover............................. 148.88% 192.91% 7.88% 8.14% 0%
Bank loans
Amount outstanding at end of period (000)...... $1,737 -- -- -- --
Average amount of bank loans outstanding
during the period (000)..................... 1,857 -- -- -- --
Average number of shares outstanding
during the period (000)..................... 11,866 -- -- -- --
Average amount of debt per share
during the period........................... 0.16 -- -- -- --
</TABLE>
+++ Effective August 15, 1994, the investment advisor changed to Lebenthal
Asset Management, Inc.
-xvi-
C/M 10675.0002 345617.2
<PAGE>
- ------------------------------------------------------------------------------
LEBENTHAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
==============================================================================
<TABLE>
6. Selected Financial Information: (Continued)
<CAPTION>
Lebenthal New Jersey Lebenthal Taxable
Municipal Bond Fund Municipal Bond Fund
Year Year Year Year
Ended Ended Ended Ended
November 30, 1995 November 30, 1994+++ November 30, 1995 November 30, 1994+++
<S> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period............ $ 5.95 $ 7.16 $ 6.34 $ 7.16
Income from investment operations:
Net investment income........................... 0.36 0.32 0.53 0.44
Net realized and unrealized
gain (loss) on investments ................. 0.75 ( 1.21) 0.88 ( 0.82)
Total from investment operations................ 1.11 ( 0.89) 1.41 ( 0.38)
Less distributions:
Dividends from net investment income............ ( 0.36) ( 0.32) ( 0.53) ( 0.44)
Distributions from net realized
gain on investments......................... -- -- -- --
---------- ----------- ----------- --------
Total distributions............................. ( 0.36) ( 0.32) ( 0.53) ( 0.44)
-------- ---------- ---------- ---------
Net asset value, end of period.................. $ 6.70 $ 5.95 $ 7.22 $ 6.34
======== ========= ======== =========
Total Return
(without deduction of sales load)............. 19.10% ( 12.70%) 23.11% ( 5.45%)
Ratios/Supplemental Data
Net assets, end of period (000)................. $3,358 $2,145 $8,686 $2,990
Ratios to average net assets:
Expenses........................................ 0.60%++ 0.60%++ .60%++ 0.60%++
Net investment income........................... 5.64% 4.97%++ 7.57%++ 6.74%++
Portfolio turnover.............................. 61.69% 291.60% 84.74% 93.73%
</TABLE>
* Annualized + Not Annualized
++ For the New York Bond Fund advisory, management, administration, and
distribution fees of .38%, .58%, .62% and .775% of average net assets,
respectively, were waived during each period; and expenses were reimbursed
equivalent to .08%, .34%, .65% and 1.78% of average net assets. For the
New Jersey Bond Fund advisory, management, administration and distribution
fees of .63% and .68% of average net assets, respectively, were waived
during the period and expenses were reimbursed equivalent to 2.90% and
3.55% of average net assets, respectively. For the Taxable Bond Fund
advisory, management, administration and distribution fees of .63% and
.68% of average net assets, respectively, were waived during the period;
and expenses were reimbursed equivalent to 1.36% and 2.32% of average net
assets, respectively.
+++ Effective August 15, 1994, the investment advisor changed to Lebenthal
Asset Management, Inc.
-xvii-
C/M 10675.0002 345617.2
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(A) Financial Statements.
Included in Prospectus Part A:
(1) Selected Financial Information.
(2) Table of Fees and Expenses
Included in Statement of Additional Information Part B:
(1) Report of McGladrey & Pullen LLP, independent certified public
accountants, dated December 29, 1995.
(2) Statements of Assets and Liabilities (audited), dated
November 30, 1995.
(3) Statements of Investments (audited).
(4) Statements of Operations (audited).
(5) Statements of Changes in Net Assets (audited).
(6) Notes to Financial Statements.
(B) Exhibits.
* (1) Articles of Incorporation of the Registrant.
* (2) By-laws of the Registrant.
(3) Not applicable.
** (4) Form of certificate for shares of Common Stock, par value $.001
per share, of the Registrant.
- --------------------
* Filed with the original Registration Statement No. 33-36784 on September
11, 1990, and is incorporated herein by reference.
** Filed with Pre-Effective Amendment No. 1 to said Registration Statement
on December 18, 1990, and is incorporated herein by reference.
345164.2
<PAGE>
+ (5.2) Management Agreement between the Registrant and Lebenthal Asset
Management, Inc., for the Lebenthal New York Municipal Bond Fund
portfolio.
+ (5.2.1) Management Agreement between the Registrant and Lebenthal Asset
Management, Inc., for the Lebenthal New Jersey Municipal Bond
Fund portfolio.
+ (5.2.2) Management Agreement between the Registrant and Lebenthal Asset
Management, Inc., for the Lebenthal Taxable Municipal Bond Fund
portfolio.
** (6) See Distribution Agreement filed as Exhibit 15.2 and 15.2.1.
(7) Not applicable.
+ (8.1) Custody Agreement between the Registrant and IFTC.
+ (8.2) Investment Accounting Agreement between the Registrant and IFTC.
+ (8.3) Transfer Agency and Service Agreement between the Registrant and
State Street Bank and Trust Company.
+ (9) Administration Agreement between the Registrant and State Street
Bank and Trust Company.
** (10.1) Opinion of Battle Fowler LLP, as to the legality of the
securities being registered, including their consent to the
filing thereof and to the use of their name under the heading
"Federal Income Taxes" and "New York Income Taxes" in the
Prospectus and Statement of Additional Information, and under the
heading "Counsel and Auditors" in the Statement of Additional
Information.
**** (10.2) Opinion of McCarter & English, as to the New Jersey law,
including their consent to the filing thereof and to the use of
their name under the heading "New Jersey Income Taxes" in the
Prospectus.
- --------------------
** Filed with Pre-Effective Amendment No. 1 to said Registration Statement
on December 18, 1990, and is incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 7 to said Registration Statement
on September 1, 1993 and is incorporated herein by reference.
+ Filed herewith.
C-2
345164.2
<PAGE>
+ (11) Consent of Independent Certified Public Accountants.
(12) Not applicable.
** (13) Written assurance of Reich & Tang Asset Management L.P. that its
purchase of shares of the Registrant was for investment purposes
without any present intention of redeeming or reselling.
(14) Not applicable.
*** (15.1.1) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for the Lebenthal New York Municipal
Bond Fund portfolio of the Registrant.
****(15.1.2) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for the Lebenthal New Jersey
Municipal Bond Fund portfolio of the Registrant.
****(15.1.3) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for the Lebenthal Taxable Municipal
Bond Fund portfolio of the Registrant.
*** (15.2.1) Distribution Agreement between the Registrant and Lebenthal &
Co., Inc. for the Lebenthal New York Municipal Bond Fund
portfolio of the Registrant.
****(15.2.2) Distribution Agreement between the Registrant and Lebenthal &
Co., Inc. for the Lebenthal New Jersey Municipal Bond Fund
portfolio of the Registrant.
****(15.2.3) Distribution Agreement between the Registrant and Lebenthal &
Co., Inc. for the Lebenthal Taxable Municipal Bond Fund portfolio
of the Registrant.
- --------------------
** Filed with Pre-Effective Amendment No. 1 to said Registration Statement
on December 18, 1990, and is incorporated herein by reference.
*** Filed with Post-Effective Amendment No. 2 to said Registration Statement
on June 5, 1991 and is incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 7 to said Registration Statement
on September 1, 1993 and is incorporated herein by reference.
+ Filed herewith.
C-3
345164.2
<PAGE>
****(15.3.1) Shareholder Servicing Agreement between the Lebenthal New Jersey
Municipal Bond Fund and Lebenthal & Co., Inc.
****(15.3.2) Shareholder Servicing Agreement between the Lebenthal Taxable
Municipal Bond Fund and Lebenthal & Co., Inc.
+ (16) Powers of Attorney.
+ (17) Financial Data Schedule (for EDGAR filing only.)
Item 25. Persons Controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of January 31, 1996
-------------- -----------------------
Common Stock (par value $.001)
- Lebenthal New Jersey Municipal 262
Bond Fund portfolio
- Lebenthal New York Municipal 9,775
Bond Fund portfolio
- Lebenthal Taxable Municipal 615
Bond Fund portfolio
Item 27. Indemnification.
Registrant incorporates herein by reference to response to Item 27 of
Pre-Effective Amendment No. 1 of this Registration Statement filed with the
Commission on December 18, 1990.
Item 28. Business and Other Connections of Investment Adviser.
Registrant's investment adviser is Lebenthal Asset Management, Inc., a
Delaware corporation and a registered investment adviser. The description of
Lebenthal Asset Management, Inc. under the caption "Management of the Fund" in
the Prospectus and in the Statement of Additional Information constituting
parts A and B, respectively, of the Registration Statement, are incorporated
herein by reference.
- --------------------
** Filed with Pre-Effective Amendment No. 1 to said Registration Statement
on December 18, 1990, and is incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 7 to said Registration Statement
on September 1, 1993 and is incorporated herein by reference.
+ Filed herewith.
C-4
345164.2
<PAGE>
Item 29. Principal Underwriters.
(a) Lebenthal & Co., Inc., the Registrant's distributor. Lebenthal is
also a depositor for the Empire State Municipal Exempt Trust series of unit
investment trusts.
(b) The following are the directors and officers of Lebenthal & Co., Inc.
The principal business address of each of these persons is 120 Broadway, New
York, NY 10271.
Positions and Offices Position and Offices
Name With Distributor With Registrant
James A. Lebenthal Chairman and Director Director
D. Warren Kaufman Senior Managing Director
and Director None
Jeffrey Michael James Executive Vice President
and Director None
James E. McGrath Senior Vice President Treasurer
Alexandra Lebenthal President and Director President
Duncan Kimber Smith Senior Managing Director
and Director None
Hiram Lazar Vice President Secretary
Item 30. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained in the physical possession of the Registrant or
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64104-1716, the Fund's custodian; at State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, Massachusetts 02171-2197, the Fund's
Administrator; National Financial Data Services, the delegatee of State Street
Bank and Trust Company, 1004 Baltimore, Kansas City, MO 64105, the Fund's
Transfer Agent, and at Lebenthal & Co., Inc., 120 Broadway, New York, New York
10271, the Fund's distributor.
Item 31. Management Services.
Not applicable.
Item 32. Undertaking.
Not applicable.
C-5
345164.2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has met all
of the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 26th day of
March, 1996.
LEBENTHAL FUNDS, INC.
By: /s/ Alexandra Lebenthal
------------------------
Alexandra Lebenthal
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
(1) Principal Executive Officer
/s/ Alexandra Lebenthal
---------------------------
Alexandra Lebenthal President
March 26, 1996
(2) Principal Financial
& Accounting Officer
/s/ James McGrath
---------------------------
James McGrath March 26, 1996
Treasurer
(3) Majority of Directors
James A. Lebenthal}
Victor Chang}
Donald G. Conrad}
Francis P. Gallagher}
Robert R. Godfrey}
By: /s/ Hiram Lazar
---------------------------
Hiram Lazar
*Attorney-in-Fact March 26, 1996
- ------------------
* Filed herewith.
345164.2
<PAGE>
INDEX TO EXHIBITS
(5.2) Management Agreement for the Lebenthal New York
Municipal Bond Fund
(5.2.1) Management Agreement for the New Jersey Municipal
Bond Fund
(5.2.2) Management Agreement for the Lebenthal Taxable
Municipal Bond Fund
(8.1) Custody Agreement
(8.2) Investment Accounting Agreement
(8.3) Form of Transfer Agency and Service Agreement
(9) Administration Agreement between the Registrant and
State Street Bank and Trust Company.
(11) Consent of Independent Auditors
(16) Powers of Attorney
345164.2
Exhibit 5.2
MANAGEMENT CONTRACT
LEBENTHAL FUNDS, INC.
(the "Fund")
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
(the "Portfolio")
New York, New York
_______________, 1994
Lebenthal Asset Management, Inc.
120 Broadway
New York, New York
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We propose to engage in the business of investing and
reinvesting our assets in securities of the type, and in accordance with the
limitations, specified in our Articles of Incorporation, By-Laws and
Registration Statement filed with the Securities and Exchange Commission under
the Investment Company Act of 1940 (the "1940 Act") and the Securities Act of
1933, including the Prospectus forming a part thereof (the "Registration
Statement"), all as from time to time in effect, and in such manner and to
such extent as may from time to time be authorized by our Board of Directors.
We enclose copies of the document listed above and will furnish you such
amendments thereto as may be made from time to time.
2. (a) We hereby employ you to manage the investment and
reinvestment of our assets as above specified, and, without limiting the
generality of the foregoing, to provide the management and other services
specified below, including supervising and monitoring the performance of the
Administrator in connection with its duties under our Administrative Services
Agreement.
(b) Subject to the general control of our Board
of Directors, you will make decisions with respect to all purchases and sales
of our Portfolio securities. To carry out such decisions, you are hereby
authorized, as our agent and attorney-in-fact for our account and at our risk
and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in our
C/M: 10675.0002 193733.1
<PAGE>
Portfolio securities you are authorized to exercise full discretion and act
for us in the same manner and with the same force and effect as our
corporation itself might or could do with respect to such purchases, sales or
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(c) You will report to our Board of Directors at
each meeting thereof all changes in our Portfolio since your prior report, and
will also keep us in touch with important developments affecting our Portfolio
and, on your initiative, will furnish us from time to time with such
information as you may believe appropriate for this purpose, whether
concerning the individual entities whose securities are included in our
Portfolio, the activities in which such entities engage, Federal income tax
policies applicable to our investments, or the conditions prevailing in the
money market or the economy generally. You will also furnish us with such
statistical and analytical information with respect to the Portfolio
securities as you may believe appropriate or as we may reasonably request. In
making such purchases and sales of our Portfolio securities, you will comply
with the policies set from time to time by our Board of Directors as well as
the limitations imposed by our Articles of Incorporation and by the provisions
of the Internal Revenue Code and the 1940 Act relating to regulated investment
companies and the limitations contained in the Registration Statement.
(d) It is understood that you will from time to
time employ, subcontract with or otherwise associate yourself with, entirely
at your expense, such persons as you believe to be particularly fitted to
assist you in the execution of your duties hereunder
(e) You or your affiliates will also furnish us,
at your own expense, such investment advisory supervision and assistance as
you may believe appropriate or as we may reasonable request subject to the
requirements of any regulatory authority to which you may be subject. You and
your affiliates will also pay the expenses of promoting the sale of our shares
(other than the costs of preparing, printing and filing our registration
statement, printing copies of the prospectus contained therein and complying
with other applicable regulatory requirements), except to the extent that we
are permitted to bear such expenses under a plan adopted pursuant to Rule
12b-1 under the 1940 Act or a similar rule.
3. We agree, subject to the limitations described below, to be
responsible for, and hereby assume the obligation for payment of, all our
expenses, including: (a) brokerage and commission expenses; (b) Federal, state
or local taxes, including issue and transfer taxes incurred by or levied on
us; (c) commit-
-2-
C/M: 10675.0002 193733.1
<PAGE>
ment fees and certain insurance premiums; (d) interest charges on borrowings;
(e) charges and expenses of our custodian; (f) charges, expenses and payments
relating to the issuance, redemption, transfer and dividend disbursing
functions for us; (g) telecommunications expenses; (h) recurring and
nonrecurring legal and accounting expenses, including the determination of net
asset value per share and the maintenance of Portfolio and general accounting
records; (i) costs of organizing and maintaining our existence as a
corporation; (j) compensation, including directors' fees, of any of our
directors, officers or employees who are not your officers or officers of your
affiliates and costs of other personnel providing clerical, accounting
supervision and other office services to us, as we may request; (k) costs of
stockholders' services; (l) costs of stockholders' reports, proxy
solicitations, and corporate meetings; (m) fees and expenses of registering
our shares under the appropriate Federal securities laws and of qualifying our
shares under applicable state securities laws, including expenses attendant
upon the initial registration and qualification of our shares and attendant
upon renewals of, or amendment to, those registrations and qualifications; (n)
expenses of preparing, printing and delivering our prospectus to our existing
shareholders and of printing shareholder application forms for shareholder
accounts; and (o) payment of the fees provided for herein and in the
Administrative Services Agreement and Distribution Agreement. Pursuant to the
Distribution Agreement between us and Lebenthal & Co., Inc. (the
"Distributor"), our obligation for the foregoing expenses is limited in that
the Distributor is responsible for any amount by which our annual operating
expenses (excluding taxes, brokerage, interest and extraordinary expenses)
exceed the limits on investment company expenses prescribed by any state in
which the Portfolio's shares are qualified for sale.
4. We will expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and we agree
as an inducement to your undertaking these services that you will not be
liable hereunder for any mistake of judgment or for any other cause, provided
that nothing herein shall protect you against any liability to us or to our
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by reason of your
reckless disregard of your obligations and duties hereunder.
5. In consideration of the foregoing we will pay you a fee at
the annual rate of .25% of the Portfolio's average daily net assets not in
excess of $50 million, .225% of such assets between $50 million and $100
million and .20% of such assets in excess of $100 million. Your fee will be
accrued by us daily, and will be payable on the last day of each calendar
month for services performed hereunder during that month or on such other
-3-
C/M: 10675.0002 193733.1
<PAGE>
schedule as you shall request of us in writing. You may waive your right to
any fee to which you are entitled hereunder, provided such waiver is delivered
to us in writing.
6. This Agreement will become effective on the date hereof and
shall remain in effect until and shall continue in effect until ___________ and
thereafter for successive twelve-month periods (computed from each _________),
provided that such continuation is specifically approved at least annually by
our Board of Directors or by a majority vote of the holders of our outstanding
voting securities, as defined in the 1940 Act, and, in either case, by a
majority of those of our directors who are neither party to this Agreement nor,
other than by their service as directors of the corporation, interested persons,
as defined in the 1940 Act, of any such person who is party to this Agreement.
Upon the effectiveness of this Agreement, it shall supersede all previous
Agreements between us covering the subject matter hereof. This Agreement may be
terminated at any time, without the payment of any penalty, by vote of a
majority of our outstanding voting securities, as defined in the 1940 Act, or by
a vote of a majority of our entire Board of Directors, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
7. This Agreement may not be transferred, assigned, sold or in
any manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale,
hypothecation or pledge by you. The terms "transfer", "assignment" and "sale"
as used in this paragraph shall have the meanings ascribed thereto by
governing law and in applicable rules or regulations of the Securities and
Exchange Commission.
8. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your officers and directors employees or the who may also
be a director, officer or employee of ours, or of a person affiliated with us,
as defined in the Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
-4-
C/M: 10675.0002 193733.1
<PAGE>
If the foregoing is in accordance with your understanding, will
you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
LEBENTHAL FUNDS, INC.
Lebenthal New York
Municipal Bond Fund
By:
ACCEPTED: ________________, 1994
LEBENTHAL ASSET MANAGEMENT, INC.
By:
-5-
C/M: 10675.0002 193733.1
Exhibit 5.2.1
MANAGEMENT CONTRACT
LEBENTHAL FUNDS, INC.
(the "Fund")
LEBENTHAL NEW JERSEY MUNICIPAL BOND FUND
(the "Portfolio")
New York, New York
_______________, 1994
Lebenthal Asset Management, Inc.
120 Broadway
New York, New York
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We propose to engage in the business of investing and
reinvesting our assets in securities of the type, and in accordance with the
limitations, specified in our Articles of Incorporation, By-Laws and
Registration Statement filed with the Securities and Exchange Commission under
the Investment Company Act of 1940 (the "1940 Act") and the Securities Act of
1933, including the Prospectus forming a part thereof (the "Registration
Statement"), all as from time to time in effect, and in such manner and to
such extent as may from time to time be authorized by our Board of Directors.
We enclose copies of the document listed above and will furnish you such
amendments thereto as may be made from time to time.
2. (a) We hereby employ you to manage the investment and
reinvestment of our assets as above specified, and, without limiting the
generality of the foregoing, to provide the management and other services
specified below, including supervising and monitoring the performance of the
Administrator in connection with its duties under our Administrative Services
Agreement.
(b) Subject to the general control of our Board
of Directors, you will make decisions with respect to all purchases and sales
of our Portfolio securities. To carry out such decisions, you are hereby
authorized, as our agent and attorney-in-fact for our account and at our risk
and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in our
C/M: 10675.0007 193739.1
<PAGE>
Portfolio securities you are authorized to exercise full discretion and act
for us in the same manner and with the same force and effect as our
corporation itself might or could do with respect to such purchases, sales or
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(c) You will report to our Board of Directors at
each meeting thereof all changes in our Portfolio since your prior report, and
will also keep us in touch with important developments affecting our Portfolio
and, on your initiative, will furnish us from time to time with such
information as you may believe appropriate for this purpose, whether
concerning the individual entities whose securities are included in our
Portfolio, the activities in which such entities engage, Federal income tax
policies applicable to our investments, or the conditions prevailing in the
money market or the economy generally. You will also furnish us with such
statistical and analytical information with respect to the Portfolio
securities as you may believe appropriate or as we may reasonably request. In
making such purchases and sales of our Portfolio securities, you will comply
with the policies set from time to time by our Board of Directors as well as
the limitations imposed by our Articles of Incorporation and by the provisions
of the Internal Revenue Code and the 1940 Act relating to regulated investment
companies and the limitations contained in the Registration Statement.
(d) It is understood that you will from time to
time employ, subcontract with or otherwise associate yourself with, entirely
at your expense, such persons as you believe to be particularly fitted to
assist you in the execution of your duties hereunder.
(e) You or your affiliates will also furnish us,
at your own expense, such investment advisory supervision and assistance as
you may believe appropriate or as we may reasonable request subject to the
requirements of any regulatory authority to which you may be subject. You and
your affiliates will also pay the expenses of promoting the sale of our shares
(other than the costs of preparing, printing and filing our registration
statement, printing copies of the prospectus contained therein and complying
with other applicable regulatory requirements), except to the extent that we
are permitted to bear such expenses under a plan adopted pursuant to Rule
12b-1 under the 1940 Act or a similar rule.
3. We agree, subject to the limitations described below, to be
responsible for, and hereby assume the obligation for payment of, all our
expenses, including: (a) brokerage and commission expenses; (b) Federal, state
or local taxes, including issue and transfer taxes incurred by or levied on
us; (c) commit-
-2-
C/M: 10675.0007 193739.1
<PAGE>
ment fees and certain insurance premiums; (d) interest charges on borrowings;
(e) charges and expenses of our custodian; (f) charges, expenses and payments
relating to the issuance, redemption, transfer and dividend disbursing
functions for us; (g) telecommunications expenses; (h) recurring and
nonrecurring legal and accounting expenses, including the determination of net
asset value per share and the maintenance of Portfolio and general accounting
records; (i) costs of organizing and maintaining our existence as a
corporation; (j) compensation, including directors' fees, of any of our
directors, officers or employees who are not your officers or officers of your
affiliates and costs of other personnel providing clerical, accounting
supervision and other office services to us, as we may request; (k) costs of
stockholders' services; (l) costs of stockholders' reports, proxy
solicitations, and corporate meetings; (m) fees and expenses of registering
our shares under the appropriate Federal securities laws and of qualifying our
shares under applicable state securities laws, including expenses attendant
upon the initial registration and qualification of our shares and attendant
upon renewals of, or amendment to, those registrations and qualifications; (n)
expenses of preparing, printing and delivering our prospectus to our existing
shareholders and of printing shareholder application forms for shareholder
accounts; and (o) payment of the fees provided for herein and in the
Shareholder Servicing Agreement, Administrative Services Agreement and
Distribution Agreement. Pursuant to the Distribution Agreement between us and
Lebenthal & Co., Inc. (the "Distributor"), our obligation for the foregoing
expenses is limited in that the Distributor is responsible for any amount by
which our annual operating expenses (excluding taxes, brokerage, interest and
extraordinary expenses) exceed the limits on investment company expenses
prescribed by any state in which the Portfolio's shares are qualified for
sale.
4. We will expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and we agree
as an inducement to your undertaking these services that you will not be
liable hereunder for any mistake of judgment or for any other cause, provided
that nothing herein shall protect you against any liability to us or to our
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by reason of your
reckless disregard of your obligations and duties hereunder.
5. In consideration of the foregoing we will pay you a fee at
the annual rate of .25% of the Portfolio"s average daily net assets not in
excess of $50 million, .225% of such assets between $50 million and $100
million and .20% of such assets in excess of $100 million. Your fee will be
accrued by us daily, and will be payable on the last day of each calendar
month for services performed hereunder during that month or on such other
-3-
C/M: 10675.0007 193739.1
<PAGE>
schedule as you shall request of us in writing. You may waive your right to
any fee to which you are entitled hereunder, provided such waiver is delivered
to us in writing.
6. This Agreement will become effective on the date hereof and
shall remain in effect until and shall continue in effect until ___________ and
thereafter for successive twelve-month periods (computed from each ___________),
provided that such continuation is specifically approved at least annually by
our Board of Directors or by a majority vote of the holders of our outstanding
voting securities, as defined in the 1940 Act, and, in either case, by a
majority of those of our directors who are neither party to this Agreement nor,
other than by their service as directors of the corporation, interested persons,
as defined in the 1940 Act, of any such person who is party to this Agreement.
Upon the effectiveness of this Agreement, it shall supersede all previous
Agreements between us covering the subject matter hereof. This Agreement may be
terminated at any time, without the payment of any penalty, by vote of a
majority of our outstanding voting securities, as defined in the 1940 Act, or by
a vote of a majority of our entire Board of Directors, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
7. This Agreement may not be transferred, assigned, sold or in
any manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale,
hypothecation or pledge by you. The terms "transfer", "assignment" and "sale"
as used in this paragraph shall have the meanings ascribed thereto by
governing law and in applicable rules or regulations of the Securities and
Exchange Commission.
8. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your officers and directors employees or the who may also
be a director, officer or employee of ours, or of a person affiliated with us,
as defined in the Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
-4-
C/M: 10675.0007 193739.1
<PAGE>
If the foregoing is in accordance with your understanding, will
you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
LEBENTHAL FUNDS, INC.
Lebenthal New Jersey
Municipal Bond Fund
By:
ACCEPTED: ________________, 1994
LEBENTHAL ASSET MANAGEMENT, INC.
By:
-5-
C/M: 10675.0007 193739.1
Exhibit 5.2.2
MANAGEMENT CONTRACT
LEBENTHAL FUNDS, INC.
(the "Fund")
LEBENTHAL TAXABLE MUNICIPAL BOND FUND
(the "Portfolio")
New York, New York
_______________, 1994
Lebenthal Asset Management, Inc.
120 Broadway
New York, New York
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We propose to engage in the business of investing and
reinvesting our assets in securities of the type, and in accordance with the
limitations, specified in our Articles of Incorporation, By-Laws and
Registration Statement filed with the Securities and Exchange Commission under
the Investment Company Act of 1940 (the "1940 Act") and the Securities Act of
1933, including the Prospectus forming a part thereof (the "Registration
Statement"), all as from time to time in effect, and in such manner and to
such extent as may from time to time be authorized by our Board of Directors.
We enclose copies of the document listed above and will furnish you such
amendments thereto as may be made from time to time.
2. (a) We hereby employ you to manage the investment and
reinvestment of our assets as above specified, and, without limiting the
generality of the foregoing, to provide the management and other services
specified below, including supervising and monitoring the performance of the
Administrator in connection with its duties under our Administrative Services
Agreement.
(b) Subject to the general control of our Board
of Directors, you will make decisions with respect to all purchases and sales
of our Portfolio securities. To carry out such decisions, you are hereby
authorized, as our agent and attorney-in-fact for our account and at our risk
and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in our
C/M: 10675.0006 193735.1
<PAGE>
Portfolio securities you are authorized to exercise full discretion and act
for us in the same manner and with the same force and effect as our
corporation itself might or could do with respect to such purchases, sales or
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(c) You will report to our Board of Directors at
each meeting thereof all changes in our Portfolio since your prior report, and
will also keep us in touch with important developments affecting our Portfolio
and, on your initiative, will furnish us from time to time with such
information as you may believe appropriate for this purpose, whether
concerning the individual entities whose securities are included in our
Portfolio, the activities in which such entities engage, Federal income tax
policies applicable to our investments, or the conditions prevailing in the
money market or the economy generally. You will also furnish us with such
statistical and analytical information with respect to the Portfolio
securities as you may believe appropriate or as we may reasonably request. In
making such purchases and sales of our Portfolio securities, you will comply
with the policies set from time to time by our Board of Directors as well as
the limitations imposed by our Articles of Incorporation and by the provisions
of the Internal Revenue Code and the 1940 Act relating to regulated investment
companies and the limitations contained in the Registration Statement.
(d) It is understood that you will from time to
time employ, subcontract with or otherwise associate yourself with, entirely
at your expense, such persons as you believe to be particularly fitted to
assist you in the execution of your duties hereunder.
(e) You or your affiliates will also furnish us,
at your own expense, such investment advisory supervision and assistance as
you may believe appropriate or as we may reasonable request subject to the
requirements of any regulatory authority to which you may be subject. You and
your affiliates will also pay the expenses of promoting the sale of our shares
(other than the costs of preparing, printing and filing our registration
statement, printing copies of the prospectus contained therein and complying
with other applicable regulatory requirements), except to the extent that we
are permitted to bear such expenses under a plan adopted pursuant to Rule
12b-1 under the 1940 Act or a similar rule.
3. We agree, subject to the limitations described below, to be
responsible for, and hereby assume the obligation for payment of, all our
expenses, including: (a) brokerage and commission expenses; (b) Federal, state
or local taxes, including issue and transfer taxes incurred by or levied on
us; (c) commit-
-2-
C/M: 10675.0006 193735.1
<PAGE>
ment fees and certain insurance premiums; (d) interest charges on borrowings;
(e) charges and expenses of our custodian; (f) charges, expenses and payments
relating to the issuance, redemption, transfer and dividend disbursing
functions for us; (g) telecommunications expenses; (h) recurring and
nonrecurring legal and accounting expenses, including the determination of net
asset value per share and the maintenance of Portfolio and general accounting
records; (i) costs of organizing and maintaining our existence as a
corporation; (j) compensation, including directors' fees, of any of our
directors, officers or employees who are not your officers or officers of your
affiliates and costs of other personnel providing clerical, accounting
supervision and other office services to us, as we may request; (k) costs of
stockholders' services; (l) costs of stockholders' reports, proxy
solicitations, and corporate meetings; (m) fees and expenses of registering
our shares under the appropriate Federal securities laws and of qualifying our
shares under applicable state securities laws, including expenses attendant
upon the initial registration and qualification of our shares and attendant
upon renewals of, or amendment to, those registrations and qualifications; (n)
expenses of preparing, printing and delivering our prospectus to our existing
shareholders and of printing shareholder application forms for shareholder
accounts; and (o) payment of the fees provided for herein and in the
Shareholder Servicing Agreement, Administrative Services Agreement and
Distribution Agreement. Pursuant to the Distribution Agreement between us and
Lebenthal & Co., Inc. (the "Distributor"), our obligation for the foregoing
expenses is limited in that the Distributor is responsible for any amount by
which our annual operating expenses (excluding taxes, brokerage, interest and
extraordinary expenses) exceed the limits on investment company expenses
prescribed by any state in which the Portfolio's shares are qualified for
sale.
4. We will expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and we agree
as an inducement to your undertaking these services that you will not be
liable hereunder for any mistake of judgment or for any other cause, provided
that nothing herein shall protect you against any liability to us or to our
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by reason of your
reckless disregard of your obligations and duties hereunder.
5. In consideration of the foregoing we will pay you a fee at
the annual rate of .25% of the Portfolio's average daily net assets not in
excess of $50 million, .225% of such assets between $50 million and $100
million and .20% of such assets in excess of $100 million. Your fee will be
accrued by us daily, and will be payable on the last day of each calendar
month for services performed hereunder during that month or on such other
-3-
C/M: 10675.0006 193735.1
<PAGE>
schedule as you shall request of us in writing. You may waive your right to
any fee to which you are entitled hereunder, provided such waiver is delivered
to us in writing.
6. This Agreement will become effective on the date hereof and
shall remain in effect until and shall continue in effect until and thereafter
for successive twelve-month periods (computed from each ), provided that such
continuation is specifically approved at least annually by our Board of
Directors or by a majority vote of the holders of our outstanding voting
securities, as defined in the 1940 Act, and, in either case, by a majority of
those of our directors who are neither party to this Agreement nor, other than
by their service as directors of the corporation, interested persons, as
defined in the 1940 Act, of any such person who is party to this Agreement.
Upon the effectiveness of this Agreement, it shall supersede all previous
Agreements between us covering the subject matter hereof. This Agreement may
be terminated at any time, without the payment of any penalty, by vote of a
majority of our outstanding voting securities, as defined in the 1940 Act, or
by a vote of a majority of our entire Board of Directors, on sixty days'
written notice to you, or by you on sixty days' written notice to us.
7. This Agreement may not be transferred, assigned, sold or in
any manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale,
hypothecation or pledge by you. The terms "transfer", "assignment" and "sale"
as used in this paragraph shall have the meanings ascribed thereto by
governing law and in applicable rules or regulations of the Securities and
Exchange Commission.
8. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your officers and directors employees or the who may also
be a director, officer or employee of ours, or of a person affiliated with us,
as defined in the Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
-4-
C/M: 10675.0006 193735.1
<PAGE>
If the foregoing is in accordance with your understanding, will
you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
LEBENTHAL FUNDS, INC.
Lebenthal Taxable
Municipal Bond Fund
By:
ACCEPTED: ________________, 1994
LEBENTHAL ASSET MANAGEMENT, INC.
By:
-5-
C/M: 10675.0006 193735.1
Exhibit 8.1
CUSTODY AGREEMENT
THIS AGREEMENT made the 1st day of July, 1991, by and between
INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of
the state of Missouri, having its trust office located at 127 West 10th
Street, Kansas City, Missouri 64105 ("Custodian"), and LEBENTHAL FUNDS, INC.,
a Maryland corporation, having its principal office and place of business at
25 Broadway, New York, New York 10004 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
custodian of the securities and monies of Fund's investment portfolio; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints
Custodian as custodian of the securities and monies at any time owned by the
Fund.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to
Custodian:
1. That it is a corporation or trust (as specified
above) duly organized and existing and in good standing under the laws of its
state of organization, and that it is registered under the Investment Company
Act of 1940 (the "1940 Act"); and
2. That it has the requisite power and authority under
applicable law, its articles of incorporation and its bylaws to enter into
this Agreement; that it has taken all requisite action necessary to appoint
Custodian as custodian for the Fund; that this Agreement has been duly
executed and delivered by Fund; and that this Agreement constitutes a legal,
valid and binding obligation of Fund, enforceable in accordance with its
terms.
B. Custodian hereby represents, warrants and acknowledges to
Fund:
1. That it is a trust company duly organized and
existing and in good standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under
applicable law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and delivered by
Custodian; and that this Agreement constitutes a legal, valid and binding
obligation of Custodian, enforceable in accordance with its terms.
10675.0002 350691.1
<PAGE>
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Except as permitted by the 1940 Act, Fund will deliver or cause
to be delivered to Custodian on the effective date of this Agreement, or as
soon thereafter as practicable, and from time to time thereafter, all
portfolio securities acquired by it and monies then owned by it or from time
to time coming into its possession during the time this Agreement shall
continue in effect. Custodian shall have no responsibility or liability
whatsoever for or on account of securities or monies not so delivered.
B. Delivery of Accounts and Records
Fund shall turn over or cause to be turned over to Custodian
all of the Fund's relevant accounts and records previously maintained.
Custodian shall be entitled to rely conclusively on the completeness and
correctness of the accounts and records turned over to it, and Fund shall
indemnify and hold Custodian harmless of and from any and all expenses,
damages and losses whatsoever arising out of or in connection with any error,
omission, inaccuracy or other deficiency of such accounts and records or in
the failure of Fund to provide, or to provide in a timely manner, any
accounts, records or information needed by the Custodian to perform its
functions hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets
of Fund delivered to it from time to time segregated in a separate account,
and if Fund is comprised of more than one portfolio of investment securities
(each a "Portfolio") Custodian shall keep the assets of each Portfolio
segregated in a separate account. Custodian will not deliver, assign, pledge
or hypothecate any such assets to any person except as permitted by the
provisions of this Agreement or any agreement executed by it according to the
terms of Section 3.S. of this Agreement. Upon delivery of any such assets to a
subcustodian pursuant to Section 3.S. of this Agreement, Custodian will create
and maintain records identifying those assets which have been delivered to the
subcustodian as belonging to the Fund, by Portfolio if applicable. The
Custodian is responsible for the safekeeping of the securities and monies of
Fund only until they have been transmitted to and received by other persons as
permitted under the terms of this Agreement, except for securities and monies
transmitted to subcustodians appointed under Section 3.S. of this Agreement,
for which Custodian remains responsible to the extent provided in Section 3.S.
hereof. Custodian may participate directly or indirectly through a
subcustodian in the Depository Trust Company (DTC), Treasury/Federal Reserve
Book Entry System (Fed System), Participant Trust Company (PTC) or other
depository approved by the Fund (as such entities are defined at 17 CFR
Section 270.17f-4(b)) (each a "Depository" and collectively, the
"Depositories").
D. Registration of Securities
The Custodian shall at all times hold registered securities of
the Fund in the name of the Custodian, the Fund, or a nominee of either of
them, unless specifically directed by instructions to hold such registered
securities in so-called "street name," provided that, in any event, all such
securities and other assets shall be held in an account of the Custodian
containing only assets of the Fund, or only assets held by the Custodian as a
fiduciary or custodian for customers, and provided further, that the records
of the Custodian at all time shall indicate the Fund or other customer for
which such securities and other assets are held in such account and the
respective interests therein. If, however, the Fund directs the Custodian to
maintain securities in "street name", notwithstanding anything contained
herein to the contrary, the Custodian shall be obligated only to utilize its
best efforts to timely collect income due the Fund on such securities and to
notify the Fund of relevant corporate actions including, without limitation,
pendency of calls, maturities, tender or exchange offers. All securities, and
the ownership thereof by Fund, which are held by Custodian hereunder, however,
shall at all
10675.0002 350691.1
2
<PAGE>
times be identifiable on the records of the Custodian. The Fund agrees to hold
Custodian and its nominee harmless for any liability as a shareholder of
record of securities held in custody.
E. Exchange of Securities
Upon receipt of instructions as defined herein in Section 4.A,
Custodian will exchange, or cause to be exchanged, portfolio securities held
by it for the account of Fund for other securities or cash issued or paid in
connection with any reorganization, recapitalization, merger, consolidation,
split-up of shares, change of par value, conversion or otherwise, and will
deposit any such securities in accordance with the terms of any reorganization
or protective plan. Without instructions, Custodian is authorized to exchange
securities held by it in temporary form for securities in definitive form, to
effect an exchange of shares when the par value of the stock is changed, and,
upon receiving payment therefor, to surrender bonds or other securities held
by it at maturity or when advised of earlier call for redemption, except that
Custodian shall receive instructions prior to surrendering any convertible
security.
F. Purchases of Investments of the Fund
Fund will, on each business day on which a purchase of
securities shall be made by it, deliver to Custodian instructions which shall
specify with respect to each such purchase:
1. If applicable, the name of the Portfolio making such
purchase;
2. The name of the issuer and description of the
security;
3. The number of shares and the principal amount
purchased, and accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage
commission, taxes and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or
dealer through whom the purchase was made; and
9. Whether the security is to be received in
certificated form or via a specified Depository.
In accordance with such instructions, Custodian will pay for
out of monies held for the account of Fund, but only insofar as such monies
are available for such purpose, and receive the portfolio securities so
purchased by or for the account of Fund, except that Custodian may in its sole
discretion advance funds to the Fund which may result in an overdraft because
the monies held by the Custodian on behalf of the Fund are insufficient to pay
the total amount payable upon such purchase. Except as otherwise instructed by
Fund, such payment shall be made by the Custodian only upon receipt of
securities: (a) by the Custodian; (b) by a clearing corporation of a national
exchange of which the Custodian is a member; or (c) by a Depository.
Notwithstanding the foregoing, (i) in the case of a repurchase agreement, the
Custodian may release funds to a Depository prior to the receipt of advice
from the Depository that the securities underlying such repurchase agreement
have been transferred by book-entry into the account maintained with such
Depository by the
10675.0002 350691.1
3
<PAGE>
Custodian, on behalf of its customers, provided that the Custodian's
instructions to the Depository require that the Depository make payment of
such funds only upon transfer by book-entry of the securities underlying the
repurchase agreement in such account; (ii) in the case of time deposits, call
account deposits, currency deposits and other deposits, foreign exchange
transactions, futures contracts or options, the Custodian may make payment
therefor before receipt of an advice or confirmation evidencing said deposit
or entry into such transaction; and (iii) in the case of the purchase of
securities, the settlement of which occurs outside of the United States of
America, the Custodian may make, or cause a subcustodian appointed pursuant to
Section 3.S.2. of this Agreement to make, payment therefor in accordance with
generally accepted local custom and market practice.
G. Sales and Deliveries of Investments of the Fund - Other than
Options and Futures Fund will, on each business day on which a sale of
investment securities (other than options and futures) of Fund has been made,
deliver to Custodian instructions specifying with respect to each such sale:
1. If applicable, the name of the Portfolio making such
sale;
2. The name of the issuer and description of the
securities;
3. The number of shares and principal amount sold, and
accrued interest, if any;
4. The date on which the securities sold were purchased
or other information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission,
taxes or other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such
sale; and
9. The name and address of the broker or dealer through
whom or person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or
cause to be delivered the securities thus designated as sold for the account
of Fund to the broker or other person specified in the instructions relating
to such sale. Except as otherwise instructed by Fund, such delivery shall be
made upon receipt of payment therefor: (a) in such form as is satisfactory to
the Custodian; (b) credit to the account of the Custodian with a clearing
corporation of a national securities exchange of which the Custodian is a
member; or (c) credit to the account of the Custodian, on behalf of its
customers, with a Depository. Notwithstanding the foregoing: (i) in the case
of securities held in physical form, such securities shall be delivered in
accordance with "street delivery custom" to a broker or its clearing agent; or
(ii) in the case of the sale of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make, or cause a
subcustodian appointed pursuant to Section 3.S.2. of this Agreement to make,
payment therefor in accordance with generally accepted local custom and market
practice.
H. Purchases or Sales of Options and Futures.
10675.0002 350691.1
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<PAGE>
Fund will, on each business day on which a purchase or sale of
the following options and/or futures shall be made by it, deliver to Custodian
instructions which shall specify with respect to each such purchase or sale:
1. If applicable, the name of the Portfolio making such
purchase or sale;
2. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or
call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer
through whom the sale or purchase was made.
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening,
exercising, expiring or closing transaction;
h. Whether the transaction involves a put or
call;
i. Whether the option is written or purchased;
and
10675.0002 350691.1
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<PAGE>
j. The name and address of the broker or dealer
through whom the sale or purchase was made, or other applicable settlement
instructions.
4. Security Index Futures Contracts
a. The last trading date specified in the
contract and, when available, the closing level, thereof;
b. The index level on the date the contract is
entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in
addition to instructions, and if not already in the possession of Custodian,
Fund shall deliver a substantially complete and executed custodial safekeeping
account and procedural agreement which shall be incorporated by reference into
this Custody Agreement); and
f. The name and address of the futures
commission merchant through whom the sale or purchase was made, or other
applicable settlement instructions.
5. Options on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or
call;
h. Whether the option is written or purchased;
and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
If specifically allowed for in the prospectus of Fund, and
subject to such additional terms and conditions as Custodian may require:
1. Upon receipt of instructions, Custodian will release
or cause to be released securities held in custody to the pledgee designated
in such instructions by way of pledge or hypothecation to secure any loan
incurred by Fund; provided, however, that the securities shall be released
only upon payment to Custodian of the monies borrowed, except that in cases
where additional collateral is required to secure a
10675.0002 350691.1
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<PAGE>
borrowing already made, further securities may be released or caused to be
released for that purpose upon receipt of instructions. Upon receipt of
instructions, Custodian will pay, but only from funds available for such
purpose, any such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing such
loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in such instructions;
provided, however, that the securities will be released only upon deposit with
Custodian of full cash collateral as specified in such instructions, and that
Fund will retain the right to any dividends, interest or distribution on such
loaned securities. Upon receipt of instructions and the loaned securities,
Custodian will release the cash collateral to the borrower.
J. Routine Matters
Custodian will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange, substitution,
purchase, transfer, or other dealings with securities or other property of
Fund except as may be otherwise provided in this Agreement or directed from
time to time by the Fund in writing.
K. Deposit Accounts
Custodian will open and maintain one or more special purpose
deposit accounts in the name of Custodian ("Accounts"), subject only to draft
or order by Custodian upon receipt of instructions. All monies received by
Custodian from or for the account of Fund shall be deposited in said Accounts.
Barring events not in the control of the Custodian such as strikes, lockouts
or labor disputes, riots, war or equipment or transmission failure or damage,
fire, flood, earthquake or other natural disaster, action or inaction of
governmental authority or other causes beyond its control, at 9:00 a.m.,
Kansas City time, on the second business day after deposit of any check into
an Account, Custodian agrees to make Fed Funds available to the Fund in the
amount of the check. Deposits made by Federal Reserve wire will be available
to the Fund immediately and ACH wires will be available to the Fund on the
next business day. Income earned on the portfolio securities will be credited
to the Fund based on the schedule attached as Exhibit A. The Custodian will be
entitled to reverse any credited amounts where credits have been made and
monies are not finally collected. If monies are collected after such reversal,
the Custodian will credit the Fund in that amount. Custodian may open and
maintain Accounts in its own banking department, or in such other banks or
trust companies as may be designated by it or by Fund in writing, all such
Accounts, however, to be in the name of Custodian and subject only to its
draft or order. Funds received and held for the account of different
Portfolios shall be maintained in separate Accounts established for each
Portfolio.
L. Income and other Payments to Fund
Custodian will:
1. Collect, claim and receive and deposit for the
account of Fund all income and other payments which become due and payable on
or after the effective date of this Agreement with respect to the securities
deposited under this Agreement, and credit the account of Fund in accordance
with the schedule attached hereto as Exhibit A. If, for any reason, the Fund
is credited with income that is not subsequently collected, Custodian may
reverse that credited amount.
2. Execute ownership and other certificates and
affidavits for all federal, state and local tax purposes in connection with
the collection of bond and note coupons; and
3. Take such other action as may be necessary or proper
in connection with:
a. the collection, receipt and deposit of such
income and other payments, including but not limited to the presentation for
payment of:
10675.0002 350691.1
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<PAGE>
1. all coupons and other income items
requiring presentation; and
2. all other securities which may mature
or be called, redeemed, retired or otherwise become payable and regarding
which the Custodian has actual knowledge, or should reasonably be expected to
have knowledge; and
b. the endorsement for collection, in the name
of Fund, of all checks, drafts or other negotiable instruments. Custodian,
however, will not be required to institute suit or take other extraordinary
action to enforce collection except upon receipt of instructions and upon
being indemnified to its satisfaction against the costs and expenses of such
suit or other actions. Custodian will receive, claim and collect all stock
dividends, rights and other similar items and will deal with the same pursuant
to instructions. Unless prior instructions have been received to the contrary,
Custodian will, without further instructions, sell any rights held for the
account of Fund on the last trade date prior to the date of expiration of such
rights.
M. Payment of Dividends and other Distributions
On the declaration of any dividend or other distribution on the
shares of capital stock of Fund ("Fund Shares") by the Board of Directors of
Fund, Fund shall deliver to Custodian instructions with respect thereto. On
the date specified in such instructions for the payment of such dividend or
other distribution, Custodian will pay out of the monies held for the account
of Fund, insofar as the same shall be available for such purposes, and credit
to the account of the Dividend Disbursing Agent for Fund, such amount as may
be necessary to pay the amount per share payable in cash on Fund Shares issued
and outstanding on the record date established by such resolution.
N. Shares of Fund Purchased by Fund
Whenever any Fund Shares are repurchased or redeemed by Fund,
Fund or its agent shall advise Custodian of the aggregate dollar amount to be
paid for such shares and shall confirm such advice in writing. Upon receipt of
such advice, Custodian shall charge such aggregate dollar amount to the
account of Fund and either deposit the same in the account maintained for the
purpose of paying for the repurchase or redemption of Fund Shares or deliver
the same in accordance with such advice. Custodian shall not have any duty or
responsibility to determine that Fund Shares have been removed from the proper
shareholder account or accounts or that the proper number of Fund Shares have
been cancelled and removed from the shareholder records.
O. Shares of Fund Purchased from Fund
Whenever Fund Shares are purchased from Fund, Fund will deposit
or cause to be deposited with Custodian the amount received for such shares.
Custodian shall not have any duty or responsibility to determine that Fund
Shares purchased from Fund have been added to the proper shareholder account
or accounts or that the proper number of such shares have been added to the
shareholder records.
P. Proxies and Notices
Custodian will promptly deliver or mail or have delivered or
mailed to Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or relating
to securities held by Custodian for Fund and will, upon receipt of
instructions, execute and deliver or cause its nominee to execute and deliver
or mail or have delivered or mailed such proxies or other authorizations as
may be required. Except as provided by this Agreement or pursuant to
instructions hereafter received by Custodian, neither it nor its nominee will
exercise any power inherent in any such securities, including any power to
vote the same, or execute any proxy, power of attorney, or other similar
instrument
10675.0002 350691.1
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<PAGE>
voting any of such securities, or give any consent, approval or waiver with
respect thereto, or take any other similar action.
Q. Disbursements
Custodian will pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the conversion,
exchange or surrender of securities owned by Fund, interest charges, dividend
disbursements, taxes, management fees, custodian fees, legal fees, auditors'
fees, transfer agents' fees, brokerage commissions, compensation to personnel,
and other operating expenses of Fund) pursuant to instructions of Fund setting
forth the name of the person to whom payment is to be made, the amount of the
payment, and the purpose of the payment.
R. Daily Statement of Accounts
Custodian will, within a reasonable time, render to Fund a
detailed statement of the amounts received or paid and of securities received
or delivered for the account of Fund during each business day. Custodian will,
from time to time, upon request by Fund, render a detailed statement of the
securities and monies held for Fund under this Agreement, and Custodian will
maintain such books and records as are necessary to enable it to do so.
Custodian will permit such persons as are authorized by Fund, including Fund's
independent public accountants, reasonable access to such records or will
provide reasonable confirmation of the contents of such records, and if
demanded, Custodian will permit federal and state regulatory agencies to
examine the securities, books and records. Upon the written instructions of
Fund or as demanded by federal or state regulatory agencies, Custodian will
instruct any subcustodian to permit such persons as are authorized by Fund,
including Fund's independent public accountants, reasonable access to such
records or to provide reasonable confirmation of the contents of such records,
and to permit such agencies to examine the books, records and securities held
by such subcustodian which relate to Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this
Agreement, all or any of the monies or securities of Fund may be held in
Custodian's own custody or in the custody of one or more other banks or trust
companies acting as subcustodians as may be selected by Custodian. Any such
subcustodian selected by the Custodian must have the qualifications required
for a custodian under the 1940 Act, as amended. It is understood that
Custodian initially intends to appoint United Missouri Bank, N.A. (UMB) and
United Missouri Trust Company of New York (UMTCNY) as subcustodians. Custodian
shall be responsible to the Fund for any loss, damage or expense suffered or
incurred by the Fund resulting from the actions or omissions of UMB, UMTCNY
and any other subcustodians selected and appointed by Custodian (except
subcustodians appointed at the request of Fund and as provided in Subsection 2
below) to the same extent Custodian would be responsible to the Fund under
Section 5. of this Agreement if it committed the act or omission itself. Upon
request of the Fund, Custodian shall be willing to contract with other
subcustodians reasonably acceptable to the Custodian for purposes of (i)
effecting third-party repurchase transactions with banks, brokers, dealers, or
other entities through the use of a common custodian or subcustodian, or (ii)
providing depository and clearing agency services with respect to certain
variable rate demand note securities, or (iii) for other reasonable purposes
specified by Fund; provided, however, that the Custodian shall be responsible
to the Fund for any loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of any such subcustodian only to the
same extent such subcustodian is responsible to the Custodian. The Fund shall
be entitled to review the Custodian's contracts with any such subcustodians
appointed at the request of Fund. Custodian shall be responsible to the Fund
for any loss, damage or expense suffered or incurred by the Fund resulting
from the actions or omissions of any Depository only to the same extent such
Depository is responsible to Custodian.
10675.0002 350691.1
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<PAGE>
2. Notwithstanding any other provisions of this
Agreement, Fund's foreign securities (as defined in Rule 17f-5(c)(1) under the
1940 Act) and Fund's cash or cash equivalents, in amounts deemed by the Fund
to be reasonably necessary to effect Fund's foreign securities transactions,
may be held in the custody of one or more banks or trust companies acting as
subcustodians, and thereafter, pursuant to a written contract or contracts as
approved by Fund's Board of Directors, may be transferred to accounts
maintained by any such subcustodian with eligible foreign custodians, as
defined in Rule 17f-5(c)(2). Custodian shall be responsible to the Fund for
any loss, damage or expense suffered or incurred by the Fund resulting from
the actions or omissions of any foreign subcustodians or a domestic
subcustodian contracting with such foreign subcustodians only to the same
extent such domestic subcustodian is responsible to the Custodian.
T. Accounts and Records Property of Fund
Custodian acknowledges that all of the accounts and records
maintained by Custodian pursuant to this Agreement are the property of Fund,
and will be made available to Fund for inspection or reproduction within a
reasonable period of time, upon demand. Custodian will assist Fund's
independent auditors, or upon approval of Fund, or upon demand, any regulatory
body, in any requested review of Fund's accounts and records but shall be
reimbursed by Fund for all expenses and employee time invested in any such
review outside of routine and normal periodic reviews. Upon receipt from Fund
of the necessary information or instructions, Custodian will supply
information from the books and records it maintains for Fund that Fund needs
for tax returns, questionnaires, periodic reports to shareholders and such
other reports and information requests as Fund and Custodian shall agree upon
from time to time.
U. Adoption of Procedures
Custodian and Fund may from time to time adopt procedures as
they agree upon, and Custodian may conclusively assume that no procedure
approved or directed by Fund or its accountants or other advisors conflicts
with or violates any requirements of its prospectus, articles of
incorporation, bylaws, any applicable law, rule or regulation, or any order,
decree or agreement by which Fund may be bound. Fund will be responsible to
notify Custodian of any changes in statutes, regulations, rules, requirements
or policies which might necessitate changes in Custodian's responsibilities or
procedures.
V. Overdrafts
If Custodian shall in its sole discretion advance funds to the
account of the Fund which results in an overdraft in any Account because the
monies held therein by Custodian on behalf of the Fund are insufficient to pay
the total amount payable upon a purchase of securities as specified in Fund's
instructions or for some other reason, the amount of the overdraft shall be
payable by the Fund to Custodian upon demand together with the overdraft
charge set forth on the then-current Fee Schedule from the date advanced until
the date of payment. Fund hereby grants Custodian a lien on and security
interest in the assets of the Fund to secure the full amount of any
outstanding overdraft and related overdraft charges.
W. Exercise of Rights; Tender Offers
Upon receipt of instructions, the Custodian shall:
(a) deliver warrants, puts, calls, rights or similar
securities to the issuer or trustee thereof, or to the agent of such issuer or
trustee, for the purpose of exercise or sale, provided that the new
securities, cash or other assets, if any, are to be delivered to the
Custodian; and
(b) deposit securities upon invitations for tenders
thereof, provided that the consideration for such securities is to be paid or
delivered to the Custodian or the tendered securities are to be returned to
the Custodian.
10675.0002 350691.1
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<PAGE>
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written
(including telecopied or telexed) or oral instructions which Custodian
reasonably believes were given by a designated representative of Fund. Fund
shall deliver to Custodian, prior to delivery of any assets to Custodian and
thereafter from time to time as changes therein are necessary, written
instructions naming one or more designated representatives to give
instructions in the name and on behalf of Fund, which instructions may be
received and accepted by Custodian as conclusive evidence of the authority of
any designated representative to act for Fund and may be considered to be in
full force and effect (and Custodian will be fully protected in acting in
reliance thereon) until receipt by Custodian of notice to the contrary. Unless
such written instructions delegating authority to any person to give
instructions specifically limit such authority to specific matters or require
that the approval of anyone else will first have been obtained, Custodian will
be under no obligation to inquire into the right of such person, acting alone,
to give any instructions whatsoever which Custodian may receive from such
person. If Fund fails to provide Custodian any such instructions naming
designated representatives, any instructions received by Custodian from a
person reasonably believed to be an appropriate representative of Fund shall
constitute valid and proper instructions hereunder.
B. No later than the next business day immediately following
each oral instruction, Fund will send Custodian written confirmation of such
oral instruction. At Custodian's sole discretion, Custodian may record on
tape, or otherwise, any oral instruction whether given in person or via
telephone, each such recording identifying the parties, the date and the time
of the beginning and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall at all times use reasonable care and due
diligence and act in good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the Fund shall indemnify and hold
Custodian harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability which may be asserted
against Custodian, incurred by Custodian or for which Custodian may be held to
be liable, arising out of or attributable to:
1. All actions taken by Custodian pursuant to this
Agreement or any instructions provided to it hereunder, provided that
Custodian has acted in good faith and with due diligence and reasonable care;
and
2. The Fund's refusal or failure to comply with the
terms of this Agreement (including without limitation the Fund's failure to
pay or reimburse Custodian under this indemnification provision), the Fund's
negligence or willful misconduct, or the failure of any representation or
warranty of the Fund hereunder to be and remain true and correct in all
respects at all times.
B. Custodian may request and obtain at the expense of Fund the
advice and opinion of counsel for Fund or of its own counsel with respect to
questions or matters of law, and it shall be without liability to Fund for any
action taken or omitted by it in good faith, in conformity with such advice or
opinion. If Custodian reasonably believes that it could not prudently act
according to the instructions of the Fund or the Fund's accountants or
counsel, it may in its discretion, with notice to the Fund, not act according
to such instructions.
C. Custodian may rely upon the advice and statements of Fund,
Fund's accountants and officers or other authorized individuals, and other
persons believed by it in good faith to be expert in matters upon which they
are consulted, and Custodian shall not be liable for any actions taken, in
good faith, upon such advice and statements.
10675.0002 350691.1
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<PAGE>
D. If Fund requests Custodian in any capacity to take any
action which involves the payment of money by Custodian, or which might make
it or its nominee liable for payment of monies or in any other way, Custodian
shall be indemnified and held harmless by Fund against any liability on
account of such action; provided, however, that nothing herein shall obligate
Custodian to take any such action except in its sole discretion.
E. Custodian shall be protected in acting as custodian
hereunder upon any instructions, advice, notice, request, consent, certificate
or other instrument or paper appearing to it to be genuine and to have been
properly executed and shall be entitled to receive upon request as conclusive
proof of any fact or matter required to be ascertained from Fund hereunder a
certificate signed by an officer or designated representative of Fund.
F. Custodian shall be under no duty or obligation to inquire
into, and shall not be liable for:
1. The validity of the issue of any securities purchased
by or for Fund, the legality of the purchase of any securities or foreign
currency positions or evidence of ownership required by Fund to be received by
Custodian, or the propriety of the decision to purchase or amount paid
therefor;
2. The legality of the sale of any securities or foreign
currency positions by or for Fund, or the propriety of the amount for which
the same are sold;
3. The legality of the issue or sale of any Fund Shares,
or the sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any
Fund Shares, or the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by
Fund, or the legality of the issue of any Fund Shares in payment of any stock
dividend.
G. Custodian shall not be liable for, or considered to be
Custodian of, any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the payment of money
to be received by it on behalf of Fund until Custodian actually receives such
money; provided, however, that it shall advise Fund promptly if it fails to
receive any such money in the ordinary course of business and shall cooperate
with Fund toward the end that such money shall be received.
H. Except as provided in Section 3.S., Custodian shall not be
responsible for loss occasioned by the acts, neglects, defaults or insolvency
of any broker, bank, trust company, or any other person with whom Custodian
may deal.
I. Custodian shall not be responsible or liable for the failure
or delay in performance of its obligations under this Agreement, or those of
any entity for which it is responsible hereunder, arising out of or caused,
directly or indirectly, by circumstances beyond the affected entity's
reasonable control, including, without limitation: any interruption, loss or
malfunction of any utility, transportation, computer (hardware or software) or
communication service; inability to obtain labor, material, equipment or
transportation, or a delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; war, strike, riot, emergency,
civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes,
floods, fires, tornados, acts of God or public enemy, revolutions, or
insurrection.
J. IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY
TO THIS AGREEMENT BE LIABLE TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE
10675.0002 350691.1
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<PAGE>
OTHER PARTY, FOR CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES FOR ANY ACT OR
FAILURE TO ACT UNDER ANY PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THIS
POSSIBILITY THEREOF.
6. COMPENSATION. In consideration for its services hereunder, Fund
will pay to Custodian such compensation as shall be set forth in a separate
fee schedule to be agreed to by Fund and Custodian from time to time. A copy
of the initial fee schedule is attached hereto and incorporated herein by
reference. Custodian shall also be entitled to receive, and Fund agrees to pay
to Custodian, on demand, reimbursement for Custodian's cash disbursements and
reasonable out-of-pocket costs and expenses, including attorney's fees,
incurred by Custodian in connection with the performance of services
hereunder. Custodian may charge such compensation against monies held by it
for the account of Fund. Custodian will also be entitled to charge against any
monies held by it for the account of Fund the amount of any loss, damage,
liability, advance, overdraft or expense for which it shall be entitled to
reimbursement from Fund, including but not limited to fees and expenses due to
Custodian for other services provided to the Fund by Custodian. Custodian will
be entitled to reimbursement by the Fund for the losses, damages, liabilities,
advances, overdrafts and expenses of subcustodians only to the extent that (i)
Custodian would have been entitled to reimbursement hereunder if it had
incurred the same itself directly, and (ii) Custodian is obligated to
reimburse the subcustodian therefor.
7. TERM AND TERMINATION. The initial term of this Agreement shall be
for a period of one (1) year. Thereafter, either party to this Agreement may
terminate the same by notice in writing, delivered or mailed, postage prepaid,
to the other party hereto and received not less than ninety (90) days prior to
the date upon which such termination will take effect. Upon termination of
this Agreement, Fund will pay Custodian its fees and compensation due
hereunder and its reimbursable disbursements, costs and expenses paid or
incurred to such date and Fund shall designate a successor custodian by notice
in writing to Custodian by the termination date. In the event no written order
designating a successor custodian has been delivered to Custodian on or before
the date when such termination becomes effective, then Custodian may, at its
option, deliver the securities, funds and properties of Fund to a bank or
trust company at the selection of Custodian, and meeting the qualifications
for custodian set forth in the 1940 Act and having not less that Two Million
Dollars ($2,000,000) aggregate capital, surplus and undivided profits, as
shown by its last published report, or apply to a court of competent
jurisdiction for the appointment of a successor custodian or other proper
relief, or take any other lawful action under the circumstances; provided,
however, that Fund shall reimburse Custodian for its costs and expenses,
including reasonable attorney's fees, incurred in connection therewith.
Custodian will, upon termination of this Agreement and payment of all sums due
to Custodian from Fund hereunder or otherwise, deliver to the successor
custodian so specified or appointed, or as specified by the court, at
Custodian's office, all securities then held by Custodian hereunder, duly
endorsed and in form for transfer, and all funds and other properties of Fund
deposited with or held by Custodian hereunder, and Custodian will co-operate
in effecting changes in book-entries at all Depositories. Upon delivery to a
successor custodian or as specified by the court, Custodian will have no
further obligations or liabilities under this Agreement. Thereafter such
successor will be the successor custodian under this Agreement and will be
entitled to reasonable compensation for its services. In the event that
securities, funds and other properties remain in the possession of the
Custodian after the date of termination hereof owing to failure of the Fund to
appoint a successor custodian, the Custodian shall be entitled to compensation
as provided in the then-current fee schedule hereunder for its services during
such period as the Custodian retains possession of such securities, funds and
other properties, and the provisions of this Agreement relating to the duties
and obligations of the Custodian shall remain in full force and effect.
8. NOTICES. Notices, requests, instructions and other writings
addressed to Fund at 25 Broadway, New York, New York 10004, or at such other
address as Fund may have designated to Custodian in writing, will be deemed to
have been properly given to Fund hereunder; and notices, requests,
instructions and other writings addressed to Custodian at its offices at 127
West 10th Street, Kansas City, Missouri 64105, Attention: Custody Department,
or to such other address as it may have designated to Fund in writing, will be
deemed to have been properly given to Custodian hereunder.
10675.0002 350691.1
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<PAGE>
9. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one
Portfolio:
A. Each Portfolio shall be regarded for all purposes hereunder
as a separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to relate solely
to the particular Portfolio to which such transaction relates. Under no
circumstances shall the rights, obligations or remedies with respect to a
particular Portfolio constitute a right, obligation or remedy applicable to
any other Portfolio. The use of this single document to memorialize the
separate agreement of each Portfolio is understood to be for clerical
convenience only and shall not constitute any basis for joining the Portfolios
for any reason.
B. Additional Portfolios may be added to this Agreement,
provided that Custodian consents to such addition. Rates or charges for each
additional Portfolio shall be as agreed upon by Custodian and Fund in writing.
10. MISCELLANEOUS.
A. This Agreement shall be construed according to, and the
rights and liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws principles
thereof.
B. All terms and provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties and the indemnifications
extended hereunder are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
each party hereto.
E. The failure of either party to insist upon the performance
of any terms or conditions of this Agreement or to enforce any rights
resulting from any breach of any of the terms or conditions of this Agreement,
including the payment of damages, shall not be construed as a continuing or
permanent waiver of any such terms, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred. No waiver, release or discharge of any
party's rights hereunder shall be effective unless contained in a written
instrument signed by the party sought to be charged.
F. The captions in the Agreement are included for convenience
of reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
H. If any part, term or provision of this Agreement is
determined by the courts or any regulatory authority to be illegal, in
conflict with any law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
I. This Agreement may not be assigned by either party hereto
without the prior written consent of the other party.
10675.0002 350691.1
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<PAGE>
J. Neither the execution nor performance of this Agreement
shall be deemed to create a partnership or joint venture by and between
Custodian and Fund.
K. Except as specifically provided herein, this Agreement does
not in any way affect any other agreements entered into among the parties
hereto and any actions taken or omitted by either party hereunder shall not
affect any rights or obligations of the other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:
Title:
LEBENTHAL FUNDS, INC.
By:
Title:
10675.0002 350691.1
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<PAGE>
EXHIBIT A
INVESTORS FIDUCIARY TRUST AVAILABILITY SCHEDULE BY TRANSACTION TYPE
TRANSACTION
DTC
PHYSICAL
FED
TYPE
CREDIT DATE
FUNDS TYPE
CREDIT DATE
FUNDS TYPE
CREDIT DATE
FUNDS TYPE
Calls Puts
As Received
C or F*
As Received
C or F*
Maturities
As Received
C or F*
Mat. Date
C or F*
Mat. Date
F
Tender Reorgs.
As Received
C
As Received
C
N/A
Dividends
Paydate
C
Paydate
C
N/A
10675.0002 350691.1
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<PAGE>
Floating Rate Int.
Paydate
C
Paydate
C
N/A
Floating Rate Int. (No
Rate)
N/A
As Rate Received
C
N/A
Mtg. Backed P&I
Paydate
C
Paydate + 1 Bus. Day
C
Paydate
F
Fixed Rate Int.
Paydate
C
Paydate
C
Paydate
F
Euroclear
N/A
C
Paydate
C
10675.0002 350691.1
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<PAGE>
Legend
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
10675.0002 350691.1
18
Exhibit 8.2
INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT made and effective as of this ____ day of ________,
1995, by and between LEBENTHAL FUNDS, INC., a Maryland corporation, having its
principal place of business at 120 Broadway, New York, New York 10271
("Fund"), and INVESTORS FIDUCIARY TRUST COMPANY, a state chartered trust
company organized and existing under the laws of the State of Missouri, having
its principal place of business at 127 West 10th Street, Kansas City,
Missouri, 64105 ("IFTC").
WHEREAS, Fund is registered as an "investment company" under the
Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, IFTC performs certain investment accounting and recordkeeping
services on a computerized accounting system (the "Portfolio Accounting
System") which is suitable for maintaining certain accounting records of the
portfolios of the Fund ("Portfolios"); and
WHEREAS, Fund desires to appoint IFTC as investment accounting and
recordkeeping agent for the Portfolios of the Fund, and IFTC is willing to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. Appointment of Recordkeeping Agent. Fund hereby constitutes and
appoints IFTC as investment accounting and recordkeeping agent for the
Portfolios of the Fund to perform accounting and recordkeeping functions
related to portfolio transactions required of Fund under Rule 31a of the 1940
Act and to calculate the net asset value of the Portfolios.
2. Representations and Warranties of Fund. Fund hereby represents,
warrants and acknowledges to IFTC:
A. That it is a corporation duly organized and existing and in
good standing under the laws of the State of Maryland, and that it is
registered under the 1940 Act;
B. That it has the requisite power and authority under
applicable law, its charter or declaration of trust and its bylaws to enter
into this Agreement; that it has taken all requisite action necessary to
appoint IFTC as investment accounting and recordkeeping agent for the
Portfolios of the Fund; that this Agreement has been duly executed and
delivered by Fund; and that this Agreement constitutes a legal, valid and
binding obligation of Fund, enforceable in accordance with its terms; and
C. That it has determined to its satisfaction that the
Portfolio Accounting System is appropriate and suitable for its needs.
3. Representations and Warranties of IFTC. IFTC hereby represents,
warrants and acknowledges to Fund:
A. That it is a trust company duly organized and existing and
in good standing under the laws of the State of Missouri;
B. That it has the requisite power and authority under
applicable law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and delivered by
C/M 10675.0002 350703.1
<PAGE>
IFTC; and that this Agreement constitutes a legal, valid and binding
obligation of IFTC, enforceable in accordance with its terms; and
C. That the accounts and records maintained and preserved by
IFTC shall be the property of Fund and that it will not use any information
made available to it under the terms hereof for any purpose other than
complying with its duties and responsibilities hereunder or as specifically
authorized by Fund in writing.
4. Duties and Responsibilities of Fund.
A. Fund shall turn over to IFTC all of each Portfolio's
accounts and records previously maintained, if any.
B. Fund shall provide to IFTC the information necessary to
perform IFTC's duties and responsibilities hereunder in writing or its
electronic or digital equivalent prior to the close of the New York Stock
Exchange on each day on which IFTC prices the Portfolios' securities and
foreign currency holdings.
C. Fund shall furnish IFTC with the declaration, record and
payment dates and amounts of any dividends or income and any other special
actions required concerning the securities in the Portfolios when such
information is not readily available from generally accepted securities
industry services or publications.
D. Fund shall pay to IFTC such compensation at such time as
may from time to time be agreed upon in writing by IFTC and Fund. The initial
compensation schedule is attached as Exhibit A. Fund shall also reimburse IFTC
on demand for all out-of-pocket disbursements, costs and expenses incurred by
IFTC in connection with services performed pursuant to this Agreement.
E. Fund shall notify IFTC of any changes in statutes, rules,
regulations, requirements, or policies which may necessitate changes in IFTC's
responsibilities or procedures.
F. Fund shall provide to IFTC, as conclusive proof of any fact
or matter required to be ascertained from Fund as determined by IFTC, a
certificate signed by Fund's president or other officer of Fund, or other
authorized individual, as requested by IFTC. Fund shall also provide to IFTC
instructions with respect to any matter concerning this Agreement requested by
IFTC. IFTC may rely upon any instruction or information furnished by any
person reasonably believed by it to be an officer or agent of Fund, and shall
not be held to have notice of any change of authority of any such person until
receipt of written notice thereof from Fund.
G. Fund shall preserve the confidentiality of the Portfolio
Accounting System and the tapes, books, reference manuals, instructions,
records, programs, documentation and information of, and other materials
relevant to, the Portfolio Accounting System and the business of IFTC
("Confidential Information"). Fund shall not voluntarily disclose such
Confidential Information to any other person other than its own employees who
reasonably have a need to know such information pursuant to this Agreement.
Fund shall return all such Confidential Information to IFTC upon termination
or expiration of this Agreement.
H. Fund has been informed that the Portfolio Accounting System
is licensed for use by IFTC from DST Systems, Inc. ("Licensor"), and Fund
acknowledges that IFTC and Licensor have proprietary rights in and to the
Portfolio Accounting System and all other IFTC or Licensor programs, code,
techniques, know-how, data bases, supporting documentation, data formats and
procedures, including without limitation any changes or modifications made at
the request or expense or both of Fund (collectively, the "Protected
Information"). Fund acknowledges that the Protected Information constitutes
confidential material and trade secrets of IFTC and Licensor. Fund shall
preserve the confidentiality of the Protected Information, and Fund
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C/M 10675.0002 350703.1
<PAGE>
hereby acknowledges that any unauthorized use, misuse, disclosure or taking of
Protected Information, residing or existing internal or external to a
computer, computer system, or computer network, or the knowing and
unauthorized accessing or causing to be accessed of any computer, computer
system, or computer network, may be subject to civil liabilities and criminal
penalties under applicable law. Fund shall so inform employees and agents who
have access to the Protected Information or to any computer equipment capable
of accessing the same. Licensor is intended to be and shall be a third party
beneficiary of the Fund's obligations and undertakings contained in this
paragraph.
I. If IFTC shall provide Fund direct access to the computerized
recordkeeping and reporting system used hereunder or if IFTC and Fund shall
agree to utilize any electronic system of communication, Fund shall be fully
responsible for any and all consequences of the use or misuse of the terminal
device, passwords, access instructions and other means of access to such
system(s) which are utilized by, assigned to or otherwise made available to
the Fund. Fund agrees to implement and enforce appropriate security policies
and procedures to prevent unauthorized or improper access to or use of such
system(s). IFTC shall be fully protected in acting hereunder upon any
instructions, communications, data or other information received by IFTC by
such means as fully and to the same effect as if delivered to IFTC by written
instrument signed by the requisite authorized representative(s) of the Fund.
5. Duties and Responsibilities of IFTC.
A. IFTC shall calculate each Portfolio's net asset value, in
accordance with Fund's prospectus. IFTC will price the securities and foreign
currency holdings of the Portfolios for which market quotations are available
by the use of outside services designated by Fund which are normally used and
contracted with for this purpose; all other securities and foreign currency
holdings will be priced in accordance with Fund's instructions.
B. IFTC shall prepare and maintain, with the direction and as
interpreted by Fund or Fund's accountants and/or other advisors, in complete,
accurate, and current form, all accounts and records needed to be maintained
as a basis for calculation of each Portfolio's net asset value, and as further
agreed upon by the parties in writing, and shall preserve such records in the
manner and for the periods required by law or for such longer period as the
parties may agree upon in writing. Fund shall advise IFTC in writing of all
applicable record retention requirements, other than those set forth in the
1940 Act.
C. IFTC shall make available to Fund for inspection or
reproduction within a reasonable time, upon demand, all accounts and records
of Fund maintained and preserved by IFTC.
D. IFTC shall be entitled to rely conclusively on the
completeness and correctness of any and all accounts and records turned over
to it by Fund.
E. IFTC shall assist Fund's independent accountants, or upon
approval of Fund or upon demand, any regulatory body, in any requested review
of Fund's accounts and records maintained by IFTC but shall be reimbursed by
Fund for all expenses and employee time invested in any such review outside of
routine and normal periodic reviews.
F. Upon receipt from Fund of any necessary information or
instructions, IFTC shall provide information from the books and records it
maintains for Fund that Fund needs for tax returns, questionnaires, or
periodic reports to shareholders and such other reports and information
requests as Fund and IFTC shall agree upon from time to time.
G. Additional series or portfolios of Fund may be added to this
Agreement, provided that IFTC consents to such addition. Rates or charges for
each additional series or portfolio shall be as agreed upon by IFTC and Fund
in writing.
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<PAGE>
H. IFTC shall not have any responsibility hereunder to Fund,
Fund's shareowners or any other person or entity for moneys or securities of
Fund, whether held by Fund or custodians of Fund.
6. Indemnification. IFTC shall not be responsible or liable for, and
Fund shall indemnify and hold IFTC harmless from and against, any and all
costs, expenses, losses, damages, charges, counsel fees, payments and
liabilities, which may be asserted against or incurred by IFTC or for which it
may be liable, arising out of or attributable to:
A. IFTC's action or omission to act pursuant hereto, except
for any loss or damage arising from any negligent act or willful misconduct of
IFTC; provided however, that IFTC shall not be liable for consequential,
special, or punitive damages in any event.
B. IFTC's payment of money as requested by Fund, or the taking
of any action which might make IFTC liable for payment of money; provided,
however, that IFTC shall not be obligated to expend its own moneys or to take
any such action except in IFTC's sole discretion.
C. IFTC's action or omission to act hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been properly
executed.
D. IFTC's action or omission to act in good faith reliance on
the advice or opinion of counsel for Fund or its own counsel, which advice or
opinion may be obtained by IFTC at the expense of Fund, or on the
instructions, advice and statements of Fund, Fund's accountants and officers
or other authorized individuals, and others believed by it in good faith to be
expert in matters upon which they are consulted.
E. The purchase or sale of any securities or foreign currency
positions. Without limiting the generality of the foregoing, IFTC shall be
under no duty or obligation to inquire into:
(1) The validity of the issue of any securities
purchased by or for Fund, or the legality of the purchase thereof, or the
propriety of the purchase price;
(2) The legality of the sale of any securities by or
for Fund, or the propriety of the sale price;
(3) The legality of the issue, sale or purchase of any
shares of Fund, or the sufficiency of the purchase or sale price; or
(4) The legality of the declaration of any dividend by
Fund, or the legality of the issue of any shares of Fund in payment of any
stock dividend.
F. Any error, omission, inaccuracy or other deficiency in
Fund's accounts and records or other information provided by or on behalf of
Fund to IFTC, or the failure of Fund to provide, or provide in a timely
manner, any accounts, records, or information needed by IFTC to perform its
functions hereunder.
G. The Fund's refusal or failure to comply with the terms of
this Agreement (including without limitation the Fund's failure to pay or
reimburse IFTC under this indemnification provision), the Fund's negligence or
willful misconduct, or the failure of any representation or warranty of the
Fund hereunder to be and remain true and correct in all respects at all times.
H. The use or misuse, whether authorized or unauthorized, of
the Portfolio Accounting System or other computerized recordkeeping and
reporting system to which IFTC provides Fund direct access hereunder or of any
other electronic system of communication used hereunder by Fund or by any
person who
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C/M 10675.0002 350703.1
<PAGE>
acquires access to such system(s) through the terminal device, passwords,
access instructions or other means of access to such system(s) which are
utilized by, assigned to or otherwise made available to the Fund, except to
the extent attributable to any negligence or willful misconduct by IFTC.
7. Force Majeure. IFTC shall not be responsible or liable for its
failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, including, without limitation: any interruption, loss or
malfunction of any utility, transportation, computer (hardware or software) or
communication service; inability to obtain labor, material, equipment or
transportation, or a delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; war, strike, riot, emergency,
civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes,
floods, fires, tornados, acts of God or public enemy, revolutions, or
insurrection.
8. Procedures. IFTC and Fund may from time to time adopt procedures as
they agree upon, and IFTC may conclusively assume that any procedure approved
or directed by Fund or its accountants or other advisors does not conflict
with or violate any requirements of Fund's prospectus, charter or declaration
of trust, bylaws, any applicable law, rule or regulation, or any order, decree
or agreement by which the Fund may be bound.
9. Term and Termination. The initial term of this Agreement shall be a
period of one year commencing on the effective date hereof. This Agreement
shall continue thereafter until terminated by either party by notice in
writing received by the other party not less than ninety (90) days prior to
the date upon which such termination shall take effect. Upon termination of
this Agreement:
A. Fund shall pay to IFTC its fees and compensation due
hereunder and its reimbursable disbursements, costs and expenses paid or
incurred to such date.
B. Fund shall designate a successor (which may be Fund) by
notice in writing to IFTC on or before the termination date.
C. IFTC shall deliver to the successor, or if none has been
designated, to Fund, at IFTC's office, all records, funds and other properties
of Fund deposited with or held by IFTC hereunder. In the event that neither a
successor nor Fund takes delivery of all records, funds and other properties
of Fund by the termination date, IFTC's sole obligation with respect thereto
from the termination date until delivery to a successor or Fund shall be to
exercise reasonable care to hold the same in custody in its form and condition
as of the termination date, and IFTC shall be entitled to reasonable
compensation therefor, including but not limited to all of its out-of-pocket
costs and expenses incurred in connection therewith.
10. Notices. Notices, requests, instructions and other writings
addressed to Fund at 120 Broadway, New York, New York 10271, or at such
address as Fund may have designated to IFTC in writing, shall be deemed to
have been properly given to Fund hereunder; and notices, requests,
instructions and other writings addressed to IFTC at its offices at 127 West
10th Street, Kansas City, MO 64105, Attn: Allen Strain, or to such other
address as it may have designated to Fund in writing, shall be deemed to have
been properly given to IFTC hereunder.
11. Limitation of Portfolio Liability. Each Portfolio shall be
regarded for all purposes hereunder as a separate party apart from each other
Portfolio. Unless the context otherwise requires, with respect to every
transaction covered by this Agreement, every reference herein to the Fund
shall be deemed to relate solely to the particular Portfolio to which such
transaction relates. Under no circumstances shall the rights, obligations or
remedies with respect to a particular Portfolio constitute a right, obligation
or remedy applicable to any other Portfolio. The use of this single document
to memorialize the separate agreement of each Portfolio is understood to be
for clerical convenience only and shall not constitute any basis for joining
the Portfolios for any reason.
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<PAGE>
12. Miscellaneous.
A. This Agreement shall be construed according to, and the
rights and liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws principles
thereof.
B. All terms and provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties, the indemnification
extended hereunder, and the provisions of Sections 4.G. and 4.H. are intended
to and shall continue after and survive the expiration, termination or
cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
each party hereto.
E. The failure of either party to insist upon the performance
of any terms or conditions of this Agreement or to enforce any rights
resulting from any breach of any of the terms or conditions of this Agreement,
including the payment of damages, shall not be construed as a continuing or
permanent waiver of any such terms, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred. No waiver, release or discharge of any
party's rights hereunder shall be effective unless contained in a written
instrument signed by the party sought to be charged.
F. The captions in this Agreement are included for convenience
of reference only, and in no way define or limit any of the provisions hereof
or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more separate
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
H. If any provision of this Agreement shall be determined to be
invalid or unenforceable, the remaining provisions of this Agreement shall not
be affected thereby, and every provision of this Agreement shall remain in
full force and effect and shall remain enforceable to the fullest extent
permitted by applicable law.
I. This Agreement may not be assigned by either party without
the prior written consent
of the other.
J. Neither the execution nor performance of this Agreement
shall be deemed to create a partnership or joint venture by and between Fund
and IFTC.
K. Except as specifically provided herein, this Agreement does
not in any way affect any other agreements entered into among the parties
hereto and any actions taken or omitted by any party hereunder shall not
affect any rights or obligations of any other party hereunder.
L. If Fund is a business trust, notice is hereby given that a
copy of its declaration of trust and all amendments thereto is on file with
the Secretary of State of the state of its organization; that this Agreement
has been executed on behalf of Fund by the undersigned duly authorized
representative of Fund in his/her capacity as such and not individually; and
that the obligations of this Agreement shall only be binding upon the assets
and property of Fund and shall not be binding upon any trustee, officer or
shareholder of Fund individually.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective and duly authorized officers, to be effective as
of the day and year first above written.
INVESTORS FIDUCIARY TRUST COMPANY
By:
Title:
LEBENTHAL FUNDS, INC.
By:
Title:
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C/M 10675.0002 350703.1
Exhibit 8.3
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LEBENTHAL FUNDS, INC.
and
STATE STREET BANK AND TRUST COMPANY
C/M 10675.0002 352052.1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
1. Duties of the Bank................................................................. 1
2. Fees and Expenses.................................................................. 3
3. Bank as Trustee or Custodian of Retirement Plans................................... 4
4. National Securities Clearing Corporation Participation............................. 4
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform Commercial
Code............................................................................... 4
6. Data Access and Proprietary Information............................................ 6
7. Indemnification.................................................................... 7
8. Standard of Care................................................................... 8
9. Covenants of the Fund and the Bank................................................. 8
10. Representations and Warranties of the Bank......................................... 9
11. Representations and Warranties of the Fund......................................... 10
12. Termination of Agreement........................................................... 10
13. Additional Funds................................................................... 10
14. Assignment......................................................................... 11
15. Amendment.......................................................................... 11
16. Massachusetts Law to Apply......................................................... 11
17. Force Majeure...................................................................... 11
18. Consequential Damages.............................................................. 11
19. Limitations of Shareholder Liability............................................... 12
C/M 10675.0002 352052.1
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Page
20. Merger of Agreement................................................................ 12
21. Survival........................................................................... 12
22. Severability....................................................................... 12
23. Counterparts....................................................................... 12
C/M 10675.0002 352052.1
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the________day of November, 1995, by and between
LEBENTHAL FUNDS, INC. a Maryland corporation, having its principal office and
place of business at 120 Broadway New York, New York 10271, (the "Fund"), and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank");
WHEREAS, the Bank has been appointed by each of the investment
companies (including each series thereof) listed on Schedule A (the
"Fund(s)"), each an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended, as transfer
agent, dividend disbursing agent and shareholder servicing agent in connection
with certain activities, and the Bank has accepted each such appointment;
WHEREAS, the Bank has entered into a Transfer Agency and Service
Agreement with each of the Funds (including each series thereof) listed on
Schedule A pursuant to which the Bank is responsible for certain transfer
agency and dividend disbursing functions for each Fund's authorized and issued
shares of common stock or shares of beneficial interest as the case may be
("Shares") and each Fund's shareholders ("Shareholders").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenant herein
contained, the parties hereto agree as follows:
1. Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the Bank
shall act as the Fund's transfer agent for Shares in connection with any
accumulation plan, open-account, dividend reinvestment plan, retirement plan
or similar plan provided to Shareholders and set out in each Fund's currently
effective prospectus and statement of additional information ("Prospectus"),
including without limitation any periodic investment plan or periodic
withdrawal program. In accordance with procedures established from time to
time by agreement between each Fund and the Bank, the Bank shall provide the
services listed in this Section 1.
(a) The Bank shall:
(i) receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of each Fund
authorized pursuant to the Articles of Incorporation of
each Fund (the "Custodian");
C/M 10675.0002 352052.1
<PAGE>
(ii) pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate
Shareholder account;
(iii) receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation
thereof to the Custodian;
(iv) in respect to the transactions in items (i), (ii) and
(iii) above, the Bank shall execute transactions directly
with broker-dealers authorized by each Fund;
(v) at the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any
redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the
redeeming Shareholders;
(vi) effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) prepare and transmit payments for dividends and
distributions declared by each Fund;
(viii) issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon
receipt by the Bank of indemnification satisfactory to
the Bank and protecting the Bank and each Fund, and the
Bank at its option, may issue replacement certificates
in place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) maintain records of account for and advise each Fund and
its Shareholders as to the foregoing; and
(x) Record the issuance of Shares of each Fund and maintain
pursuant to Rule 17Ad-10(e) of the Securities Exchange
Act of 1934 as amended (the "Exchange Act of 1934") a
record of the total number of Shares of each Fund which
are authorized, based upon data provided to it by each
Fund, and issued and outstanding. The Bank shall also
provide each Fund on a regular basis with the total
number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording
the issuance of Shares, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall be
the sole responsibility of each Fund.
1.2 (a) For Reports, the Bank shall:
(i) maintain all Shareholder accounts, prepare meeting, proxy,
and mailing lists, withhold taxes on U.S. resident and
non-resident alien accounts, prepare and
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C/M 10675.0002 352052.1
<PAGE>
file U.S. Treasury Department reports required with
respect to dividends and distributions by federal
authorities for all Shareholders, prepare confirmation
forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable
transactions in Shareholder account information.
(b) For blue sky reporting the Bank shall provide a system that
will enable each Fund to monitor the total number of Shares
sold in each State, and each Fund shall:
(i) identify to the Bank in writing those transactions and
assets to be treated as exempt from blue sky reporting
for each State; and
(ii) verify the establishment of transactions for each State
on the system prior to the activity for each State, the
responsibility of the Bank for each Fund's blue sky State
Registration status is solely limited to the initial
establishment of transactions subject to blue sky
compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
1.3 Per the attached service responsibility schedule procedures as to who
shall provide certain of these services in Section 1 may be
established from time to time by agreement between the Fund and the
Bank. The Bank may at times perform only a portion of these services
and the Fund or its agent may perform these services on each Fund's
behalf.
1.4 The Bank shall provide additional services on behalf of the Fund
(i.e., escheat services) that may be agreed upon in writing between
the Bank and the Fund.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, each Fund
agrees to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section
2.2 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, each Fund agrees
to reimburse the Bank for out-of-pocket expenses, including but not
limited to confirmation production, postage, forms, telephone,
microfilm, microfiche, tabulating proxies, records storage, or
advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by
the Bank at the request or with the consent of the Fund, will be
reimbursed by the Fund.
2.3 Each Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage
for mailing of dividends, proxies,
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C/M 10675.0002 352052.1
<PAGE>
Fund reports and other mailings to all shareholder accounts shall be
advanced to the Bank by the Fund at least seven (7) days prior to the
mailing date of such materials.
3. Bank as Trustee or Custodian of Retirement Plans
As agreed upon in writing between the parties, the Bank and Fund agree
that the Bank may serve as the named custodian or trustee of
individual retirement accounts established under section 408 of the
Internal Revenue Code (the"Code"), tax-sheltered annuity plans
established under section 403(b) of the Code, qualified plans under
section 401(a) of the Code, or money purchase plans, pension plans, or
profit sharing plans with a cash deferred arrangement under section
401(k) of the Code (collectively "Retirement Plans").
4. National Securities Clearing Corporation Participation
4.1 Each Fund intends to participate in the National Securities Clearing
Corporation ("NSCC") program for the automated registration input
process provided by the NSCC's Fund/Serv system and the centralized
and standardized communication system for the exchange of customer
level information and activity through the NSCC's Networking system.
Each Fund hereby instructs the Bank and its service agent to process
transactions in the Shareholder accounts for those broker-dealers who
are transmitting on behalf of each Fund through the NSCC's Fund/Serv
and Networking system. The Bank is hereby instructed to process such
shareholder transactions solely on the instructions of the
transmitting broker-dealers.
4.2 Each Fund has presented the Bank with the ICI Model Networking
Agreement (the "Networking Agreement") and hereby instructs and
authorizes State Street to execute and implement the Networking
Agreement in order to facilitate such processing. Pursuant to of the
Networking Agreement, the broker-dealer engaged by each Fund to
participate in Networking on behalf of each Fund is entitled to
indemnification from the Bank.
4.3 The Bank is entitled to indemnification from each Fund under the terms
of Section 7 of this Agreement. Each Fund hereby agrees that the
indemnification of the broker-dealer under the Networking Agreement
against the Bank or its sub-contractors hereunder each Fund shall
indemnify the Bank pursuant to this Agreement. Notwithstanding
anything in the Networking Agreement, each Fund and the Bank agree
that the Bank shall have no more liability to either the Fund or the
broker-dealer than it has to a Fund under this Agreement.
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform
Commercial Code
5.1 The Bank is authorized to promptly debit the appropriate Fund
account(s) upon the receipt of a payment order in compliance with the
selected security procedure (the "Security Procedure") chosen for
funds transfer and in the amount of money that the Bank has been
instructed to transfer. The Bank shall execute payment orders in
compliance with the
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C/M 10675.0002 352052.1
<PAGE>
Security Procedure and with the Fund's instructions on the execution
date provided that such payment order is received by the customary
deadline for processing such a request, unless the payment order
specifies a later time. All payment orders and communications received
after this time frame will be deemed to have been received the next
business day.
5.2 Each Fund acknowledges that the Security Procedure it has designated
on the Fund Selection Form was selected by the Fund from security
procedures offered by the Bank. Each Fund shall restrict access to
confidential information relating to the Security Procedure to
authorized persons as communicated to the Bank in writing. Each Fund
must notify the Bank immediately if it has reason to believe
unauthorized persons may have obtained access to such information or
of any change in the Fund's authorized personnel. The Bank shall
verify the authenticity of all such instructions according to the
Security Procedure.
5.3 The Bank shall process all payment orders on the basis of the account
number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account
number, the account number shall take precedence and govern.
5.4 When a Fund initiates or receives Automated Clearing House ("ACH")
credit and debit entries pursuant to these guidelines and the rules of
the National Automated Clearing House Association and the New England
Clearing House Association, the Bank will act as an Originating
Depository Financial Institution and/or receiving Depository Financial
Institution, as the case may be, with respect to such entries. Credits
given by the Bank with respect to an ACH credit entry are provisional
until the Bank receives final settlement for such entry from the
Federal Reserve Bank. If the Bank does not receive such final
settlement, each Fund agrees that the Bank shall receive a refund of
the amount credited to the Fund in connection with such entry, and the
party making payment to the Fund via such entry shall not be deemed to
have paid the amount of the entry.
5.5 The Bank reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected
balance in the account to be charged at the time of the Bank's receipt
of such payment order; (b) if initiating such payment order would
cause the Bank, in the Bank's sole judgement, to exceed any volume,
aggregate dollar, network, time, credit or similar limits upon wire
transfers which are applicable to the Bank; or (c) if the Bank, in
good faith, is unable to satisfy itself that the transaction has been
properly authorized.
5.6 The Bank shall use reasonable efforts to act on all authorized
requests to cancel or amend payment orders received in compliance with
the Security Procedure provided that such requests are received in a
timely manner affording the Bank reasonable opportunity to act.
However, the Bank assumes no liability if the request for amendment or
cancellation cannot be satisfied.
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C/M 10675.0002 352052.1
<PAGE>
5.7 The Bank shall assume no responsibility for failure to detect any
erroneous payment order provided that the Bank complies with the
payment order instructions as received and the Bank complies with the
Security Procedure. The Security Procedure is established for the
purpose of authenticating payment orders only and not for the
detection of errors in payment orders.
5.8 The Bank shall assume no responsibility for lost interest with respect
to the refundable amount of any unauthorized payment order unless the
Bank is notified of the unauthorized payment order within thirty (30)
days or notification by the Bank of the acceptance of such payment
order. In no event (including failure to execute a payment order)
shall the Bank be liable for special, indirect or consequential
damages, even if advised of the possibility of such damages.
5.9 Confirmation of Bank's execution of payment orders shall ordinarily be
provided within 24 hours notice of which may be delivered through the
Bank's proprietary information systems, or by facsimile or call-back.
Client must report any objections to the execution of an order within
30 days.
6. Data Access and Proprietary Information
6.1 Each Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and other
information furnished to the Fund by the Bank are provided solely in
connection with the services rendered under this Agreement and
constitute copyrighted trade secrets or propriety information of
substantial value to the Bank. Such databases, programs, formats,
designs, techniques and other information are collectively referred to
below as "Proprietary Information". Each Fund agrees that it shall
treat all Proprietary Information as proprietary to the Bank and
further agrees that it shall not divulge any Proprietary Information
to any person or organization except as expressly permitted hereunder.
Each Fund agrees for itself and its employees and agents:
(a) to use such programs and databases (i) solely on the Fund's
computers, or (ii) solely from equipment at the locations
agreed to between the Fund and the Bank and (iii) in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way (other than
in the normal course of performing processing on the Fund's
computers) any part of any Proprietary Information;
(c) to refrain from obtaining unauthorized access to any programs,
data or other information not owned by the Fund, and if such
access is accidently obtained, to respect and safeguard the
same Proprietary Information;
(d) to refrain from causing or allowing information transmitted
from the Bank's computer to the Fund's terminal to be
retransmitted to any other computer
-6-
C/M 10675.0002 352052.1
<PAGE>
terminal or other device except as expressly permitted by the
Bank, such permission not to be unreasonably withheld;
(e) that the Fund shall have access only to those authorized
transactions as agreed to between the Fund and the Bank; and
(f) to honor reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law and under applicable
statutes.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to Section 6.
7. Indemnification
7.1 The Bank shall not be responsible for, and each Fund shall indemnify
and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to:
(a) all actions of the Bank or its agent or subcontractors required
to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or
willful misconduct;
(b) the Fund's lack of good faith, negligence or willful misconduct;
(c) the reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services
which (i) are received by the Bank or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of
the Fund including but not limited to any previous transfer
agent or registrar excluding the Bank;
(d) the reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund;
and
(e) the offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares be
registered in such state or in violation of any stop order or
other determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares in such
state.
7.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the
Fund for any action
-7-
C/M 10675.0002 352052.1
<PAGE>
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel.
The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on
behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its
agents or subcontractors by machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and shall not be
held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents
and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear
the proper manual or facsimile signatures of the officers of the Fund,
and the proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
7.3 In order that the indemnification provisions contained in this Section
7 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the
Fund of such assertion, and shall keep the Fund advised with respect
to all developments concerning such claim. The Fund shall have the
option to participate with the Bank in the defense of such claim or to
defend against said claim in its own name or in the name of the Bank.
The Bank shall in no case confess any claim or make any compromise in
any case in which the Fund may be required to indemnify the Bank
except with the Fund's prior written consent.
8. Standard of Care
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless said
errors are caused by its negligence, bad faith, or willful misconduct
or that of its employees.
9. Covenants of the Fund and the Bank
9.1 The Fund shall promptly furnish to the Bank the following:
(a) a certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) a copy of the Articles of Incorporation and By-Laws of the Fund
and all amendments thereto.
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C/M 10675.0002 352052.1
<PAGE>
9.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
9.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services to
be performed by the Bank hereunder are the property of the Fund and
will be preserved, maintained and made available in accordance with
such Section and Rules, and will be surrendered promptly to the Fund
on and in accordance with its request.
9.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged
or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
9.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund
as to such inspection. The Bank reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised
by its counsel that it may be held liable for the failure to exhibit
the Shareholder records to such person.
10. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
(a) it is a trust company duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts;
(b) it is duly qualified to carry on its business in The Commonwealth
of Massachusetts;
(c) it is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform this Agreement;
(d) all requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement;
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement; and
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C/M 10675.0002 352052.1
<PAGE>
(f) it is registered as a transfer agent under Section 17A(c)(2) of
the Exchange Act.
11. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
(a) it is a corporation duly organized and existing and in good
standing under the laws of Maryland;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement;
(c) all corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
12. Termination of Agreement
12.1 This Agreement shall continue for a period of years (the "Initial
Term") and be renewed or terminated as stated below.
12.2 This Agreement shall terminate upon the termination of the Transfer
Agency Agreement between the Funds and the Bank.
12.3 This Agreement may be terminated or renewed after the Initial Term by
either party upon ninety (90) days written notice to the other.
12.4 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund. Additionally, the Bank reserves the right to charge
for any other reasonable expenses associated with such termination
and/or a charge equivalent to the average of three (3) months' fees.
13. Additional Funds
13.1 If the Fund and the Bank wish the Bank to act as transfer agent for
additional investment companies registered under the Investment
Company Act of 1940 as amended or series shall be Funds hereunder.
13.2 The parties will amend Schedule A and duly authorized officers of each
party shall agree in writing for the Bank to act as transfer agent for
such new funds (including series thereof) under this Agreement.
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C/M 10675.0002 352052.1
<PAGE>
14. Assignment
14.1 Except as provided in Section 14.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
14.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
14.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (a) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (b) National
Financial Data Services, Inc., a subsidiary of BFDS duly registered as
a transfer agent pursuant to Section 17A(c)(2) or (c) a BFDS
affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
15. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties.
16. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
17. Force Majeure
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment
or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be
liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes.
18. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act
hereunder.
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C/M 10675.0002 352052.1
<PAGE>
19. Limitations of Shareholder Liability
Each party hereby expressly acknowledges that recourse against the
Funds shall be subject to those limitations provided by governing law
and the Articles of Incorporation of the Funds, as applicable, and
agrees that obligations assumed by the Funds pursuant to the Transfer
Agency Agreement shall be limited in all cases to the Funds and their
respective assets. Each party shall not seek satisfaction from the
Shareholders or any individual Shareholder of the Funds, nor shall any
party seek satisfaction of any obligations from the Directors or any
individual Director of the Funds.
20. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
21. Survival
All provisions regarding indemnification, warranty, liability, and
limits thereon, and confidentiality and\or protection of proprietary
rights and trade secrets shall survive the termination of this
Agreement.
22. Severability
If any provision or provisions of this Agreement shall be held
invalid, unlawful, or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired.
23. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
-12-
C/M 10675.0002 352052.1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers, as of the day of November, 1995.
LEBENTHAL FUNDS, INC.
BY:
TITLE:
ATTEST:
STATE STREET BANK AND TRUST COMPANY
BY:
TITLE: Executive Vice President
ATTEST:
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C/M 10675.0002 352052.1
<PAGE>
SCHEDULE A
FUNDS
Lebenthal New York Municipal Bond Fund
Lebenthal New Jersey Municipal Bond Fund
Lebenthal Taxable Municipal Bond Fund
C/M 10675.0002 352052.1
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
C/M 10675.0002 352052.1
<PAGE>
Service Performed Responsibility
Bank Fund
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Section 1 of the Agreement.
LEBENTHAL FUNDS, INC.
BY:
TITLE:
ATTEST:
STATE STREET BANK AND TRUST COMPANY
BY:
TITLE: Executive Vice President
ATTEST:
C/M 10675.0002 352052.1
Exhibit 9
ADMINISTRATION AGREEMENT
Agreement dated as of , 1995 by and between State Street Bank and Trust
Company, a Massachusetts trust company (the "Administrator"), and Lebenthal
Funds, Inc. (the "Fund").
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain the Administrator to furnish
certain administrative services to the Fund, and the Administrator is willing to
furnish such services, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Appointment of Administrator
The Fund hereby appoints the Administrator to act as administrator with
respect to the Fund for purposes of providing certain administrative services
for the period and on the terms set forth in this Agreement. The Administrator
accepts such appointment and agrees to render the services stated herein.
The Fund will initially consist of the portfolio(s) and/or class(es) of
shares (each an "Investment Fund") listed in Schedule A to this Agreement. In
the event that the Fund establishes one or more additional Investment Funds with
respect to which it wishes to retain the Administrator to act as administrator
hereunder, the Fund shall notify the Administrator in writing. Upon written
acceptance by the Administrator, such Investment Fund shall become subject to
the provisions of this Agreement to the same extent as the existing Investment
Funds, except to the extent that such provisions (including those relating to
the compensation and expenses payable by the Fund and its Investment Funds) may
be modified with respect to each additional Investment Fund in writing by the
Fund and the Administrator at the time of the addition of the Investment Fund.
2. Delivery of Documents
The Fund will promptly deliver to the Administrator copies of each of
the following documents and all future amendments and supplements, if any:
a. The Fund's charter document and by-laws;
b. The Fund's currently effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the
Fund's Prospectus(es) and Statement(s) of Additional Information relating to all
Investment Funds and all amendments and supplements thereto as in effect from
time to time;
c. Certified copies of the resolutions of the Board of Directors of the
Fund (the "Board") authorizing (1) the Fund to enter into this Agreement and (2)
certain individuals on behalf of the Fund to (a) give instructions to the
Administrator pursuant to this Agreement and (b) sign checks and pay expenses;
d. A copy of the investment advisory agreement between the Fund and its
investment adviser; and
C/M 10675.0002 350708.1
<PAGE>
e. Such other certificates, documents or opinions which the
Administrator may, in its reasonable discretion, deem necessary or appropriate
in the proper performance of its duties.
3. Representation and Warranties of the Administrator
The Administrator represents and warrants to the Fund that:
a. It is a Massachusetts trust company, duly organized, existing and in
good standing under the laws of The Commonwealth of Massachusetts;
b. It has the corporate power and authority to carry on its business in
The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement;
d. No legal or administrative proceedings have been instituted or
threatened which would impair the Administrator's ability to perform its duties
and obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a material breach
or be in material conflict with any other agreement or obligation of the
Administrator or any law or regulation applicable to it.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Administrator that:
a. It is a corporation, duly organized and existing and in good
standing under the laws of ;
b. It has the corporate power and authority under applicable laws and
by its charter and by-laws to enter into and perform this Agreement;
c. All requisite proceedings have been taken to authorize it to enter
into and perform this Agreement;
d. It is an investment company properly registered under the 1940 Act;
e. A registration statement under the 1933 Act and the 1940 Act has
been filed and will be effective and remain effective during the term of this
Agreement. The Fund also warrants to the Administrator that as of the effective
date of this Agreement, all necessary filings under the securities laws of the
states in which the Fund offers or sells its shares have been made;
f. No legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform its duties and
obligations under this Agreement;
g. Its entrance into this Agreement shall not cause a material breach
or be in material conflict with any other agreement or obligation of the Fund or
any law or regulation applicable to it; and
h. As of the close of business on the date of this Agreement, the Fund
is authorized to issue shares of capital stock, and it will initially offer
shares, in the authorized amounts as set forth in Schedule A to this Agreement.
C/M 10675.0002 350708.1
<PAGE>
5. Administration Services
The Administrator shall provide the following services, in each case,
subject to the control, supervision and direction of the Fund and the review and
comment by the Fund's auditors and legal counsel and in accordance with
procedures which may be established from time to time between the Fund and the
Administrator:
a. Oversee the determination and publication of the Fund's net asset
value in accordance with the Fund's policy as adopted from time to time by the
Board;
b. Oversee the maintenance by the Fund's custodian of certain books and
records of the Fund as required under Rule 31a-1(b) of the 1940 Act;
c. Prepare the Fund's federal, state and local income tax returns for
review by the Fund's independent accountants and filing by the Fund's treasurer;
d. Review calculation, submit for approval by officers of the Fund and
arrange for payment of the Fund's expenses;
e. Prepare for review and approval by officers of the Fund financial
information for the Fund's semi-annual and annual reports, proxy statements and
other communications required or otherwise to be sent to Fund shareholders, and
arrange for the printing and dissemination of such reports and communications to
shareholders;
f. Prepare for review by an officer of and legal counsel for the Fund
the Fund's periodic financial reports required to be filed with the Securities
and Exchange Commission ("SEC") on Form N-SAR and financial information required
by Form N-1A and such other reports, forms or filings as may be mutually agreed
upon;
g. Prepare reports relating to the business and affairs of the Fund as
may be mutually agreed upon and not otherwise prepared by the Fund's investment
adviser, custodian, legal counsel or independent accountants;
h. Make such reports and recommendations to the Board concerning the
performance of the independent accountants as the Board may reasonably request;
i. Make such reports and recommendations to the Board concerning the
performance and fees of the Fund's custodian and transfer and dividend
disbursing agent ("Transfer Agent") as the Board may reasonably request or deems
appropriate;
j. Oversee and review calculations of fees paid to the Fund's
investment adviser, custodian and Transfer Agent;
k. Consult with the Fund's officers, independent accountants, legal
counsel, custodian and Transfer Agent in establishing the accounting policies of
the Fund;
l. Review implementation of any dividend reinvestment programs
authorized by the Board;
m. Respond to, or refer to the Fund's officers or Transfer Agent,
shareholder inquiries relating to the Fund;
C/M 10675.0002 350708.1
<PAGE>
n. Provide periodic testing of portfolios to assist the Fund's
investment adviser in complying with Internal Revenue Code mandatory
qualification requirements, the requirements of the 1940 Act and Fund prospectus
limitations as may be mutually agreed upon;
o. Subject to review and comment by the fund's legal counsel, prepare
and file with the SEC Rule 24f-2 notices; and
p. Prepare and file state registrations of the Fund's securities
pursuant to the specific instructions of the Fund and as detailed in Schedule C
to this Agreement.
The Administrator shall provide the office facilities and the personnel
required by it to perform the services contemplated herein.
6. Fees; Expenses; Expense Reimbursement
The Administrator shall receive from the Fund such compensation for the
Administrator's services provided pursuant to this Agreement as may be agreed to
from time to time in a written fee schedule approved by the parties and
initially set forth in Schedule B to this Agreement. The fees are accrued daily
and billed monthly and shall be due and payable upon receipt of the invoice.
Upon the termination of this Agreement before the end of any month, the fee for
the part of the month before such termination shall be prorated according to the
proportion which such part bears to the full monthly period and shall be payable
upon the date of termination of this Agreement. In addition, the Fund shall
reimburse the Administrator for its out-of-pocket costs incurred in connection
with this Agreement.
The Fund agrees promptly to reimburse the Administrator for any
equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement that
the Administrator may incur on the Fund's behalf at the Fund's request or with
the Fund's consent.
The Fund will bear all expenses that are incurred in its operation and
not specifically assumed by the Administrator. Expenses to be borne by the Fund,
include, but are not limited to: organizational expenses; cost of services of
independent accountants and outside legal and tax counsel (including such
counsel's review of the Fund's registration statement, proxy materials, federal
and state tax qualification as a regulated investment company and other reports
and materials prepared by the Administrator under this Agreement); cost of any
services contracted for by the Fund directly from parties other than the
Administrator; cost of trading operations and brokerage fees, commissions and
transfer taxes in connection with the purchase and sale of securities for the
Fund; investment advisory fees; taxes, insurance premiums and other fees and
expenses applicable to its operation; costs incidental to any meetings of
shareholders including, but not limited to, legal and accounting fees, proxy
filing fees and the costs of preparation, printing and mailing of any proxy
materials; costs incidental to Board meetings, including fees and expenses of
Board members; the salary and expenses of any officer, director\trustee or
employee of the Fund; costs incidental to the preparation, printing and
distribution of the Fund's registration statements and any amendments thereto
and shareholder reports; cost of typesetting and printing of prospectuses; cost
of preparation and filing of the Fund's tax returns, Form N-1A or N-2 and Form
N-SAR, and all notices, registrations and amendments associated with applicable
federal and state tax and securities laws; all applicable registration fees and
filing fees required under federal and state securities laws; fidelity bond and
directors' and officers' liability insurance; and cost of independent pricing
services used in computing the Fund's net asset value.
The Administrator is authorized to and may employ or associate with
such person or persons as the Administrator may deem desirable to assist it in
performing its duties under this Agreement; provided,however, that the
compensation of such person or persons shall be paid by the Administrator and
that the Administrator
C/M 10675.0002 350708.1
<PAGE>
shall be as fully responsible to the Fund for the acts and omissions of any such
person or persons as it is for its own acts and omissions.
7. Instructions and Advice
At any time, the Administrator may apply to any officer of the Fund for
instructions and may consult with its own legal counsel or outside counsel for
the Fund or the independent accountants for the Fund at the expense of the Fund,
with respect to any matter arising in connection with the services to be
performed by the Administrator under this Agreement. The Administrator shall not
be liable, and shall be indemnified by the Fund, for any action taken or omitted
by it in good faith in reliance upon any such instructions or advice or upon any
paper or document believed by it to be genuine and to have been signed by the
proper person or persons. The Administrator shall not be held to have notice of
any change of authority of any person until receipt of written notice thereof
from the Fund. Nothing in this paragraph shall be construed as imposing upon the
Administrator any obligation to seek such instructions or advice, or to act in
accordance with such advice when received.
8. Limitation of Liability and Indemnification
The Administrator shall be responsible for the performance of only such
duties as are set forth in this Agreement and, except as otherwise provided
under Section 6, shall have no responsibility for the actions or activities of
any other party, including other service providers. The Administrator shall have
no liability for any error of judgement or mistake of law or for any loss or
damage resulting from the performance or nonperformance of its duties hereunder
unless solely caused by or resulting from the gross negligence or willful
misconduct of the Administrator, its officers or employees. The Administrator
shall not be liable for any special, indirect, incidental, or consequential
damages of any kind whatsoever (including, without limitation, attorneys' fees)
under any provision of this Agreement or for any such damages arising out of any
act or failure to act hereunder. In any event, the Administrator's liability
under this Agreement shall be limited to its total annual compensation earned
and fees paid hereunder during the preceding twelve months for any liability or
loss suffered by the Fund including, but not limited to, any liability relating
to qualification of the Fund as a regulated investment company or any liability
relating to the Fund's compliance with any federal or state tax or securities
statute, regulation or ruling.
The Administrator shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its control, including
without limitation, work stoppage, power or other mechanical failure, computer
virus, natural disaster, governmental action or communication disruption, nor
shall any such failure or delay give the Fund the right to terminate this
Agreement.
The Fund shall indemnify and hold the Administrator harmless from all
loss, cost, damage and expense, including reasonable fees and expenses for
counsel, incurred by the Administrator resulting from any claim, demand, action
or suit in connection with the Administrator's acceptance of this Agreement, any
action or omission by it in the performance of its duties hereunder, or as a
result of acting upon any instructions reasonably believed by it to have been
duly authorized by the Fund, provided that this indemnification shall not apply
to actions or omissions of the Administrator, its officers or employees in cases
of its or their own gross negligence or willful misconduct.
The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above. In the
event the Fund elects to assume the defense of any such suit and retain counsel,
the Administrator or any of its affiliated persons, named as defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Fund shall have specifically
authorized the retaining of such
C/M 10675.0002 350708.1
<PAGE>
counsel or (ii) the Administrator shall have determined in good faith that the
retention of such counsel is required as a result of a conflict of interest.
The indemnification contained herein shall survive the termination of
this Agreement.
9. Confidentiality
The Administrator agrees that, except as otherwise required by law or
in connection with any required disclosure to a banking or other regulatory
authority, it will keep confidential all records and information in its
possession relating to the Fund or its shareholders or shareholder accounts and
will not disclose the same to any person except at the request or with the
written consent of the Fund.
10. Compliance with Governmental Rules and Regulations; Records
The Fund assumes full responsibility for complying with all securities,
tax, commodities and other laws, rules and regulations applicable to it.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Administrator agrees that all records which it maintains for the Fund shall
at all times remain the property of the Fund, shall be readily accessible during
normal business hours, and shall be promptly surrendered upon the termination of
the Agreement or otherwise on written request. The Administrator further agrees
that all records which it maintains for the Fund pursuant to Rule 31a-1 under
the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under
the 1940 Act unless any such records are earlier surrendered as provided above.
Records shall be surrendered in usable machine-readable form.
11. Services Not Exclusive
The services of the Administrator to the Fund are not to be deemed
exclusive, and the Administrator shall be free to render similar services to
others. The Administrator shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized by the Fund from
time to time, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
12. Term, Termination and Amendment
This Agreement shall become effective on December 1, 1995. The
Agreement shall remain in effect for a period of one year from the effective
date, and shall automatically continue in effect thereafter with respect to the
Fund unless terminated in writing by either party at the end of such period or
thereafter on sixty (60) days' prior written notice given by either party to the
other party. Termination of this Agreement with respect to any given Investment
Fund shall in no way affect the continued validity of this Agreement with
respect to any other Investment Fund. Upon termination of this Agreement, the
Fund shall pay to the Administrator such compensation and any reimbursable
expenses as may be due under the terms hereof as of the date of such
termination, including reasonable out-of-pocket expenses associated with such
termination. This Agreement may be modified or amended from time to time by
mutual written agreement of the parties hereto.
13. Notices
Any notice or other communication authorized or required by this
Agreement to be given to either party shall be in writing and deemed to have
been given when delivered in person or by confirmed facsimile, or posted by
certified mail, return receipt requested, to the following address (or such
other address as a party may specify by written notice to the other): if to the
Fund: ________________________________ , Attn: ______________, fax: ; if to the
Administrator: State Street Bank and Trust Company, 1776 Heritage Drive,
C/M 10675.0002 350708.1
<PAGE>
North Quincy, Massachusetts 02171, Attn: David M. Elwood, Vice President and
Senior Counsel, fax: (617) 985-2497.
14. Non-Assignability
This Agreement shall not be assigned by either party hereto without the
prior consent in writing of the other party, except that the Administrator may
assign this Agreement to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by or under common control with
the Administrator.
15. Successors
This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Administrator and their respective successors and permitted
assigns.
16. Entire Agreement
This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes all previous
representations, warranties or commitments regarding the services to be
performed hereunder whether oral or in writing.
17. Waiver
The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed by
the waiving party.
18. Severability
If any provision of this Agreement is invalid or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
19. Governing Law
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
LEBENTHAL FUNDS, INC.
By: __________________________
Name: ________________________
Title: _______________________
C/M 10675.0002 350708.1
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By: __________________________
Name: ________________________
Title: _______________________
C/M 10675.0002 350708.1
<PAGE>
ADMINISTRATION AGREEMENT
LEBENTHAL FUNDS, INC.
SCHEDULE A
Listing of Investment Funds and Authorized Shares
Investment Fund Authorized Shares
New York Municipal Bond Fund
New Jersey Municipal Bond Fund
Taxable Municipal Bond Fund
C/M 10675.0002 350708.1
<PAGE>
ADMINISTRATION AGREEMENT
LEBENTHAL FUNDS, INC.
SCHEDULE B
Fees and Expenses
C/M 10675.0002 350708.1
<PAGE>
ADMINISTRATION AGREEMENT
LEBENTHAL FUNDS, INC.
SCHEDULE C
Registration of Fund Shares
with State Securities Administrators
At the specific direction of the Fund, the Administrator will prepare required
documentation and register Fund shares in accordance with the securities laws of
each jurisdiction in which Fund shares are to be offered or sold pursuant to
instructions given to the Administrator by the Fund.
The Fund shall be solely responsible for the determination (i) of those
jurisdictions in which Fund shares are to be registered and (ii) the number of
Fund shares to be registered in each such jurisdiction. In the event that the
Administrator becomes aware of (a) the sale of Fund shares in a jurisdiction in
which Fund shares are not registered for offer and sale or (b) the sale of Fund
shares in excess of the number of Fund shares registered in such jurisdiction,
the Administrator shall report such information to the Fund, and it shall be the
Fund's responsibility to determine appropriate corrective action and instruct
the Administrator with respect thereto.
The registration services shall consist of the following:
1. Filing of Fund's Application to Register Securities and
amendments, if directed by the Fund;
2. Filing of amendments to the Fund's registration statement;
3. Filing Fund sales reports and advertising literature where
required;
4. Payment at the expense of the Fund of all Fund state
registration and filing fees;
5. Filing the Prospectuses and Statements of Additional
Information and any amendments or supplements thereto;
6. Filing of annual reports and proxy statements where required;
and
7. The performance of such additional services as the
Administrator and the Fund may agree upon in writing.
Unless otherwise specified in writing by the Administrator, registration
services by the Administrator shall not include determining the availability of
exemptions under a jurisdiction's blue sky law. Any such determination shall be
made by the Fund or its legal counsel. In connection with the services described
herein, the Fund shall issue in favor of the Administrator a power of attorney
to register Fund shares on behalf of the Fund, which power of attorney shall be
substantially in the form of Exhibit I attached hereto.
C/M 10675.0002 350708.1
<PAGE>
EXHIBIT I
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of , 199 that the undersigned LEBENTHAL
FUNDS, INC. with principal offices at (individually the "Fund") makes,
constitutes, and appoints STATE STREET BANK AND TRUST COMPANY (the
"Administrator") with principal offices at 225 Franklin Street, Boston,
Massachusetts its lawful attorney-in-fact for it to do as if it were itself
acting, the following:
1. REGISTRATION OF FUND SHARES. The power to register shares of the Fund in each
jurisdiction in which Fund shares are offered or sold and in connection
therewith the power to prepare, execute, and deliver and file any and all Fund
applications, including without limitation, applications to register shares,
consents, including consents to service of process, reports, including without
limitation, all periodic reports, claims for exemption, or other documents and
instruments now or hereafter required or appropriate in the judgement of the
Administrator in connection with the registration of Fund shares.
2. AUTHORIZED SIGNERS. Pursuant to this Limited Power of Attorney, individuals
holding the titles of Officer, Blue Sky Manager, or Senior Blue Sky
Administrator at the Administrator shall have authority to act on behalf of the
Fund with respect to item 1 above.
The execution of this limited power of attorney shall be deemed coupled with an
interest and shall be revocable only upon receipt by the Administrator of such
termination of authority. Nothing herein shall be construed to constitute the
appointment of the Administrator as or otherwise authorize the Administrator to
act as an officer, director or employee of the Fund.
IN WITNESS WHEREOF, the Fund has caused this Agreement to be executed in its
name and on its behalf by and through its duly authorized officer, as of the
date first written above.
LEBENTHAL FUNDS, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
C/M 10675.0002 350708.1
Exhibit 11
McGladrey & Pullen, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated December 29, 1995, on
the financial statements of Lebenthal New York Municipal Bond Fund, Lebenthal
New Jersey Municipal Bond Fund and Lebenthal Taxable Municipal Bond Fund, series
of Lebenthal Funds, Inc. referred to therein, in Post-Effective Amendment No. 11
to the Registration Statement on Form N-1A, File No. 33-36784, of Lebenthal
Funds, Inc. as filed with the Securities and Exchange Commission.
We also consent to the reference to our Firm in the Prospectus under the
caption "Selected Financial Information" and in the Statement of Additional
Information under the caption "Counsel and Auditors".
/s/ McGladrey & Pullen, LLP
---------------------------
New York, New York
March 21, 1996
C/M 10675.0002 351968.1
Exhibit 16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints James McGrath and Hiram Lazar, and each of them, with
full power of substitution, as his true and lawful attorney and agent to execute
in his name and on his behalf, in any and all capacities, the Registration
Statement on Form N-1A, and any and all amendments thereto filed by Lebenthal
Funds, Inc. (the "Fund") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorney and
agent deems necessary or advisable to enable the Fund to comply with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorney and agent shall do or cause to be done
by virtue hereof.
/s/ James A. Lebenthal
------------------------
James A. Lebenthal
C/M: 350146.1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints James McGrath and Hiram Lazar, and each of them, with
full power of substitution, as his true and lawful attorney and agent to execute
in his name and on his behalf, in any and all capacities, the Registration
Statement on Form N-1A, and any and all amendments thereto filed by Lebenthal
Funds, Inc. (the "Fund") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorney and
agent deems necessary or advisable to enable the Fund to comply with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorney and agent shall do or cause to be done
by virtue hereof.
/s/ Victor Chang
-------------------------
Victor Chang
C/M: 350146.1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints James McGrath and Hiram Lazar, and each of them, with
full power of substitution, as his true and lawful attorney and agent to execute
in his name and on his behalf, in any and all capacities, the Registration
Statement on Form N-1A, and any and all amendments thereto filed by Lebenthal
Funds, Inc. (the "Fund") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorney and
agent deems necessary or advisable to enable the Fund to comply with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorney and agent shall do or cause to be done
by virtue hereof.
/s/ Donald G. Conrad
--------------------------
Donald G. Conrad
C/M: 350146.1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints James McGrath and Hiram Lazar, and each of them, with
full power of substitution, as his true and lawful attorney and agent to execute
in his name and on his behalf, in any and all capacities, the Registration
Statement on Form N-1A, and any and all amendments thereto filed by Lebenthal
Funds, Inc. (the "Fund") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorney and
agent deems necessary or advisable to enable the Fund to comply with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorney and agent shall do or cause to be done
by virtue hereof.
--------------------------
Francis P. Gallagher
C/M: 350146.1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints James McGrath and Hiram Lazar, and each of them, with
full power of substitution, as his true and lawful attorney and agent to execute
in his name and on his behalf, in any and all capacities, the Registration
Statement on Form N-1A, and any and all amendments thereto filed by Lebenthal
Funds, Inc. (the "Fund") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorney and
0gent deems necessary or advisable to enable the Fund to comply with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorney and agent shall do or cause to be done
by virtue hereof.
/s/ Robert R. Godfrey
----------------------
Robert R. Godfrey
C/M: 350146.1
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