As filed with the Securities and Exchange Commission on March 31, 1997
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. 12 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 14 [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, 1996 on or about
January 31, 1997.
<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............................Financial Highlights
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
466160.1
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;
Statements of Assets and
Liabilities; Statements of
Operations; Statement of Changes in
Net Assets; Notes to Financial
Statements
466160.1
iii
<PAGE>
LEBENTHAL 120 Broadway, New York, NY 10271
FUNDS, INC. 212-425-6116
OUTSIDE NYC TOLL FREE 1-800-221-5822
PROSPECTUS
March 31, 1997
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. The SEC
maintains a web site (http://www.sec.gov) that contains the Statement of
Additional Information and other reports and information regarding the Portfolio
which have been filed electronically with the SEC.
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.
467596.1
<PAGE>
<TABLE>
TABLE OF FEES AND EXPENSES
<CAPTION>
Shareholder Transaction Expenses
(as a percentage of offering price)
<S> <C> <C> <C>
Lebenthal New York Lebenthal New Jersey Lebenthal Taxable
Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund
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 - 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% 0.63% 0.61%
Total Fund Operating Expenses - After Fee 1.09% 0.63% 0.61%
Waivers and Reimbursements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
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 $79 $120
Lebenthal Taxable Municipal Bond Fund $51 $64 $77 $118
</TABLE>
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 or a
portion of its fees under the Management Contract. Absent such waiver, the
Management Fee for the New Jersey Portfolio and the Taxable Portfolio would have
been .25% 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. Absent such
reimbursements and waivers, Other Expenses for each of the Portfolios would have
been 2.60% and 1.03%, respectively, and Total Fund Operating Expenses would have
been 3.20% and 1.63%, 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-
467596.1
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
The following financial highlights 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>
<CAPTION>
Lebenthal New York
Municipal Bond Fund
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
June 24,
1991
Year Year Year Year Year (Inception)
Ended Ended Ended Ended Ended to
November 30, November 30, November 30, November November November
1996 1995 1994+++ 30, 1993 30, 1992 30, 1991
Per Share Operating Performance:
(for a share outstanding throughout the period)$ 7.99 $ 6.84 $ 8.03 $ 7.54 $ 7.19 $ 7.16
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period)
Income from investment operations:
Net investment income..................... 0.41 0.43 0.41 0.44 0.47 0.14
Net realized and unrealized
gain (loss) on investments............... 0.10 1.15 (1.15) 0.50 0.35 0.03
---- ---- ------ ---- ---- ----
Total from investment operations.......... 0.51 1.58 ( .74) 0.94 0.82 0.17
---- ---- ------- ---- ---- ----
Less distributions:
Dividends from net investment income...... (0.41) (0.43) (0.41) (0.44) (0.47) (0.14)
Distributions from net realized
gain on investments....................... -- -- (0.04) (0.01) -- --
------ ------ ------ ------ ------- --
Total distributions....................... (0.41) (0.43) (0.45) (0.45) (0.47) (0.14)
------ ------ ------ ------ ------ ------
Net asset value, end of period............ $ 8.09 $ 7.99 $ 6.84 $ 8.03 $ 7.54 $ 7.19
=========== ========== ========== ========== ========== ==========
Total Return (without deduction of sales load) 6.63%** 23.56% ( 9.62%) 12.63% 11.68% 2.36%+
Ratios/Supplemental Data:
Net assets, end of period (000's omitted). $ 122,611 $ 105,579 $ 75,326 $ 80,727 $ 39,350 $ 14,549
Ratios to average net assets:
Expenses.................................. 1.09% 0.99% 0.64%++ 0.20%++ 0.17%++ 0%*++
Net investment income..................... 5.17% 5.63% 5.44%++ 5.42%++ 6.08%++ 6.08%*++
Portfolio turnover........................ 45.92% 148.88% 192.91% 7.88% 8.14% 0%
Bank loans................................
Amount outstanding at end of period (000) $ 0 $ 1,737
Average amount of bank loans 797
outstanding during the period (000) 1,857
Average number of shares 14,473
outstanding during the period (000) 11,866
Average amount of debt per share
during the period................ 0.06 0.16
</TABLE>
* Annualized
** Includes the effect of a capital contribution from the Fund's Manager.
Without the capital contribution the total return would have been 6.24%. + Not
Annualized ++ If the Investment Manager had not waived fees and reimbursed
expenses and the Administrator and Distributor had not waived fees, the ratio of
operating expenses to average net assets would have been 1.10%, 1.12%, and
1.44% for the periods ended November 30, 1994, 1993, and 1992,
respectively.
+++ Effective August 15, 1994, the investment advisor changed to Lebenthal Asset
Management, Inc.
-3-
467596.1
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
The following financial highlights 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.
<TABLE>
<CAPTION>
Lebenthal New Jersey Lebenthal Taxable
Municipal Bond Fund Municipal Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
November 30, November 30, November 30, November 30, November 30, November 30,
1996 1995 1994+* 1996 1995 1994+*
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period..........) $6.70 $5.95 $7.16 $7.22 $6.34 $7.16
----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income......................... 0.36 0.36 0.32 0.52 0.53 0.44
Net realized and unrealized
gain (loss) on investments.................. 0.04 0.75 (1.21) (0.09) 0.88 (0.82)
---- ---- ------ ---- ---- ------
Total from investment operations.............. 0.40 1.11 (.89) 0.43 1.41 (0.38)
---- ---- ----- ---- ---- ------
Less distributions:
Dividends from net investment income.......... (0.36) (0.36) (0.32) (0.52) (0.53) (0.44)
Distributions from net realized
gain on investments......................... -- -- -- -- -- --
---- ---- ---- ---- ---- ---
Total distributions........................... (0.36) (0.36) (0.32) (0.52) (0.53) (0.44)
------ ------ ------ ------ ------ ------
Net asset value, end of period................ $6.74 $6.70 $5.95 $7.13 $7.22 $6.34
===== ===== ===== ===== ===== =====
Total Return (without deduction of sales load) 6.18% 19.10% (12.70%) 6.35% 23.11% (5.45%)
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)..... $5,182 $3,358 $2,145 $14,607 $8,686 $2,990
Ratios to average net assets:
Expenses++................................. 0.63%** 0.60% 0.60% 0.61%** 0.60% 0.60%
Net investment income...................... 5.37% 5.64% 4.97% 7.34% 7.57% 6.74%
Portfolio turnover......................... 28.56% 61.69% 291.60% 44.46% 84.74% 93.73%
</TABLE>
+ Effective August 15, 1994, the investment adviser changed to Lebenthal Asset
Management, Inc.
++ If the Investment Manager had not waived fees and reimbursed expenses and
the Administrator and Distributor had not waived fees, the ratio of
operating expenses to average net assets would have been 3.20%, 4.13%, and
4.83% for the periods ended November 30, 1996, 1995 and 1994, respectively,
for the New Jersey Bond Fund; and 1.63%, 2.59%, and 3.60% for the periods
ended November 30, 1996, 1995 and 1994, respectively, for the Taxable Bond
Fund.
* Fund commenced operations on December 1, 1993.
** Includes fees paid indirectly of 0.03% and 0.01% for the New Jersey Bond
Fund and Taxable Bond Fund, respectively.
-4-
467596.1
<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-
467596.1
<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 outlines the investment objectives, policies and risks 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-
467596.1
<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, 1996, the annual portfolio turnover rate was 45.92%, 28.56%
and 44.46% 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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<PAGE>
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, 1997.
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, 1996 was $3.688 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 $5.243 billion as of June 30, 1996.
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, 1996 manager,
adviser or supervisor with respect to assets aggregating in excess of
$176,125,595. 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 25 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:
<TABLE>
<CAPTION>
Sales Charge Dealer Discount
as % of as % of
Amount of Purchase Sales Load Net Amount Invested Offering Price
<S> <C> <C> <C>
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 and over ......................... None None .25%
</TABLE>
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. The minimum initial investment of $1,000 and the minimum subsequent
investment of $100 will be waived.
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, load, 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 offered a
0.50% discount off the applicable sales load set forth in the preceeding sales
load schedule for single investments of at least $1,000. For example, an
investor purchasing shares in the amount of$10,000 will be charged a reduced
sales load of 4.00% and an investor purchasing shares in the amount of $100,000
will be charged a reduced sales load of 3.00%. 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.
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<PAGE>
Bond Holders. Investors holding municipal bonds held in a Lebenthal & Co. Inc.
account may elect to invest dividends and distributions earned on such bonds in
shares of the Fund at net asset value (i.e without the imposition of a sales
load). The minimum initial investment of $1,000 and the minimum subsequent
investment of $100 will be waived.
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 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
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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:
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.
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<PAGE>
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
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# 01100028 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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467596.1
<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
includable 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 New Jersey Portfolio 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 New
Jersey Portfolio, assuming that the New Jersey Portfolio constitutes a qualified
investment fund and that the New Jersey Portfolio complies with the reporting
obligations under New Jersey law with respect to qualified investment funds, (a)
distributions paid by the New Jersey Portfolio 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 New Jersey Portfolio 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
New Jersey Portfolio 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
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of holders or 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 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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<PAGE>
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 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. We
can't predict future yields and returns for any investment. 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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467596.1
<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.
<TABLE>
<CAPTION>
Lebenthal New York Municipal Bond Fund
Sales Sales
Aggregate Amount Load Aggregate Amount Load
<S> <C> <C> <C>
|_| $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%
</TABLE>
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
___________________________ ___________________
Shareholder Name Account Number
-30-
467596.1
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120 Broadway, New York, NY 10271
LEBENTHAL (212) 425-6116
FUNDS, INC. OUTSIDE NYC TOLL FREE 1-800-221-5822
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1997
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 31, 1997, 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.
<TABLE>
<CAPTION>
Table of Contents
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
The Portfolios and Their Objectives...........................2 Net Asset Value.....................................26
Investment Objectives, Policies and Fund Performance....................................26
Risks of the New York and New Jersey Portfolios...........2 Manager ............................................28
Investment Objectives, Policies Management of the Fund..............................30
and Risks of the Taxable Portfolio........................3 Distribution and Service Plans......................31
Description of the Portfolios' Description of Common Stock.........................33
Investment Securities.....................................4 Federal Income Taxes................................37
Municipal Obligations.....................................4 New York Income Taxes...............................37
Floating Rate and Variable Rate Securities................6 New Jersey Income Taxes.............................37
When-Issued Securities....................................6 Custodian, Transfer Agent and
Stand-by Commitments......................................6 Dividend Agent....................................37
Taxable Securities........................................7 Description of Security Ratings
Repurchase Agreements.....................................8 and Notes.........................................38
New York Risk Factors.......................................8 Advertising Material..................................
New Jersey Risk Factors....................................14 Tax Equivalent Yield Tables...........................
Investment Restrictions......................................24 Independent Auditor's Report..........................
Portfolio Transactions.......................................25 Financial Statements..................................
How to Purchase and Redeem Shares............................26
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</TABLE>
<PAGE>
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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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467599.1
<PAGE>
- --------------------------------------------------------------------------------
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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467599.1
<PAGE>
- --------------------------------------------------------------------------------
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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467599.1
<PAGE>
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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 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
- --------------------------------------------------------------------------------
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467599.1
<PAGE>
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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.
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
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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.
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
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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 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
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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 printing.
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. 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.
After noticeable improvements in the City's economy during calendar year 1994,
economic growth slowed in calendar year 1995, and the City's current four-year
financial plan assumes that moderate economic growth will continue through
calendar year 2000.
For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. 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 New York State Financial Emergency Act for the City of New York,
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's current four-year financial plan projects
substantial budget gaps for each of the 1998 through 2000 fiscal years, before
implementation of the proposed gap- closing program contained in the current
financial plan. The City is required to submit its financial plans to review
bodies, including the New York State Financial Control Board ("Control Board").
The City depends on State aid both to enable the City to balance its budget and
to meet its cash requirements. The State's 1995-1996 Financial Plan projects a
balanced General Fund. 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. In addition, the Federal Budget negotiation
process could result in a reduction in or a delay in the receipt of Federal
grants which could have additional adverse effects on the City's cash flow or
revenues.
The Mayor is responsible for preparing the City's four-year financial plan,
including the city's current financial plan for the 1997 through 2000 fiscal
years (the "1997-2000 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 personnel and other cost reduction initiatives, which may require in
certain cases the cooperation of the City's municipal unions, the ability of the
New York City Health and Hospitals Corporation ("HHC") and the Board of
Education ("BOE") to take actions to offset reduced revenues, the ability to
complete revenue generating transactions and provision of State and Federal aid
and mandate relief and the impact on City revenues of proposals for Federal and
State welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the Financial Plan is also dependent upon the City's ability
to market its securities successfully. The City's financing program for fiscal
years 1997 through 2000 contemplates the issuance of $9.0 billion of general
obligations bonds and $3.8 billion of bonds to be issued by the proposed New
York City Infrastructure Finance Authority ("Finance Authority") to finance City
capital projects. The creation of Finance Authority, which is subject to the
enactment of State legislation, is being proposed
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as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur, Indebtedness subject to the constitutional debt
limit includes liability on capital contracts that are expected to be funded
with general obligation bonds, as well as general obligation bonds. The City's
projections of total debt subject to the general debt limit that would be
required to be issued to fund the Updated Ten-Year Capital Strategy published in
April 1995 indicates that projected contracts for capital projects and debt
issuance may exceed the general debt limit by the end of fiscal year 1997 and
would exceed the general debt limit by a substantial amount thereafter, unless
legislation is enacted creating the Financing Authority or other legislative
initiatives are identified and implemented. Depending on the number of factors,
including whether the Legislature is expected to enact legislation creating the
Finance Authority or to take other action that would provide relief under the
general debt limit, the City may find it necessary to curtail its currently
defined capital program before the end of fiscal year 1997 to ensure that there
is ongoing capacity to enter capital contracts necessary to preserve projects
designed to safeguard health and safety in the City. Without the Finance
Authority or other legislative relief, the City's general obligation financed
capital program with respect to new projects would be virtually brought to a
halt during the Financial Plan period. General obligation borrowing would
continue to reimburse the City's general fund for ongoing costs of existing
contractual commitments. 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 and Finance Authority
bonds 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 or bonds of the proposed Finance Authority,
it would be prevented from meeting its planned capital and operating
expenditures. Future developments concerning the City and public discussion of
such developments, as well as prevailing market conditions, may affect the
market for outstanding City general obligation bonds and notes.
On November 14, 1996, the City submitted to the Control Board the Financial Plan
for the 1997 through 2000 fiscal years, which relates to the City, the BOE and
the City University of New York ("CUNY"). The Financial Plan is a modification
to the financial plan submitted to the Control Board on June 21, 1996 (the "June
Financial Plan").
The June Financial Plan identified actions to close a previously projected gap
of approximately $2.6 billion for the 1997 fiscal year. The proposed actions in
the June Financial Plan for the 1997 fiscal year included (i) agency actions
totaling $1.2 billion; (ii) a revised tax reduction program which would increase
projected tax revenues by $369 million due to the four year extension of the
12.5% personal income tax surcharge and other actions; (iii) savings resulting
from cost containment in entitlement programs to reduce City expenditures and
additional proposed State aid of $75 million; (iv) the assumed receipt of
revenues relating to rent payments for the City's airports, which are currently
the subject of a dispute with the Port Authority of New York and New Jersey (the
"Port Authority"); (v) the sale of the City's television station for $207
million; and (vi) pension costs savings totaling $134 million resulting from a
proposed increase in the earnings assumption for pension assets from 8.5% to
8.75%.
The 1997-2000 Financial Plan published on November 14, 1996 reflects actual
receipts and expenditures and changes in forecast revenues and expenditures
since the June Financial Plan. The 1997-2000 Financial Plan projects revenues
and expenditures for 1997 fiscal year balanced accordance with GAAP, and
projects gaps of $1.2 billion, $2.1 billion and $3.0 billion for the 1998, 1999
and 2000 fiscal years, respectively. Changes since the June Financial Plan
include (i) an increase in projected tax revenues of $450 million, $120 million,
$50 million and $45 million in fiscal years 1997 through 2000, respectively;
(ii) a delay in the assumed receipt of $304 million relating to projected rent
payments for the City airports from the 1997 fiscal year to the 1998 and 1999
fiscal years, and a $34 million reduction in assumed State and Federal aid for
the 1997 fiscal year; (iii) an approximately $200 million increase in projected
overtime and other expenditures in each of the fiscal years 1997 through 2000;
(iv) a $70 million increase in expenditures for BOE in the 1997 fiscal year for
school text books; (v) a reduction in projected pension costs of $34 million,
$50 million, $49 million and $47 million in fiscal years 1997 through 2000,
respectively; and (vi) additional agency actions totaling $179 million, $386
million, $473 million and $589 million in fiscal years 1997 through 2000,
including personnel reductions through attrition and early retirement.
The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 12.5% personal income tax surcharge, which
is projected to provide revenue of $170 million, $463 million, $492 million, and
$521 million, in the 1997 through 2000 fiscal years, respectively; (ii)
collection of the projected rent payments for the City's airports, totalling
$270 million and $180 million in the 1998 and 1999 fiscal years, respectively,
which may depend on the successful completion of negotiations with the Port
Authority or the enforcement of the City's rights under the existing leases
thereto through pending legal actions; (iii) the ability of HHC and BOE to
identify actions to offset substantial City and State revenue reductions and the
receipt by BOE of additional State aid; (iv) State approval of the cost
containment initiatives and State aid proposed by the City; and (v) a reduction
in City funding for labor settlements for certain public authorities or
corporations. Legislation extending the 12.5% personal income tax surcharge
beyond December 31, 1996, was not enacted in the special legislative session
held in December 1996. Such legislation may be enacted in the 1997 State
Legislative Session. The Financial Plan does not reflect any increased costs
which the City might incur as a result of welfare legislation recently enacted
by Congress or legislation proposed by the
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Governor, which would, if enacted, implement such Federal welfare legislation.
In addition, the economic and financial condition of the City may be affected by
various financial, social, economic and political factors which could have a
material effect on the City.
In January 1997, the Mayor is expected to publish a modification (the "January
Modification") to the financial plan for the City's 1997 through 2001 fiscal
years and a preliminary budget for the City's 1998 fiscal year. The January
Modification will reflect changes since the Financial Plan, including the City's
program to address the currently forecast gap of approximately $1.2 billion in
the 1998 fiscal year. The gap-closing program, as proposed in the Financial
Plan, is currently being further developed and is subject to change in
connection with the January Modification. The Governor released the 1997-1998
Executive Budget on January 14, 1997, which will be considered for adoption by
the State Legislature. Based on a preliminary evaluation of currently available
information, the City's Office of Management and Budget ("OMB") believes that
the reductions in Medicaid reimbursement rates and other entitlement and welfare
initiatives proposed in the 1997-1998 Executive Budget, if approved by the State
Legislature without change, would provide the City with a portion of the $650
million of additional aid and reductions in entitlement costs assumed in the
City's gap-closing program for the 1998 fiscal year. OMB expects that the
January Modification will reflect additional initiatives proposed by the City
relating to reductions in entitlement costs and additional intergovernmental
aid, which would be dependent upon State legislative approval. Certain proposed
cost containment and other initiatives have been previously considered and
rejected by the State Legislature. The nature and extent of the impact on the
City of the State budget, when adopted, is uncertain, and no assurance can be
given that the State actions included in the State adopted budget may not have a
significant adverse impact on the City's budget and its Financial Plan. It can
be expected that the proposals contained in the January Modification to close
the projected budget gap for the 1998 fiscal year will engender substantial
public debate which will continue through the time the budget is scheduled to be
adopted in June 1997.
The City's financial plans have been the subject of extensive public comment and
criticism. On July 16, 1996, the staff of the City Comptroller issued a report
on the June Financial Plan. The report concluded that the City's fiscal
situation remains serious, and that the City faces budgetary risks of
approximately $787 million to $941 million for the 1997 fiscal year, which
increase to $4.16 billion to $4.31 billion for fiscal year 2000.
The projections for the 1997 through 2000 fiscal years reflect the costs of the
settlements with the United Federation of Teachers ("UFT") and a coalition of
unions headed by District Council 37 of the American Federation of State, County
and Municipal Employees, which together represent approximately two-thirds of
the City's workforce, and assume that the City will reach agreement with its
remaining municipal unions under terms which are generally consistent with such
settlements. The settlement provides for a wage freeze in the first two years,
followed by a cumulative effective wage increase of 11% by the end of the five
year period covered by the proposed agreements, ending in fiscal years 2000 and
2001. Additional benefit increases would raise the total cumulative effective
increase to 13% above present costs. Costs associated with similar settlements
for all City-funded employees would total $49 million, $459 million and $1.2
billion in the 1997, 1998 and 1999 fiscal years, respectively, and exceed $2
billion in each fiscal year after the 1999 fiscal year. There can be no
assurance that the City will reach an agreement with the unions that have not
yet reached a settlement with the City on the terms contained in the Financial
Plan.
In the event of a collective bargaining impasse, the terms of wage settlements
could be determined through statutory impasse procedures, which can impose a
binding settlement except in the case of collective bargaining with the UFT,
which may be subject to non-binding arbitration. On January 23, 1996, the City
requested the Office of Collective Bargaining to declare an impasse against the
Patrolmen's Benevolent Association and the Uniformed Firefighters Association.
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.
On March 1, 1996, Moody's stated that the rating for City general obligation
bonds remains under review pending the outcome of the adoption of the City's
budget for the 1997 fiscal year, and, in light of the status of the debate on
public assistance and Medicaid reform; the enactment of a State budget, upon
which major assumptions regarding State aid are dependent, which may be
extensively delayed; and the seasoning of the City's economy with regard to its
strength and direction in the face of a potential national economic slowdown.
Since July 15, 1993, Fitch has rated City bonds A-. On February 28, 1996, Fitch
placed the City's general obligation bonds on FitchAlert with negative
implications. On November 5, 1996, Fitch removed the City's general obligation
bonds from FitchAlert, although Fitch stated that the outlook remains negative.
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New York State and its Authorities. The State's current fiscal year commenced on
April 1, 1996, and ends on March 31, 1997, and is referred to herein as the
State's 1996-97 fiscal year. The State's budget for the 1996-97 fiscal year was
enacted by the Legislature on July 13, 1996, more than three months after the
start of the fiscal year. The State Financial Plan for the 1996-97 fiscal year
was formulated on July 25, 1996 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor, as well as actual results
for the first quarter of the current fiscal year. The State's prior fiscal year
commenced on April 1, 1995, and ended on March 31, 1996, and is referred to
herein as the State's 1995-96 fiscal year.
The State closed projected budget gaps of $5.0 billion and $3.9 billion for its
1995-96 and 1996-97 fiscal years, respectively. The 1997-98 gap was projected at
$1.44 billion, based on the Governor's proposed budget of December 1995. As a
result of changes made in the enacted budget, that gap is now expected to be
larger. The gap, however, is not expected to be as large as those faced in the
prior two fiscal years. The Governor has indicated that he will propose to close
any potential imbalance primarily through General Fund expenditure reductions
and without increases in taxes or deferrals of scheduled tax reductions.
The 1996-97 State Financial Plan is projected to be balanced on a cash basis. As
compared to the Governor's proposed budget as revised on March 20, 1996, the
State's adopted budget for 1996-97 increases General Fund spending by $842
million, primarily from increases for education, special education and higher
education ($563 million). The balance represents funding increases to a variety
of other programs, including community projects and increased assistance to
fiscally distressed cities. Resources used to fund these additional expenditures
include $540 million in increased revenues projected for 1996-97 based on
higher-than-projected tax collections during the first half of calendar 1996,
$110 million in projected receipts from a new State tax amnesty program, and
other resources including certain non-recurring resources. The total amount of
non-recurring resources included in the 1996-97 State budget is projected by the
State Division of the Budget ("DOB") to be $1.3 billion, or 3.9 percent of total
General Fund receipts.
The State issued its first update to the cash-basis 1996-97 State Financial Plan
(the "Mid-Year Update") on October 25, 1996. The Mid-Year Update reflects a
balanced 1996-97 State Financial Plan, with a reserve for contingencies in the
General Fund of $300 million. This reserve will be utilized to help offset a
variety of potential risks and other unexpected contingencies that the State may
face during the balance of the 1996-97 fiscal year.
The State Financial Plan is based on a June 1996 projection by DOB of national
and State economic activity. The national economy has resumed a more robust rate
of growth after a "soft landing" in 1995, with over 11 million jobs added
nationally since early 1992. The State economy has continued to expand, but
growth remains somewhat slower than in the nation. Although the State has added
approximately 240,000 jobs since late 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.
Government downsizing has also moderated these job gains.
In its Mid-Year Update the State revised its forecast of national and State
economic activity through the end of calendar year 1997 to reflect the
stronger-than-expected growth in the first halt of 1996. The national economic
forecast has been changed slightly from the initial forecast on which the
original 1996-97 State Financial Plan was based. The revised forecast projects
real Gross Domestic Product growth in the nation of 2.5 percent for 1996 and 2.4
percent in 1997. The inflation rate is expected to be 3.0 percent in 1996 and
2.9 percent in 1997. The annual rate of job growth is expected to slow gradually
to about 1.8 percent in 1997, down from 2.2 percent in 1996. Growth in personal
income and wages are expected to slow accordingly.
The State economic forecast has been changed slightly from the one formulated
with the July 1996-97 State Financial Plan. Moderate growth is projected to
continue through the second half of 1996, with employment, wages and incomes
continuing their modest rise. Personal income is projected to increase by 5.2
percent in 1996 and 4.7 percent in 1997, reflecting robust projected wage growth
fueled in part by financial sector bonus payments. Overall employment growth
will continue at a modest rate, reflecting the slowdown in the national economy,
continued spending restraint in government, and restructuring in the health care
and financial sectors.
The forecast for continued moderate growth, and any resultant impact on the
State's 1996-97 Financial Plan, contains some uncertainties.
Stronger-than-expected gains in employment could lead to a significant
improvement in consumption spending. Investments could also remain robust.
Conversely, the prospect of a continuing deadlock on federal budget deficit
reduction or fears of excessively rapid economic growth could create upward
pressures on interest rates. In addition, the State economic forecast could over
or underestimate the level of future bonus payments or inflation growth,
resulting in forecasted average wage growth that could differ significantly from
actual growth. Similarly, the State forecast could fail to correctly account for
expected declines in government and banking employment and the direction of
employment change that is likely to accompany telecommunications deregulation.
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The 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 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. Because of the uncertainty and unpredictability of changes
in these factors, their impact cannot be fully included in the assumptions
underlying the State's projections. There can be no assurance that the State
economy will not experience results that are worse than predicted, with
corresponding material and adverse effects on the State's financial projection.
The General Fund is the principal 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 1996-97 fiscal year, the General Fund is expected to account for
approximately 47 percent of total governmental-fund receipts and 71 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.
The General Fund is projected to be balanced on a cash basis for the 1996-97
fiscal year. Actual receipts through the first two quarters of the 1996-97 State
fiscal year reflect stronger-than-expected growth in most taxes, with actual
receipts exceeding expectations by $276 million. Based on the revised economic
outlook and actual receipts for the first six months of 1996-97, projected
General Fund receipts for the 1996-97 State fiscal year have been increased by
$420 million. Most of this projected increase is in the yield of the personal
income tax ($241 million), with additional increases now expected in business
taxes ($124 million) and other tax receipts ($49 million). Projected collections
from user taxes and fees have been revised downward slightly ($5 million).
Revisions were also made to both miscellaneous receipts and in transfers from
other funds (an $11 million combined projected increase).
Disbursements through the first six months of the fiscal year were $415 million
less than projected, primarily because of delays in processing payments
following delayed enactment of the State budget. As a result, no savings are
included in the Mid-Year Update from this slower-than-expected spending.
Projections of 1996-97 General Fund disbursements are increased by $120 million,
since increased General Fund disbursements for education are required to replace
a projected decrease in lottery receipts. This modification is shown in the form
of an increased transfer of General Fund monies to the Lottery Fund in the
Special Revenue fund type. The projected closing fund balance in the General
Fund of $337 million reflects a balance of $252 million in the Tax Stabilization
Reserve Fund (following a payment of $15 million during the current fiscal year)
and a deposit of $85 million to the Contingency Reserve Fund.
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 August 5, 1996,
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 Baal. On July 26, 1996, Moody's reconfirmed its A rating on the
State's general obligation long-term indebtedness.
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. While
the ultimate outcome and fiscal impact, if any, on the State of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the State's ability to
maintain a balanced 1996-97 State Financial Plan.
The claims involving the City other than routine litigation incidental to the
performance of their governmental and other functions and certain other
litigation arise out of alleged constitutional violations, torts, breaches of
contract and other violations of law and condemnation proceedings. While the
ultimate outcome and fiscal impact, if any, on the City of those proceedings and
claims are not currently predictable, adverse determinations in certain of them
might have a material adverse effect upon the City's ability to carry out the
1997-2000 Financial Plan. The City has estimated that its potential future
liability on account of outstanding claims against it as of June 30, 1996
amounted to approximately $2.8 billion.
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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 1,071 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 selective
commercial agriculture. Historically, New Jersey's average per capita income has
been well above the national average, and in 1995 the State ranked second among
the states in per capita personal income ($29,848).
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 6.1% for the
four-month period from May 1996 through August 1996.
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, 1996, there was a total authorized bond indebtedness of
approximately $10.007
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billion, of which $3.68 billion was issued and outstanding, $4.76 billion was
retired (including bonds for which provision for payment has been made through
the sale and issuance of refunding bonds) and $1.55 billion was unissued. The
appropriation for debt service obligation for such outstanding indebtedness is
$446.9 million for Fiscal Year 1997. 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 $352.6 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
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. There are presently $550 million of tax and revenue anticipation notes
outstanding. These notes shall mature on June 13, 1997. 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 and 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 (the "EDA"), as lessor to lease (i) office
buildings that house the New Jersey Division of Motor Vehicles, New Jersey
Network (the State's public television station), 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. In addition, in December 1995, the State entered into lease agreements,
as lessee, with the EDA, as lessor, to lease (i) an office building and (ii)
certain energy saving equipment which shall be installed in various buildings
used by the State. The State has also, in July 1996, entered into a lease
agreement, as lessee, with the EDA, as lessor, to lease the New Jersey
Performing Arts Facility 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 (the "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 and dependent upon 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, services 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.
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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 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, 1996:
<TABLE>
<CAPTION>
Maximum Annual Debt Service
Outstanding Subject to Moral Obligation
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<S> <C> <C>
New Jersey Housing and Mortgage $408,960,591.18 $37,344,151.04
Finance Agency
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South Jersey Port Corporation 81,260,000.00 7,365,446.25
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Higher Education Assistance 98,991,064.00 12,829,640.45
Authority ---------------------- -----------------------
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$589,211,655.18 $57,539,237.74
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</TABLE>
Higher Education Assistance Authority. The Higher Education Assistance Authority
("HEAA") has issued $112,996,064 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 1996, the State has made appropriations
totalling $24,143,521.25 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 (the "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, 1996 there were approximately $463,310,000
aggregate principal amount of Sports Authority bonds outstanding the debt
service on which is payable from amounts under the State Contract.
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New Jersey Transportation Trust Fund Authority. In July 1984, New Jersey created
the New Jersey Transportation Trust Fund Authority (the "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 (the "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 appropriations.
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 prior fiscal years.
These bonds are special obligations of the TTFA payable from the payments made
by New Jersey pursuant to the Contract.
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 (the "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
$705,270,000 aggregate principal amount of Market Transition Facility Senior
Lien Revenue Bonds. The EDA and the New Jersey 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 New Jersey 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 New Jersey 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 fails to adopt 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.
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The Local Government Cap Law (N.J.S.A. 4OA: 4-45.1 et seq.) (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. 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 with the approval of the Local Finance
Board 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.
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; (ii) authorized by a public body, other than the local unit 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. In September 1996, the Township of Irvington requested supervision
which was approved by the Local Finance Board and is expected to continue for at
least one year.
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
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December 31, 1995. 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-15 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 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 must determine the amount necessary to be
appropriated for each item appearing in such budget. Should the governing body
fail to certify an amount determined by the board of education to be necessary,
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.
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. (the "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
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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
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) (the "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, 1996 consisted of $208,642,750 by various school districts and
$899,586,220 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
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thereof or pay the holders thereof the interest due or to become due. At June
30, 1996, the book value of the Fund's assets aggregated $88,816,968 and the
reserve, computed as of June 30, 1996, amounted to $40,363,607. 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 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,
1995, there were 195 locally created authorities with a total outstanding
capital debt of $7.14 billion (figures do not include housing authorities and
redevelopment agencies). This amount reflects outstanding bonds, notes and loans
payable by the authorities as of their respective fiscal years ended nearest to
June 30, 1995.
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 1997 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 filed a motion for reconsideration or, in the
alternative, for certification to the Third Circuit Court of Appeals, of the
remaining claims. By order dated December 19, 1995, the District Court denied
the motion in all respects. On January 29, 1996, the State, on behalf of
Treasurer Clymer, filed a Petition for a Writ of Mandamus and a Motion for a
Stay of the Proceedings below, pending consideration and disposition of the
petition, with the Third Circuit Court of Appeals. In the petition, Treasurer
Clymer asked the Court of Appeals to direct the District Court to dismiss the
complaint or enter summary judgment in his favor. Alternatively, the Treasurer
asked the Court of Appeals to order the District Court to vacate its order
denying summary judgment and resolve that motion as a matter of law without
discovery or fact finding or to certify the issues for interlocutory appeal. The
Third Circuit Court of Appeals denied the motion and petition on February 20,
1996. Discovery is proceeding in this matter. The State intends to vigorously
defend this action.
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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.
Because the Commission has been abolished by L. 1995, c. 133, and its
responsibilities assigned to the Department of Health, the Department of Health
held the hearing on August 30, 1995. By letters dated March 26, 1996, the
Department of Health affirmed the prior assessments. The hospitals filed a
notice of appeal challenging that decision on May 10, 1996. The State intends to
vigorously defend this action.
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 $86.7 million for tort and medical
malpractice claims pending as of June 30, 1996. 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 New Jersey Department of
Environmental Protection ("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.
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
contended 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 the counties their portion of disproportionate share hospital
payments. The State also contended that the Legislature did not intend to share
the federal funding with the counties as evidenced by appropriations act
language. 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
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.
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A motion to consolidate or calendar these matters back to back was made by the
State. 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.
The court heard oral argument on May 30, 1996. On July 15, 1996, a three-judge
panel of the Appellate Division ruled unanimously in favor of the State. Finding
no federal requirement compelling the State to share these monies, the Court
agreed with the State's position that the Legislature may determine to
appropriate these funds to the General Fund and therefore the county had no
State law claim to share in them. Of the fourteen appellant counties, eight
filed motions for reconsideration, which were denied by order of the Appellate
Division on September 16, 1996, nine have filed Notices of Petition for
Certification to the New Jersey Supreme Court, three have filed Motions for
Extension in which to file Notices of Petition, ten have filed Motions for
Extension in which to file Petitions and eight have filed Notices of Appeal.
Pursuant to an order of the Court, petitions are due by November 15, 1996.
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. 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
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unknown what portion of the A-901 fees are paid by haulers engaged in interstate
commerce, and what percentage of the monies 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.
Abbott v. Burke. On April 19, 1996, the Education Law Center filed a motion in
aid of litigants' rights with the Supreme Court of New Jersey in the Abbott v.
Burke matter. In 1994, the Supreme Court ruled in Abbott v. Burke that the State
had to enact a funding formula that would close the spending gap between poor
urban school districts and wealthy suburban districts by Fiscal Year 1998. The
legislation to do so had to be adopted by September 1996. The Court retained
jurisdiction and required the State to make progress each year toward that goal.
In a motion filed on April 19, 1996, the Education Law Center alleged that there
is "less than a reasonable likelihood" that compliance will be achieved by
Fiscal Year 1998 and asked the Court to order that the State reduce the spending
gap by 50% in Fiscal Year 1997. According to the plaintiffs' calculations, such
an order would have resulted in the need to appropriate an additional
$141,000,000 for the poor urban districts beyond that amount in the Fiscal Year
1997 Appropriations Act. On September 16, 1996, the Court denied the motion and
gave the State until December 31, 1996 to enact new legislation.
Affiliated FM Insurance Company, et al. v. State of New Jersey, et al. The
plaintiffs in this action are insurers licensed or admitted to write property
and casualty insurance in the State of New Jersey pursuant to N.J.S.A. 17:17-1
et seq. and are all members of the New Jersey Property-Liability Insurance
Guaranty Association ("PLIGA"), a private, non-profit organization created to
cover claims against certain insolvent insurers. Plaintiffs have filed suit in
the Superior Court of New Jersey, Chancery Division, Mercer County against the
State of New Jersey, the Commissioner of Banking, the Department of Banking and
Insurance, PLIGA and the State Treasurer. Plaintiffs contend that their
assessments are being used to retire debt of the Market Transition Fund ("MTF").
The plaintiffs argue that they were never members of the MTF, are not
statutorily responsible for its losses, have not agreed to assume its losses and
did not relinquish any right to repayment of loan assessments to PLIGA. Under
the Fair Automobile Insurance Reform Act of 1990 ("FAIRA"), PLIGA is responsible
for assessing and collecting from its member insurers the amounts necessary to
make certain loans to the Auto Guaranty Fund (the "Auto Guaranty Fund"), a
special nonlapsing fund created pursuant to FAIRA. Plaintiffs contend that
assessments dating back to 1990 are in dispute and challenge the
constitutionality of the assessments and legislation which allow the assessments
and request declaratory relief and an order that the monies assessed since 1990
be returned as well as an accounting. The State intends to vigorously defend
this action and has filed a motion to dismiss this case.
CE, et al. v. Fauver, et al. This case is brought as a purported class action
consisting of prisoners with serious mental disorders who are confined within
the facilities of the Department of Corrections (the "Class") against the
Commissioner of the Department of Corrections and other officers of the
Department of Corrections. The Class alleges cruel and unusual punishment,
violation of the Americans with Disabilities Act of 1990, discrimination against
members of the Class, sex discrimination and violation of due process. The suit
was brought by the Class in the United States District Court of the District of
New Jersey. Through this action, the Class seeks injunctive relief in the form
of changes to the manner in which mental health services are provided to
inmates. The Class also seeks changes in the disciplinary process to the extent
that an inmate's mental health is taken into consideration by a hearing officer
when adjudicating a disciplinary charge. Discovery has commenced and is
continuing. The State intends to vigorously defend this action.
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.
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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.
(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
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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.
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
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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,
1996 was 1.79%. The New York Portfolio's average annual compounded total return
from June 24, 1991 (inception) to November 30, 1996 was 7.26%. The New Jersey
Portfolio's total return for the twelve months ended November 30, 1996, was
1.34% and the average annual compounded total return from December 1, 1993
(inception) to November 30, 1996, was 1.77%. The Taxable Portfolio's total
return for the twelve months ended November 30, 1996, was 1.56% and the average
annual compounded total return from December 1, 1993 (inception) to November 30,
1996, was 5.91%.
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, 1996 was 4.54%, 4.88% and 6.80%, 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, 1996 was 8.51% and 8.95%, respectively.
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.
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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, 1996 manager, advisor or supervisor with respect to assets
aggregating in excess of $176,125,595 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 25 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 July 25, 1996 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,
1997, 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, 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, 1996, the fee
payable to the Manager was $266,395, none of which was waived. The New York
Portfolio's net assets at the close of business on November 30, 1996, totaled
$122,611,313. 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. 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 Jersey Portfolio's fiscal year ended November 30, 1996, the fee
payable to the Manager was $10,708, all of which was waived. The New Jersey
Portfolio's net assets at the close of business on November 30, 1996, totaled
$5,182,149. 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, 1996, the fee payable to the Manager was $30,632, all of
which was waived. The Taxable Portfolio's net assets at the close of business on
November 30, 1996, totaled $14,607,185. 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
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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. As a result of the recent passage of the National
Securities Markets Improvement Act of 1996, all state expense limitations have
been eliminated at this time.
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.
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.
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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 the Administrator were as follows: for the New York
Portfolio's fiscal year ended November 30, 1996, the fee payable was $144,407,
none of which was waived, for the New Jersey Portfolio's fiscal year ended
November 30, 1996, the fee payable was $5,398, none of which was waived, for the
Taxable Portfolio's fiscal year ended November 30, 1996, the fee payable was
$15,311, none of which was waived. 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 Jersey Portfolio's fiscal year
ended November 30, 1995, the fee payable was $2,994, all of which was waived,
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, 69 - 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, 59 - 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, 67 - 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, 75 - 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.
Robert R. Godfrey, 49 - 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, 33 - 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, 32 - 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, 46 - 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.
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<PAGE>
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The New York Portfolio, the New Jersey Portfolio and the Taxable Portfolio paid
an aggregate remuneration of $15,014, and $557 and $1,618 to its directors with
respect to the period ended November 30, 1996, 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>
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COMPENSATION TABLE
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<S> <C> <C> <C> <C>
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*
Victor Chang,
Director [$4,000] 0 0 [$4,000]
Donald G. Conrad,
Director [$4,000] 0 0 [$4,000]
Francis P. Gallagher,
Director [$4,000] 0 0 [$4,000]
Robert F. Godfrey, [$4,000] 0 0 [$4,000]
Director
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</TABLE>
* The total compensation paid to such persons by the Fund for the fiscal year
ending November 30, 1996.
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, prepared the audited financial statements for the
fund for the fiscal year ended November 30, 1996.
Coopers & Lybrand L.L.P. 1301 Avenue of the Americas, New York, NY 10019,
independent public accountants, have been selected as auditors for the Fund.
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.
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467599.1
<PAGE>
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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 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 24, 1996 to be effective until November 30, 1997. 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, 1996, the total
amount spent pursuant to the Plan was $108,548 all 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 $100,282 on compensation to sales personnel and $4,856 on advertising
and $3,410 on Prospectus printing. For the New York Portfolio's fiscal year
ended November 30, 1995, the total amount spent pursuant to the Plan was $69,789
all 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
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.
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.
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467599.1
<PAGE>
- --------------------------------------------------------------------------------
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 24, 1996 to be effective until November 30, 1997. 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, 1996, the total
amount spent pursuant to the Plan was $11,494, 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 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 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, 1996, the total amount spent pursuant to the Plan was $53,012, 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
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467599.1
<PAGE>
- --------------------------------------------------------------------------------
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, 1997, there were 15,246,350, 778,273 and 2,016,946 shares
outstanding of the New York Portfolio, the New Jersey Portfolio and the Taxable
Portfolio respectively. As of February 28, 1997, 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.
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
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467599.1
<PAGE>
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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.
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
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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 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.
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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 New Jersey Portfolio 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 New
Jersey Portfolio, assuming that the New Jersey Portfolio constitutes a qualified
investment fund and that the New Jersey Portfolio complies with the reporting
obligations under New Jersey law with respect to qualified investment funds, a)
distributions paid by the New Jersey Portfolio 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 New Jersey Portfolio 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
New Jersey Portfolio in their own states and localities.
- -------------------------------------------------------------------------------
-37-
467599.1
<PAGE>
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
-38-
467599.1
<PAGE>
- -------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
-39-
467599.1
<PAGE>
- -------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
-40-
467599.1
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
-41-
467599.1
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
-42-
467599.1
<PAGE>
- -------------------------------------------------------------------------------
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 a quantity 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 own 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.
- -------------------------------------------------------------------------------
-43-
467599.1
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Lebenthal New York Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELD TABLE
(New York State and Federal)
- ------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Single $24,651 59,571 124,651 271,051
Return 59,750 124,650 271,050 and over
- ------------------------------------------------------------------------------------------------------------
Joint 41,201 99,601 151,751 271,051
Return 99,600 151,750 271,050 and over
- ------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ------------------------------------------------------------------------------------------------------------
Federal 28.00% 31.00% 36.00% 39.60%
Tax Rate
- ------------------------------------------------------------------------------------------------------------
State 6.85% 6.85% 6.85% 6.85%
Tax Rate
- ------------------------------------------------------------------------------------------------------------
Combined 32.93% 35.73% 40.38% 43.74%
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
- ------------------------------------------------------------------------------------------------------------
4.75% 7.08% 7.39% 7.97% 8.44%
- ------------------------------------------------------------------------------------------------------------
5.00% 7.46% 7.78% 8.39% 8.89%
- ------------------------------------------------------------------------------------------------------------
5.25% 7.83% 8.17% 8.81% 9.33%
- ------------------------------------------------------------------------------------------------------------
5.50% 8.20% 8.56% 9.23% 9.78%
- ------------------------------------------------------------------------------------------------------------
5.75 8.57% 8.95% 9.64% 10.22%
- ------------------------------------------------------------------------------------------------------------
6.00% 8.95% 9.34% 10.06% 10.67%
- ------------------------------------------------------------------------------------------------------------
</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.
- -------------------------------------------------------------------------------
467599.1
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Lebenthal New York Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELD TABLE
(Federal, New York State and New York City)
- -----------------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Single $24,651 25,001 50,001 59,751 124,651
Return 25,000 50,000 59,750 124,650 271,050
- -----------------------------------------------------------------------------------------------------------------------------------
Joint 41,201 45,001 90,000 99,601 151,751
Return 45,000 90,000 99,600 151,750 271,050
- -----------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- -----------------------------------------------------------------------------------------------------------------------------------
Federal 28.00% 28.00% 28.00% 31.00% 36.00%
Tax Rate
- -----------------------------------------------------------------------------------------------------------------------------------
State 6.85% 6.85% 6.85% 6.85% 6.85%
Tax Rate
- -----------------------------------------------------------------------------------------------------------------------------------
City 3.76% 3.82% 3.88% 3.88% 3.88%
Tax Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Combined 35.64% 35.68% 35.73% 38.40% 42.87
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
- -----------------------------------------------------------------------------------------------------------------------------------
4.75% 7.38% 7.39% 7.39% 7.71% 8.31%
- -----------------------------------------------------------------------------------------------------------------------------------
5.00% 7.77% 7.77% 7.78% 8.12% 8.75%
- -----------------------------------------------------------------------------------------------------------------------------------
5.25% 8.16% 8.16% 8.17% 8.52% 9.19%
- -----------------------------------------------------------------------------------------------------------------------------------
5.50% 8.55% 8.55% 8.56% 8.93% 9.63%
- -----------------------------------------------------------------------------------------------------------------------------------
5.75% 8.93% 8.94% 8.95% 9.33% 10.07%
- -----------------------------------------------------------------------------------------------------------------------------------
6.00% 9.32% 9.33% 9.34% 9.74% 10.50%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Single 271,051
Return and over
- ---------------------------------------
Joint 271,051
Return and over
- ---------------------------------------
- ---------------------------------------
Federal 39.60%
Tax Rate
- ---------------------------------------
State 6.85%
Tax Rate
- ---------------------------------------
City 3.88%
Tax Rate
- ---------------------------------------
Combined 46.08%
Marginal
Tax Rate
- ---------------------------------------
- ---------------------------------------
Tax Exempt
Yield
- ---------------------------------------
4.75 8.81%
- ---------------------------------------
5.00 9.27%
- ---------------------------------------
5.25 9.74%
- ---------------------------------------
5.50 10.20%
- ---------------------------------------
5.75 10.66%
- ---------------------------------------
6.00 11.13%
- ---------------------------------------
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.
467599.1
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Lebenthal New Jersey Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELD TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Single $24,651 -- 35,001 40,001 59,751 75,001
Return 35,000 -- 40,000 59,750 75,000 124,650
- ---------------------------------------------------------------------------------------------------------------------------------
Joint 41,201 50,001 70,001 80,001 99,601 150,001
Return 50,000 70,000 80,000 99,600 150,000 151,750
- ---------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ---------------------------------------------------------------------------------------------------------------------------------
Federal 28.00% 28.00% 28.00% 28.00% 31.00% 31.00%
Tax Rate
- ---------------------------------------------------------------------------------------------------------------------------------
State 1.75% 2.45% 3.500% 5.53% 5.53% 6.37%
Tax Rate
- ---------------------------------------------------------------------------------------------------------------------------------
Combined 29.26% 29.76% 30.52% 31.98% 34.81% 35.40%
Tax Rate
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields . . .
- ---------------------------------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield Required to Match Tax Exempt Yield
Yield
- ---------------------------------------------------------------------------------------------------------------------------------
4.75% 6.72% 6.76% 6.84% 6.98% 7.29% 7.35%
5.00% 7.07% 7.12% 7.20% 7.35% 7.67% 7.74%
5.25% 7.42% 7.47% 7.56% 7.72% 8.05% 8.13%
5.50% 7.78% 7.83% 7.92% 8.09% 8.44% 8.51%
5.75% 8.13% 8.19% 8.28% 8.45% 8.82% 8.90%
6.00% 8.48% 8.54% 8.64% 8.82% 9.20% 9.29%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------
- --------------------------------------------
Single 24,651 271,051
Return 71,050 and over
- --------------------------------------------
Joint 51,751 271,051
Return 71,050 and over
- --------------------------------------------
- --------------------------------------------
Federal 6.00% 39.60%
Tax Rate
- --------------------------------------------
State 6.37% 6.37%
Tax Rate
- --------------------------------------------
Combined 0.08% 43.45%
Tax Rate
- --------------------------------------------
- --------------------------------------------
3. Now Com
- --------------------------------------------
Tax Exempt
Yield
- --------------------------------------------
4.75% 7.93% 8.40%
5.00% 8.34% 8.84%
5.25% 8.76% 9.28%
5.50% 9.18% 9.73%
5.75% 9.60% 10.17%
6.00% 10.01% 10.61%
- --------------------------------------------
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.
- --------------------------------------------------------------------------------
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, 1996, and the related
statements of operations, the statements of changes in net assets and the
financial highlights for each of the periods indicated in the accompanying
financial statements. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights 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 financial
highlights 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, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
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, 1996, the results of their operations, the changes in their
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
New York, New York
January 10, 1997
<PAGE>
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ---------- ------- --------
MUNICIPAL BONDS (92.60%)
- -------------------------------------------------------------------------------
$ 1,285,000 Monroe County, New York IDA Civic
Facility (DePaul Community Facility),
6.50%, due 02/01/24,
(SONYMA Insured) $1,367,484 Aa
2,290,000 New York, New York - Series C,
General Obligation, 7.25%,
due 08/15/24 2,482,681 Baa1 BBB+
2,400,000 New York State Dormitory Authority,
7.40%, due 08/01/30, (FHA Insured) 2,698,776 Aa AAA
7,210,000 New York State Dormitory Authority
(Highlands Center),
6.60%, due 02/01/34, (FHA Insured) 7,747,649 AA
2,330,000 New York State Dormitory Authority
(Presbyterian Residential Community),
6.50%, due 08/01/34, (FHA Insured) 2,479,376 AA
750,000 New York State Dormitory Authority
(State University Educational
Facilities), 7.00%, due 05/15/16 807,023 Baa1 BBB+
3,900,000 New York State Dormitory Authority
(Nottingham Retirement Community),
6.125%, due 07/01/25,
(SONYMA Insured) 4,036,461 Aa
3,500,000 New York State Dormitory Authority
(Jewish Geriatric - Long Island),
7.35%, due 08/01/29, (FHA Insured) 3,974,985 AAA
5,190,000 New York State Dormitory Authority
(Niagara Frontier Home),
6.40%, due 02/01/35, (FHA Insured) 5,499,895 AA
4,755,000 New York State Dormitory Authority
(Geneva Nursing Home II),
6.20%, due 08/01/35, (FHA Insured) 4,962,033 AA
3,500,000 New York State Dormitory Authority
(Lakeside Memorial Hospital),
6.00%, due 02/01/21, (FHA Insured) 3,598,910 AAA
3,500,000 New York State Dormitory Authority
(St. Johns Health),
6.25%, due 02/01/36, (FHA Insured) 3,660,090 AA
2,730,000 New York State Dormitory Authority
(Jewish Home of Central New York),
6.25%, due 07/01/25, (MBIA Insured) 2,942,476 Aaa
1,000,000 New York State Dormitory Authority
(Amsterdam Memorial Hospital),
6.00%, due 08/01/35, (FHA Insured) 1,020,270 AAA
2,400,000 New York State Dormitory Authority
(W K Nursing Home Corporation),
6.125%, due 02/01/36, (FHA Insured) 2,487,936 AAA
970,000 New York State Dormitory Authority
(Special Surgery),
6.05%, due 08/01/36, (FHA Insured) 994,405 Aa
3,000,000 New York State Dormitory Authority
(New York Methodist Hospital),
6.05%, due 02/01/34, (AMBAC Insured) 3,137,850 Aaa AAA
1,000,000 New York State Dormitory Authority
(Grace Manor Health Care Facility),
6.15%, due 07/01/18, (SONYMA Insured) 1,031,730 Aa
1,000,000 New York State Dormitory Authority
(St. Lukes Home Residential Health),
6.375%, due 08/01/35, (FHA Insured) 1,051,680 AA
See Notes to Financial Statements.
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ---------- ------- --------
MUNICIPAL BONDS (Continued)
- -------------------------------------------------------------------------------
$ 1,000,000 New York State Energy Research &
Development Authority - Industrial
Development & Pollution Control
(Brooklyn Union and Gas),
6.75%, due 02/01/24, (MBIA Insured) $1,094,640 Aaa AAA
6,000,000 New York State Energy Research &
Development Authority - Electric
Facilities - (Consolidated Edison
Company of New York),
6.75%, due 01/15/27 6,362,040 A1 A+
1,000,000 New York State Energy Research &
Development Authority - Electric
Facilities - (Long Island Lighting),
7.15%, due 02/01/22 1,031,930 Ba1 BB+
500,000 New York State Energy Research &
Development Authority - Pollution
Control - (Niagara Mohawk Power
Corporation),
6.625%, due 10/01/13, (FGIC Insured) 552,610 Aaa AAA
1,750,000 New York State Medical Hospital
Nursing Facilities Finance Agency,
6.60%, due 02/15/31, (FHA Insured) 1,877,803 AAA
1,500,000 New York State Housing Finance
Agency MHRB - Series C,
6.50%, due 08/15/24, (FHA Insured) 1,554,000 Aa AAA
2,000,000 New York State Housing Finance Agency
(Housing Project Meeting - Series A),
6.125%, due 11/01/20, (FSA Insured) 2,053,620 Aaa AAA
2,515,000 New York State Housing Finance
Agency (Multi-family Housing Meeting
- Series C), 6.10%, due 08/15/28,
(SONYMA Insured) 2,543,998 Aa
3,400,000 New York State Housing Finance
Agency (Phillips Village Project -
Series A), 7.75%, due 08/15/17,
(FHA/SONYMA Insured) 3,785,152 A
6,750,000 New York State Medical Care
Facilities Finance Agency - Series B,
6.60%, due 08/15/34, (FHA Insured) 7,249,635 Aa AA
175,000 New York State Medical Care
Facilities Finance Agency, Mental
Health, 7.30%, due 02/15/21 193,452 Baa1 BBB+
5,300,000 New York State Medical Care
Facilities Finance Agency,
6.90%, due 08/15/34,
(AMBAC/FHA Insured) 6,003,045 Aaa AAA
6,950,000 New York State Medical Care
Facilities Finance Agency - Series C,
6.375%, due 08/15/29, (FHA Insured) 7,308,620 Aa AA
500,000 New York State Medical Care
Facilities Finance Agency (New York
Downtown Hospital - Series A),
6.70%, due 02/15/12 519,335 Baa BBB
2,600,000 New York State Medical Care
Facilities Finance Agency
(New York Downtown Hospital -
Series A), 6.80%, due 02/15/20 2,706,027 Baa BBB
2,505,000 New York State Medical Care
Facilities Finance Agency
(Mortgage Project - Series A),
6.50%, due 02/15/35, (FHA Insured) 2,672,234 Aa AA
See Notes to Financial Statements.
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ------------ ------- --------
MUNICIPAL BONDS (Continued)
- -------------------------------------------------------------------------------
$ 2,000,000 New York State Medical Care
Facilities Finance Agency
(Brookdale Hospital Medical Center
- Series A), 6.80%, due 08/15/12 $ 2,105,000 Baa BBB
2,550,000 New York State Medical Care
Facilities Finance Agency
(Brookdale Hospital Medical Center
- Series A), 6.85%, due 02/15/17 2,683,544 Baa BBB
5,000,000 New York State Medical Care
Facilities Finance Agency
(Mortgage Project - Series D),
6.375%, due 02/15/35, (FHA Insured) 5,259,050 Aa AA
TOTAL MUNICIPAL BONDS
(COST $106,400,421) 113,537,445
COMMERCIAL PAPER (0.11%)
- -------------------------------------------------------------------------------
145,000 Ford Motor Credit Company, 5.40%,
due 12/03/96 145,000
(COST $145,000)
Shares
- ----------
CLOSED-END FUNDS (5.39%)
- -------------------------------------------------------------------------------
133,663 Munivest New York Insured Fund 1,595,602
25,853 Muniyield New York Insured Fund 387,795
332,855 Muniyield New York Insured Fund II 4,368,722
10,000 Muniyield New York Insured Fund III 130,000
11,000 Taurus Muni New York Holdings 122,375
TOTAL CLOSED-END FUNDS
(COST $6,510,648) 6,604,494
TOTAL INVESTMENTS (98.10%)
(COST $113,056,069#) 120,286,939
CASH AND OTHER ASSETS, NET OF
LIABILITIES (1.90%) 2,324,374
NET ASSETS (100.00%) $122,611,313
# Aggregate cost for federal income tax purposes is $113,060,233. Aggregate
unrealized appreciation and depreciation, based on cost for federal income tax
purposes, are $7,234,656 and $7,950 respectively, resulting in net unrealized
appreciation of $7,226,706.
KEY:
AMBAC = Ambac Indemnity Corporation FGIC = Federal Guaranty Insurance
Corporation FHA = Federal Housing Administration MBIA = Municipal Bond Insurance
Association MHRB = Multi-family Housing Revenue Bond SONYMA = State of New York
Mortgage Agency
See Notes to Financial Statements.
LEBENTHAL NEW JERSEY MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ---------- ------- --------
MUNICIPAL BONDS (84.62%)
- -------------------------------------------------------------------------------
$ 100,000 Brick Township New Jersey Municipal
Utilities Authority, 5.00%,
due 12/01/16, (FGIC Insured) $ 95,733 Aaa AAA
125,000 Cape May County, New Jersey
Industrial Pollution Control Financing
Authority Atlantic City Electric
Company Project A,
7.20%, due 11/01/29, (MBIA Insured) 145,746 Aaa AAA
70,000 Essex County, New Jersey Import
Authority Orange School District -
Series A, 6.95%, due 07/01/14,
(MBIA Insured) 80,508 Aaa AAA
100,000 Gloucester County New Jersey
Utilities Authority, 5.45%,
due 01/01/24, (MBIA Insured) 99,295 Aaa AAA
100,000 Irvington, New Jersey Housing &
Mortgage Finance Authority, 6.50%,
due 02/01/24, (FHA Insured) 103,470 AAA
300,000 Middlesex County New Jersey Import
Authority, 5.90%, due 9/15/21 306,780 A1 A+
100,000 New Jersey Economic Development
Authority, Economic Development
Revenue - American Airlines Inc.
Project, 7.10%, due 11/01/31 107,544 Baa2 BB+
250,000 New Jersey Economic Development
Authority, Economic Development
Revenue - Bancroft Incorporated
Obligation Group, 6.05%,
due 12/01/25, (Connie Lee Insured) 259,150 AAA
150,000 New Jersey Economic Development
Authority, Economic Development
Revenue Refunding - Burlington
Coat Factory, LOC First Fidelity
Bank, 6.125%, due 09/01/10 158,481 Aa3
150,000 New Jersey Economic Development
Authority, Economic Development
Revenue - W.Y. Urban Holding
Company, LOC NatWest Bank, Jersey
City, 6.50%, due 06/01/15 159,416 A
200,000 New Jersey Economic Development
Authority, Economic Development
Revenue Health Village Project,
LOC First Union, 6.00%,
due 05/01/16 205,462 A+
100,000 New Jersey Economic Development
Authority, Pollution Control
Revenue PSE&G Co. Project, 6.40%,
due 05/01/32, (MBIA Insured) 107,228 Aaa AAA
100,000 New Jersey Economic Development
Authority, Water Facilities Revenue
Project A, 6.875%, due 11/01/34,
(FGIC Insured) 111,122 Aaa AAA
100,000 New Jersey Economic Development
Authority Revenue Sewer Facilities-
Anheuser-Busch Project, 5.85%,
due 12/01/30 100,080 A1 AA-
85,000 New Jersey Health Care Facilities
Financing Authority - Irvington
General Hospital Issue - Series 1994,
6.40%, due 08/01/25, (FHA Insured) 88,344 AAA
See Notes to Financial Statements.
LEBENTHAL NEW JERSEY MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ---------- ------- --------
MUNICIPAL BONDS (Continued)
- -------------------------------------------------------------------------------
$ 125,000 New Jersey Health Care Facilities
Financing Authority - General
Hospital Center at Passaic, 6.75%,
due 07/01/19, (FSA Insured) $ 140,385 Aaa AAA
100,000 New Jersey Health Care Facilities
Financing Authority Revenue Monmouth
Medical Center Issue - Series C,
6.25%, due 7/01/24 (FSA Insured) 106,909 Aaa AAA
150,000 New Jersey Health Care Facilities
Financing Authority Revenue
St. Joseph's Hospital & Medical
Center, 6.00%, due 7/01/26
(Connie Lee Insured) 155,056 AAA
100,000 New Jersey Economic Development
Authority Revenue Economic Growth
- Series D, LOC NatWest Bank,
Jersey City, 6.55%, due 08/01/14 105,634 A
150,000 New Jersey State Education
Facilities Authority - Trenton
State College - Series E, 6.00%,
due 07/01/19, (AMBAC Insured) 155,818 Aaa AAA
100,000 New Jersey State Education
Facilities Authority - New Jersey
Institute Technology Issue -
Series A, 6.00%, due 07/01/24,
(MBIA Insured) 104,668 Aaa AAA
125,000 New Jersey State Housing & Mortgage
Finance Agency MHRB Refunding -
Presidential Plaza, 7.00%,
due 05/01/30, (FHA Insured) 134,336 AAA
300,000 New Jersey State Housing & Mortgage
Finance Agency MHRB Series A, 6.05%,
due 11/01/20, (AMBAC Insured) 307,440 Aaa AAA
100,000 New Jersey State Housing & Mortgage
Finance Agency MHRB Series A, 6.25%,
due 05/01/28 (AMBAC Insured) 102,372 Aaa AAA
125,000 New Jersey State Housing & Mortgage
Finance Agency Revenue Housing -
Series A, HUD Section 8, 6.95%,
due 11/01/13 133,251 A+
150,000 New Jersey State Housing & Mortgage
Finance Agency - Home Buyers -
Series O, 6.35%, due 10/01/27,
(MBIA Insured), Subject to AMT 154,149 Aaa AAA
250,000 New Jersey State Housing & Mortgage
Finance Agency - Home Buyers -
Series Q, 5.875%, due 04/01/17,
(MBIA Insured), Subject to AMT 251,520 Aaa AAA
140,000 Newark, New Jersey Housing Finance
Corporation Mortgage Revenue,
Refunding-HUD Section 8-Manor
Apartments-A, 7.50%, due 02/15/24,
(FHA Insured) 152,753 AAA
100,000 Puerto Rico Housing Bank & Finance
Agency Single Family Mortgage
Affordable Housing Mortgage -
Portfolio I, 6.25%, due 04/01/29,
(GNMA/FNMA/FHLMA Insured),
Subject to AMT 102,282 Aaa AAA
50,000 Salem County, New Jersey Industrial
Pollution Control Financing Authority
Refunding, 5.55%, due 11/01/33,
(MBIA Insured) 49,379 Aaa AAA
100,000 Scotch Plains Township, New Jersey
Senior Citizen Housing Corporation,
5.75%, due 09/01/23 100,742 Aa AA
TOTAL MUNICIPAL BONDS
(COST $4,172,484) 4,385,053
See Notes to Financial Statements.
LEBENTHAL NEW JERSEY MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ---------- ------- --------
COMMERCIAL PAPER (2.62%)
- -------------------------------------------------------------------------------
$ 136,000 Ford Motor Credit Company,
5.29%, due 12/10/96 $ 136,000
(COST $136,000)
Shares
- ----------
CLOSED-END FUNDS (8.77%)
- -------------------------------------------------------------------------------
18,995 Munivest New Jersey Fund 232,689
15,300 Muniyield New Jersey Fund 221,850
TOTAL CLOSED-END FUNDS
(COST $442,605) 454,539
TOTAL INVESTMENTS (96.01%)
(COST $4,751,089#) 4,975,592
CASH AND OTHER ASSETS, NET OF
LIABILITIES (3.99%) 206,557
NET ASSETS (100.00%) $5,182,149
# Aggregate cost for federal income tax purposes is identical. Aggregate
unrealized appreciation and depreciation, based on cost for federal income tax
purposes, are $225,609 and $1,106, respectively, resulting in net unrealized
appreciation of $224,503.
KEY:
AMBAC = Ambac Indemnity Corporation AMT = Alternative Minimum Tax FGIC = Federal
Guaranty Insurance Corporation FHA = Federal Housing Authority FHLMA = Federal
Home Loan Mortgage Association FSA = Financial Security Assurance, Inc.
CONNIE LEE = College Construction Loan Insurance Association
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
HUD = Housing and Urban Development
LOC = Letter of Credit
MBIA = Municipal Bond Insurance Association
MHRB = Multi-family Housing Revenue Bond
See Notes to Financial Statements.
LEBENTHAL TAXABLE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ---------- ------- --------
MUNICIPAL BONDS (84.65%)
- -------------------------------------------------------------------------------
$ 150,000 All Saints Health System,
9.00%, due 08/15/24, (MBIA Insured) $ 166,063 Aaa AAA
385,000 Baltimore, Maryland - Series B,
General Obligation, 7.90%,
due 10/15/16, (FGIC Insured) 406,541 Aaa AAA
1,100,000 Bastrop, Texas Economic Development
Corporation,8.00%, due 08/15/16 1,133,440 BBB+
100,000 Buffalo, New York - Series F, 9.05%,
due 02/01/15, (AMBAC Insured) 107,038 Aaa AAA
240,000 California Housing Finance Agency -
Series C, 8.10%, due 02/01/37,
(AMBAC Insured) 249,804 Aaa AAA
2,000,000 Compton, California Community
Redevelopment Agency - Series C,
Tax Allocation, 0.00%, due 08/01/22,
(FSA Insured) 311,200 Aaa AAA
150,000 Connecticut State Health and
Educational Facilities, Maefair
Health Care, 9.20%, due 11/01/24 177,628 A1 AA-
125,000 Connecticut State Health and
Educational Facilities, Laurelwood,
9.36%, due 11/01/24 142,786 A1 AA-
150,000 Connecticut State Health and
Educational Facilities, Shady Knoll
Center, 8.90%, due 11/01/24 172,444 A1 AA-
255,000 Connecticut State Housing Finance
Authority - Series F, 9.25%,
due 05/15/27 288,321 Aa AA
200,000 Connecticut State Housing Finance
Authority - Series G, 7.625%,
due 05/15/21 197,050 Aa AA
100,000 Connecticut State Development
Authority - Sub series B1,
8.50%, due 08/15/14 105,540 A+
125,000 Conyers, Georgia Water & Sewer -
Series B, 8.75%, due 07/01/15,
(AMBAC Insured) 136,474 Aaa AAA
250,000 Cuyahoga County, Ohio Economic
Development - Series A,
8.625%, due 06/01/22 272,685 A
200,000 Florida Housing Finance Agency -
Taxable Housing Mariner Club,
8.25%, due 09/01/15 (AMBAC Insured) 210,714 Aaa AAA
1,230,000 Harrisburg, Pennsylvania -
Series A, General Obligation,
0.00%, due 04/01/18, (AMBAC Insured) 263,072 Aaa AAA
1,165,000 Harrisburg, Pennsylvania -
Series A, General Obligation,
0.00%, due 04/01/19, (AMBAC Insured) 231,800 Aaa AAA
350,000 Harrison County, Mississippi -
Series A, General Obligation,
7.75%, due 04/01/16, (MBIA Insured) 355,043 Aaa
150,000 Idaho Housing Agency, HUD Section 8,
8.50%, due 07/01/09 157,953 A
150,000 Illinois Housing Development
Authority, 8.64%, due 12/01/21,
(AMBAC Insured) 159,445 Aaa AAA
See Notes to Financial Statements.
LEBENTHAL TAXABLE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ---------- ------- --------
MUNICIPAL BONDS (Continued)
- -------------------------------------------------------------------------------
$ 2,180,000 Kern County, California Pension
Obligation, 0.00%, due 08/15/18,
(MBIA Insured) $ 471,316 Aaa AAA
325,000 Maryland State Community Development
Administration, 9.10%, due 05/15/10,
(MHF Insured) 352,060 Aa
150,000 Memorial Health System, 8.375%,
due 10/01/20, (MBIA Insured) 160,611 Aaa AAA
200,000 Michigan State Housing Development
Authority - Series A, 8.30%,
due 11/01/15, (AMBAC Insured) 214,568 Aaa AAA
190,000 Minnesota State Housing Finance
Agency - Series A, 8.70%,
due 08/01/22 196,798 Aa AA
60,000 Minnesota State Housing Finance
Agency - Series B, 8.00%,
due 02/01/18 61,729 AA
50,000 Minnesota State Housing Finance
Agency, 8.05%, due 01/01/12 50,926 Aa AA+
600,000 Mississippi Hospital Equipment and
Facilities, 9.10%, due 04/01/06 629,160 Baa
90,000 New Hampshire State Housing and
Finance Authority - Series C,
9.40%, due 07/01/14 100,956 Aa
240,000 New Jersey State Housing and
Mortgage Finance Agency - Series E,
8.95%, due 11/01/12 257,179 A+
180,000 New York, New York - Series D,
General Obligation, 9.625%,
due 08/01/10 198,936 Baa1 BBB+
250,000 New York State Environmental
Facilities - Series A,
9.625%, due 03/15/21 277,473 Baa1 BBB
300,000 New York State Housing Finance
Agency - Series B, 8.25%,
due 05/15/35, (FHA Insured) 308,223 AAA
350,000 New York State Housing Finance
Agency Revenue - Taxable Multi -
family Housing, 8.11%, due 11/15/38,
(FHA Insured) 354,830 AAA
110,000 New York State Housing Finance
Agency - Series B, Service Contract
Obligation, 8.60%, due 03/15/04 118,608 Baa1 BBB
100,000 Pittsburgh, Pennsylvania Urban
Redevelopment Authority, 9.07%,
due 09/01/14, (FSA Insured) 114,457 Aaa AAA
300,000 Sacramento County, California,
0.00%, due 08/15/21, (MBIA Insured) 267,969 Aaa AAA
120,000 Southeastern Pennsylvania Transit
Authority - Series B, 8.75%,
due 03/01/20, (FGIC Insured) 133,657 Aaa AAA
300,000 Tampa, Florida Sports Authority,
8.07%, due 10/01/26, (MBIA Insured) 314,520 Aaa AAA
375,000 Texas State Department of Housing &
Community Affairs - Series C1,
7.76%, due 09/01/17, (MBIA Insured) 385,388 Aaa AAA
See Notes to Financial Statements.
LEBENTHAL TAXABLE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
RATINGS
-----------------
FACE VALUE STANDARD
AMOUNT (NOTE 1) MOODY'S & POOR'S
- --------- ---------- ------- --------
MUNICIPAL BONDS (Continued)
- -------------------------------------------------------------------------------
$ 300,000 Texas State Veterans Housing,
General Obligation,
7.35%,due 12/01/21 $ 300,459 Aa AA
1,050,000 United Nations Development
Corporation, 8.80%, due 07/01/26 1,102,983 A
365,000 Virginia State Housing Development
Authority - Series A, Multi-family,
8.125%, due 11/01/15 385,093 Aa AA+
350,000 Wisconsin Housing & Economic
Development Authority - Series H,
7.875%, due 03/01/26 361,337 Aa AA
TOTAL MUNICIPAL BONDS
(COST $11,755,507) 12,364,277
GOVERNMENTAGENCY (4.77%)
- -------------------------------------------------------------------------------
650,000 Tennesse Valley Authority, 8.625%,
due 11/15/29 697,743 Aaa AAA
(COST $702,072)
Shares
- ----------
CLOSED-END FUNDS (8.84%)
- -------------------------------------------------------------------------------
94,016 BlackRock Income Trust 599,352
73,771 Hyperion Total Return 691,603
TOTAL CLOSED-END FUNDS
(COST $1,260,237) 1,290,955
TOTAL INVESTMENTS (98.26%)
(COST $13,717,816#) 14,352,975
CASH AND OTHER ASSETS, NET OF
LIABILITIES (1.74%) 254,210
NET ASSETS (100.00%) $14,607,185
# Aggregate cost for federal income tax purposes is $13,723,674. Aggregate
unrealized appreciation and depreciation, based on cost for federal income tax
purposes, are $653,869 and $24,568, respectively, resulting in net unrealized
appreciation of $629,301.
KEY:
AMBAC = Ambac Indemnity Corporation FGIC = Federal Guaranty Insurance
Corporation FHA = Federal Housing Authority FSA = Financial Security Assurance,
Inc. HUD = Housing and Urban Development MBIA = Municipal Bond Insurance
Association MHF = Maryland Housing Fund
See Notes to Financial Statements.
LEBENTHAL FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
LEBENTHAL LEBENTHAL LEBENTHAL
NEW YORK NEW JERSEY TAXABLE
MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND
------------- ----------- ------------
ASSETS
Investment in securities at value
(cost $113,056,069, $4,751,089
and $13,717,816) $120,286,939 $4,975,592 $14,352,975
Cash 14,160 27,664 --
Receivables:
Securities sold -- -- 217,613
Capital shares sold 761,752 187,572 80,419
Interest 2,161,142 64,023 221,814
Due from Manager -- 49,007 46,465
Deferred organization expenses -- 15,491 12,498
Total assets 123,223,993 5,319,349 14,931,784
LIABILITIES
Payables:
Securities purchased -- 98,569 --
Capital shares redeemed 143,896 -- 155,168
Dividends declared 312,654 13,709 56,156
Due to custodian -- -- 78,871
Distribution fee payable (Note 3) 24,867 -- --
Management fee payable (Note 2) 22,967 -- --
Administration fee payable 11,867 486 1,304
Accrued Directors' fees 2,400 83 227
Accrued expenses and other liabilities 94,029 24,353 32,873
Total liabilities 612,680 137,200 324,599
NET ASSETS 122,611,313 5,182,149 14,607,185
NET ASSETS consist of:
Par value 15,157 769 2,049
Paid in capital 117,287,722 5,250,373 14,429,004
Undistributed investment income - net 9,452 -- --
Accumulated net realized loss on
investments (1,931,888) (293,496) (459,027)
Unrealized appreciation on
investments - net 7,230,870 224,503 635,159
Total net assets $122,611,313 $5,182,149 $14,607,185
Shares outstanding (Note 4) 15,156,501 768,861 2,049,233
Net asset value, and redemption
price per share $ 8.09 $ 6.74 $ 7.13
Maximum offering price per share* $ 8.47 $ 7.06 $ 7.47
* The sales charge 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.
See Notes to Financial Statements.
LEBENTHAL FUNDS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- -------------------------------------------------------------------------------
LEBENTHAL LEBENTHAL LEBENTHAL
NEW YORK NEW JERSEY TAXABLE
MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND
----------- ----------- ------------
INVESTMENT INCOME
Income:
Interest . $6,644,669 $230,296 $ 897,359
Dividends 517,860 25,442 75,365
Total income 7,162,529 255,738 972,724
Expenses:
Management fee (Note 2) 266,395 10,708 30,632
Distribution fee (Note 3) 286,119 10,708 30,632
Administration fee 144,407 5,398 15,311
Shareholder servicing and related
shareholder expenses 188,603 34,728 40,527
Custodian fee 124,143 1,759 3,552
Interest 68,025 456 1,629
Legal, compliance and filing fees 78,124 15,626 14,322
Audit and accounting fees 58,991 48,238 54,064
Directors' fees 15,014 557 1,618
Amortization of organization expenses 8,646 7,766 6,266
Other 9,257 1,076 1,582
Total expenses 1,247,724 137,020 200,135
Less: Reimbursement of expenses by
Manager (Note 2) -- (88,736) (64,239)
Fees waived by Manager and
Distributor (Notes 2 and 3) -- (21,416) (61,264)
Fees paid indirectly (Note 1) (945) (1,200) (1,272)
Net expenses 1,246,779 25,668 73,360
Net investment income 5,915,750 230,070 899,364
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments 967,689 (14,767) (222,798)
Change in unrealized appreciation of
investments 177,568 48,013 153,567
Net realized and unrealized gain/(loss)
on investments 1,145,257 33,246 (69,231)
Increase in net assets from operations $7,061,007 $263,316 $ 830,133
See Notes to Financial Statements.
LEBENTHAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEBENTHAL NEW YORK MUNICIPAL LEBENTHAL NEW JERSEY MUNICIPAL
BOND FUND BOND FUND
------------------------------- ------------------------------
1996 1995 1996 1995
-------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 5,915,750 $ 5,069,127 $ 230,070 $ 134,992
Net realized gain (loss) on investments 967,689 1,283,011 (14,767) 36,790
Change in unrealized appreciation 177,568 11,953,235 48,013 221,012
Increase in net assets from operations 7,061,007 18,305,373 263,316 392,794
Dividends from net investment income (5,907,035)* (5,069,127)** (230,070)* (134,992)**
Capital share transactions (Note 4) 15,455,986 17,016,993 1,791,020 954,934
Capital contribution (Note 2) 422,268 -- -- --
Total increase 17,032,226 30,253,239 1,824,266 1,212,736
Net assets:
Beginning of year 105,579,087 75,325,848 3,357,883 2,145,147
End of year $122,611,313 $105,579,087 $5,182,149 $3,357,883
</TABLE>
* 99.62% and 98.67% designated as exempt interest dividends for federal income
tax purposes for New York Municipal Bond Fund and New Jersey Municipal Bond
Fund, respectively.
** 100.00% designated as exempt interest dividends for federal income tax
purposes.
See Notes to Financial Statements.
LEBENTHAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
- -------------------------------------------------------------------------------
LEBENTHAL TAXABLE MUNICIPAL
BOND FUND
----------------------------
1996 1995
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 899,364 $ 352,886
Net realized gain (loss) on investments (222,798) 10,392
Change in unrealized appreciation 153,567 585,669
Increase in net assets from operations 830,133 948,947
Dividends from net investment income (899,364) (352,886)
Capital share transactions (Note 4) 5,990,459 5,099,617
Total increase 5,921,228 5,695,678
Net assets:
Beginning of year 8,685,957 2,990,279
End of year $14,607,185 $8,685,957
See Notes to Financial Statements.
LEBENTHAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEBENTHAL NEW YORK
MUNICIPAL BOND FUND
---------------------------------------------------------
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------
1996 1995 1994# 1993 1992
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.99 $ 6.84 $ 8.03 $ 7.54 $ 7.19
Income from investment operations:
Net investment income 0.41 0.43 0.41 0.44 0.47
Net realized and unrealized gain (loss)
on investments 0.10 1.15 (1.15) 0.50 0.35
Total from investment operations 0.51 1.58 ( 0.74) 0.94 0.82
Less distributions:
Dividends from net investment income (0.41) (0.43) (0.41) (0.44) (0.47)
Distributions from net realized gain on
investments -- -- (0.04) (0.01) --
Total distributions (0.41) (0.43) (0.45) (0.45) (0.47)
Net asset value, end of period $ 8.09 $ 7.99 $ 6.84 $ 8.03 $ 7.54
TOTAL RETURN
(without deduction of sales load) 6.63%* 23.56% (9.62%) 12.63% 11.68%
Ratios/Supplemental Data
Net assets, end of period (000) $122,611 $105,579 $75,326 $80,727 $39,350
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.09% 0.99% 0.64%** 0.20%** 0.17%**
Net investment income 5.17% 5.63% 5.44% 5.42% 6.08%
Portfolio turnover 45.92% 148.88% 192.91% 7.88% 8.14%
</TABLE>
# Effective August 15, 1994, the investment advisor changed to Lebenthal Asset
Management, Inc.
* Includes the effect of a capital contribution from the Fund's Manager. Without
the capital contribution the total return would have been 6.24%.
** If the Investment Manager had not waived fees and reimbursed expenses and the
Administrator and Distributor had not waived fees, the ratio of operating
expenses to average net assets would have been 1.10%, 1.12%, and 1.44% for the
periods ended November 30, 1994,1993, and 1992, respectively.
See Notes to Financial Statements.
LEBENTHAL FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEBENTHAL NEW JERSEY LEBENTHAL TAXABLE
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
------------------------------- --------------------------------
YEAR ENDED NOVEMBER 30, YEAR ENDED NOVEMBER 30,
------------------------------- --------------------------------
1996 1995 1994#* 1996 1995 1994#*
---------- -------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 6.70 $ 5.95 $ 7.16 $ 7.22 $ 6.34 $ 7.16
Income from investment operations:
Net investment income 0.36 0.36 0.32 0.52 0.53 0.44
Net realized and unrealized gain (loss)
on investments 0.04 0.75 (1.21) (0.09) 0.88 (0.82)
Total from investment operations 0.40 1.11 (0.89) 0.43 1.41 (0.38)
Less distributions:
Dividends from net investment income (0.36) (0.36) (0.32) (0.52) (0.53) (0.44)
Net asset value, end of period $ 6.74 $ 6.70 $ 5.95 $ 7.13 $ 7.22 $ 6.34
TOTAL RETURN
(without deduction of sales load) 6.18% 19.10% (12.70%) 6.35% 23.11% (5.45%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $5,182 $3,358 $2,145 $14,607 $8,686 $2,990
Ratios to average net assets:
Expenses ## 0.63%** 0.60% 0.60% 0.61%** 0.60% 0.60%
Net investment income 5.37% 5.64% 4.97% 7.34% 7.57% 6.74%
Portfolio turnover 28.56% 61.69% 291.60% 44.46% 84.74% 93.73%
</TABLE>
# Effective August 15, 1994, the investment advisor changed to Lebenthal Asset
Management, Inc.
* Fund commenced operations on December 1, 1993.
## If the Investment Manager had not waived fees and reimbursed expenses and the
Administrator and Distributor had not waived fees, the ratio of operating
expenses to average net assets would have been 3.20%, 4.13%, and 4.83% for the
periods ended November 30, 1996, 1995 and 1994, respectively, for the New Jersey
Bond Fund; and 1.63%, 2.59%, and 3.60% for the periods ended November 30, 1996,
1995 and 1994, respectively, for the Taxable Bond Fund.
** Includes fees paid indirectly of 0.03% and 0.01% for the New Jersey Bond Fund
and Taxable Bond Fund, respectively.
See Notes to Financial Statements.
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 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
services are 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 are valued at quoted prices provided by municipal bond dealers.
Other 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 sixty (60) days or
less are stated at amortized cost, which approximates market value. All other
securities are valued at their fair 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 net investment income 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 -
Costs incurred in connection with the organization of each Fund and their
initial registration are amortized on a straight-line basis over a five-year
period from each Fund's commencement of operations.
E) GENERAL -
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income is recorded on the accrual basis and dividend income is
recorded on the ex-dividend date. Premiums and original issue discounts on
securities purchased are amortized over the life of the respective securities.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
F) FEES PAID INDIRECTLY -
Funds leaving excess cash in demand deposit accounts may receive credits
which are available to offset custody expenses. The Statements of Operations
report gross custody expense, and reflect the amount of such credits as a
reduction in total expenses.
G) BANK LOANS -
During the year ended November 30, 1996, the New York Bond Fund
periodically borrowed amounts from a bank. Interest paid on borrowings reduces
net income. During the year ended November 30, 1996, the New York Bond Fund had
average daily borrowings of $796,734 at an average interest rate of 8.31%.
H) ESTIMATES -
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Funds to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
2. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Under the
Management Contract the Funds pay a management fee to Lebenthal Asset
Management, Inc. (its Manager), equal to 0.25% of each Fund's average daily net
assets up to $50 million; 0.225% of such assets between $50 million and $100
million; and 0.20% of such assets in excess of $100 million. The Manager manages
the portfolio of securities of each Fund and makes decisions with respect to the
purchase and sale of investments. 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, 1996, the Manager voluntarily waived management fees
of $10,708 and $30,632 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 $88,736 and $64,239, respectively.
Lebenthal & Co., Inc. retained commissions of $566,362 from the sales of shares
of the Company.
The Directors of the Company who are unaffiliated with the Manager or the
Distributor are paid $2,000 per annum plus $500 per meeting attended.
Included in the Statement of Changes in Net Assets of the New York Municipal
Bond Fund is a reimbursement of $422,268 from the Fund's Manager representing a
loss on a security purchased in excess of a regulatory limitation.
LEBENTHAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. DISTRIBUTION PLAN
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
0.25% of the Fund's average daily net assets. For the year ended November 30,
1996, the Distributor voluntarily waived fees of $10,708 and $30,632 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.
4. CAPITAL STOCK
At November 30, 1996, there were 20,000,000,000 shares of $0.001 par value stock
authorized. Transactions in capital stock were as follows:
LEBENTHAL NEW YORK LEBENTHAL NEW YORK
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1996 NOVEMBER 30, 1995
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ -------------
Sold 3,470,847 $ 27,552,574 3,626,833 $ 27,728,133
Issued as reinvestment
of dividends 665,870 5,256,989 584,439 4,424,986
Redeemed (2,196,989) (17,353,577) (2,011,809) (15,136,126)
Net increase 1,939,728 $ 15,455,986 2,199,463 $ 17,016,993
LEBENTHAL NEW JERSEY LEBENTHAL NEW JERSEY
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1996 NOVEMBER 30, 1995
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
Sold 392,200 $ 2,608,455 320,760 $ 2,060,689
Issued as reinvestment
of dividends 31,934 211,384 18,321 118,158
Redeemed (156,189) (1,028,819) (198,975) (1,223,913)
Net increase 267,945 $ 1,791,020 140,106 $ 954,934
LEBENTHAL TAXABLE LEBENTHAL TAXABLE
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1996 NOVEMBER 30, 1995
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold 1,164,585 $ 8,169,453 928,692 $ 6,373,549
Issued as reinvestment
of dividends 102,059 708,161 39,468 270,713
Redeemed (420,759) (2,887,155) (236,166) (1,544,645)
Net increase 845,885 $ 5,990,459 731,994 $ 5,099,617
5. 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 debt obligations and
government securities having maturities of one year or less, were $61,243,971,
$2,782,508, and $10,991,825, 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 $52,970,185, $1,174,893, and $5,415,249,
respectively.
6. FEDERAL INCOME TAXES
Tax basis capital losses which may be carried forward to offset future capital
gains through November 30, 2004 amounted to $1,927,724, $293,496 and $453,168
for the New York Bond Fund, the New Jersey Bond Fund, and the Taxable Bond Fund,
respectively.
7. 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. Each Fund maintains a policy of monitoring its
exposure by reviewing the creditworthiness of the issuers, as well as that of
financial institutions issuing letters of credit, and by limiting the amount of
holdings with letters of credit from one financial institution.
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 January 10, 1997.
(2) Statements of Assets and Liabilities (audited), dated
November 30, 1996.
(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 herewith.
466160.1
<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 Exhibits 15.2.1, 15.2.2 and
15.2.3.
(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 herewith
*****Filed with Post-Effective Amendment No. 11 to said Registration Statement
on March 29, 1996 and is incorporated herein by reference.
C-2
466160.1
<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 herewith.
C-3
466160.1
<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, 1997
-------------- -----------------------
Common Stock (par value $.001)
- Lebenthal New Jersey Municipal
Bond Fund portfolio
- Lebenthal New York Municipal
Bond Fund portfolio
- Lebenthal Taxable Municipal
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 Post-Effective Amendment No. 11 to said Registration Statement
on March 29, 1996, and is incorporated herein by reference.
+ Filed herewith.
C-4
466160.1
<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
466160.1
<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 31st day of March, 1997.
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 31, 1997
(2) Principal Financial
& Accounting Officer
/s/ James McGrath
James McGrath March 31, 1997
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 31, 1997
* Filed herewith.
Powers of Attorney were fled with Post-Effective Amendment No. 11 to said
Registration Sttement on March 29, 1996, and are incorporated herein by
reference.
466160.1
<PAGE>
467599.1
ARTICLES OF INCORPORATION
OF
LEBENTHAL FUNDS, INC.
FIRST: (1) The name of the incorporator is
Rachelle I. Rehner.
(2) The incorporator's post office address
is 280 Park Avenue, New York, New York 10017.
(3) The incorporator is over eighteen years
of age.
(4) The incorporator is forming the
corporation named in these Articles of Incorporation under the General
Corporation Law of the State of Maryland.
SECOND: The name of the corporation (hereinafter
called the "Corporation") is Lebenthal Funds, Inc.
THIRD: The purposes for which the Corporation is
formed are:
(a) to conduct, operate and carry on the
business of an investment company;
(b) to subscribe for, invest in, reinvest
in, purchase or otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise dispose of notes,
bills, bonds, debentures and other negotiable or
non-negotiable instruments, obligations and evidences of
indebtedness issued or guaranteed as to principal and interest
by the United States Government, or any agency or
instrumentality thereof, any State or local government, or any
agency or instrumentality thereof, or any other securities of
any kind issued by any corporation or other issuer organized
under the laws of the United States or any State, territory or
possession thereof or any foreign country or any subdivision
thereof or otherwise, to pay for the same in cash or by the
issue of stock, including treasury stock, bonds and notes of
the Corporation or otherwise; and to exercise any and all
rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and
description, including and without limitation, the right to
consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations or
corporations to exercise any of
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said rights, powers and privileges in respect of any
said investments;
(c) to conduct research and investigations
in respect of securities, organizations, business and general
business and financial conditions in the United States of
America and elsewhere for the purpose of obtaining information
pertinent to the investment and employment of the assets of
the Corporation and to procure any and all of the foregoing to
be done by others as independent contractors and to pay
compensation therefor;
(d) to borrow money or otherwise obtain
credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the
Corporation, and to endorse, guarantee or undertake the
performance of any obligation, contract or engagement of any
other person, firm, association or corporation;
(e) to issue, sell, distribute, repurchase,
redeem, retire, cancel, acquire, hold, resell, reissue,
dispose of, transfer, and otherwise deal in, shares of stock
of the Corporation, including shares of stock of the
Corporation in fractional denominations, and to apply to any
such repurchase, redemption, retirement, cancellation or
acquisition of shares of stock of the Corporation, any funds
or property of the Corporation, whether capital or surplus or
otherwise, to the full extent now or hereafter permitted by
the laws of the State of Maryland and by these Articles of
Incorporation;
(f) to conduct its business, promote its
purposes, and carry on its operations in any and all of its
branches and maintain offices both within and without the
State of Maryland, in any and all States of the United States
of America, in the District of Columbia, and in any or all
commonwealths, territories, dependencies, colonies,
possessions, agencies, or instrumentalities of the United
States of America and of foreign governments;
(g) to carry out all or any part of the
foregoing purposes or objects as principal or agent, or in
conjunction with any other person, firm, association,
corporation or other entity, or as a partner or member of a
partnership, syndicate or joint venture or otherwise, and in
any part of the world to the same extent and as fully as
natural persons might or could do;
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(h) to have and exercise all of the powers
and privileges conferred by the laws of the State of Maryland
upon corporations formed under the laws of such State; and
(i) to do any and all such further acts and
things and to exercise any and all such further powers and
privileges as may be necessary, incidental, relative,
conducive, appropriate or desirable for the foregoing
purposes.
The enumeration herein of the objects and purposes of the
Corporation shall be construed as powers as well as objects and purposes and
shall not be deemed to exclude by inference any powers, objects or purposes
which the Corporation is empowered to exercise, whether expressly by force of
the laws of the State of Maryland now or hereafter in effect, or impliedly by
the reasonable construction of the said law.
FOURTH: The post office address of the principal
office of the Corporation within the State of Maryland is
1123 North Eutaw Street, Baltimore, Maryland 21201.
The resident agent of the Corporation in the State of Maryland
is The Prentice-Hall Corporation System, Maryland, at 1123 North Eutaw Street,
Baltimore, Maryland 21201.
FIFTH: (1)(a) The total number of shares of stock of all
classes which the Corporation shall have authority to issue is twenty billion
(20,000,000,000), all of which stock shall have a par value of One Tenth of One
Cent ($.001) per share. The aggregate par value of all authorized shares of
stock of the Corporation is Twenty Million Dollars ($20,000,000).
(b) Unless otherwise prohibited by law, so
long as the Corporation is registered as an open-end investment company under
the Investment Company Act of 1940, the Board of Directors of the Corporation is
authorized, without the approval of the holders of any outstanding shares, to
increase or decrease the aggregate number of shares of stock that the
Corporation shall have authority to issue, but the aggregate number of shares
may not be decreased by the Board of Directors below the aggregate number of
shares then outstanding.
(2)(a) The Board of Directors of the
Corporation is authorized to classify or to reclassify, from time to time, any
unissued shares of stock of the Corporation, whether now or hereafter
authorized, by setting, changing or eliminating the preference, conversion or
other rights, voting powers, restrictions, limitations as to dividends, and
qualifications or terms and conditions of or rights to require redemption of the
stock and, pursuant to such classification or reclassification,
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<PAGE>
to increase or decrease the number of authorized shares of any class, but the
number of shares of any class shall not be reduced by the Board of Directors
below the number of shares thereof then outstanding.
(b) Without limiting the generality of the
foregoing, the dividends and distributions of investment income and capital
gains with respect to the stock of the Corporation, and with respect to each
class that hereafter may be created, shall be in such amount as may be declared
from time to time by the Board of Directors, and such dividends and
distributions may vary from class to class to such extent and for such purposes
as the Board of Directors may deem appropriate, including but not limited to,
the purpose of complying with requirements of regulatory or legislative
authorities.
(3) Until such time as the Board of
Directors shall provide otherwise in accordance with section (2) of this Article
FIFTH, four billion (4,000,000,000) shares of the authorized shares of stock of
the Corporation shall be allocated to the following class of Common Stock:
Lebenthal New York Tax-Exempt Money Market Fund Common Stock. The balance of
sixteen billion (16,000,000,000) shares of such stock may be issued in this
class, or in any new class or classes each comprising such number of shares and
having such designations, such powers, preferences and rights and such
qualifications, limitations and restrictions thereof as shall be fixed and
determined from time to time by resolution or resolutions providing for the
issuance of such stock adopted by the Board of Directors. Each class of stock of
the Corporation and the holders thereof shall be subject to the following
provisions:
(a) As more fully set forth hereafter, the
assets and liabilities and the income and expenses of each class of the
Corporation's stock shall be determined separately and, accordingly, the net
asset value, the dividends payable to holders, and the amounts distributable in
the event of dissolution of the Corporation to holders of shares of the
Corporation's stock may vary from class to class. Except for these differences
and certain other differences hereafter set forth, each class of the
Corporation's stock shall have the same preference, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of and rights to require redemption.
(b) All consideration received by the
Corporation for the issue or sale of shares of a class of the Corporation's
stock, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that class for all
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purposes, subject only to the rights of creditors, and shall be so recorded upon
the books of account of the Corporation. Such consideration, income, earnings,
profits, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, are herein
referred to as "assets belonging to" that class.
(c) The assets belonging to a class of the
Corporation's stock shall be charged with the liabilities of the Corporation
with respect to that class and with that class's share of the liabilities of the
Corporation not attributable to any particular class, in the latter case in the
proportion that the net asset value of that class bears to the net asset value
of all classes of the Corporation's stock as determined in accordance with
Article NINTH of these Articles of Incorporation. The determination of the Board
of Directors shall be conclusive as to the allocation of liabilities, including
accrued expenses and reserves, and assets to a particular class or classes.
(d) Each holder of stock of the Corporation,
upon request to the Corporation (accompanied by surrender of the appropriate
stock certificate or certificates in proper form for transfer, if any
certificates have been issued to represent such shares) shall be entitled to
require the Corporation to redeem, to the extent that the Corporation may
lawfully effect such redemption under the laws of the State of Maryland, all or
any part of the shares of stock standing in the name of such holder on the books
of the Corporation at a price per share equal to the net asset value per share
computed in accordance with Article NINTH hereof.
(e) (i) The term "Minimum Amount" when used
herein shall mean Five Thousand Dollars ($5,000) unless otherwise fixed by the
Board of Directors from time to time, provided that the Minimum Amount may not
in any event exceed Twenty-Five Thousand Dollars ($25,000). The Board of
Directors may establish differing Minimum Amounts for each class of the
Corporation's stock and for holders of shares of each class of stock based on
such criteria as the Board of Directors may deem appropriate.
(ii) If the net asset value of the shares of
a class of the Corporation's stock held by a stockholder shall be less than the
Minimum Amount then in effect with respect to shares of that class or with
respect to shares of that class held by the stockholders in the same category as
that stockholder, the Corporation may redeem all of those shares, upon notice
given in accordance with paragraph (iv) of this subsection (e), to the extent
that the Corporation may lawfully effect such redemption under the laws of the
State of Maryland.
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(iii) The Corporation shall be entitled but
not required to redeem shares of stock from any stockholder or stockholders, to
the extent and at such times as the Board of Directors shall, in its absolute
discretion, determine to be necessary or advisable to prevent the Corporation
from qualifying as a "personal holding company", within the meaning of the
Internal Revenue Code of 1986, as amended from time to time. Notice shall be
given in accordance with paragraph (iv) of this subsection (e).
(iv) The notice referred to in
paragraphs (ii) and (iii) of this subsection (e) shall be in writing personally
delivered or deposited in the mail, at least thirty days (or such other number
of days as may be specified from time to time by the Board of Directors) prior
to such redemption. If mailed, the notice shall be addressed to the stockholder
at his or her post office address as shown on the books of the Corporation, and
sent by certified or registered mail, postage prepaid. The price for shares
acquired by the Corporation pursuant to this subsection (e) shall be an amount
equal to the net asset value of such shares, computed in accordance with Article
NINTH hereof.
(f) Payment by the Corporation for shares of
stock of the Corporation surrendered to it for redemption shall be made by the
Corporation within seven business days of such surrender out of the funds
legally available therefor, provided that the Corporation may suspend the right
of the holders of stock of the Corporation to redeem shares of stock and may
postpone the right of such holders to receive payment for any shares when
permitted or required to do so by applicable statutes or regulations. Payment of
the aggregate of such price may be made in cash or, at the option of the
Corporation, wholly or partly in such portfolio securities of the Corporation as
the Corporation shall elect.
(g) The right of any holder of stock of the
Corporation redeemed by the Corporation as provided in subsection (d) or (e) of
this section (3) to receive dividends thereon and all other rights of such
holder with respect to such shares shall terminate at the time as of which the
purchase or redemption price of such shares is determined, except the right of
such holder to receive (i) the redemption price of such shares from the
Corporation or its designated agent and (ii) any dividend or distribution to
which such holder has previously become entitled as the record holder of such
shares on the record date for such dividend or distribution. If shares of stock
are redeemed by the Corporation pursuant to subsection (e) of this section (3)
and certificates representing the redeemed shares have been issued, the
redemption price need not be paid by the Corporation until the certificates have
been received by the Corporation or its agent duly endorsed for transfer.
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(h) The Corporation shall be entitled to
purchase shares of its stock, to the extent that the Corporation may lawfully
effect such purchase under the laws of the State of Maryland, upon such terms
and conditions and for such consideration as the Board of Directors shall deem
advisable, by agreement with the stockholder at a price not exceeding the net
asset value per share computed in accordance with Article NINTH hereof.
(i) The net asset value of each share of a
class of the Corporation's stock issued and sold or redeemed or purchased at net
asset value shall be the net asset value per share of the shares of that class
determined in accordance with Article NINTH hereof based on the assets belonging
to that class less the liabilities charged to that class.
(j) In the absence of any specification as
to the purpose for which shares of stock of the Corporation are redeemed or
purchased by it, all shares so redeemed or purchased shall be deemed to be
retired in the sense contemplated by the laws of the State of Maryland and the
number of the authorized shares of stock of the Corporation shall not be reduced
by the number of any shares redeemed or purchased by it.
(k) Shares of each class of stock shall be
entitled to such dividends or distributions, in stock or cash or both, as may be
declared from time to time by the Board of Directors, acting in its sole
discretion, with respect to such class, provided that dividends or distributions
shall be paid on shares of a class of stock only out of lawfully available
assets belonging to that class.
(l) For the purpose of allowing the net
asset value per share of a class of the Corporation's stock to remain constant,
the Corporation shall be entitled to declare, pay and credit as dividends daily
the net income (which may include or give effect to realized or unrealized gains
and losses, as determined in accordance with the Corporation's accounting and
portfolio valuation policies) of the Corporation allocated to that class. If the
amount so determined for any day is negative, the Corporation shall be entitled,
without the payment of monetary compensation but in consideration of the
interest of the Corporation and its stockholders in maintaining a constant net
asset value per share of the class, to redeem pro rata from all the stockholders
of record of shares of the class at the time of such redemption (in proportion
to their respective holdings thereof) such number of outstanding shares of the
class, or fractions thereof, as shall be required to permit the net asset value
per share of the class to remain constant.
(m) In the event of the liquidation or
dissolution of the Corporation, the stockholders of a class of
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<PAGE>
the Corporation's stock shall be entitled to receive, as a class, out of the
assets of the Corporation available for distribution to stockholders, the assets
belonging to that class. The assets so distributable to the stockholders of a
class shall be distributed among such stockholders in proportion to the number
of shares of that class held by them and recorded on the books of the
Corporation. In the event that there are any assets available for distribution
that are not attributable to any particular class of stock, such assets shall be
allocated to all classes in proportion to the net asset value of the respective
classes and then distributed to the holders of stock of each class in proportion
to the net asset value of the shares of that class held by the respective
holders.
(n) On each matter submitted to a vote of
the stockholders, each holder of a share of stock shall be entitled to one vote
for each such share standing in such holder's name on the books of the
Corporation irrespective of the class thereof; provided, however, that to the
extent class voting is required by the Investment Company Act of 1940 or
regulations thereunder, as from time to time amended, or the laws of the State
of Maryland as to any such matter, those requirements shall apply.
(o) The Corporation may issue shares of
stock in fractional denominations to the same extent as its whole shares, and
shares in fractional denominations shall be shares of stock having
proportionately to the respective fractions represented thereby all the rights
of whole shares, including without limitation, the right to vote, the right to
receive dividends and distributions, and the right to participate upon
liquidation of the Corporation, but excluding the right to receive a stock
certificate representing fractional shares.
(4) No holder of any shares of stock of the
Corporation shall be entitled as of right to subscribe for, purchase, or
otherwise acquire any such shares which the Corporation shall issue or propose
to issue; and any and all of the shares of stock of the Corporation, whether now
or hereafter authorized, may be issued, or may be reissued or transferred if the
same have been reacquired and have treasury status, by the Board of Directors to
such persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering same, or any thereof, to any said holder.
(5) All persons who shall acquire stock or
other securities of the Corporation shall acquire the same subject to the
provisions of these Articles of Incorporation, as from time to time amended.
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SIXTH: The number of directors of the Corporation, until such
number shall be increased pursuant to the By-Laws of the Corporation, shall be
two. The number of directors shall never be less than the number prescribed by
the General Corporation Law of the State of Maryland and shall never be more
than twenty. The names of the persons who shall act as directors of the
Corporation until the first annual meeting or until their successors are duly
chosen and qualified are William J. Craven and Bernadette M. Finn.
SEVENTH: The following provisions are inserted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the Board of Directors and stockholders.
(a) The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors which
shall have and may exercise all powers of the Corporation except those powers
which are by law, by these Articles of Incorporation or by the By-Laws conferred
upon or reserved to the stockholders. In furtherance and not in limitation of
the powers conferred by law, the Board of Directors shall have the power:
(i) to make, alter and repeal the By-Laws of
the Corporation;
(ii) to issue and sell, from time to time,
shares of any class of the Corporation's stock in such amounts and on such terms
and conditions, and for such amount and kind of consideration, as the Board of
Directors shall determine, provided that the consideration per share to be
received by the Corporation shall be not less than the greater of the net asset
value per share of that class of stock at such time computed in accordance with
Article NINTH hereof or the par value thereof;
(iii) from time to time to set apart out of
any assets of the Corporation otherwise available for dividends a reserve or
reserves for working capital or for any other proper purpose or purposes, and to
reduce, abolish or add to any such reserve or reserves from time to time as said
Board of Directors may deem to be in the best interests of the Corporation; and
to determine in its discretion what part of the assets of the Corporation
available for dividends in excess of such reserve or reserves shall be declared
in dividends and paid to the stockholders of the Corporation; and
(iv) from time to time to determine to what
extent and at what times and places and under what conditions and regulations
the accounts, books and records of the Corporation, or any of them, shall be
open to the inspection of the stockholders; and no stockholder shall have any
right to inspect any account or book or document of the Corporation, except as
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conferred by the laws of the State of Maryland, unless and until authorized to
do so by resolution of the Board of Directors or of the stockholders of the
Corporation.
(b) Notwithstanding any provision of the
General Corporation Law of the State of Maryland requiring a greater proportion
than a majority of the votes of all classes or of any class of the Corporation's
stock entitled to be cast in order to take or authorize any action, any such
action may be taken or authorized upon the concurrence of a majority of the
aggregate number of votes entitled to be cast thereon subject to any applicable
requirements of the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto.
(c) Except as may otherwise be expressly
provided by applicable statutes or regulatory requirements, the presence in
person or by proxy of the holders of one-third of the shares of stock of the
Corporation entitled to vote shall constitute a quorum at any meeting of the
stockholders.
(d) Any determination made in good faith
and, so far as accounting matters are involved, in accordance with generally
accepted accounting principles by or pursuant to the discretion of the Board of
Directors, as to the amount of the assets, debts, obligations, or liabilities of
the Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purposes for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
charges shall have been created shall have been paid or discharged or shall by
then or thereafter required to be paid or discharged), as to the value of or the
method of valuing any investment owned or held by the Corporation, as to the
market value or fair value of any investment or fair value of any other asset of
the Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of the Corporation outstanding,
as to the estimated expense to the Corporation in connection with purchases of
its shares, as to the ability to liquidate investments in orderly fashion, or as
to any other matters relating to the issue, sale, purchase and/or other
acquisition or disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
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(e) Except to the extent prohibited by the
Investment Company Act of 1940, as amended, or rules, regulations or orders
thereunder promulgated by the Securities and Exchange Commission or any
successor thereto or by the By-Laws of the Corporation, a director, officer or
employee of the Corporation shall not be disqualified by his or her position
from dealing or contracting with the Corporation, nor shall any transaction or
contract of the Corporation be void or voidable by reason of the fact that any
director, officer or employee or any firm of which any director, officer or
employee is a member or any corporation of which any director, officer or
employee is a stockholder, officer or director, is in any way interested in such
transaction or contract; provided that in case a director, or a firm or
corporation of which a director is a member, stockholder, officer or director,
is so interested, such fact shall be disclosed to or shall have been known by
the Board of Directors or a majority thereof; and any director of the
Corporation who is so interested, or who is a member, stockholder, officer or
director of such firm or corporation, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize any such transaction or contract, with like
force and effect as if he or she were not such director, or member, stockholder,
officer or director of such firm or corporation.
(f) Specifically and without limitation of
the foregoing subsection (e) but subject to the exception therein prescribed,
the Corporation may enter into management or advisory, underwriting,
distribution and administration contracts and other contracts, and may otherwise
do business, with Reich & Tang L.P. and any subsidiary or affiliate of such
partnership or any affiliates of any such affiliate, or the partners, officers
and employees thereof, and may deal freely with one another notwithstanding that
the Board of Directors of the Corporation may be composed in part of partners,
officers or employees of such partnership and/or its subsidiaries or affiliates
and that officers of the Corporation may have been, be or become partners,
directors, officers, or employees of such firm, and/or its subsidiaries or
affiliates, and neither such management or advisory, underwriting, distribution
or administration contracts nor any other contract or transaction between the
Corporation and such partnership and/or its subsidiaries or affiliates shall be
invalidated or in any way affected thereby, nor shall any director or officer of
the Corporation be liable to the Corporation or to any stockholder or creditor
thereof or to any person for any loss incurred by it or such stockholder under
or by reason of such contract or transaction; provided that nothing herein shall
protect any director or officer of the Corporation against any liability to the
Corporation or to its security holders to which such director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
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<PAGE>
conduct of his or her office; and provided always that such contract or
transaction shall have been on terms that were not unfair to the Corporation at
the time at which it was entered into.
EIGHTH: Subject to the requirements of the Investment Company
Act of 1940 and rules promulgated thereunder, as from time to time amended, to
the maximum extent permitted by the General Corporation Law of the State of
Maryland as from time to time amended, the Corporation shall indemnify its
currently acting and its former directors and officers and those persons who, at
the request of the Corporation, serve or have served another corporation,
partnership, joint venture, trust or other enterprise in one or more of such
capacities.
NINTH: For the purpose of the computation of net
asset value referred to in these Articles of Incorporation, the
following rules shall apply:
(a) The net asset value of each share of a
class of the Corporation's stock issued or sold at its net asset value shall be
the net asset value per share of that class when next determined as provided in
paragraph (d) of this Article NINTH following acceptance by the Corporation of
the subscription or other agreement with respect to the issue or sale of such
share.
(b) The net asset value of each share of a
class of the Corporation's stock redeemed by the Corporation at the request of
its holder shall be the net asset value per share of that class when next
determined as provided in paragraph (d) of this Article NINTH following the time
the Corporation receives a request for redemption of such share in good order
with all appropriate documentation, including stock certificates, if any, duly
endorsed for transfer.
(c) The net asset value of each share of a
class of the Corporation's stock purchased or redeemed by it otherwise than upon
request for redemption by its holder shall be the net asset value per share of
that class of the Corporation's stock when next determined as provided in
paragraph (d) of this Article NINTH following the Corporation's determination or
agreement to purchase or redeem such share, the expiration of any notice period
fulfillment of any other conditions precedent to such purchase or redemption, or
such lower price per share as may be specified in the agreement, if any, with
the stockholder for the purchase or redemption of such stockholder's shares.
(d) The net asset value of a share of a
class of the Corporation's stock as at the time of a particular
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determination shall be the quotient obtained by dividing the value at such time
of the net asset of that class (i.e., the value of the assets belonging to that
class less the liabilities charged to that class exclusive of capital stock and
surplus) by the total number of shares of that class outstanding at such time,
all determined and computed as provided in the Corporation's By-Laws or by or
pursuant to the direction of the Board of Directors.
(e) The Corporation shall determine the net
asset value per share of a class of its stock on such days and at such times as
prescribed by the rules and regulations of the Securities and Exchange
Commission or any successor thereto. The Corporation may also determine such net
asset value at other times.
(f) The Corporation may suspend the
determination of the net asset value of a class of its stock during any period
when it may suspend the right of the holders of shares of that class to require
the Corporation to redeem their shares.
TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation or
in any amendment hereto in the manner now or hereafter prescribed by the laws of
the State of Maryland, and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the incorporator of
the Corporation, has adopted and signed these Articles of Incorporation for the
purpose of forming the corporation described herein pursuant to the General
Corporation law of the State of Maryland and does hereby acknowledge that said
adoption and signing are her act.
------------------------------
Rachelle I. Rehner
Dated: August 20, 1990
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BY-LAWS
OF
LEBENTHAL FUNDS, INC.
a Maryland corporation
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The
Corporation shall have a principal office in the City of
Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have offices
also at such other places within and without the State of Maryland as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be
held at such place, either within the State of Maryland or at such other place
within the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be
required to hold an annual meeting of its stockholders in any year in which none
of the following is required to be acted on by the holders of any class or
series of stock under the Investment Company Act of 1940: (a) election of the
directors, (b) approval of the Corporation's investment advisory agreement with
respect to a particular class or series; (c) ratification of the selection of
independent public accountants; and (d) approval of the Corporation's
distribution agreement with respect to a particular class or series. In the
event that the Corporation shall be required to hold an annual meeting of
stockholders by the Investment Company Act of 1940, such meeting of stockholders
shall be held on a date fixed from time to time by the Board of Directors not
less than ninety nor more than one hundred twenty days following the end of such
fiscal year of the Corporation.
Section 3. Notice of Annual Meeting. Written or
printed notice of an annual meeting, stating the place, date and
hour thereof, shall be given to each stockholder entitled to vote
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thereat not less than ten nor more than ninety days before the date of the
meeting.
Section 4. Special Meetings. Special meetings of stockholders
may be called by the chairman, the president or by the Board of Directors and
shall be called by the secretary upon the written request of holders of shares
entitled to cast not less than twenty-five percent of all the votes entitled to
be cast at such meeting. Such request shall state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat. In the case of
such request for a special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and mailing a notice
of such meeting, the secretary shall give the notice of such meeting. The
secretary shall not be required to call a special meeting to a consider any
matter which is substantially the same as a matter acted upon at any special
meeting of stockholders held within the preceding twelve months unless requested
to do so by the holders of shares entitled to cast not less than a majority of
all votes entitled to be cast at such meeting.
Section 5. Notice of Special Meeting. Written or printed
notice of a special meeting of stockholders, stating the place, date, hour and
purpose thereof, shall be given by the secretary to each stockholder entitled to
vote thereat not less than ten nor more than ninety days before the date fixed
for the meeting.
Section 6. Business of Special Meetings. Business
transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice thereof.
Section 7. Quorum. Except as may otherwise be expressly
provided by applicable statutes or regulations, the holders of one-third of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business.
Section 8. Voting. When a quorum is present at any meeting,
the affirmative vote of a majority of the votes cast shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the Investment Company Act of 1940, as from time to time in effect,
or other statutes or rules or orders of the Securities and Exchange Commission
or any successor thereto or of the Articles of Incorporation, a different vote
is required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Proxies. Each stockholder shall at every
meeting of stockholders be entitled to one vote in person or by
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proxy for each share of the stock having voting power held by such stockholder,
but no proxy shall be voted after eleven months from its date, unless otherwise
provided in the proxy.
Section 10. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, to express consent to corporate action
in writing without a meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date
which shall be not more than ninety days and, in the case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. In lieu of
fixing a record date, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period, but not to exceed, in any case,
twenty days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) the record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
notice of the meeting of stockholders is mailed or the day thirty days before
the meeting, whichever is the closer date to the meeting; and (2) the record
date for the determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of business on the
day on which the resolution of the Board of Directors, declaring the dividend or
allotment of rights, is adopted, provided that the payment or allotment date
shall not be more than ninety days after the date of the adoption of such
resolution.
Section 11. Inspectors of Election. The directors, in advance
of any meeting, may, but need not, appoint one or more inspectors to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his or her
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power
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of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or her or them
and execute a certificate of any fact found by him or her or them.
Section 12. Informal Action by Stockholders. Except to the
extent prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III.
Board of Directors
Section 1. Number of Directors. The number of directors shall
be fixed at no less than two nor more than twenty. Within the limits specified
above, the number of directors shall be fixed from time to time by the Board of
Directors, but the tenure of office of a director in office at the time of any
decrease in the number of directors shall not be affected as a result thereof.
The directors shall be elected to hold office at the annual meeting of
stockholders, except as provided in Section 2 of this Article, and each director
shall hold office until the next annual meeting of stockholders or until his
successor is elected and qualified. Any director may resign at any time upon
written notice to the Corporation. Any director may be removed, either with or
without cause, at any meeting of stockholders duly called and at which a quorum
is present by the affirmative vote of the majority of the votes entitled to be
cast thereon, and the vacancy in the Board of Directors caused by such removal
may be filled by the stockholders at the time of such removal. Directors need
not be stockholders.
Section 2. Vacancies and Newly Created Directorships.
Any vacancy occurring in the Board of Directors for any cause,
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including an increase in the number of directors, may be filled by the
stockholders or by a majority of the remaining members of the Board of Directors
even if such majority is less than a quorum. So long as the Corporation is a
registered investment company under the Investment Company Act of 1940,
vacancies in the Board of Directors may be filled by a majority of the remaining
members of the Board of Directors only if, immediately after filing any such
vacancy, at least two-thirds of the directors then holding office shall have
been elected to such office at a meeting of stockholders. A director elected by
the Board of Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders or until his successor is elected and
qualifies.
Section 3. Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors which shall
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
By-Laws conferred upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of each newly
elected Board of Directors shall be held immediately following the adjournment
of the annual meeting of stockholders and at the place thereof. No notice of
such meeting to the directors shall be necessary in order legally to constitute
the meeting, provided a quorum shall be present. In the event such meeting is
not so held, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 5. Other Meetings. The Board of Directors of the
Corporation or any committee thereof may hold meetings, both regular and
special, either within or without the State of Maryland. Regular meetings of the
Board of Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the chairman, the president
or by two or more directors. Notice of special meetings of the Board of
Directors shall be given by the secretary to each director at least three days
before the meeting if by mail or at least 24 hours before the meeting if given
in person or by telephone or by telegraph. The notice need not specify the
business to be transacted.
Section 6. Quorum and Voting. At meetings of the Board of
Directors, two of the directors in office at the time, but in no event less than
one-third of the entire Board of Directors, shall constitute a quorum for the
transaction of business. When required pursuant to Section 15(c) under the
Investment Company Act of 1940 or Rule 12b-1 thereunder a quorum shall also
require the presence in person of a majority of
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directors who are not parties to a contract or agreement to be voted upon or
interested persons of any such party. The action of a majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 7. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, appoint from
among its members an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may, to the extent provided in the
resolution, delegate to such committees, in the intervals between meetings of
the Board of Directors, any or all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except the power
to declare dividends, to issue stock, to recommend to stockholders any action
requiring stockholders' approval, to amend the By-Laws or to approve any merger
or share exchange which does not require stockholders' approval. Such committee
or committees shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the Board of
Directors designates one or more directors as alternate members of any
committee, who may replace an absent or disqualified member at any meeting of
the committee, the members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member of such committee. At
meetings of any such committee, a majority of the members or alternate members
of such committee shall constitute a quorum for the transaction of business and
the act of a majority of the members or alternate members present at any meeting
at which a quorum is present shall be the act of the committee.
Section 8. Minutes of Committee Meetings. The
committees shall keep regular minutes of their proceedings.
Section 9. Informal Action by Board of Directors and
Committees. Any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting if
a written consent thereto is signed by all members of the Board of Directors or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board of Directors or committee.
Section 10. Meetings by Conference Telephone. Except
to the extent prohibited by the Investment Company Act of 1940,
as from time to time in effect, or rules or orders of the
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Securities and Exchange Commission or any successor thereto, the members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and such participation shall
constitute presence in person at such meeting.
Section 11. Fees and Expenses. The directors may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV.
Notices
Section 1. General. Notices to directors and stockholders
mailed to them at their post office addresses appearing on the books of the
Corporation shall be deemed to be given at the time when deposited in the United
States mail.
Section 2. Waiver of Notice. Whenever any notice is required
to be given under the provisions of the statutes, of the Article of
Incorporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed the equivalent of notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE V.
Officers
Section 1. General. The officers of the Corporation
shall be chosen by the Board of Directors at its first meeting
after each annual meeting of stockholders and shall be a chairman
of the Board of Directors, a president, a secretary and a
treasurer. The Board of Directors may also choose such vice
presidents and additional officers or assistant officers as it
may deem advisable. Any number of offices, except the offices of
president and vice president, may be held by the same person. No
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officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.
Section 2. Other Officers and Agents. The Board of Directors
may appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such power and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation
shall hold office at the pleasure of the Board of Directors. Each officer shall
hold his or her office until his or her successor is elected and qualifies or
until his or her earlier resignation or removal. Any officer may resign at any
time upon written notice to the Corporation. Any officer elected or appointed by
the Board of Directors may be removed at any time by the Board of Directors
when, in its judgment, the best interests of the Corporation will be served
thereby. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors.
Section 4. Chairman of the Board of Directors. The
----------------------------------
chairman of the Board of Directors shall be the chief executive
officer of the Corporation, shall preside at all meetings of the
stockholders and of the Board of Directors, shall have general
and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of
Directors are carried into effect. The chairman shall execute on
behalf of the Corporation, and may affix the seal or cause the
seal to be affixed to, all instruments requiring such execution
except to the extent that signing and execution thereof shall be
expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
Section 5. President. The president shall, in the absence of
the chairman of the Board of Directors, preside at all meetings of the
stockholders or of the Board of Directors. The president shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
president shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
Section 6. Vice Presidents. The vice presidents shall
act under the direction of the president and in the absence or
disability of the president shall perform the duties and exercise
the power of the president. They shall perform such other duties
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and have such other powers as the president or the Board of Directors may from
time to time prescribe. The Board of Directors may designate one or more
executive vice presidents or may otherwise specify the order of seniority of the
vice presidents and, in that event, the duties and powers of the president shall
descend to the vice presidents in the specified order of seniority.
Section 7. Secretary. The secretary shall act under the
direction of the president. Subject to the direction of the president, the
secretary shall attend all meetings of the Board of Directors and all meetings
of stockholders and record the proceedings in a book to be kept for that purpose
and shall perform like duties for the committees designated by the Board of
Directors when required. The secretary shall give, or cause to be given, notice
of all meetings of stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the president or the
Board of Directors. The secretary shall keep in safe custody the seal of the
Corporation and shall affix the seal or cause it to be affixed to any instrument
requiring it.
Section 8. Assistant Secretaries. The assistant secretaries in
the order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under the
direction of the president. Subject to the direction of the president he shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The treasurer shall disburse the funds of the
Corporation as may be ordered by the president or the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the president and
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his or her transactions as treasurer and of the
financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant treasurers in
the order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in the absence or disability of the treasurer,
perform the duties and exercise the powers of the treasurer. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.
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ARTICLE VI.
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation
who has made full payment of the consideration for such stock shall be entitled
upon request to have a certificate, signed by, or in the name of the Corporation
by, the president or a vice president and countersigned by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, certifying the number and class of whole shares of stock owned by
such holder in the Corporation.
Section 2. Fractional Share Interests or Scrip. The
-----------------------------------
Corporation may, but shall not be obliged to, issue fractions of
a share of stock, arrange for the disposition of fractional
interests by those entitled thereto, pay in cash the fair value
of fractions of a share of stock as of the time when those
entitled to receive such fractions are determined, or issue scrip
or other evidence of ownership which shall entitle the holder to
receive a certificate for a full share of stock upon the
surrender of such scrip or other evidence of ownership
aggregating a full share. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby
all the rights of whole shares, including the right to vote, the
right to receive dividends and distributions and the right to
participate upon liquidation of the Corporation, excluding,
however, the right to receive a stock certificate representing
such fractional shares. The Board of Directors may cause such
scrip or evidence of ownership to be issued subject to the
condition that it shall become void if not exchanged for
certificates representing full shares of stock before a specified
date or subject to the condition that the shares of stock for
which such scrip or evidence of ownership is exchangeable may be
sold by the Corporation and the proceeds thereof distributed to
the holders of such scrip or evidence of ownership, or subject to
any other reasonable conditions which the Board of Director shall
deem advisable, including provision for forfeiture of such
proceeds to the Corporation if not claimed within a period of not
less than three years after the date of the original issuance of
scrip certificates.
Section 3. Signatures on Certificates. Any of or all the
signatures on a certificate may be a facsimile. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
cease to be such officer before such certificate is issued, it may be issued
with the same effect as if he or she were such officer at the date of issue. The
seal of the Corporation or a facsimile thereof may, but need not, be affixed to
certificates of stock.
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Section 4. Lost, Stolen or Destroyed Certificates. The Board
of Directors may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered
owner of shares, and if a certificate has been issued to represent such shares
upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, subject to the Corporation's
rights to redeem or purchase such shares, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transactions upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be
entitled to recognize the person registered on its books as the owner of shares
to be the exclusive owner for all purposes including, redemption, voting and
dividends, and the Corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Maryland.
ARTICLE VII.
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for repairing or maintaining any
property of the Corporation, or for the purchase of additional property, or for
such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve.
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Section 2. Dividends. Dividends upon the stock of the
Corporation may, subject to the provisions of the Articles of Incorporation and
of the provisions of applicable law, be declared by the Board of Directors at
any time. Dividends may be paid in cash, in property or in shares of the
Corporation's stock, subject to the provisions of the Articles of Incorporation
and of applicable law.
Section 3. Capital Gains Distributions. The amount and number
of capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 6. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words,
"Corporate Seal, Maryland". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in another manner reproduced.
Section 7. Filing of By-Laws. A certified copy of the
By-Laws, including all amendments, shall be kept at the principal
office of the Corporation in the State of Maryland.
Section 8. Annual Report. The books of account of the
Corporation shall be examined by an independent firm of public accountants at
the close of each annual fiscal period of the Corporation and at such other
times, if any, as may be directed by the Board of Directors of the Corporation.
Within one hundred and twenty days of the close of each annual fiscal period a
report based upon such examination at the close of that fiscal period shall be
mailed to each stockholder of the Corporation of record at the close of such
annual fiscal period, unless the Board of Directors shall set another record
date, at his address as the same appears on the books of the Corporation. Each
such report shall contain such information as is required to be set forth
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated by the Securities and Exchange Commission thereunder. Such report
shall also be submitted at the annual meeting of the stockholders and filed
within twenty days thereafter at the principal office of the Corporation in the
State of Maryland.
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Section 9. Stock Ledger. The Corporation shall maintain at its
principal office outside of the State of Maryland an original or duplicate stock
ledger containing the names and addresses of all stockholders and the number of
shares of stock hold by each stockholder. Such stock ledger may be in written
form or in any other form capable of being converted into written form within a
reasonable time for visual inspection.
Section 10. Ratification of Accountants by Stockholders. At
every annual meeting of the stockholders of the Corporation otherwise called
there shall be submitted for ratification or rejection the name of the firm of
independent public accountants which has been selected for the current fiscal
year in which such annual meeting is held by a majority of those members of the
Board of Directors who are not investment advisers of, or interested person (as
defined in the Investment Company Act of 1940) of, an investment adviser of, or
officers or employees of, the Corporation.
Section 11. Custodian. All securities and similar investments
owned by the Corporation shall be held by a custodian which shall be either a
trust company or a national bank of good standing, having a capital surplus and
undivided profits aggregating not less than two million dollars ($2,000,000), or
a member firm of the New York Stock Exchange, Inc. The terms of custody of such
securities and cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Upon the resignation or inability to serve of any such
custodian the Corporation shall (a) use its best efforts to obtain a successor
custodian, (b) require the cash and securities of the Corporation held by the
custodian to be delivered directly to the successor custodian, and (c) in the
event that no successor custodian can be found, submit to the stockholders of
the Corporation, before permitting delivery of such cash and securities to
anyone other than a successor custodian, the question whether the Corporation
shall be dissolved or shall function without a custodian; provided, however,
that nothing herein contained shall prevent the termination of any agreement
between the Corporation and any such custodian by the affirmative vote of the
holders of a majority of all the stock of the Corporation at the time
outstanding and entitled to vote. Upon its resignation or inability to serve and
pending action by the Corporation as set forth in this section, the custodian
may deliver any assets of the Corporation held by it to a qualified bank or
trust company in the City of New York, or to a member firm of the New York Stock
Exchange, Inc. selected by it, such assets to be held subject to the terms of
custody which governed such retiring custodian.
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Section 12. Investment Advisers. The Corporation may enter
into one or more management or advisory, underwriting, distribution or
administration contract with any person, firm, partnership, association or
corporation but such contract or contracts shall continue in effect only so long
as such continuance is specifically approved annually by a majority of the Board
of Directors or by vote of the holders of a majority of the voting securities of
the Corporation, and in either case by vote of a majority of the directors who
are not parties to such contracts or interested persons (as defined in the
Investment Company Act of 1940) of any such party cast in person at a meeting
called for the purpose of voting on such approval.
ARTICLE VIII
Amendments
The Board of Directors shall have the power, by a majority
vote of the entire Board of Directors at any meeting thereof, to make, alter and
repeal By-Laws of the Corporation.
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No. 3 Shares
FORM OF CERTIFICATE
INCORPORATED UNDER THE LAWS OF
THE STATE OF MARYLAND
LEBENTHAL FUNDS, INC.
The Corporation is authorized to issue
20,000,000,000 Common Shares Par Value $.001 each
- -----------------
UNITS
- -----------------
CUSIP
This Certifies that SPECIMEN is the owner of ______________ fully paid and
non-assessable Shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated ____________________
--------------------------
Secretary Treasurer
--------------------------
President
471966.1
Battle Fowler LLP
280 Park Avenue
New York, NY 10017
(212) 856-7000
December 18, 1990
Lebenthal Funds, Inc.
100 Park Avenue
New York, New York 10017
Gentlemen:
We have acted as counsel to Lebenthal Funds, Inc., a Maryland
corporation (the "Fund"), in connection with the preparation and filing of
Registration Statement No. 33-36784 on Form N-1A and all amendments thereto (the
"Registration Statement") covering shares of Common Stock, par value $.001 per
share, of the Fund.
We have examined copies of the Amended Articles of
Incorporation and By-Laws of the Fund, the Registration Statement, and such
other corporate records, proceedings and documents, including the consent of the
Board of Directors and the minutes of the meeting of the Board of Directors of
the Fund, as we have deemed necessary for the purpose of this opinion. We have
also examined such other documents, papers, statutes and authorities as we
deemed necessary to form a basis for the opinion hereafter expressed. In our
examination of such material, we have assumed the genuineness of all signatures
and the conformity to original documents of all copies submitted to us. As to
various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Based upon the foregoing, we are of the opinion that the
shares of Common Stock, par value $.001 per share, of the Fund, to be issued in
accordance with the terms of the offering, as set forth in the Prospectus and
Statement of Additional Information included as part of the Registration
Statement, and in accordance with
471925.1
<PAGE>
2
applicable state securities laws, when so issued and paid for, will constitute
validly authorized and legally issued shares of Common Stock, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us in the Registration
Statement under the heading "Federal Income Taxes" in the Prospectus and in the
Statement of Additional Information, and under the heading "Counsel and
Auditors" in the Statement of Additional Information.
Very truly yours,
Battle Fowler LLP
471925.1
McCARTER & ENGLISH
ATTORNEYS AT LAW
FOUR GATEWAY CENTER
100 MULBERRY STREET
P.O. BOX 652
NEWARK, NJ 07101-0652
CHERRY HILL, NJ (201) 622-4444
NEW YORK, NY TELEX 178016
BOCA RATON, FL TELECOPIER (201) 624-7070
WILMINGTON, DE CABLE "McCARTER" NEWARK
August 27, 1993
Lebenthal New Jersey Municipal Bond Fund
c/o Lebenthal & Co., Inc.
25 Broadway
New York, New York 10004
Dear Sirs and Mesdames:
We have acted as special counsel, with respect to New Jersey
State tax matters, to the Lebenthal New Jersey Municipal Bonds Fund (the
"Fund"), a non-diversified municipal bond portfolio held by Lebenthal Funds,
Inc., an open-end investment company under the Investment Company Act of 1940,
as amended, concerning a Registration Statement (No. 33-36784) on Form N-1A
under the Securities Act of 1933, as amended (the "Registration Statement"),
covering the issuance of shares of fractional undivided interests in the Fund.
In that connection we have examined a form of the Prospectus
and the relevant portions of the Statement of Additional Information dated
September, 1993. Except as expressly specified herein, all terms used herein and
defined in the documents referred to above shall have the respective
meanings ascribed to them in such documents.
Based upon the Prospectus and the relevant portions of the
Statement of Additional Information, the Fund intends to operate as a "qualified
investment fund" as defined under the New Jersey Gross Income Tax ("GIT")
statute, in accordance with N.J.S.A. 54A:6-14.1 and N.J.A.C. 18:35-1.24. A
"qualified investment fund" is any investment company or trust, or series of
such investment company or trust, registered with the Securities and Exchange
Commission, which for the calendar year in which a distribution is paid, (1) has
no investments other than interest-bearing obligations, obligations issued at a
discount, and cash
C/M 10675.0002 475712.1
<PAGE>
Lebenthal New Jersey Municipal Bond Fund
August 27, 1993
Page 2
and cash items, including receivables, and financial options, futures, forward
contracts, or other similar financial instruments related 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, has at least 80
percent of the aggregate principal amount of all its investments, excluding
financial options, futures, forward contracts, or other similar financial
instruments related to interest-bearing obligations, obligations issued at a
discount or bond indexes related thereto as authorized under section 851(b) of
the Internal Revenue Code of 1986, 26 U.S.C. section 851(b), cash and cash
items, which cash items shall include receivables, invested in Tax Exempt
Obligations, as hereinafter defined.
"Tax Exempt Obligations" are described in N.J.S.A. 54A:6-14
and refer to obligations issued by or on behalf of the State of New Jersey or
any county, municipality, school or other district, agency, authority,
commission, instrumentality, public corporation (including one created or
existing pursuant to agreement or compact with this or any other state), body
corporate and politic or political subdivision of the State of New Jersey, or
obligations that are free from New Jersey state or local taxation under New
Jersey or federal laws.
Also, pursuant to N.J.A.C. 18:35-1.24(e), a qualified
investment fund must certify annually on or before February 15th to the Division
of Taxation on the forms prescribed that for the preceding calendar year the
investment fund is a qualified investment fund because it (1) was registered
with the Securities and Exchange Commission, (2) had 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 related to interest-bearing
obligations, obligations issued at a discount or bond indexes related thereto,
and (3) had not less than 80 percent of the aggregate principal amount of all
its investments, excluding financial options, futures, forward contracts, or
other similar financial instruments related to interest-bearing obligations,
obligations issued at a discount or bond indexes related thereto to the extent
such instruments are authorized by section 851(b) of the federal Internal
Revenue Code of 1986, 26 U.S.C. section 851(b), cash and cash items, which cash
items shall include receivables, in obligations described in N.J.S.A. 54A:6-14
and N.J.A.C. 18:35-1.9(a)1. and 2.
C/M 10675.0002 475712.1
<PAGE>
Lebenthal New Jersey Municipal Bond Fund
August 27, 1993
Page 3
In addition, N.J.A.C. 18:35-1.24(g) provides that pursuant to
N.J.S.A. 54a:8-6, a qualified investment fund must (1) advise the Division of
Taxation as to amounts distributed for the preceding calendar year to
shareholders or beneficiaries from income or gain derived from New Jersey and
federal obligations and (2) advise its shareholders on or before February 15 of
each calendar year that its distributions qualify for exclusion from gross
income pursuant to N.J.A.C. 18:35-1.24.
Our opinion is based upon the assumption that the Fund
qualifies and will continue to maintain its status as a "qualified investment
fund" under New Jersey law. It is also our understanding that interest on the
underlying obligations to be carried by the Fund will be, in the opinion of
counsel to the issuing governmental authorities or by ruling of the United
States Internal Revenue Service at the time of issuance of such obligations,
exempt from all federal income taxes.
Based on the foregoing, under existing New Jersey law
applicable to individuals who are defined to be New Jersey residents under the
GIT and to corporations subject to the New Jersey Corporation Business Tax
("CBT"), we are of the opinion that for the purpose of New Jersey taxation:
1. The Fund, as long as it maintains its status as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, is
subject to the CBT and, pursuant to N.J.S.A. 54:10A-5(d), the CBT to be annually
assessed to and paid by the Fund shall be $250.00.
2. Distributions paid by a "qualified investment company" are
exempt from the GIT, to the extent that the distributions are attributable to
interest or gain from Tax-Exempt Obligations.
3. Gains resulting from the redemption or sale of
shares of the Fund are also exempt from the GIT.
4. The GIT is not applicable to corporations. With
respect to any corporate shareholder of the Fund that is subject
to the CBT, pursuant to N.J.S.A. 54:10A-4(k) (2) (B) and N.J.A.C.
18:7-5.2(A) (2), interest on any bond, including tax exempt bonds
issued by the State of New Jersey, its political subdivisions,
agencies or instrumentalities, is included in the net income tax
base of such corporate shareholder for purposes of computing the
CBT. Furthermore, any gain upon the redemption or sale of shares
C/M 10675.0002 475712.1
<PAGE>
Lebenthal New Jersey Municipal Bond Fund
August 27, 1993
Page 4
by a corporate shareholder is also included in the net income tax
base for purposes of computing the CBT.
5. New Jersey has no personal property tax laws which
would tax either the Tax-Exempt Obligations or any interest
therein.
6. The shares of the Fund may be taxable under the
New Jersey Inheritance Tax Laws.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our firm in such
Registration Statement, the Prospectus and the Statement of Additional
Information included therein.
Very truly yours,
McCarter & English
C/M 10675.0002 475712.1
<PAGE>
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated
January 10, 1997 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. 12 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 "Financial Highlights" and in the
Statement of Additional Information under the caption "Counsel
and Auditors".
McGladrey & Pullen, LLP
New York, New York
March 27, 1997
Coopers Coopers & Lybrand L.L.P.
&Lybrand a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
WE consent to the reference to our Firm under the caption
"Counsel and Auditors" in the Statement of Additional Information
of the Lebenthal Funds, Inc. in this Post-Effective Amendment No.
12 to the Registration Statement on Form N-1A of the Lebenthal
Funds, Inc. (File No. 33-36784).
COOPERS & LYBRAND L.L.P.
New York, New York
March 27, 1997
Coopers & Lybrand L.L.P. a registered limited liability
partnership, is a member firm of Coopers & Lybrand
(International).
December 17, 1990
Board of Directors of
Lebenthal Funds, Inc.
Gentlemen:
We hereby subscribe for 100,000 shares of the Common Stock,
$.001 par value per share, of Lebenthal New York Tax-Free Money Market Fund, the
sole portfolio of Lebenthal Funds, Inc., a Maryland corporation (the
"Corporation"), at $1.00 per share for an aggregate purchase price of $100,000.
Our payment in full is confirmed.
We hereby represent and agree that we are purchasing these
shares of stock for investment purposes, for our own account and risk and not
with a view to any sale, division or other distribution thereof within the
meaning of the Securities Act of 1933 as amended, nor with any present intention
of distributing or selling such shares. We further agree that if any of such
shares are redeemed during the period that the deferred organizational expenses
of the Corporation are being amortized, we will reimburse the Corporation the
then unamortized organizational expenses in the same ratio as the number of
shares redeemed bears to the number of such shares held at the time of
redemption.
Very truly yours,
REICH & TANG L.P.
By: Reich & Tang, Inc.
General Partner
By:______________________
Bernadette N. Finn
Senior Vice President
Confirmed and Accepted:
LEBENTHAL FUNDS, INC.
By:___________________________
471963.1
LEBENTHAL FUNDS, INC.
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
Distribution and Service Plan Pursuant to Rule 12b-1
Under the Investment Company Act of 1940
This Distribution and Service Plan (the "Plan") is adopted by
Lebenthal Funds, Inc. (the "Fund") on behalf of Lebenthal New York Municipal
Bond Fund (the "Portfolio") in accordance with the provisions of Rule 12b-1
under the Investment
Company Act of 1940 (the "Act").
The Plan
1. The Portfolio and Lebenthal & Co., Inc. (the "Distributor")
will enter into a Distribution Agreement, in a form satisfactory to the Fund's
Board of Directors, under which the Distributor acts as distributor of the
Portfolio's shares. Pursuant to the Distribution Agreement, the Distributor, as
agent of the Portfolio, will solicit orders for the purchase of the Portfolio's
shares, provided that any subscriptions and orders for the purchase of the
Portfolio's shares will not be binding on the Fund until accepted by the Fund as
principal.
2. The Distribution Agreement provides that the Distributor
may make payments from time to time from its own resources, which may include
the fee received from the Portfolio under the Distribution Agreement (the
"Distribution Fee"), the management fee received from the Portfolio, management
or
471958.1
<PAGE>
advisory fees received from other investment companies and past profits, for the
following purposes:
(i) to defray the costs of, and to compensate others,
including organizations whose customers or clients are Portfolio
shareholders ("Participating Organizations"), 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 cost 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 Distribution Agreement will further provide that 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
Portfolio is required to pay to the Distributor for any fiscal year under the
Distribution Agreement or the Management Agreement in effect for that year.
-2-
471958.1
<PAGE>
3. The Management Agreement will also require the Manager to
reimburse the Portfolio 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 Portfolio's
shares are qualified for sale.
4. The 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) the cost of preparing, printing and delivering the Portfolio's prospectus
to existing shareholders of the Portfolio and preparing and printing
subscription application forms for shareholder accounts.
5. Payments made by the Distributor to Participating
Organizations for performing shareholder servicing and related administrative
functions or for the purpose of distributing the Portfolio's shares are subject
to compliance by them with the terms of written agreements in a form
satisfactory to the Fund's Board of Directors to be entered into between the
Distributor and the Participating Organization.
6. The Fund and the Distributor will prepare and furnish to
the Fund's Board of Directors, at least quarterly, written reports setting forth
all amounts expended for distribution purposes by the Portfolio and the
Distributor, pursuant to the Plan, and identifying the distribution activities
for which such expenditures were made.
-3-
471958.1
<PAGE>
7. The Plan will become effective immediately upon approval by
(i) a majority of the outstanding voting securities of the Portfolio (as defined
in the Act), and (ii) a majority of the Board of Directors of the Fund,
including a majority of the Directors who are not interested persons (as defined
in the Act) of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreement entered into in connection with
the Plan, pursuant to a vote cast in person at a meeting called for the purpose
of voting on the approval of the Plan.
8. The Plan will remain in effect until ____________, unless
earlier terminated in accordance with its terms, and thereafter may continue in
effect for successive annual periods if approved each year in the manner
described in clause (ii) of paragraph 7 hereof.
9. The Plan may be amended at any time with the approval of
the Board of Directors of the Fund, provided that (i) any material amendments of
the terms of the Plan will be effective only upon approval as provided in clause
(ii) of paragraph 7 hereof, and (ii) any amendment which increases materially
the amount which may be spent by the Fund pursuant to the Plan will be effective
only upon the additional approval as provided in clause (i) of paragraph 7
hereof.
10. The Plan may be terminated without penalty at any
time (i) by a vote of the majority of the entire Board of
Directors of the Fund, (ii) by a vote of a majority of the
-4-
471958.1
<PAGE>
Directors of the Fund who are not interested persons (as defined in the Act) of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan, or (iii) by a vote of a
majority of the outstanding voting securities of the Portfolio (as defined in
the Act).
-5-
471958.1
LEBENTHAL FUNDS, INC.
Lebenthal New Jersey Municipal Bond Fund
Distribution and Service Plan Pursuant to Rule
12b-1 Under the Investment Company Act of 1940
The Plan is adopted by Lebenthal Funds, Inc. (the "Fund"), on
behalf of Lebenthal New Jersey Municipal Bond Fund (the "Portfolio") in
accordance with the provisions of Rule 12b-1 under the Investment Company Act of
1940 (the "Act").
The Plan
1. (a) The Portfolio and Lebenthal & Co., Inc. (the
"Distributor"), have entered into a Distribution Agreement, in a form
satisfactory to the Fund's Board of Directors, under which the Distributor will
act as distributor of the Portfolio's shares. Pursuant to the Distribution
Agreement, the Distributor, for consideration as set forth in the most current
prospectus filed with the Securities and Exchange Commission for the Portfolio
and as agent of the Portfolio, will solicit orders for the purchase of the
Portfolio's shares, provided that any subscriptions and orders for the purchase
of the Portfolio's shares will not be binding on the Portfolio until accepted by
the Portfolio as principal.
(b) In addition, the Distribution Agreement provides
for reimbursement to the Distributor by the Portfolio for its
distribution, promotional and advertising costs incurred in
135382.2
<PAGE>
connection with the distribution of the Portfolio's shares and for its costs
incurred to compensate Participating Organizations (as defined below) for
providing assistance in distributing the Portfolio's shares, all subject to a
maximum amount set forth in such Agreement.
2. The Portfolio and the Distributor have also entered into a
Shareholder Servicing Agreement, in a form satisfactory to the Fund's Board of
Directors, which provides that the Distributor receive a servicing fee set forth
in the Shareholder Servicing Agreement 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 shareholder servicing fee received
to pay the costs of, and to compensate others, including organizations whose
customers or clients are Portfolio shareholders ("Participating Organizations"),
for performing such shareholder servicing functions on behalf of the Portfolio.
3. The Portfolio and the Distributor have entered into a
Management Agreement, in a form satisfactory to the Fund's Board of Directors,
which provides 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
-2-
135382.2
<PAGE>
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 cost 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
salaries and/or commissions of sales personnel of the Distributor and
other persons in connection with the distribution of the Portfolio's
shares.
The Management Agreement will further provide that the Distributor will in its
sole discretion determine the amount of such payments made pursuant to the Plan,
provided that such payments will not increase the amount which the Portfolio is
required to pay to (1) the Manager for any fiscal year under the Management
Contract in effect for that year or (2) to the Distributor under the Shareholder
Servicing Agreement or Distribution Agreement in effect for that year.
4. The 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 the Portfolio's
prospectus
-3-
135382.2
<PAGE>
to existing shareholders of the Portfolio and preparing and printing
subscription application forms for shareholder accounts.
5. Payments by the Distributor to Participating Organizations
for the purposes enumerated herein are subject to compliance by them with the
terms of written agreements in a form satisfactory to the Portfolio's Board of
Directors to be entered into between the Distributor and the Participating
Organizations.
6. The Portfolio and the Distributor will prepare and furnish
to the Portfolio's Board of Directors, at least quarterly, written reports
setting forth all amounts expended by the Portfolio, the Distributor and the
Manager, pursuant to the Plan and identifying the distribution and servicing
activities for which such expenditures were made.
7. The Plan became effective upon approval by (i) a majority
of the outstanding voting securities of the Portfolio (as defined in the Act),
and (ii) a majority of the Board of Directors of the Portfolio, including a
majority of the Directors who are not interested persons (as defined in the Act)
of the Portfolio and who have no direct or indirect financial interest in the
operation of the Plan or in any agreement entered into in connection with the
Plan, pursuant to a vote cast in person at a meeting called for the purpose of
voting on the approval of the Plan.
8. The Plan will remain in effect until October 31,
1994 unless earlier terminated in accordance with its terms, and
thereafter may continue in effect for successive annual periods
-4-
135382.2
<PAGE>
if approved each year in the manner described in clause (ii) of
paragraph 7 hereof.
9. The Plan may be amended at any time with the approval of
the Board of Directors of the Portfolio, provided that (i) any material
amendments of the terms of the Plan will be effective only upon approval as
provided in clause (ii) of paragraph 7 hereof, and (ii) any amendment which
increases materially the amount which may be spent by the Portfolio pursuant to
the Plan will be effective only upon the additional approval as provided in
clause (i) of paragraph 7 hereof.
10. The Plan may be terminated without penalty at any time (i)
by a vote of the majority of the entire Board of Directors of the Portfolio and
by a vote of a majority of the Directors of the Portfolio who are not interested
persons (as defined in the Act) of the Portfolio and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan, or (ii) by a vote of a majority of the outstanding voting
securities of the Portfolio (as defined in the Act).
-5-
135382.2
LEBENTHAL FUNDS, INC.
Lebenthal Taxable Municipal Bond Fund
Distribution and Service Plan Pursuant to Rule
12b-1 Under the Investment Company Act of 1940
The Plan is adopted by Lebenthal Funds, Inc. (the "Fund"), on
behalf of Lebenthal Taxable Municipal Bond Fund (the "Portfolio") in accordance
with the provisions of Rule 12b-1 under the Investment Company Act of 1940 (the
"Act").
The Plan
1. (a) The Portfolio and Lebenthal & Co., Inc. (the
"Distributor"), have entered into a Distribution Agreement, in a form
satisfactory to the Fund's Board of Directors, under which the Distributor will
act as distributor of the Portfolio's shares. Pursuant to the Distribution
Agreement, the Distributor, for consideration as set forth in the most current
prospectus filed with the Securities and Exchange Commission for the Portfolio
and as agent of the Portfolio, will solicit orders for the purchase of the
Portfolio's shares, provided that any subscriptions and orders for the purchase
of the Portfolio's shares will not be binding on the Portfolio until accepted by
the Portfolio as principal.
(b) In addition, the Distribution Agreement provides
for reimbursement to the Distributor by the Portfolio for its
distribution, promotional and advertising costs incurred in
136780.2
<PAGE>
connection with the distribution of the Portfolio's shares, and for its costs
incurred to compensate Participating Organizations (as defined below) for
providing assistance in distributing the Portfolio's shares, all subject to a
maximum amount set forth in such Agreement.
2. The Portfolio and the Distributor have also entered into a
Shareholder Servicing Agreement, in a form satisfactory to the Fund's Board of
Directors, which provides that the Distributor receive a servicing fee set forth
in the Shareholder Servicing Agreement 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 shareholder servicing fee received
to pay the costs of, and to compensate others, including organizations whose
customers or clients are Portfolio shareholders ("Participating Organizations"),
for performing such shareholder servicing functions on behalf of the Portfolio.
3. The Portfolio and the Distributor have entered into a
Management Agreement, in a form satisfactory to the Fund's Board of Directors,
which provides 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
-2-
136780.2
<PAGE>
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 cost 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
salaries and/or commissions of sales personnel of the Distributor and
other persons in connection with the distribution of the Portfolio's
shares.
The Management Agreement will further provide that the Distributor will in its
sole discretion determine the amount of such payments made pursuant to the Plan,
provided that such payments will not increase the amount which the Portfolio is
required to pay to (1) the Manager for any fiscal year under the Management
Contract in effect for that year or (2) to the Distributor under the Shareholder
Servicing Agreement or Distribution Agreement in effect for that year.
4. The 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 the Portfolio's
prospectus
-3-
136780.2
<PAGE>
to existing shareholders of the Portfolio and preparing and printing
subscription application forms for shareholder accounts.
5. Payments by the Distributor to Participating Organizations
for the purposes enumerated herein are subject to compliance by them with the
terms of written agreements in a form satisfactory to the Portfolio's Board of
Directors to be entered into between the Distributor and the Participating
Organizations.
6. The Portfolio and the Distributor will prepare and furnish
to the Portfolio's Board of Directors, at least quarterly, written reports
setting forth all amounts expended by the Portfolio, the Distributor and the
Manager, pursuant to the Plan and identifying the distribution and servicing
activities for which such expenditures were made.
7. The Plan became effective upon approval by (i) a majority
of the outstanding voting securities of the Portfolio (as defined in the Act),
and (ii) a majority of the Board of Directors of the Portfolio, including a
majority of the Directors who are not interested persons (as defined in the Act)
of the Portfolio and who have no direct or indirect financial interest in the
operation of the Plan or in any agreement entered into in connection with the
Plan, pursuant to a vote cast in person at a meeting called for the purpose of
voting on the approval of the Plan.
8. The Plan will remain in effect until October 31, 1994
unless earlier terminated in accordance with its terms, and thereafter may
continue in effect for successive annual periods
-4-
136780.2
<PAGE>
if approved each year in the manner described in clause (ii) of paragraph 7
hereof.
9. The Plan may be amended at any time with the approval of
the Board of Directors of the Portfolio, provided that (i) any material
amendments of the terms of the Plan will be effective only upon approval as
provided in clause (ii) of paragraph 7 hereof, and (ii) any amendment which
increases materially the amount which may be spent by the Portfolio pursuant to
the Plan will be effective only upon the additional approval as provided in
clause (i) of paragraph 7 hereof.
10. The Plan may be terminated without penalty at any time (i)
by a vote of the majority of the entire Board of Directors of the Portfolio and
by a vote of a majority of the Directors of the Portfolio who are not interested
persons (as defined in the Act) of the Portfolio and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan, or (ii) by a vote of a majority of the outstanding voting
securities of the Portfolio (as defined in the Act).
-5-
136780.2
DISTRIBUTION AGREEMENT
LEBENTHAL FUNDS, INC.
(the "Fund")
LEBENTHAL NEW YORK MUNICIPAL BOND FUND
(the "Portfolio")
New York, New York
__________, 1991
Lebenthal & Co., Inc.
25 Broadway - Fourth Floor
New York, New York 10004
Ladies and Gentlemen:
1. In consideration of the agreements on your part herein
contained and of the payment by us to you of an annual fee (the "Distribution
Fee"), determined in accordance with paragraph 11 herein and on the terms and
conditions set forth herein, we have agreed that you shall be, for the period of
this agreement, a distributor, as our agent, for the unsold portion of such
number of shares of the Portfolio, $.001 par value per share, as may be
effectively registered from time to time under the Securities Act of 1933, as
amended (the "1933 Act"). This agreement is being entered into pursuant to the
Distribution and Service Plan (the "Plan") adopted by us in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
2. We hereby agree that you will act as our agent, and hereby
appoint you our agent, to offer, and to solicit offers to subscribe to, the
unsold balance of shares of the Portfolio as shall then be effectively
registered under the Act. All subscriptions for the Portfolio's shares obtained
by you shall be directed to us for acceptance and shall not be binding on us
until accepted by us. You shall have no authority to make binding subscriptions
on our behalf. We reserve the right to sell shares of the Portfolio through
other distributors or directly to investors through subscriptions received by us
at our principal office in New York, New York. The right given to you under this
agreement shall not apply to shares of our common stock issued in connection
with (a) the merger or consolidation of any other investment company with us,
(b) our acquisition by purchase or otherwise of all or substantially all of the
assets or stock of any other investment company, or (c) the reinvestment in the
Portfolio's shares by our stockholders of dividends or
471868.1
<PAGE>
other distributions or any other offering by us of securities to
our stockholders.
3. You will use your best efforts to obtain subscriptions to
shares of the Portfolio upon the terms and conditions contained herein and in
our Prospectus, as in effect from time to time. You will send to us promptly all
subscriptions placed with you. We shall furnish you from time to time, for use
in connection with the offering of shares of the Portfolio, such other
information with respect to us and such shares as you may reasonably request. We
shall supply you with such copies of our Registration Statement and Prospectus,
as in effect from time to time, as you may request. Except as we may authorize
in writing, you are not authorized to give any information or to make any
representation that is not contained in the Registration Statement or
Prospectus, as then in effect. You may use employees, agents and other persons,
at your cost and expense, to assist you in carrying out your obligations
hereunder, but no such employee, agent or other person shall be deemed to be our
agent or have any rights under this agreement. You may sell the Portfolio's
shares to or through qualified brokers, dealers and financial institutions under
selling and servicing agreements provided that no dealer, financial institution
or other person shall be appointed or authorized to act as our agent without our
written consent. You will arrange for organizations whose customers or clients
are shareholders of our corporation ("Participating Organizations") to enter
into agreements with you for providing assistance in distributing the
Portfolio's shares.
4. You may make payments from time to time from your own
resources, which may include the Distribution Fee, the management fee received
from us, management or advisory fees received from other investment companies
and past profits, for the following purposes:
(a) to defray the costs of, and to compensate
others, including participating
organizations with whom you have entered
into written agreements, for performing
shareholder servicing and related
administrative functions on behalf of the
Portfolio;
(b) to compensate certain participating
organizations for providing assistance in
distributing the Portfolio's shares;
(c) to pay the cost of printing and distributing
the Portfolio's prospectus to prospective
investors; and
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471868.1
<PAGE>
(d) 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.
You, in your sole discretion, will determine the amount of such payments,
provided that such payments will not increase the amount which we are required
to pay to you for any fiscal year under the Management Agreement or this
agreement. Such payments will be made only pursuant to written agreements
approved in form and substance by our Board of Directors to be entered into by
you and the Participating Organizations. It is recognized that we shall have no
obligation or liability to you or any Participating Organization for any such
payments under the agreements with Participating Organizations. Our obligation
is solely to make payments to you under the Management Agreement and this
agreement. All sales of our shares effected through you will be made in
compliance with all applicable federal securities laws and regulations and the
Constitution, rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD").
5. We reserve the right to suspend the offering of shares of
the Portfolio at any time, in the absolute discretion of our Board of Directors,
and upon notice of such suspension you shall cease to offer such shares
hereunder.
6. Both of us will cooperate with each other in taking such
action as may be necessary to qualify the Portfolio's shares for sale under the
securities laws of such states as we may designate, provided, that you shall not
be required to register as a broker-dealer or file a consent to service of
process in any such state where you are not now so registered. Pursuant to the
Management Agreement in effect between us and you as Manager, we will pay all
fees and expenses of registering the Portfolio's shares under the Act and of
qualification of such shares, and to the extent necessary, our qualification
under applicable state securities laws. You will pay all expenses relating to
your broker-dealer qualification.
7. We represent to you that our Registration Statement and
Prospectus have been carefully prepared to date in conformity with the
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the SEC thereunder. We represent and warrant to you, as of the date hereof, that
our Registration Statement and Prospectus contain all statements required to be
stated therein in accordance with the 1933 Act and the 1940 Act and the SEC's
rules and regulations thereunder; that all statements of fact contained therein
are or will be true and
-3-
471868.1
<PAGE>
correct at the time indicated or the effective date, as the case may be; and
that neither our Registration Statement nor our Prospectus, when they shall
become effective or be authorized for use, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of shares
of our common stock. We will from time to time file such amendment or amendments
to our Registration Statement and Prospectus as, in the light of future
development, shall, in the opinion of our counsel, be necessary in order to have
our Registration Statement and Prospectus at all times contain all material
facts required to be stated therein or necessary to make any statements therein
not misleading to a purchaser of shares of our common stock. If we shall not
file such amendment or amendments within fifteen days after our receipt of a
written request from you to do so, you may, at your option, terminate this
agreement immediately. We will not file any amendment to our Registration
Statement or Prospectus without giving you reasonable notice thereof in advance;
provided, however, that nothing in this agreement shall in any way limit our
right to file such amendments to our Registration Statement or Prospectus, of
whatever character, as we may deem advisable, such right being in all respects
absolute and unconditional. We represent and warrant to you that any amendment
to our Registration Statement or Prospectus hereafter filed by us will be
carefully prepared in conformity within the requirements of the 1933 Act and the
1940 Act and the SEC's rules and regulations thereunder and will, when it
becomes effective, contain all statements required to be stated therein in
accordance with the 1933 Act and the 1940 Act and the SEC's rules and
regulations thereunder; that all statements of fact contained therein will, when
the same shall become effective, be true and correct; and that no such
amendment, when it becomes effective, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of our
shares.
8. We agree to indemnify, defend and hold you, and any person
who controls you within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which you or
any such controlling person may incur, under the 1933 Act or the 1940 Act, or
under common law or otherwise, arising out of or based upon any alleged untrue
statement or a material fact contained in our Registration Statement or
Prospectus in effect from time to time or arising out of or based upon any
alleged omission to state a material fact required to be stated in either of
them or necessary to make the statements in either of them not misleading;
provided, however, that in no event shall anything
-4-
471868.1
<PAGE>
herein contained be so construed as to protect you against any liability to us
or our security holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of your
duties, or by reason of your reckless disregard of your obligations and duties
under this agreement. Our agreement to indemnify you and any such controlling
person is expressly conditioned upon our being notified of any action brought
against you or any such controlling person, such notification to be given by
letter or by telegram addressed to us at our principal office in New York, New
York, and sent to us by the person against whom such action is brought within
ten days after the summons or other first legal process shall have been served.
The failure so to notify us of any such action shall not relieve us from any
liability which we may have to the person against whom such action is brought
other than on account of our indemnity agreement contained in this paragraph 8.
We will be entitled to assume the defense of any suit brought to enforce any
such claim, and to retain counsel of good standing chosen by us and approved by
you. In the event we do elect to assume the defense of any such suit and retain
counsel of good standing approved by you, the defendant or defendants in such
suit shall bear the fees and expenses of any additional counsel retained by any
of them; but in case we do not elect to assume the defense of any such suit, or
in case you, in good faith, do not approve of counsel chosen by us, we will
reimburse you or the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel retained by
you or them. Our indemnification agreement contained in this paragraph 8 and our
representations and warranties in this agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of you or any
controlling person and shall survive the sale of any shares of our common stock
made pursuant to subscriptions obtained by you. This agreement of indemnity will
inure exclusively to your benefit, to the benefit of your successors and
assigns, and to the benefit of any of your controlling persons and their
successors and assigns. We agree promptly to notify you of the commencement of
any litigation or proceeding against us in connection with the issue and sale of
any shares of our common stock.
9. You agree to indemnify, defend and hold us, our several
officers and directors, and any person who controls us within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any reasonable counsel fees
incurred in connection therewith) which we, our officers or directors, or any
such controlling person may incur under the 1933 Act or under common law or
otherwise, but only to the extent that such liability or expense incurred by us,
our officers or directors or such controlling person shall arise out
-5-
471868.1
<PAGE>
of or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by you to us for use in our Registration
Statement or Prospectus as in effect from time to time, or shall arise out of or
be based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading. Your agreement
to indemnify us, our officers and directors, and any such controlling person is
expressly conditioned upon your being notified of any action brought against us,
our officers or directors or any such controlling person, such notification to
be given by letter or telegram addressed to you at your principal office in New
York, New York, and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal process shall
have been served. You shall have a right to control the defense of such action,
with counsel of your own choosing, satisfactory to us, if such action is based
solely upon such alleged misstatement or omission on your part, and in any other
event you and we, our officers or directors or such controlling person shall
each have the right to participate in the defense or preparation of the defense
of any such action. The failure to so notify you of any such action shall not
relieve you from any liability which you may have to us, to our officers or
directors, or to such controlling person other than on account of your indemnity
agreement contained in this paragraph 9.
10. We agree to advise you immediately:
(a) of any request by the SEC for amendments to
our Registration Statement or Prospectus or for additional
information,
(b) of the issuance by the SEC of any stop order
suspending the effectiveness of our Registration Statement or
Prospectus or the initiation of any proceedings for that purpose,
(c) of the happening of any material event which
makes untrue any statement made in our Registration Statement or Prospectus or
which requires the making of a change in either of them in order to make the
statements therein not misleading, and
(d) of all action of the SEC with respect to any
amendments to our Registration Statement or Prospectus.
11. In consideration of the foregoing we will pay you a fee at
the annual rate of one-quarter of one percent (0.25%) of average daily net
assets of the Portfolio. 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 schedule as you shall request of us in
writing.
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471868.1
<PAGE>
You may waive your right to any fee to which you are entitled hereunder,
provided such waiver is delivered to us in writing.
12. This agreement will become effective on the date hereof
and will remain in effect until _______________ and thereafter for successive
twelve-month periods (computed from each __________), provided that such
continuation is specifically approved at least annually by vote of our Board of
Directors and of a majority of those of our directors who are not interested
persons (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on this agreement.
This agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of our entire Board of Directors, or by a vote of
a majority of our Directors who are not interested persons (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan, or by vote of a majority of
our outstanding voting securities, as defined in the Act, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
13. 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 SEC thereunder.
14. 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 directors, officers or employees, who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the 1940 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 another
corporation, firm, individual or association.
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471868.1
<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:
_________________, 199__
Lebenthal & Co., Inc.
By:_________________________
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471868.1
DISTRIBUTION AGREEMENT
LEBENTHAL FUNDS, INC.
Lebenthal New Jersey Municipal Bond Fund (the "Portfolio")
25 Broadway
New York, New York 10004
November 10, 1993
Lebenthal & Co., Inc.
25 Broadway
New York, New York 10004
Gentlemen:
1. In consideration of the agreements on your part herein
contained and of the payment by us to you of the sales load reflected in our
most recent prospectus and the reimbursement provided for below and on the terms
and conditions set forth herein, we have agreed that you shall be, for the
period of this agreement, the distributor, as our agent, for the unsold portion
of such number of shares of the Portfolio, $.001 par value per share, as may be
effectively registered from time to time under the Securities Act of 1933, as
amended (the "1933 Act"). This agreement is being entered into pursuant to the
Distribution and Service Plan (the "Plan") adopted by us in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
2. (a) We hereby agree that you shall be reimbursed for
distribution, promotional and advertising costs incurred in connection with the
distribution of Portfolio shares and for costs incurred to compensate
Participating Organizations (as defined herein) for providing assistance in
distributing the Portfolio's shares in an amount not to exceed in the aggregate
.10% per annum of the Portfolio's average daily net assets.
(b) In addition, the Portfolio will pay for (i)
telecommunications expenses, including the cost of dedicated lines and CRT
terminals, incurred by you in carrying out your obligations under the
Shareholder Servicing Agreement and (ii) typesetting, printing and delivering
the Portfolio's prospectus to existing shareholders of the Portfolio and
preparing and printing subscription application forms for shareholder accounts.
3. We hereby agree that you will act as our agent, and hereby
appoint you our agent, to offer, and to solicit offers to subscribe to, the
unsold balance of shares of the Portfolio as shall then be effectively
registered under the 1933 Act. All subscriptions for the Portfolio's shares
obtained by you shall be
135412.2
<PAGE>
directed to us for acceptance and shall not be binding on us until accepted by
us. You shall have no authority to make binding subscriptions on our behalf. We
reserve the right to sell shares of the Portfolio through other distributors or
directly to investors through subscriptions received by us at our principal
office in New York, New York. The right given to you under this agreement shall
not apply to any shares of our common stock issued in connection with (a) the
merger or consolidation of any other investment company with us, (b) our
acquisition by purchase or otherwise of all or substantially all of the assets
or stock of any other investment company, or (c) the reinvestment in the
Portfolio's shares by our stockholders of dividends or other distributions or
any other offering by us of securities to our stockholders.
4. You will use your best efforts to obtain subscriptions to
shares of the Portfolio upon the terms and conditions contained herein and in
our Prospectus, as in effect from time to time. You will send to us promptly all
subscriptions placed with you. We shall furnish you from time to time, for use
in connection with the offering of shares of the Portfolio such other
information with respect to us and shares of as you may reasonably request. We
shall supply you with such copies of our Registration Statement and Prospectus,
as in effect from time to time, as you may request. Except as we may authorize
in writing, you are not authorized to give any information or to make any
representation that is not contained in the Registration Statement or
Prospectus, as then in effect. You may use employees, agents and other persons,
at your cost and expense, to assist you in carrying out your obligations
hereunder, but no such employee, agent or other person shall be deemed to be our
agent or have any rights under this Agreement. You may sell the Portfolio's
shares to or through qualified brokers, dealers and financial institutions under
selling and servicing agreements provided that no dealer, financial institution
or other person shall be appointed or authorized to act as our agent without our
written consent. We acknowledge that you as Distributor and as Manager (the
"Manager") to the Portfolio pursuant to the Shareholder Servicing Agreement, the
Management Agreement and this Agreement with the Portfolio may arrange for
organizations whose customers or clients are shareholders of our corporation
("Participating Organizations") to enter into agreements with you as the
Distributor pursuant to which the Participating Organizations will be
compensated directly by the Distributor for providing assistance in the
distribution of our shares and/or for the performance of shareholder servicing
and related administrative functions not performed by the Manager, the
Distributor, the Administrator or the Transfer Agent. Such payments will be made
only pursuant to written agreements approved in form and substance by our Board
of Directors to be entered into by the Distributor and the Participating
Organizations. It is recognized that we shall have
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135412.2
<PAGE>
no obligation or liability to you, them or any Participating Organization for
any such payments under the agreements with Participating Organizations. Our
obligation is solely to make payments to the Manager under the Management
Agreement and to the Distributor under the Shareholder Servicing Agreement and
hereunder. All sales of our shares effected through you will be made in
compliance with all applicable federal securities laws and regulations and the
Constitution, rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD").
5. We reserve the right to suspend the offering of shares of
the Portfolio at any time, in the absolute discretion of our Board of Directors,
and upon notice of such suspension you shall cease to offer such shares
hereunder.
6. Both of us will cooperate with each other in taking such
action as may be necessary to qualify the Portfolio's shares for sale under the
securities laws of such states as we may designate, provided, that you shall not
be required to register as a broker-dealer or file a consent to service of
process in any such state where you are not now so registered. Pursuant to the
Management Agreement between us and the Manager, we will pay all fees and
expenses of registering the Portfolio's shares under the 1933 Act and of
qualification of such, and to the extent necessary, our qualification under
applicable state securities laws. You will pay all expenses relating to your
broker-dealer qualification.
7. We represent to you that our Registration Statement and
Prospectus have been carefully prepared to date in conformity with the
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Securities and Exchange Commission (the "SEC") thereunder. We represent and
warrant to you, as of the date hereof, that our Registration Statement and
Prospectus contain all statements required to be stated therein in accordance
with the 1933 Act and the 1940 Act and the SEC's rules and regulations
thereunder; that all statements of fact contained therein are or will be true
and correct at the time indicated or the effective date, as the case may be; and
that neither our Registration Statement nor our Prospectus, when they shall
become effective or be authorized for use, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of shares
of our common stock. We will from time to time file such amendment or amendments
to our Registration Statement and Prospectus as, in the light of future
development, shall, in the opinion of our counsel, be necessary in order to have
our Registration Statement and Prospectus at all times contain all material
facts required to be stated therein or necessary to make any statements therein
not misleading to a purchaser of shares of our common stock. If we shall not
file such amendment or amendments within fifteen
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135412.2
<PAGE>
days after our receipt of a written request from you to do so, you may, at your
option, terminate this agreement immediately. We will not file any amendment to
our Registration Statement or Prospectus without giving you reasonable notice
thereof in advance; provided, however, that nothing in this agreement shall in
any way limit our right to file such amendments to our Registration Statement or
Prospectus, of whatever character, as we may deem advisable, such right being in
all respects absolute and unconditional. We represent and warrant to you that
any amendment to our Registration Statement or Prospectus hereafter filed by us
will be carefully prepared in conformity within the requirements of the 1933 Act
and the 1940 Act and the SEC's rules and regulations thereunder and will, when
it becomes effective, contain all statements required to be stated therein in
accordance with the 1933 Act and the 1940 Act and the SEC's rules and
regulations thereunder; that all statements of fact contained therein will, when
the same shall become effective, be true and correct; and that no such
amendment, when it becomes effective, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of our
shares.
8. We agree to indemnify, defend and hold you, and any person
who controls you within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which you or
any such controlling person may incur, under the 1933 Act or the 1940 Act, or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in our Registration Statement or
Prospectus in effect from time to time or arising out of or based upon any
alleged omission to state a material fact required to be stated in either of
them or necessary to make the statements in either of them not misleading;
provided, however, that in no event shall anything herein contained be so
construed as to protect you against any liability to us or our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of your duties, or by reason of
your reckless disregard of your obligations and duties under this agreement. Our
agreement to indemnify you and any such controlling person is expressly
conditioned upon our being notified of any action brought against you or any
such controlling person, such notification to be given by letter or by telegram
addressed to us at our principal office in New York, New York, and sent to us by
the person against whom such action is brought within ten days after the summons
or other first legal process shall have been served. The failure so to notify us
of any such action shall not relieve us from any liability which we may have to
the person against whom such action is brought other
-4-
135412.2
<PAGE>
than on account of our indemnity agreement contained in this paragraph 8. We
will be entitled to assume the defense of any suit brought to enforce any such
claim, and to retain counsel of good standing chosen by us and approved by you.
In the event we do elect to assume the defense of any such suit and retain
counsel of good standing approved by you, the defendant or defendants in such
suit shall bear the fees and expenses of any additional counsel retained by any
of them; but in case we do not elect to assume the defense of any such suit, or
in case you, in good faith, do not approve of counsel chosen by us, we will
reimburse you or the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel retained by
you or them. Our indemnification agreement contained in this paragraph 8 and our
representations and warranties in this Agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of you or any
controlling person and shall survive the sale of any shares of our common stock
made pursuant to subscriptions obtained by you. This agreement of indemnity will
inure exclusively to your benefit, to the benefit of your successors and
assigns, and to the benefit of any of your controlling persons and their
successors and assigns. We agree promptly to notify you of the commencement of
any litigation or proceeding against us in connection with the issue and sale of
any shares of our common stock.
9. You agree to indemnify, defend and hold us, our several
officers and directors, and any person who controls us within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any reasonable counsel fees
incurred in connection therewith) which we, our officers or directors, or any
such controlling person may incur under the 1933 Act or under common law or
otherwise, but only to the extent that such liability or expense incurred by us,
our officers or directors or such controlling person shall arise out of or be
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by you to us for use in our Registration
Statement or Prospectus as in effect from time to time, or shall arise out of or
be based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading. Your agreement
to indemnify us, our officers and directors, and any such controlling person is
expressly conditioned upon your being notified of any action brought against us,
our officers or directors or any such controlling person, such notification to
be given by letter or telegram addressed to you at your principal office in New
York, New York, and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal
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135412.2
<PAGE>
process shall have been served. You shall have a right to control the defense of
such action, with counsel of your own choosing, satisfactory to us, if such
action is based solely upon such alleged misstatement or omission on your part,
and in any other event you and we, our officers or directors or such controlling
person shall each have the right to participate in the defense or preparation of
the defense of any such action. The failure so to notify you of any such action
shall not relieve you from any liability which you may have to us, to our
officers or directors, or to such controlling person other than on account of
your indemnity agreement contained in this paragraph 9.
10. We agree to advise you immediately:
(a) of any request by the SEC for amendments to
our Registration Statement or Prospectus or for additional
information,
(b) of the issuance by the SEC of any stop order
suspending the effectiveness of our Registration Statement or
Prospectus or the initiation of any proceedings for that purpose,
(c) of the happening of any material event which
makes untrue any statement made in our Registration Statement or Prospectus or
which requires the making of a change in either of them in order to make the
statements therein not misleading, and
(d) of all action of the SEC with respect to any
amendments to our Registration Statement or Prospectus.
11. This Agreement will become effective on the date hereof
and will remain in effect until October 31, 1994 and thereafter for successive
twelve-month periods (computed from each November 1), provided that such
continuation is specifically approved at least annually by vote of our Board of
Directors and of a majority of those of our directors who are not interested
persons (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on this Agreement.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of our entire Board of Directors and by a vote of
a majority of our Directors who are not interested persons (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan, or by vote of a majority of
our outstanding voting securities, as defined in the Act, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
12. This Agreement may not be transferred, assigned,
sold or in any manner hypothecated or pledged by you and this
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135412.2
<PAGE>
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
SEC thereunder.
13. 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, directors or employees who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the 1940 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 another
corporation, firm, individual or association.
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:
Name:
Title:
Accepted:
November 10, 1993
Lebenthal & Co., Inc.
By: __________________________
Name:
Title:
-7-
135412.2
DISTRIBUTION AGREEMENT
LEBENTHAL FUNDS, INC.
Lebenthal Taxable Municipal Bond Fund (the "Portfolio")
25 Broadway
New York, New York 10004
November 10, 1993
Lebenthal & Co., Inc.
25 Broadway
New York, New York 10004
Gentlemen:
1. In consideration of the agreements on your part herein
contained and of the payment by us to you of the sales load reflected in our
most recent prospectus and the reimbursement provided for below and on the terms
and conditions set forth herein, we have agreed that you shall be, for the
period of this agreement, the distributor, as our agent, for the unsold portion
of such number of shares of the Portfolio, $.001 par value per share, as may be
effectively registered from time to time under the Securities Act of 1933, as
amended (the "1933 Act"). This agreement is being entered into pursuant to the
Distribution and Service Plan (the "Plan") adopted by us in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
2. (a) We hereby agree that you shall be reimbursed for
distribution, promotional and advertising costs incurred in connection with the
distribution of Portfolio shares and for costs incurred to compensate
Participating Organizations (as defined herein) for providing assistance in
distributing the Portfolio's shares in an amount not to exceed in the aggregate
.10% per annum of the Portfolio's average daily net assets.
(b) In addition, the Portfolio will pay for (i)
telecommunications expenses, including the cost of dedicated lines and CRT
terminals, incurred by you in carrying out your obligations under the
Shareholder Servicing Agreement and (ii) typesetting, printing and delivering
the Portfolio's prospectus to existing shareholders of the Portfolio and
preparing and printing subscription application forms for shareholder accounts.
3. We hereby agree that you will act as our agent, and hereby
appoint you our agent, to offer, and to solicit offers to subscribe to, the
unsold balance of shares of the Portfolio as shall then be effectively
registered under the 1933 Act. All subscriptions for the Portfolio's shares
obtained by you shall be
136791.2
<PAGE>
directed to us for acceptance and shall not be binding on us until accepted by
us. You shall have no authority to make binding subscriptions on our behalf. We
reserve the right to sell shares of the Portfolio through other distributors or
directly to investors through subscriptions received by us at our principal
office in New York, New York. The right given to you under this agreement shall
not apply to any shares of our common stock issued in connection with (a) the
merger or consolidation of any other investment company with us, (b) our
acquisition by purchase or otherwise of all or substantially all of the assets
or stock of any other investment company, or (c) the reinvestment in the
Portfolio's shares by our stockholders of dividends or other distributions or
any other offering by us of securities to our stockholders.
4. You will use your best efforts to obtain subscriptions to
shares of the Portfolio upon the terms and conditions contained herein and in
our Prospectus, as in effect from time to time. You will send to us promptly all
subscriptions placed with you. We shall furnish you from time to time, for use
in connection with the offering of shares of the Portfolio such other
information with respect to us and shares of as you may reasonably request. We
shall supply you with such copies of our Registration Statement and Prospectus,
as in effect from time to time, as you may request. Except as we may authorize
in writing, you are not authorized to give any information or to make any
representation that is not contained in the Registration Statement or
Prospectus, as then in effect. You may use employees, agents and other persons,
at your cost and expense, to assist you in carrying out your obligations
hereunder, but no such employee, agent or other person shall be deemed to be our
agent or have any rights under this Agreement. You may sell the Portfolio's
shares to or through qualified brokers, dealers and financial institutions under
selling and servicing agreements provided that no dealer, financial institution
or other person shall be appointed or authorized to act as our agent without our
written consent. We acknowledge that you as Distributor and as Manager (the
"Manager") to the Portfolio pursuant to the Shareholder Servicing Agreement, the
Management Agreement and this Agreement with the Portfolio may arrange for
organizations whose customers or clients are shareholders of our corporation
("Participating Organizations") to enter into agreements with you as the
Distributor pursuant to which the Participating Organizations will be
compensated directly by the Distributor for providing assistance in the
distribution of our shares and/or for the performance of shareholder servicing
and related administrative functions not performed by the Manager, the
Distributor, the Administrator or the Transfer Agent. Such payments will be made
only pursuant to written agreements approved in form and substance by our Board
of Directors to be entered into by the Distributor and the Participating
Organizations. It is recognized that we shall have
-2-
136791.2
<PAGE>
no obligation or liability to you, them or any Participating Organization for
any such payments under the agreements with Participating Organizations. Our
obligation is solely to make payments to the Manager under the Management
Agreement and to the Distributor under the Shareholder Servicing Agreement and
hereunder. All sales of our shares effected through you will be made in
compliance with all applicable federal securities laws and regulations and the
Constitution, rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD").
5. We reserve the right to suspend the offering of shares of
the Portfolio at any time, in the absolute discretion of our Board of Directors,
and upon notice of such suspension you shall cease to offer such shares
hereunder.
6. Both of us will cooperate with each other in taking such
action as may be necessary to qualify the Portfolio's shares for sale under the
securities laws of such states as we may designate, provided, that you shall not
be required to register as a broker-dealer or file a consent to service of
process in any such state where you are not now so registered. Pursuant to the
Management Agreement between us and the Manager, we will pay all fees and
expenses of registering the Portfolio's shares under the 1933 Act and of
qualification of such, and to the extent necessary, our qualification under
applicable state securities laws. You will pay all expenses relating to your
broker-dealer qualification.
7. We represent to you that our Registration Statement and
Prospectus have been carefully prepared to date in conformity with the
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Securities and Exchange Commission (the "SEC") thereunder. We represent and
warrant to you, as of the date hereof, that our Registration Statement and
Prospectus contain all statements required to be stated therein in accordance
with the 1933 Act and the 1940 Act and the SEC's rules and regulations
thereunder; that all statements of fact contained therein are or will be true
and correct at the time indicated or the effective date, as the case may be; and
that neither our Registration Statement nor our Prospectus, when they shall
become effective or be authorized for use, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of shares
of our common stock. We will from time to time file such amendment or amendments
to our Registration Statement and Prospectus as, in the light of future
development, shall, in the opinion of our counsel, be necessary in order to have
our Registration Statement and Prospectus at all times contain all material
facts required to be stated therein or necessary to make any statements therein
not misleading to a purchaser of shares of our common stock. If we shall not
file such amendment or amendments within fifteen
-3-
136791.2
<PAGE>
days after our receipt of a written request from you to do so, you may, at your
option, terminate this agreement immediately. We will not file any amendment to
our Registration Statement or Prospectus without giving you reasonable notice
thereof in advance; provided, however, that nothing in this agreement shall in
any way limit our right to file such amendments to our Registration Statement or
Prospectus, of whatever character, as we may deem advisable, such right being in
all respects absolute and unconditional. We represent and warrant to you that
any amendment to our Registration Statement or Prospectus hereafter filed by us
will be carefully prepared in conformity within the requirements of the 1933 Act
and the 1940 Act and the SEC's rules and regulations thereunder and will, when
it becomes effective, contain all statements required to be stated therein in
accordance with the 1933 Act and the 1940 Act and the SEC's rules and
regulations thereunder; that all statements of fact contained therein will, when
the same shall become effective, be true and correct; and that no such
amendment, when it becomes effective, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of our
shares.
8. We agree to indemnify, defend and hold you, and any person
who controls you within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which you or
any such controlling person may incur, under the 1933 Act or the 1940 Act, or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in our Registration Statement or
Prospectus in effect from time to time or arising out of or based upon any
alleged omission to state a material fact required to be stated in either of
them or necessary to make the statements in either of them not misleading;
provided, however, that in no event shall anything herein contained be so
construed as to protect you against any liability to us or our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of your duties, or by reason of
your reckless disregard of your obligations and duties under this agreement. Our
agreement to indemnify you and any such controlling person is expressly
conditioned upon our being notified of any action brought against you or any
such controlling person, such notification to be given by letter or by telegram
addressed to us at our principal office in New York, New York, and sent to us by
the person against whom such action is brought within ten days after the summons
or other first legal process shall have been served. The failure so to notify us
of any such action shall not relieve us from any liability which we may have to
the person against whom such action is brought other
-4-
136791.2
<PAGE>
than on account of our indemnity agreement contained in this paragraph 8. We
will be entitled to assume the defense of any suit brought to enforce any such
claim, and to retain counsel of good standing chosen by us and approved by you.
In the event we do elect to assume the defense of any such suit and retain
counsel of good standing approved by you, the defendant or defendants in such
suit shall bear the fees and expenses of any additional counsel retained by any
of them; but in case we do not elect to assume the defense of any such suit, or
in case you, in good faith, do not approve of counsel chosen by us, we will
reimburse you or the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel retained by
you or them. Our indemnification agreement contained in this paragraph 8 and our
representations and warranties in this Agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of you or any
controlling person and shall survive the sale of any shares of our common stock
made pursuant to subscriptions obtained by you. This agreement of indemnity will
inure exclusively to your benefit, to the benefit of your successors and
assigns, and to the benefit of any of your controlling persons and their
successors and assigns. We agree promptly to notify you of the commencement of
any litigation or proceeding against us in connection with the issue and sale of
any shares of our common stock.
9. You agree to indemnify, defend and hold us, our several
officers and directors, and any person who controls us within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any reasonable counsel fees
incurred in connection therewith) which we, our officers or directors, or any
such controlling person may incur under the 1933 Act or under common law or
otherwise, but only to the extent that such liability or expense incurred by us,
our officers or directors or such controlling person shall arise out of or be
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by you to us for use in our Registration
Statement or Prospectus as in effect from time to time, or shall arise out of or
be based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading. Your agreement
to indemnify us, our officers and directors, and any such controlling person is
expressly conditioned upon your being notified of any action brought against us,
our officers or directors or any such controlling person, such notification to
be given by letter or telegram addressed to you at your principal office in New
York, New York, and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal
-5-
136791.2
<PAGE>
process shall have been served. You shall have a right to control the defense of
such action, with counsel of your own choosing, satisfactory to us, if such
action is based solely upon such alleged misstatement or omission on your part,
and in any other event you and we, our officers or directors or such controlling
person shall each have the right to participate in the defense or preparation of
the defense of any such action. The failure so to notify you of any such action
shall not relieve you from any liability which you may have to us, to our
officers or directors, or to such controlling person other than on account of
your indemnity agreement contained in this paragraph 9.
10. We agree to advise you immediately:
(a) of any request by the SEC for amendments to
our Registration Statement or Prospectus or for additional
information,
(b) of the issuance by the SEC of any stop order
suspending the effectiveness of our Registration Statement or
Prospectus or the initiation of any proceedings for that purpose,
(c) of the happening of any material event which
makes untrue any statement made in our Registration Statement or Prospectus or
which requires the making of a change in either of them in order to make the
statements therein not misleading, and
(d) of all action of the SEC with respect to any
amendments to our Registration Statement or Prospectus.
11. This Agreement will become effective on the date hereof
and will remain in effect until October 31, 1994 and thereafter for successive
twelve-month periods (computed from each November 1), provided that such
continuation is specifically approved at least annually by vote of our Board of
Directors and of a majority of those of our directors who are not interested
persons (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on this Agreement.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of our entire Board of Directors and by a vote of
a majority of our Directors who are not interested persons (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan, or by vote of a majority of
our outstanding voting securities, as defined in the Act, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
12. This Agreement may not be transferred, assigned,
sold or in any manner hypothecated or pledged by you and this
-6-
136791.2
<PAGE>
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
SEC thereunder.
13. 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, directors or employees who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the 1940 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 another
corporation, firm, individual or association.
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:
Name:
Title:
Accepted:
November 10, 1993
Lebenthal & Co., Inc.
By: __________________________
Name:
Title:
-7-
136791.2
SHAREHOLDER SERVICING AGREEMENT
LEBENTHAL FUNDS, INC. (the "Fund")
Lebenthal New Jersey Municipal Bond Fund (the "Portfolio")
New York, New York
Lebenthal & Co., Inc.
25 Broadway
New York, New York 10004
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We hereby employ you, pursuant to the Distribution and
Service Plan dated August __, 1993, adopted by us in accordance with Rule 12b-1
(the "Plan") under the Investment Company Act of 1940, as amended (the "Act"),
to provide the services listed below:
(a) You will perform, or arrange for others including
organizations whose customers or clients are shareholders of our corporation
(the "Participating Organizations") to perform, all shareholder servicing
functions not performed by us or by our Transfer Agent. You may make payments
from time to time from your own resources, which may include any Shareholder
Servicing Fees (as defined below) received under this Agreement, the management
fee received from us and past profits, to defray the costs of, and to compensate
others, including Participating Organizations with whom you have entered into
written agreements, for performing shareholder servicing and maintenance of
shareholder accounts.
(b) In consideration of the foregoing we will pay you a fee at
the annual rate of one quarter of one percent (0.25%) of the Portfolio's average
daily net assets (the "Shareholder Servicing Fee"). 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 schedule as you
shall request 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.
You will in your sole discretion determine the amount of any payments made by
you pursuant to this Agreement, and you may from time to time in your sole
discretion increase or decrease the amount of such payments; provided, however,
that no such payment will increase the amount which we are required to pay to
you under either this Agreement or any management agreement or distribution
agreement between you and us, or otherwise.
2. You will be responsible for the payment of all
expenses incurred by you in rendering the foregoing services,
except that we will pay (i) telecommunications expenses,
135411.1
<PAGE>
including the cost of dedicated lines and CRT terminals, incurred by you and
Participating Organizations in rendering such services, and (ii) the cost of
typesetting, printing and delivering our prospectus to existing shareholders of
the Portfolio and of preparing and printing subscription application forms for
shareholder accounts. Our obligation to be responsible for the expenses
enumerated in this paragraph 2 is limited to an amount equal to .05% per annum
of the Portfolio's average daily net assets.
3. Payments to Participating Organizations to compensate them
for distributing our shares and/or providing shareholder servicing and related
administrative functions are subject to compliance by them with the terms of
written agreements satisfactory to our Board of Directors to be entered into
between you and the Participating Organizations.
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
shareholders 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. This Agreement will become effective on the date hereof and
will remain in effect until __________, 1994 and thereafter for successive
twelve-month periods (computed from each August 1), provided that such
continuation is specifically approved at least annually by vote of our Board of
Directors and of a majority of those of our directors who are not interested
persons (as defined in the Act) and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on this Agreement.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of our entire Board of Directors, or by a vote of
a majority of our Directors who are not interested persons (as defined in the
Act) and who have no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan, or by vote of a majority of
our outstanding voting securities, as defined in the Act, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
6. 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
-2-
135411.1
<PAGE>
law and in applicable rules or regulations of the Securities and
Exchange Commission thereunder.
7. 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, directors or employees 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 another
corporation, firm, individual or association.
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:
Name:
Title:
ACCEPTED: ________ __, 1993
LEBENTHAL & CO., INC.
By: _________________________
Name:
Title:
-3-
135411.1
SHAREHOLDER SERVICING AGREEMENT
LEBENTHAL FUNDS, INC. (the "Fund")
Lebenthal Taxable Municipal Bond Fund (the "Portfolio")
New York, New York
Lebenthal & Co., Inc.
25 Broadway
New York, New York 10004
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We hereby employ you, pursuant to the Distribution and
Service Plan adopted by us in accordance with Rule 12b-1 (the "Plan") under the
Investment Company Act of 1940, as amended (the "Act"), to provide the services
listed below:
(a) You will perform, or arrange for others including
organizations whose customers or clients are shareholders of our corporation
(the "Participating Organizations") to perform, all shareholder servicing
functions and maintenance of shareholder accounts not performed by us or by our
Transfer Agent ("Shareholder Services"). You may make payments from time to time
from any Shareholder Servicing Fees (as defined below) received under this
Agreement, to defray the costs of, and to compensate others, including
Participating Organizations with whom you have entered into written agreements,
for performing Shareholder Services.
(b) In consideration of your performance of the Shareholder
Services, we will pay you a service fee, as defined by Article III, Section
26(b)(9) of the Rules of Fair Practice, as amended, of the National Association
of Securities Dealers, Inc., at the annual rate of one quarter of one percent
(0.25%) of the Portfolio's average daily net assets (the "Shareholder Servicing
Fee"). 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 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.
(c) You will in your sole discretion determine the amount of
any payments made by you pursuant to this Agreement, and you may from time to
time in your sole discretion increase or decrease the amount of such payments;
provided, however, that no such payment will increase the amount which we are
required to pay to you under either this Agreement or any management agreement
or distribution agreement between you and us, or otherwise.
136786.2
<PAGE>
2. You will be responsible for the payment of all expenses
incurred by you in rendering the foregoing services, except that we will pay (i)
telecommunications expenses, including the cost of dedicated lines and CRT
terminals, incurred by you and Participating Organizations in rendering such
services, and (ii) the cost of typesetting, printing and delivering our
prospectus to existing shareholders of the Portfolio and of preparing and
printing subscription application forms for shareholder accounts. Our obligation
to be responsible for the expenses enumerated in this paragraph 2 is limited to
an amount equal to .05% per annum of the Portfolio's average daily net assets.
3. Payments to Participating Organizations to compensate them
for distributing our shares and/or providing shareholder servicing and related
administrative functions are subject to compliance by them with the terms of
written agreements satisfactory to our Board of Directors to be entered into
between you and the Participating Organizations.
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
shareholders 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. This Agreement will become effective on the date hereof and
will remain in effect until October 31, 1994 and thereafter for successive
twelve-month periods (computed from each November 1), provided that such
continuation is specifically approved at least annually by vote of our Board of
Directors and of a majority of those of our directors who are not interested
persons (as defined in the Act) and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on this Agreement.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of our entire Board of Directors, and by a vote
of a majority of our Directors who are not interested persons (as defined in the
Act) and who have no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan, or by vote of a majority of
our outstanding voting securities, as defined in the Act, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
6. 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
-2-
136786.2
<PAGE>
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 thereunder.
7. 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, directors or employees 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 another
corporation, firm, individual or association.
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:
Name:
Title:
ACCEPTED: November 10, 1993
LEBENTHAL & CO., INC.
By: _________________________
Name:
Title:
-3-
136786.2
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial
information extracted from the financial
statements and supporting schedules as of
the end of the most current period and is
qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000867832
<NAME> LEBENTHAL NEW YORK MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 1
<NAME> NEW YORK
<S> <C>
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 113056069
<INVESTMENTS-AT-VALUE> 120286939
<RECEIVABLES> 2922894
<ASSETS-OTHER> 14160
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123223993
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 612680
<TOTAL-LIABILITIES> 612680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 117302879
<SHARES-COMMON-STOCK> 15156501
<SHARES-COMMON-PRIOR> 13216773
<ACCUMULATED-NII-CURRENT> 9452
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