SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 X
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PRE-EFFECTIVE AMENDMENT NO. 1 X
POST-EFFECTIVE AMENDMENT NO. __
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
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PRE-EFFECTIVE AMENDMENT NO. 1 X
POST-EFFECTIVE AMENDMENT NO. __
MILLENIUM TAX-FREE INCOME FUND, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
45 ESSEX STREET, MILLBURN, NEW JERSEY 07041
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
973-379-0300
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
JOHN C. SABO
C/O RICKEL SECURITIES, INC.
45 ESSEX STREET
MILLBURN, NEW JERSEY 07041
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(NAME AND ADDRESS OF AGENT FOR SERVICE)
AS SOON AS PRACTICABLE FOLLOWING EFFECTIVENESS OF THIS REGISTRATION STATEMENT
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(APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING)
Title of Securities Being Registered .................Class A and C Common Stock
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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FORM N-1A
MILLENIUM TAX-FREE INCOME FUND, INC.-
CLASS A AND CLASS C SHARES
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 AND
UNDER THE INVESTMENT COMPANY ACT OF 1940.
CROSS REFERENCE SHEET
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N-1A
ITEM
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NO. PROSPECTUS CAPTION OR PLACEMENT
- -- -------------------------------
1 Front Cover
2 Summary (includes expense table)
3 (Not Applicable)
4 Summary; Investment Objective and Policies
5 Special Considerations; Adviser and Distributor; Distribution Plans;
Purchase of Shares; Summary
5A (Not Applicable)
6 Summary; Shareholder Inquiries; Dividends and Distributions; Federal
Income Taxes; Fund Shares
7 Purchase of Shares; Determining the Price of Shares
8 Redemption of Shares
9 (Not Applicable)
PART B CAPTION OR PLACEMENT
10 Cover Page
11 Table of Contents
12 (Not Applicable)
13 Fundamental Investment Restrictions; Municipal Obligations; Temporary
Investments; Portfolio Transactions
14 Directors and Officers; Directors Compensation Schedule.
15 (Not Applicable)
16 Investment Advisory Services; Custodian; Auditors; Determining the
Price of Shares; Distribution of Fund Shares
17 Portfolio Transactions
18 *
19 Determining the Price of Shares; Reduction of Class A Sales Charge
20 *
21 *
22 Performance Data
23 (Not Applicable)
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* INCLUDED IN PROSPECTUS
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PROSPECTUS __________, 1998
CLASS A AND CLASS C
MILLENIUM TAX-FREE INCOME FUND, INC.
P.O. BOX 844
CONSHOHOCKEN, PA 19428-0844
MINIMUM INVESTMENT PLANS AVAILABLE
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Initial Purchase $5,000 (Class A) Automatic Investment Plan
Initial Purchase $25,000 (Class C) Automatic Withdrawals Plan
Subsequent Investment $250
Millenium Tax-Free Income Fund, Inc. (the "Fund") seeks to provide
current income free from federal income tax by investing in debt obligations
issued by state and local governments or their agencies or instrumentalities
("municipal obligations"). See "Investment Objectives and Policies."
The Fund offers two classes of shares, Class A and C, each having
different expense levels and sales charges. These alternatives permit you to
choose the method of purchasing shares that is most beneficial to you, depending
on the amount of the purchase, the length of time you expect to hold the shares
and other circumstances.
This Prospectus concisely sets forth information about the Class A and
Class C shares for the Fund that prospective investors should know before
investing. It should be read carefully and retained for future reference. A
Statement of Additional Information dated ______, 1998, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. A
copy of this Statement and other information about the Fund may be obtained
without charge by writing to or calling the Fund at the above address or
telephone number.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND 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.
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TABLE OF CONTENTS
Summary....................................................................
Special Considerations.....................................................
Investment Objective and Policies..........................................
Adviser and Distributor....................................................
Distribution Plans.........................................................
Purchase of Shares.........................................................
Redemption of Shares.......................................................
Additional Information About Redemptions...................................
Determining the Price of Shares............................................
Dividends and Distributions................................................
Federal Income Taxes.......................................................
Fund Shares................................................................
Performance Data...........................................................
Shareholder Inquiries......................................................
Appendix -- Quality Ratings of Debt Securities.............................
Terms and Conditions for a Statement of Intention (Class A Shares Only) ...
Expedited Redemption Privilege.............................................
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SUMMARY
FUND EXPENSES. The following table is intended to assist you in
understanding the various costs and expenses that an investor in the Class A and
Class C shares of the Fund will bear directly or indirectly. You can refer to
"Adviser and Distributor" and "Purchase of Shares" for more information on
transaction and operating expenses of the Fund.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS C
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Maximum sales load imposed on purchases 4.75% None
Maximum sales load imposed on reinvested
dividends None None
Deferred sales load (a declining percentage
of the lesser of the net asset value of the
shares redeemed or the total cost of such
shares)
Redeemed during first year. 0.75%* 1.00%
Redeemed during second year None None
Redeemed during third year None None
Redeemed during fourth year None None
Redeemed during fifth year None None
Redeemed after fifth year** None None
Exchange Fee None None
*On certain Class A Shares purchased without a sales load and redeemed during
the first year after purchase, there is a 0.75% deferred sales charge.
**In addition to the foregoing fees, the Transfer Agent charges a $10 fee for
redemptions made by wire transfer. See "REDEMPTIONS OF SHARES."
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management fees * 0.00% 0.00%
12b-1 fees** 0.25% 1.50%
Other expenses** * 0.60% 0.60%
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Total Fund operating expenses 0.85% 2.10%
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* The Adviser has agreed to waive the receipt of management fees from the Fund
with respect to any fiscal quarter if, on the last day of such quarter, the
Fund's net assets are less than $15,000,000. If the Adviser's 0.65% management
fee were to be added to the table above, then the Total Fund Operating expenses
would be 1.50% for the Class A Shares and 2.75% for the Class C Shares,
respectively.
** The Effect of a Rule 12b-1 plan is that long-term shareholders may pay more
than the maximum front-end sales charge permitted under applicable rules of the
National Association of Securities Dealers, Inc.
*** Because the Fund has no historical financial data, "Other expenses", as
shown in this table and as used in the Example which immediately follows this
table, are based on estimated amounts for the fiscal year ending December 31,
1998. Actual Fund expenses may be greater than or less than these amounts.
Example:
You would pay the following expenses on a $5,000 investment, assuming a
5% annual return and (except as noted below) redemption at the end of each time
period, and assuming that the Adviser has waived its management fees throughout
the time period in question:
1 YEAR 3 YEARS
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Class A $278 $404
Class C* $156 $324
Class C* (assuming no redemption at
end of period) $105 $324
Using the same assumptions, if the Adviser had charged its full 0.65%
management fee throughout the time period in question, you would pay the
following expenses:
1 YEAR 3 YEARS
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Class A $309 $499
Class C* $213 $495
Class C* (assuming no redemption at
end of period) $163 $495
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* Initial purchases of Class C Shares are subject to a $25,000 minimum purchase
requirement.
THE 5% RATE USED IN THE EXAMPLE IS ONLY FOR ILLUSTRATION AND IS NOT
INTENDED TO BE INDICATIVE OF THE FUTURE PERFORMANCE OF THE FUND, WHICH MAY BE
MORE OR LESS THAN THE ASSUMED RATE. FUTURE EXPENSES MAY BE MORE OR LESS THAN
THOSE SHOWN.
FINANCIAL HIGHLIGHTS. As a newly formed company, the Fund does not have
historical financial data.
THE FUND. Millenium Tax-Free Income Fund, Inc. is an open-end,
diversified management investment company incorporated in Maryland in 1998 and
is registered under the Investment Company Act of 1940.
The Fund offers two classes of shares, Class A and C. Class A shares
may be purchased at a price equal to their net asset value per share plus a
front-end sales charge imposed at the time of purchase. Purchases of $1 million
or more of Class A shares may be purchased at net asset value, but are subject
to a 0.75% contingent deferred sales charge ("CDSC") on redemptions made within
one year of purchase. Class C shares may also be purchased at net asset value
but a minimum of $25,000 must be purchased initially, and Class C Shares are
subject to a CDSC of 1% on redemptions made within one year after purchase.
These alternatives permit an investor to choose the method of purchasing shares
that is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares, and other circumstances. Each class of
shares pays a Rule 12b-1 distribution fee at an annual rate not to exceed (i)
for Class A shares, 0.25% of the Fund's aggregate average daily net assets
attributable to the Class A shares and (ii) for Class C shares, 1.50% of the
Fund's aggregate average daily net assets attributable to such class. The
purpose and function of the deferred sales charge and distribution services fee
with respect to the Class C shares is the same as those of the front-end sales
charge and distribution services fee with respect to the Class A shares.
Each share of the Fund represents an identical interest in the
investment portfolio of the Fund. However, shares differ by class in important
respects. For example, Class C shares incur higher distribution services fees
and bear certain other expenses and will thus have a higher expense ratio and
pay correspondingly lower dividends than Class A shares. Class C shares do not
have a conversion feature and therefore will always be subject to higher
distribution fees and other expenses than Class A shares. The per share net
asset value of the Class C shares generally will be lower than the per share net
asset value of the Class A shares, reflecting the daily expense accruals
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of additional distribution fees and certain other expenses applicable to Class C
shares. The Board of Directors may offer additional classes of shares in the
future and may at any time discontinue the offering of any class of shares. See
"Purchase of Shares- Alternative Purchase Arrangements".
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
current income free from federal income tax by investing in municipal
obligations. The Fund seeks to invest between 30% and 40% of its net assets in
municipal fixed income securities rated Aaa by Moody's Investor Service, Inc.
("Moody's") or AAA by Standard & Poor's Corporation ("S&P"), and between 10% and
20% of its net assets in investment grade securities rated Aa to Baa by Moody's
or AA to BBB by S&P. The Fund may invest up to 50% of its net assets in bonds
rated below investment grade or unrated bonds deemed by the Adviser to be of
equivalent quality to such lower rated bonds. Such securities are speculative
and subject to greater market fluctuations and risk of loss of income and
principal than higher rated bonds. There is no assurance that the investment
objective of the Fund will be achieved. See "Investment Objectives and
Policies".
INVESTMENT ADVISER AND DISTRIBUTOR. Millenium Advisers, Inc., (the
"Adviser") is the investment adviser for the Fund. Rickel Securities, Inc. (the
"Distributor") serves as the principal underwriter for the Fund. For more
information, see "Adviser and Distributor".
PURCHASES, EXCHANGES AND REDEMPTIONS. Initial and subsequent minimum
investments in the Class A shares may be made in amounts equal to $5,000 and
$250, respectively. Initial and subsequent minimum investments in the Class C
shares may be made in amounts equal TO $25,000 AND $250, respectively. Accounts
with a market value of less than $250 caused by shareholder redemptions are
redeemable by the Fund. See "Purchase of Shares" and "Redemption of Shares".
SHAREHOLDER SERVICES. Declaration Service company, P.O. Box 844,
Conshohocken, PA 19428-0844 ("DSC"), acts as transfer, shareholder servicing,
and dividend paying agent for all Fund accounts. Simply write or call the DSC
Investor Information Department at 1-888-___-____ for prompt service on any
questions about your account. During drastic market conditions, DSC may
experience difficulty accepting telephone redemptions. In any such case,
shareholders may choose to make a written redemption request containing the
information set forth herein under the caption "Redemption of Shares" and send
it to DSC via telecopy (610-832-1067) and/or overnight courier at 555 North
Lane, Suite 6160, Conshohocken, PA 19248.
Confirming Statements. Shareholders normally will receive a
confirmation statement after each transaction showing the activity in the
account, and an annual statement showing all transactions for the calendar year
just completed.
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Other Services. The Fund has available a number of plans and services
to meet the special needs of certain investors. Plans available include, but are
not limited to:
(1) payroll deduction plans, including military allotments;
(2) custodial accounts for minors;
(3) a flexible, systematic withdrawal plan; and
(4) various retirement plans such as IRA, 403(b)(7), and
employer-adopted, 401(k) defined benefit and defined contribution
plans.
There is an annual charge for each retirement plan fund account with
respect to which a service provider acts as custodian. If this charge is not
paid separately prior to the last business day of a calendar year or prior to a
total redemption, it will be deducted from the shareholder's account.
Application forms and brochures describing these plans and services can
be obtained from the Fund by calling 1-888-___-____.
SPECIAL CONSIDERATIONS
The Fund has only recently been formed, and has no history of
operations. The Fund's investment adviser has also recently been formed, and has
no prior experience in advising a mutual fund. There can be no assurance that
the Fund will achieve its investment objectives. In addition, the Fund may
invest up to 50% of its net assets in high yield, high risk obligations. See
"High Yield, High Risk Debt Securities" below.
The net asset value of the Fund will change in response to fluctuations
in prevailing interest rates and changes in the value of the securities held by
the Fund. When interest rates decline, the value of securities already held by
the Fund can be expected to rise. Conversely, when interest rates rise, the
value of existing Fund security holdings can be expected to decline. Because the
secondary market for high yield, high risk municipal obligations in which the
Fund may invest is less liquid than that for other more widely traded municipal
obligations, the Fund may be unable to dispose of some of these municipal
obligations at times when it would otherwise wish to do to at the prices at
which they are valued.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL. The Fund's investment objective is to provide current income
free from federal income tax by investing in municipal obligations. In seeking
to achieve this investment objective, the Fund has adopted a fundamental policy
to have at least 80% of its net assets invested in municipal obligations,
exclusive of municipal obligations subject to the alternative minimum tax
(except for temporary defensive purposes). 30% TO 40%
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of its net assets will normally be invested in municipal fixed income securities
rated Aaa by Moody's or AAA by S&P, and between 10% and 20% of its net assets
will normally be invested in investment grade securities with ratings of Aa to
Baa by Moody's or AA to BBB by S&P. The Fund may invest up to 50% of its net
assets in high yield, high risk obligations. See "High Yield, High Risk Debt
Securities" below. The average maturity of the Fund's portfolio will vary;
however, it is anticipated that a significant portion of the portfolio will be
invested in long-term obligations of 20 years or more since such securities
generally produce higher yields than shorter-term obligations. A more complete
description of bond ratings is contained in the Appendix. The Fund may invest in
shares of investment companies primarily investing in short-term municipal
obligations, but will not do so if it would cause more than 10% of its total
assets to be invested in such shares. Such other investment companies usually
have their own management costs or fees and the Fund's Adviser earns its regular
fee on such assets.
If you are subject to the Federal alternative minimum tax, you should
note that the Fund may invest up to 20% of its total assets in municipal
obligations issued to finance private activities. The interest from these
investments is a tax preference item for purposes of the alternative minimum
tax.
MUNICIPAL OBLIGATIONS. Municipal obligations are bonds or notes issued
by a state or local governmental entity to obtain funds for various public
purposes or facilities such as airports, bridges, highways, housing, hospitals,
schools, streets, water and sewer systems, mass transit and utility and power
facilities. They are also used to refund outstanding obligations or for general
operating expenses. In addition, they may be used for the construction or
purchase of privately operated facilities deemed to be of public purpose and
benefit.
The two general classifications of municipal bonds are "general
obligation" bonds 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. They are usually paid from general revenues of the
issuing governmental entity. Revenue bonds are usually payable only out of a
specific revenue source rather than from general revenues and ordinarily are not
backed by the faith, credit or general taxing power of the issuing governmental
entity.
The Fund may invest in municipal bonds and certificates of
participation that constitute involvement in lease obligations or installment
purchase contract obligations (hereafter collectively called "lease
obligations") of municipal authorities or entities. Although lease obligations
do not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property, the
disposition of the property in the event of foreclosure might prove difficult.
The Fund will seek to minimize these risks by not investing more than 10% of its
investment assets in lease obligations that contain "non-appropriation" clauses.
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Yields on municipal obligations are dependent on many factors,
including interest rate conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating of
the issue, if any. The value of outstanding obligations will vary as a result of
changing evaluations of the ability of their issuers (or other revenue source)
to meet the interest and principal payments, which can also result in rating
changes. Such values will also change in response to changes in the interest
rates payable on new issues. As discussed below, portfolio values will also
change in response to changes in the level of interest rates.
Municipal obligations, like other marketable obligations, fluctuate in
price. Payments of interest and principal are dependent upon the ability of the
issuers (or other revenue source) to meet their obligations. Payments on general
obligation bonds are dependent on the tax base of the issuing governmental
entity. Payments on revenue bonds, unless guaranteed by a taxing authority, are
dependent upon the revenues from a specific project or facility or payments from
a private company which operates the facility.
The principal and interest on revenue bonds for private facilities are
typically paid out of rents or other specified payments made to the issuing
governmental entity by the company using or operating the facilities. The most
common type of these obligations are industrial revenue bonds and pollution
control revenue bonds. Industrial revenue bonds are issued by governmental
entities to provide financing aid to communities to locate privately operated
industrial plants or community facilities such as hospitals, hotels, business or
residential complexes, convention halls or sport complexes. Pollution control
revenue bonds are issued to provide funding for air, water and solids pollution
control systems for privately operated industrial or commercial facilities.
Sometimes, the funds for payment of such obligations come solely from revenue
generated by operation of the facility. Absent a guarantee by the issuing
governmental entity, revenue bonds for private facilities do not represent a
pledge of credit, general revenues or taxing powers of the issuing governmental
entity and the private company operating the facility is the sole source of
payment of the obligation. This type of revenue bond frequently provides a
higher rate of return than other municipal obligations but may entail greater
risk than an obligation which is guaranteed by a governmental unit with taxing
power. Federal income tax laws place substantial limitations on industrial
revenue bonds, and particularly those "specified private activity bonds" issued
after August 7, 1986. See "Federal Income Taxes." However, the Fund's management
does not believe that these limitations will impair the Fund's ability to
purchase or sell bonds in accordance with the Fund's objectives and policies.
Subject to the restrictions described below, the Fund's portfolio may
be invested in new issue bonds and in bonds whose interest payments are from
revenues of similar projects (such as utilities or hospitals) or whose issuers
share the same geographic location. As a result, the Fund's portfolio may be
more susceptible to similar economic, political or regulatory developments than
would a portfolio of bonds with a greater variety of issuers. This may result in
greater market fluctuations in the Fund's share price. The Fund may purchase up
to 50% of the outstanding debt obligations of an issuer. Some of the securities
which the Fund may hold may not have an established market and such lack of
liquidity could cause the Fund difficulty at times in selling these securities
at favorable prices.
The market value of fixed income securities will generally be affected
by changes in the level of interest rates. Increases in interest rates tend to
reduce the market value of fixed income
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investments and declines in interest rates tend to increase their value.
Moreover, debt issues with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation or depreciation
than securities with shorter maturities. Fluctuations in the market value of the
Fund's portfolio securities subsequent to their acquisition will not affect cash
income from such securities but will be reflected in the Fund's net asset value.
In addition, the future earning power of an obligor and its ability to service
debt may affect the market price of higher yielding debt. The average maturity
and the mix of investments of the Fund will vary as the Adviser seeks to provide
a high level of income considering the available alternatives in the market.
Since interest rates vary with changes in economic, market, political and other
conditions, there can be no assurance that historic interest rates are
indicative of rates which may prevail in the future. Since the values of
securities in the Fund fluctuate depending upon market factors, the credit of
the obligor and inversely with current interest rate levels, the net asset value
of its shares will fluctuate. Consequently, there can be no assurance that the
Fund's objectives can be achieved or that its shareholders will be protected
from the risk of loss inherent in security ownership. The Adviser attempts to
adjust investments as considered advisable in view of prevailing or anticipated
market conditions as perceived by the Adviser. Portfolio securities may be
purchased or sold in anticipation of a rise or a decline in interest rates or a
change in credit quality.
There are market and investment risks with any security and the value
of an investment in the Fund will fluctuate over time. Investments in lower
rated or non-rated securities, while generally providing greater income and
opportunity for gain than investments in higher rated securities, entail greater
risk of loss of income and principal. See "High Yield, High Risk Debt
Securities" below for a discussion of various risk factors related to high
yield, high risk fixed income securities.
HIGH YIELD, HIGH RISK DEBT SECURITIES. As discussed above, the Fund may
invest up to 50% of its net assets in low rated or unrated securities offering
high current income. Such securities will ordinarily be in the lower rating
categories of recognized rating agencies, including securities rated BB or lower
by S&P or Ba or lower by Moody's or, if unrated, deemed by the Adviser to be of
an equivalent rating. These lower-rated securities are considered speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and generally will involve more credit risk than
securities in the higher rating categories. Securities rated BB or lower by S&P
or Ba or lower by Moody's are below investment grade. A description of the bond
ratings of these two services is contained in the Appendix. The Fund has not
adopted any minimal rating criteria for the debt securities which it may
purchase.
With respect to that portion of its portfolio which will be invested in
lower-rated securities, the Fund seeks to achieve a high yield while reducing
relative risk through (a) diversification, (b) credit analysis of the obligors
by the Adviser, and (c) monitoring and seeking to anticipate changes and trends
in the economy and financial markets that might affect the prices of portfolio
securities. The Adviser, while seeking to maximize current yield, will monitor
current developments with respect to portfolio securities, potential investments
and broad trends in the economy. In some circumstances, defensive strategies may
be implemented to preserve or enhance capital at the sacrifice of current yield.
There is, however, no assurance that the Fund's objectives will be achieved or
that the Fund's approach to risk management will protect the shareholders
against loss.
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The market values of high yield, high risk municipal securities tend to
reflect individual developments of the guaranteeing entity underlying the issue
to a greater extent than do higher rated securities, which react to a greater
extent to fluctuations in the general level of interest rates. Such securities
also tend to be more sensitive to economic and industry conditions than are
higher rated securities. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis regarding individual lower rated bonds or the
high yield market, may depress the prices for such securities. Factors such as
the aforementioned may adversely impact the market value of high yield, high
risk securities and could adversely impact the Fund's net asset value.
An economic downturn or significant increase in interest rates is
likely to have a negative affect on the high yield, high risk bond market and
consequently on the value of these bonds. In an economic downturn, issuers may
not have sufficient revenues to meet their principal and interest payment
obligations.
The risk of loss due to default is significantly greater for the
holders of high yield, high risk bonds. The costs associated with recovering
principal and interest once a security has defaulted may impact the return to
holders of the security. If the Fund experiences unexpectedly large net
redemptions, it may be forced to sell such bonds without regard to the
investment merits of such sales. This could decrease the Fund's rate of return.
The Fund may have difficulty disposing of certain high yield, high risk
bonds because there may be a thin trading market for such bonds. Because not all
dealers maintain markets in all high yield, high risk bonds, the Fund
anticipates that such bonds could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market may have an
adverse impact on market price and the Fund's ability to dispose of particular
issues and may also make it more difficult for the Fund to obtain accurate
market quotations or valuations for purposes of valuing the Fund's assets. The
Fund has a policy of utilizing a professional pricing service which has
experience in pricing such securities which are difficult to price so as to
obtain prices reflecting the market as accurately as possible. To the extent
that the Fund purchases illiquid or restricted bonds, it may incur special
securities registration responsibilities, liabilities and costs, and liquidity
and valuation difficulties relating to such bonds.
Bonds may be subject to redemption or call provisions. If an issuer
exercises these provisions when interest rates are declining, the Fund would be
likely to replace the bond with a lower yielding bond, resulting in a decreased
return. Zero coupon and pay-in-kind bonds involve special considerations. The
market prices of these securities are generally more volatile than the market
prices of securities that pay interest periodically and are likely to respond to
changes in interest rates to a greater degree than do securities paying interest
currently that have similar maturities and credit quality. There is the
additional risk that, unlike bonds which pay interest in cash throughout the
period to maturity, the Fund will realize no cash until the cash payment date
unless a portion of such securities are sold. If the issuer defaults, the Fund
may obtain no return at all on its investment. Zero coupon bonds generate
interest income before receipt of actual cash payments. In order to distribute
such income, the Fund may have to sell portfolio securities under
disadvantageous circumstances.
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RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities, i.e., securities which, if sold, would cause the Fund to be deemed
an "underwriter" under the Securities Act of 1933 (the "1933 Act") or which are
subject to contractual restrictions on resale. The Fund's policy is to not
purchase or hold illiquid securities (which may include restricted securities)
if more than 15% of the Fund's net assets would then be illiquid. If at any time
more than 15% of the Fund's net assets are illiquid, steps will be taken as soon
as practicable to reduce the percentage of illiquid assets to 15% or less.
The restricted securities which the Fund may purchase include
securities which have not been registered under the 1933 Act but are eligible
for purchase and sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule
permits certain qualified institutional buyers to trade in privately placed
securities even though such securities are not registered under the 1933 Act. If
and when the Fund is able to qualify as such under the Rule, the Adviser, under
criteria established by the Fund's Board of Directors, will consider whether
Rule 144A Securities being purchased or held by the Fund are illiquid and thus
subject to the Fund's policy that it will not make an investment causing more
than 15% of its net assets to be invested in illiquid securities. In making this
determination, the Adviser will consider the frequency of trades and quotes, the
number of dealers and potential purchasers, dealer undertakings to make a
market, and the nature of the security and the market place trades (for example,
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer). The liquidity of Rule 144A Securities will also be
monitored by the Adviser and if, as a result of changed conditions, it is
determined that a Rule 144A Security is no longer liquid, the Fund's holding of
illiquid securities will be reviewed to determine what, if any, action is
required in light of the policy limiting investments in such securities.
Investing in Rule 144A Securities could have the effect of increasing the amount
of the Fund's investments in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
TEMPORARY INVESTMENTS. At various times the Fund may hold cash or
invest in securities other than municipal obligations. Temporary investments
will be made exclusively in: (1) shares of investment companies primarily
investing in short-term instruments the income of which is exempt from federal
income tax (subject to certain fundamental limitations as to the Fund's
investments in other investment companies); (2) U.S. Government Securities; (3)
commercial paper rated within the highest grade by either Moody's or S&P
(Prime-1 or A-1, respectively); (4) other short-term debt securities issued or
guaranteed by corporations having outstanding debt rated within the two highest
grades by Moody's (AAA or AA) or S&P (AAA or AA); (5) certificates of deposit of
domestic commercial banks subject to regulation by the U.S. government, or any
of its agencies or instrumentalities, with assets of $1 billion or more based on
the most recent published reports; or (6) repurchase agreements with domestic
banks or securities dealers involving any of the securities which the Fund is
permitted to hold.
Such temporary investments may be made in any of the following
circumstances, provided that such an investment does not cause over 20% of the
value of the Fund's total assets to be so invested: (1) when assets are
allocated for settlement of purchases; (2) when net cash inflow from sales of
the Fund's shares or sales of portfolio securities is of a size which does not
allow for prompt investment in attractively priced municipal obligations; or (3)
when highly liquid assets are needed to meet anticipated redemptions, dividends
or other cash needs. In
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addition, during periods of adverse markets when it is deemed advisable and
practicable to take a temporary defensive position to protect capital, the Fund
may have more than 20% of its assets invested in the temporary investments
described above and cash.
PORTFOLIO TRANSACTIONS. The Adviser is responsible for the placement of
portfolio transactions, subject to the supervision of the Board of Directors.
The Fund may trade to some degree in securities for the short-term and may sell
securities to buy others with greater income or profit potential or when it has
realized a profit and the proceeds can be more advantageously utilized. The Fund
may also sell a security when the Adviser believes such security will no longer
continue to provide a relatively high current yield or involves undue risk, or
when the Adviser deems it advisable to take a more defensive position or return
to a more aggressive stance. Because of the Fund's policies, the Fund's
portfolio turnover rate will vary. A higher portfolio turnover rate could
require the payment of larger amounts in brokerage commissions. However, it is
anticipated that most securities transactions will be principal transactions, in
which no brokerage commissions are incurred. Research services and placement of
orders by securities firms for shares of the Fund may be taken into account as a
factor in placing portfolio transactions. The Fund estimates that its portfolio
turnover rate will generally not exceed 50%.
"WHEN ISSUED" SECURITIES. Municipal obligations may at times be
purchased or sold on a delayed delivery basis or on a when-issued basis. These
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future. No payment is made until
delivery is made which may be up to 60 days after purchase. If delivery of the
obligation does not take place, no purchase will result and the transaction will
be terminated. Such transactions are considered to involve more risk than
immediate cash transactions. As a matter of non-fundamental policy, any
investment on a when issued or delayed delivery basis will not be made if such
investment would cause more than 5% of the value of the Fund's total assets to
be invested in this type of investment.
BORROWING. The Fund may borrow money from banks for temporary or
emergency purposes in an amount not exceeding 10% of the value of its total
assets (excluding the amount borrowed) and may pledge an amount not exceeding
15% of its total assets (excluding the amount borrowed) to secure such
borrowing.
FUNDAMENTAL AND NON-FUNDAMENTAL POLICIES. The Fund has adopted certain
investment restrictions which are described in the Statement of Additional
Information. These restrictions and the Fund's investment objectives may not be
changed unless authorized by a vote of the shareholders. All other investment
policies are non-fundamental and may be changed without shareholder approval.
ADVISER AND DISTRIBUTOR
Millenium Advisers, Inc. (the "Adviser") whose principal office is at
45 Essex Street, Millburn, New Jersey 07041, serves as the investment adviser of
the Fund. The Adviser has been recently formed for the specific purpose of
serving as the investment adviser of the Fund, and has not previously served as
an investment adviser. Subject to the direction and supervision of the Board of
Directors, the Adviser manages the business operations of the Fund. Rickel
Securities, Inc. ("the
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<PAGE>
Distributor"), the parent corporation of the Adviser, is a registered
broker-dealer specializing in municipal securities which serves as the
distributor or principal underwriter of the Fund's shares. John C. Sabo is the
Chairman, Chief Executive Officer and majority stockholder of the Distributor.
The Fund pays the Adviser a fee at the annual rate of 0.65% on the
first $250 million of average net assets, 0.60% on the next $250 million of
average net assets and 0.55% on average net assets over $500 million. This fee
is higher than that of most municipal bond funds. The Fund also reimburses the
Adviser for its costs of providing certain accounting and financial reporting,
shareholder services and compliance with state securities laws. The Adviser has
agreed to waive the receipt of management fees from the Fund with respect to any
fiscal quarter if, on the last day of such quarter, the Fund's net assets are
less than $15,000,000.
ADMINISTRATOR. Declaration Service Company, P.O. Box 844, Conshohocken,
PA 19428-0844 ("DSC," or the "Transfer Agent") serves as the Fund's
Administrator in addition to serving as the Fund's transfer agent, shareholder
servicing agent, and dividend disbursing agent.
DSC is responsible for determining the daily net asset value per share
and maintaining the general accounting records of the Fund .
The Fund's expenses are accrued daily and are deducted from its total
income before dividends are paid. These expenses include, but are not limited
to: fees paid to the Adviser and the Administrator; taxes; legal fees; custodian
and auditing fees; reimbursement of the costs incurred by the Administrator in
providing pricing and accounting services to the Fund; and printing and other
miscellaneous expenses paid by the Fund.
PORTFOLIO MANAGEMENT. John C. Sabo will be the primary portfolio
manager of the Fund. He has been the Chairman, Chief Executive Officer and
majority stockholder of the Distributor since its formation in August, 1997, and
has been President of the Adviser since its formation in December, 1997. Until
August, 1997, he served as President (1995-1997) and Executive Vice President
(1980-1995) of Rickel & Associates, Inc., a registered broker-dealer
specializing in municipal securities, and its predecessor firm, R.W. Peters
Rickel & Co., Inc. Mr. Sabo has over twenty-three years of experience in the
field of fixed income securities as a broker, underwriter and manager.
The Distributor is reimbursed by the Fund for some of its distribution
expenses through Distribution Plans which have been adopted with respect to
Class A and Class C shares and approved by the Fund's Board of Directors in
accordance with Rule 12b-1 under the Investment Company Act of 1940. See
"Distribution Plans" below for more detail.
DISTRIBUTION PLANS
The Fund bears some of the costs of selling its shares under
Distribution Plans adopted with respect to its Class A and Class C shares
pursuant to Rule 12b-1 under the
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Investment Company Act of 1940. Rule 12b-1 regulates the manner in which a
mutual fund may assume costs of distributing and promoting the sale of its
shares.
Payments under the Class A Distribution Plan are limited to an annual
rate of 0.25% of the average daily net asset value of the Class A shares. Such
payments are made to reimburse the Distributor for the fees it pays to its
salespersons and other firms for selling Fund shares, servicing shareholders and
maintaining shareholder accounts. Where a commission is paid for purchases of $1
million or more of Class A shares and as long as the limits of the distribution
plan have not been reached, such payment is also made from 12b-1 distribution
fees received from the Fund. Normally, such fees are at the annual rate of 0.25%
of the average net asset value of the accounts serviced and maintained on the
books of the Fund. Payments under the Class A Distribution Plan may also be used
to reimburse the Distributor for other distribution costs (excluding overhead)
not covered in any year by any portion of the sales charges the Distributor
retains. See "Purchase of Shares."
Payments under the Class C Distribution Plan are limited to an annual
rate of 1.5% of the average daily net asset value of the Class C shares. In
accordance with current applicable rules, such payments are also limited to
6.25% of gross sales of Class C shares plus interest at 1% over the prime rate
on any unpaid amounts. The Distributor pays broker/dealers up to 4% in
commissions on new sales of Class C shares. Up to an annual rate of 1.125% of
the average daily net assets is used to reimburse the Distributor for these
commission payments. Most or all of such commissions are reallowed to
salespersons and to firms responsible for such sales. No commissions are paid by
the Fund with respect to sales by the Distributor to officers, directors and
full-time employees of the Fund, the Distributor or the Adviser. Up to 0.375% of
average net assets is used to reimburse the Distributor for the payment of
service and maintenance fees to its salespersons and other firms for shareholder
servicing and maintenance of shareholder accounts.
If, due to the foregoing payment limitations, the Fund is unable to pay
the Distributor the commission on new sales of Class C shares, the Distributor
intends, but is not obligated, to accept new orders for shares and pay
commissions in excess of the payments it receives from the Fund. The Distributor
intends to seek full payment from the Fund of any excess amounts with interest
at 1% over the prime rate at such future date when and to the extent such
payments on new sales would not be in excess of the limitations. The Fund is not
obligated to make such payments; the amount (if any), timing and condition of
any such payments are solely within the discretion of the directors of the Fund
who are not interested persons of the Distributor or the Fund and have no direct
or indirect financial interest in the Class C Distribution Plan (the
"Independent Directors"). If the Class C Distribution Plan is terminated, the
Distributor will ask the Independent Directors to take whatever action they deem
appropriate with regard to the payment of any excess amounts.
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<PAGE>
In addition, to the extent that any investment advisory fees paid by
the Fund may be deemed to be indirectly financing any activity which is
primarily intended to result in the sale of Fund shares within the meaning of
Rule 12b-1, the Plans authorize the payment of such fees.
Each of the Distribution Plans may be terminated at any time by vote of
the Independent Directors or by vote of a majority of the outstanding voting
shares of the respective class. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.
As described above, dealers or others may receive different levels of
compensation depending on which class of shares they sell. The Distributor may
make expense reimbursements for special training of a dealer's registered
representatives, advertising or equipment, or to defray the expenses of dealer
meetings. Any such amounts may be paid by the Distributor from the fees it
receives under the Class A and Class C Distribution Plans.
In addition, the Distributor may, from time to time, pay additional
cash compensation or other promotional incentives to authorized dealers or
agents that sell shares of the Fund. In some instances such cash compensation or
other incentives may be offered only to certain dealers or agents who employ
registered representatives who have sold or may sell significant amounts of
shares of the Fund during a specified period of time.
Shares of the Fund may also be sold through banks or bank-affiliated
dealers. Any determination that such banks or bank-affiliated dealers are
prohibited from selling shares of the Fund under the Glass-Steagall Act would
have no material adverse effects on the Fund. State securities laws may require
such firms to be licensed as securities dealers in order to sell shares of the
Fund.
PURCHASE OF SHARES
GENERAL. Shares of the Fund are sold on a continuous basis, and you may
invest any amount you choose, as often as you wish, subject to minimum initial
investment of $5,000 (in the case of Class A Shares) or $25,000 (in the case of
Class C Shares), and subsequent minimum investments of $250. Shares of the Fund
are purchased at their net asset value per share next determined after the order
is received and accepted by the Fund's Transfer Agent. When opening an account,
it is important that you provide the Transfer Agent With your correct taxpayer
identification number (social security or employer identification number).
If you are investing in the Fund for the first time, you will need to
set up an account. You may make a direct initial investment by completing and
signing the investment application which
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<PAGE>
accompanies this prospectus and mailing it, together with a check or money order
made payable to:
The Millenium Tax-Free Income Fund, Inc.
Declaration Service Company
P.O. Box 844
Conshohocken, PA 19428-0844
BY MAIL. When making subsequent investments by mail, enclose your check
with the return remittance portion of the confirmation of your previous
investment or indicate on your check or a separate piece of paper your name,
address and account number and mail to the address set forth above. Third party
checks will not be accepted
, and the Fund reserves the right to refuse to accept second party checks.
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<PAGE>
BY WIRE. You may make your initial or subsequent investments in the
Fund by wiring funds. To do so, call the Investor Services Department at
1-888-___-____ for wiring instructions.
BY AUTOMATIC INVESTMENT PLAN. Once your account is open, you may make
investments automatically by completing the automatic investment plan form
authorizing the Fund to draw on your bank account regularly by check for as
little as $250 per month beginning within thirty (30) days after the account is
opened. You should inquire at your bank whether it will honor debits through the
Automated Clearing House ("ACH"). You may change the date or amount of your
investment any time by written instruction received by the Fund at least five
business days before the change is to become effective.
To assure proper receipt, please be sure your bank includes the Fund
name and the account number that has been assigned to you. If you are opening a
new account, please complete the Account Registration Form and mail it to the
"New Account" address above after completing your wire arrangement. Note:
Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian Bank are open for business.
FUNDS CREDITED TO THE FUND'S ACCOUNT BY 4:00 PM (EASTERN TIME) WILL BE
APPLIED TO PURCHASE SHARES ON THAT DAY. There are no wire fees by the Fund for
purchases of $1,000 or more. A $10 wire fee will be charged by the Fund on wire
purchases of less than $1,000. Your bank may also charge wire fees for this
service.
ADDITIONAL INFORMATION ABOUT PURCHASES
PURCHASE POLICIES:
o Investments must be received and accepted in the Transfer Agent's office on a
business day before 4:00 PM Eastern Time to be credited to your account that
day and to receive that day's share price. Otherwise, your investment will be
credited to your account on the next business day and you will receive that
day's share price.
o The Transfer Agent and the Fund are not responsible for any delays that occur
in wiring funds, including delays in processing by the investor's bank.
o The Fund reserves the right to reject an investment for any reason.
ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers two classes of
shares. With certain exceptions described below, Class A shares are sold with a
front-end sales charge at the time of purchase and are not subject to a sales
charge when they are redeemed. Class C shares are purchased at their net asset
value
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<PAGE>
per share without the imposition of a front-end sales charge but are subject to
a 1% deferred sales charge if redeemed within one year after purchase and do not
have a conversion feature.
Depending on the amount of the purchase and the anticipated length of
time of investment, investors may choose to purchase one class of shares rather
than another. Investors who would rather pay the entire cost of distribution at
the time of investment, rather than spreading such cost over time, might
consider Class A shares. Other investors might consider Class C shares, in which
case 100% of the purchase price is invested immediately. Class C shares may be
more appropriate for the short-term investor. The Fund will not accept any
purchase of Class C shares when Class A shares may be purchased at net asset
value. See also "Distribution Plans" for more information.
CLASS A SHARES. Class A shares are sold at their net asset value plus a
sales charge. The amounts of the sales charges are shown in the following table.
CUSTOMARY
CHARGE AS CONCESSION TO
SALES CHARGE APPROXIMATE YOUR DEALER AS
AS PERCENTAGE PERCENTAGE PERCENTAGE
OF OFFERING OF AMOUNT OF OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ----------------- ----- -------- -----
$99,999 or less 4 3/4% 5.0% 4%
$100,000 to $249,999 3 1/2% 3.6% 3%
$250,000 to $499,999 2 1/2% 2.6% 2%
$500,000 to $749,999 2% 2.0% 1 3/4%
$750,000 to $999,999 1% 1.0% 3/4 of 1%
$1,000,000 or more 0% 0.0% 0%
* On purchase of $1 million or more, the investor pays no front-end sales
charge but a contingent deferred sales charge of 0.75% may be imposed if
shares are redeemed within the first year after purchase. The Distributor may
pay the financial service firm a commission during the first year after
purchase at an annual rate as follows:
PURCHASE AMOUNT COMMISSION
- --------------- ----------
First $3,000,000 .75%
Next $2,000,000 .50%
Over $5,000,000 .25%
Where a commission is paid for purchases of $1 million or more, such payment
will be made from 12b-1 distribution fees received from the Fund and, in cases
where the limits of the distribution plan in any year have been reached, from
the Distributor's own resources.
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<PAGE>
There are a number of ways to reduce the sales charge on the purchase
of Class A shares, as set forth below.
(i) Family Purchases: Purchases made by an individual, such
individual's spouse and children under 21 are combined and treated as a purchase
of a single person.
(ii) Group Purchases: The purchases of an organized group, whether or
not incorporated, are combined and treated as the purchase of a single person.
The organization must have been organized for a purpose other than to purchase
shares of mutual funds.
(iii) Purchases under a Statement of Intention: By executing the
"Statement of Intention" included in the Application Form at the back of the
Prospectus, purchases of Class A shares of $100,000 or more made over a 13-month
period may be made at the applicable price for the aggregate shares actually
purchased during the period. Please see "Terms and Conditions" at back of this
prospectus.
(iv) Rights of Accumulation: If you notify your dealer or the
Distributor, you may include the Class A shares you already own (valued at
maximum offering price) in calculating the price applicable to your current
purchase.
(v) Sales at Net Asset Value: The sales charge will not apply to: (1)
Class A shares purchased through the automatic reinvestment of dividends and
distributions (see "Dividends and Distributions"); (2) Class A shares purchased
by directors, officers and employees of any fund for which the Adviser acts as
investment adviser or officers and employees of the Adviser or Distributor,
including former directors and officers and any spouse, child, parent,
grandparent, brother or sister ("immediate family members") of all of the
foregoing, and any employee benefit or payroll deduction plan established by or
for such persons; (3) Class A shares purchased by any registered
representatives, principals and employees (and any immediate family member) of
securities dealers having a sales agreement with the Distributor; (4) initial
purchases of Class A shares totaling at least $250,000 but less than $5,000,000,
made at any one time by banks, trust companies and other financial institutions
on behalf of one or more clients for which such institution acts in a fiduciary
capacity; (5) Class A shares purchased by any single account covering a minimum
of 250 participants (this 250 participant minimum may be waived for certain fee
based mutual fund marketplace programs) and representing a defined benefit plan,
defined contribution plan, cash or deferred plan qualified under 401(a) or
401(k) of the Internal Revenue Code or a plan established under section 403(b),
457 or 501(c)(9) of such Code or "rabbi trusts"; (6) Class A shares purchased by
persons participating in a "wrap account" or similar fee-based program sponsored
and maintained by a registered broker-dealer approved by the Fund's Distributor
or by investment advisers of financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such adviser or financial planner
on the books of the broker or agent; and (7) Class A shares amounting to less
than $5,000,000 purchased by any state, county, city, department, authority or
similar agency. The Fund may also issue Class A shares at net asset value
incident to a merger with or acquisition of assets of an investment company.
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<PAGE>
CLASS C SHARES. Class C Shares are offered at net asset value without a
sales charge at the time of purchase. Class C shares redeemed within one year of
purchase will be subject to a 1% charge upon redemption. Class C shares do not
have a conversion feature. The Fund will not accept any purchases of Class C
shares when Class A shares may be purchased at net asset value. The Distributor
will pay a commission to the firm responsible for the sale of Class C shares. No
other fees will be paid by the Distributor during the one-year period following
purchase. The Distributor will be reimbursed for the commission paid from 12b-1
fees paid by the Fund during the one-year period. If Class C shares are redeemed
within the one-year period after purchase, the 1% redemption charge will be paid
to the Distributor. After Class C shares have been outstanding for more than one
year, the Distributor will make quarterly payments to the firm responsible for
the sale of the shares in amounts equal to 1.125% of the annual average daily
net asset value of such shares for sales fees and 0.375% of the annual average
daily net asset value of such shares for service and maintenance fees.
CONTINGENT DEFERRED SALES CHARGES. Any contingent deferred sales charge
imposed upon the redemption of Class A or Class C shares is a percentage of the
lesser of (i) the net asset value of the shares redeemed or (ii) the original
cost of such shares. No contingent deferred sales charge is imposed when you
redeem amounts derived from (a) increases in the value of shares above the net
cost of such shares or (b) certain shares with respect to which the Fund did not
pay a commission on issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions. Upon request for redemption,
shares not subject to the contingent deferred sales charge will be redeemed
first. Thereafter, shares held the longest will be the first to be redeemed.
The contingent deferred sales charge (CDSC) on Class A and C Shares
that are subject to CDSC will be waived if the redemption relates to the
following; (a) in the event of the total disability (as evidenced by a
determination by the federal Social Security Administration) of the shareholder
(including registered joint owner) occurring after the purchase of the shares
being
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<PAGE>
redeemed; (b) in the event of the death of the shareholder (including a
registered joint owner); (c) for redemptions made pursuant to an automatic
withdrawal plan in an amount, on an annual basis, up to 12% of the value of the
account at the time the shareholder elects to participate in the automatic
withdrawal plan; (d) for redemptions from a qualified retirement plan or IRA
that constitute a tax-free return of contributions to avoid tax penalty; (e) on
redemptions of shares sold to directors, officers and employees of any fund for
which the Adviser acts as investment adviser or officers and employees of the
Adviser or Distributor including former directors and officers and immediate
family members of all of the foregoing, and any employee benefit or payroll
deduction plan established by or for such persons; and (f) on redemptions
pursuant to the right of the Fund to liquidate a shareholder's account if the
aggregate net asset value of the shares held in such account falls below an
established minimum amount.
REDEMPTION OF SHARES
GENERAL. You
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<PAGE>
may redeem any or all of your shares at will. The Fund redeems shares at the
net asset value thereof next determined after it has received and accepted a
redemption request; however the redemption proceeds will not be paid until such
time as the redemption request is received in proper order. Redemption requests
must be received prior to the time that the net asset value per share is next
determined (generally 4:00 PM Eastern Time of each day that the New York Stock
Exchange is open for trading) to obtain the date of receipt net asset value.
BY MAIL. A written request for redemption in proper order must be sent
to Declaration Service Company, P.O. BOX 844, Conshohocken, Pennsylvania
19428-0844. For express or registered mail, your request should be addressed to
Declaration Service Company, 555 North Lane, Suite 6160, Conshohocken,
Pennsylvania 19428. "Proper order" requires delivery to the Transfer Agent of:
(1) a written redemption request signed by each registered owner in the
exact names in which the account is registered, the account number and the
number of shares or the dollar amount to be redeemed;
(2) a signature guarantee when required (see "Signature Guarantee" page
__); and
(3) such additional documents required to evidence the authority of the
persons requesting redemption on behalf of corporations, or whether as
executors, trustees and other fiduciaries. Redemption proceeds will not be paid
until all documents, in satisfactory form, have been received by the Transfer
Agent. (see "Additional Information About Redemptions" below on page __.)
BY TELEPHONE. Redemptions may be made by telephone, provided you have
completed the Telephone Redemption Authorization section of the purchase
application. Upon proper authority and instruction, redemption proceeds will be
wired to the bank account set forth on the account registration or, for amounts
$5,000 or less, redemptions will be mailed to the address on the account
registration. There will be a charge for the bank wire. Neither the Fund nor the
Transfer Agent will be responsible for acting upon instructions reasonably
believed by them to be genuine. The Fund and/or its Transfer Agent will,
however, employ reasonable procedures to confirm that instructions communicated
by telephone are genuine (such as requiring some form of personal
identification, providing written confirmations, and the tape recording of
conversations). If the Fund or its Transfer Agent do not employ reasonable
procedures, they may be liable for losses due to unauthorized or fraudulent
transactions.
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<PAGE>
SPECIAL REDEMPTION ARRANGEMENTS. Special arrangements may be made by
institutional investors, or on behalf of accounts established by brokers,
advisors, banks or similar institutions, to have redemption proceeds transferred
by wire to pre-established accounts upon telephone instructions. For further
information call the Fund at 1-888-___-____.
SIGNATURE GUARANTEE. A signature guarantee is required for all
redemptions greater than $5,000 or where the redemption proceeds are to be paid
to another person or sent to an address other than the one of record. A
signature guarantee verifies the authenticity of your signature. The guarantor
must be an eligible guarantor. In order to be eligible, the guarantor must be a
participant in a STAMP program (A Securities Transfer Agents Medallion Program).
You may call the Transfer Agent at 1-888-___-____ to determine whether the
entity that will guarantee the signature is an eligible guarantor.
REDEMPTION PROCEEDS. Redemption proceeds may be sent to you by mail. If
your redemption check is to be mailed, it will usually be mailed to you within
48 hours of receipt of the redemption request. The Fund reserves the right to
hold redemption proceeds for up to seven days. If the shares to be redeemed were
purchased by check, the redemption proceeds will not be mailed to you until the
check has cleared, which may take up to seven days. You may avoid this
inconvenience by investing by bank wire. Redemption checks may also be delayed
if you have changed your address within the last 30 days. Please notify the
Fund, promptly in writing, of any change of address.
Redemption proceeds may be sent to you by wire. You may authorize the
Fund to transmit redemption proceeds by wire provided you send written
instructions with a signature guarantee at the time of redemption or have
completed the banking information portion of the Telephone Redemption
Authorization on the purchase application. Your redemption proceeds will usually
be sent on the first business day following redemption. However, the Fund
reserves the right to hold redemption proceeds for up to seven days. If the
shares to be redeemed were purchased by check, the redemption proceeds will not
be wired until the check has cleared, which may take up to seven days. There is
a $10 charge to cover the wire, which is deducted from redemption proceeds.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS:
(1) The share redemption price may be more or less than your cost of
the shares being redeemed, depending on the per share net asset value next
determined after your request is received.
(2) A request to redeem shares in an IRA or similar retirement account
must be accompanied by an IRS W4-P and must state a reason for withdrawal, as
specified by the IRS. Proceeds from the redemption of shares from a retirement
account may be subject to withholding tax.
(3) Excessive purchases and redemptions of Fund shares has an adverse
impact on effective portfolio management as well as upon Fund expenses. The Fund
has reserved the right to refuse investments from shareholders who engage in
such transactions.
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<PAGE>
ACCOUNT CLOSING FEE. In order to reduce Fund expenses, an account
closing fee of $10 will be assessed against those shareholders who redeem all of
the shares in their Fund account and direct that redemption proceeds be directed
to them by mail or wire. This charge is payable directly to the Fund's Transfer
Agent which, in turn, will reduce its charges to the Fund by an equal amount.
The purpose of the charge is to allocate to redeeming shareholders a
more equitable portion of the Transfer Agent's fee, including the cost of tax
reporting, which is based upon the number of shareholder accounts. When a
shareholder closes an account, the Fund must continue to carry the account on
its books, maintain the account records and complete year-end tax reporting.
With no assets, the account cannot pay its own expenses and imposes an unfair
burden on remaining shareholders.
DETERMINING THE PRICE OF SHARES.
The net asset value per share of each class is determined daily by
dividing the total value of investments and other assets, less any liabilities,
by the number of total outstanding shares. Fixed income securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. (Pricing services
generally take into account institutional size trading in similar groups of
securities). Securities not priced in this manner will be priced at the last
published sales price if traded on that day and, if not traded, at the mean
between the most recent quoted bid and asked prices provided by investment
dealers. The pricing service and valuation procedures are reviewed and subject
to approval by the Board of Directors. Short-term securities maturing in 60 days
or less will be valued at amortized cost (unless the Board of Directors
determines that amortized cost would not represent a fair value). If there is a
material difference in the market value and amortized cost value of short-term
securities, market value will be used. Assets for which there are no quotations
available will be valued at a fair value as determined by or at the direction of
the Board of Directors.
The net asset value per share is determined as of the earlier of the
close of the exchange or 4:00 p.m. Eastern Time on each day the New York Stock
Exchange is open. The price per share for purchases or redemptions made directly
through Declaration Service Company normally is such value next computed after
Declaration Service Company receives the purchase order or redemption request.
If the purchase order or redemption request is placed with your dealer, then the
applicable price is normally computed as of 4:00 p.m. Eastern Time on the day
the dealer receives the order, provided that the dealer receives the order
before 4:00 p.m. Eastern Time. Otherwise, the applicable price is the next
determined net asset value. It is the responsibility of your dealer to promptly
forward purchase and redemption orders to the Distributor. Note that in the case
of redemptions and repurchases of shares owned by corporations, trusts or
estates, Declaration Service Company may require additional documents to effect
the redemption and the applicable price will be determined as of the close of
the next computation following the receipt of the required documentation or
outstanding certificates. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS.
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Income dividends are declared and distributed monthly and distributions
of net realized capital gains, if any, will normally be paid annually. To
provide stable distributions for its shareholders, the Fund at times may
continue to pay distributions based on expectations of future investment results
even though, as a result of temporary market conditions or other factors, the
Fund may have failed to achieve projected investment results for a given period.
In such cases, the Fund's distributions may include a return of capital to
shareholders. Shareholders who reinvest their distributions are largely
unaffected by such returns of capital. In the case of shareholders who do not
reinvest, a return of capital is equivalent to a partial redemption of the
shareholder's investment. Because Class C shares incur higher distribution
services fees and bear certain other expenses, such shares will have a higher
expense ratio and will pay correspondingly lower dividends than Class A shares.
You will receive quarterly confirmation statements for dividends
declared and shares purchased through reinvestment of dividends. Dividends
declared in December to shareholders of record in December, and paid by the end
of January of the subsequent year will be treated as received by the shareholder
in the earlier year. You will receive confirmations after each purchase other
than through dividend reinvestment, and after each redemption. Information
concerning distributions will be mailed to shareholders annually. Distributions
will be classified in terms of non-taxable return of capital, federal tax-exempt
income and taxable income. Since some states may not tax their residents on the
portion of the Fund's distributions representing income from governmental
entities in such states, information about state sources of tax-exempt
distributions will also be reported annually.
Shareholders have the option to receive all dividends and distributions
in cash, to have all dividends and distributions reinvested, or to have income
dividends and short-term capital gain distributions paid in cash and long-term
capital gain distributions reinvested. Reinvestment of all dividends and
distributions is automatic for accounts utilizing the Automatic Withdrawal Plan.
The reinvestment of dividends and distributions is made at net asset value
(without any initial or contingent deferred sales charge) on the dividend
payment date. Upon receipt of the second dividend check which has been returned
as undeliverable, undelivered dividends will be invested in additional shares at
the current net asset value and the account designated as a dividend
reinvestment account.
FEDERAL INCOME TAXES
This section is not intended to be a full discussion of all the aspects
of the federal income tax law and its effects on the Fund and its shareholders.
Shareholders may be subject to state and local taxes on distributions. Each
investor should consult his or her own tax adviser regarding the effects of
federal, state and local tax laws on an investment in the Fund.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code (the "Code") and, if so qualified, will not be liable for
federal income tax to the extent its earnings are distributed. If, for any
calendar year, the required distribution of the Fund exceeds the amount
distributed, an excise tax equal to 4% of the excess will be imposed on the
Fund. The Fund intends to make distributions during each calendar year
sufficient to prevent imposition of the excise tax.
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<PAGE>
Dividends paid to shareholders from interest earned by the Fund from
municipal obligations and from exempt interest dividends received by the Fund
from investment companies investing in tax-exempt securities are not includible
in a shareholder's gross income for federal income tax purposes, although a
portion of such dividends may be subject to the alternative minimum tax as
discussed below. Distributions of net interest income derived from other
sources, if any, and of net short-term capital gains realized by the Fund will
be taxable to shareholders as ordinary income. Net long-term capital gain
distributions, if any, will be taxable to shareholders as long-term capital gain
regardless of how long the shares of the Fund have been held. Distributions will
be treated the same for tax purposes whether received in cash or in additional
shares of the Fund.
Interest paid on "specified private activity bonds" issued after August
7, 1986, as defined in the Code, although exempt from federal income tax, will
constitute a tax preference item for purposes of both the individual and the
corporate alternative minimum tax. If the Fund were to own any such bonds, it is
expected that a portion of the exempt income distributed by the Fund would be
treated as a preference item for shareholders based upon the proportionate share
of the interest from the specified private activity bonds received by the Fund.
In the case of a corporate shareholder, the alternative minimum tax base may
also include a portion of all the other tax-exempt income. Corporate
shareholders are advised to consult their own tax advisers with respect to the
corporate alternative minimum tax.
A gain or loss for tax purposes may be realized on the redemption of
shares. If a shareholder realizes a loss on the sale of any shares held for six
months or less and during such period the shareholder received any
exempt-interest dividends, then such loss is disallowed to the extent of the
amount of the exempt-interest dividends. If a shareholder realizes a loss on the
sale of any shares held for six months or less and during such period the
shareholder received any capital gains dividends, then such loss (to the extent
it is allowed) is treated as a long-term capital loss to the extent of such
capital gain dividends. Interest on indebtedness incurred by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes. Dividends declared in the last calendar month to shareholders of
record in such month and paid by the end of the following January are treated as
received by the shareholder in the year in which they are declared.
The Fund may not be an appropriate investment vehicle for entities
which are "substantial users" (or "related persons" thereto) of facilities
financed by "industrial development bonds" as such terms are defined in the
Internal Revenue Code. Such entities (or persons) should consult their own tax
advisers before investing.
FUND SHARES
Shares issued by the Fund are currently divided into two classes: Class
A and Class C shares. The Board of Directors may offer additional classes in the
future and may at any time discontinue the offering of any class of shares. Each
share, when issued and paid for in accordance with the terms of the offering, is
fully paid and non-assessable. Shares have no preemptive or subscription rights
and are freely transferable. Each share of the Fund represents an interest in
the assets of the Fund and has identical voting, dividend, liquidation and other
rights and the same terms and conditions as any other shares except that (i)
each dollar of net asset value per share is entitled to one vote irrespective of
the class or subclass thereof, (ii) the expenses related to a
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<PAGE>
particular class, such as those related to the distribution of each class and
the transfer agency expenses of each class, are borne solely by each such class
and (iii) each class of shares votes separately with respect to provisions of
the Rule 12b-1 Distribution Plan which pertains to a particular class and other
matters for which separate class voting is appropriate under applicable law.
Each fractional share has the same rights, in proportion, as a full share.
Shares do not have cumulative voting rights; therefore, the holders of more than
50% of the voting power of the Fund can elect all of the directors of the Fund.
Due to the differing expenses of the classes, dividends of Class C shares are
likely to be lower than for Class A shares.
In accordance with Maryland law and the Fund's By-laws, the Fund does
not hold regular annual shareholder meetings. Shareholder meetings are held when
they are required under the Investment Company Act of 1940 or when otherwise
called for special purposes. Special shareholder meetings may be called upon the
written request of shareholders holding at least 10% of the outstanding shares
of the Fund.
PERFORMANCE DATA
From time to time, the Fund may advertise information regarding its
performance. Such information may consist of "yield," "total return," "taxable
equivalent yield," "distribution rate," "annualized current distribution rate"
and "tax equivalent distribution rate." Each of these performance figures will
be based upon historical results and will not be intended to indicate future
performance, and, except for "distribution rate," "annualized current
distribution rate" and "tax equivalent distribution rate" is standardized in
accordance with regulations of the Securities and Exchange Commission ("SEC").
All such performance will be calculated separately for each class of shares.
"Yield" is computed by dividing the net investment income per share (as
defined in applicable SEC regulations) during a specified 30-day period by the
maximum offering price per share on the last day of such period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one-year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Taxable Equivalent Yield". The yield necessary from a taxable
investment, which on an after-tax basis is equal to the yield of a tax free
investment, based on the maximum federal income tax bracket for a given period.
"Distribution rate" is determined by dividing the income dividends per
share for a stated period by the net asset value per share on the last day of
such period. "Tax equivalent distribution rate" is computed by dividing the
portion of the Fund's distribution rate (determined as described above) which is
tax-exempt, by one minus the stated federal income tax rate, and adding to the
resulting amount that portion, if any, of the distribution rate which is not
tax-exempt. All distribution rates published are measures of the level of income
dividends distributed during a specified period. Thus, such rates differ from
yield (which measures income actually earned by the Fund) and total return
(which measures actual income, plus realized and unrealized gains or losses of
the Fund's investments). Consequently, distribution rates alone should not be
considered complete measures of performance.
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<PAGE>
"Average annual total return" refers to the Fund's average annual
compounded rate of return over a stated period that would equate an initial
amount invested at the beginning of the period to the ending redeemable value of
the investment. In the event the Fund advertises its total return, the stated
periods will generally be one year, five years and ten years, but the Fund may
also advertise total return for longer or shorter periods, including the life of
the Fund. The computation of total return assumes reinvestment of all dividends
and distributions, and deduction of all charges and expenses.
The Fund may also quote average annual total return and total return on
net asset value. Such data will be calculated substantially as described above
except that sales charges will not be deducted.
The Fund may quote information from publications such as The Wall
Street Journal, Money Magazine, Forbes, Barron's, Newsweek, Chicago Tribune, The
New York Times, U.S. News and World Report, USA Today, Fortune, Investors
Business Daily, Financial World, Smart Money, No-Load Fund Investor and
Kiplinger's and may cite information from Morningstar, Value Line or the
Investment Company Institute. The Fund may compare its performance to the
performance of mutual fund indexes as reported by Lipper Analytical Services,
Inc. ("Lipper") or CDA Investment Technologies, Inc., two widely recognized
independent mutual fund reporting services.
Please remember that performance information is based upon historical
results and is not necessarily indicative of future performance.
The Fund's Annual Reports will contain additional performance
information and will be made available upon request and without charge.
SHAREHOLDER INQUIRIES
Declaration Service Company, P.O. Box 844, Conshohocken, Pennsylvania
19428-0844, acts as transfer, shareholder servicing, and dividend paying agent
for all Fund accounts. Simply write or call the Investor Information Department
at 1-888-___-____ for prompt service on any questions about your account.
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<PAGE>
APPENDIX
QUALITY RATINGS OF DEBT SECURITIES
MOODY'S MUNICIPAL AND CORPORATE BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than 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.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any longer period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
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<PAGE>
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
STANDARD & POOR'S CORPORATE BOND RATINGS
AAA -- Debt rated 'AAA' has the highest rating assigned by Standard and
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated 'AA' has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
A -- Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated 'BBB' is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB -- Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB' rating.
B -- Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied `BB' or `BB' rating.
CCC -- Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The 'CCC' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied 'B' or 'B' rating.
CC -- The rating 'CC' is typically applied to debt subordinated to
senior debt that is assigned an actual or implied 'CCC' rating.
C -- The rating 'C' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
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CI -- The rating 'CI' is reserved for income bonds on which no interest
is being paid.
D -- Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
MOODY'S MUNICIPAL NOTE RATINGS
MIG 1 -- The best quality, with strong protection provided by
established cash flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing.
MIG 2 -- High quality, with margins of protection ample although not so
large as in the preceding group.
MIG 3 -- Favorable quality, with all security elements accounted for
but lacking the undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing is likely to be
less well established.
STANDARD & POOR'S MUNICIPAL NOTE RATINGS
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are given
a (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1 (superior capacity), Prime-2 (strong capacity) and
Prime-3 (acceptable capacity). In assigning ratings to an issuer which
represents that its commercial paper obligations are supported by the credit of
another entity or entities, Moody's evaluates the financial strength of the
indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
The S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from 'A' for the
highest quality to 'D' for the lowest. Issues assigned an 'A' rating
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<PAGE>
are regarded as having the greatest capacity for timely payment. Within the 'A'
category, the numbers 1, 2 and 3 indicate relative degrees of safety. The
addition of a plus sign to the category A-1 denotes that the issue is determined
to possess overwhelming safety characteristics.
TERMS AND CONDITIONS FOR A STATEMENT OF INTENTION (CLASS A SHARES ONLY)
TERMS OF ESCROW:
1 Out of my initial purchase (or subsequent purchases if necessary) 5%
of the dollar amount specified in this Statement will be held in escrow by
Declaration Service Company in the form of shares (computed to the nearest full
share at the public offering price applicable to the initial purchase hereunder)
registered in my name. For example, if the minimum amount specified under this
statement is $100,000 and the public offering price applicable to transactions
of $100,000 is $10 a share, 500 shares (with a value of $5,000) would be held in
escrow.
2 If my total purchases are at least equal to the intended purchases,
the shares in escrow will be delivered to me or to my order.
3 If my total purchases are less than the intended purchases, I will
remit to Rickel Securities, Inc. the difference in the dollar amount of sales
charge actually paid by me and the sales charge which I would have paid if the
total purchase had been made at a single time. If remittance is not made within
20 days after written request by Rickel Securities, Inc., or my dealer,
Declaration Service Company, will redeem an appropriate number of the escrowed
shares in order to realize such difference.
4 I hereby irrevocably constitute and appoint Declaration Service
Company my attorney to surrender for redemption any or all escrowed shares with
full power of substitution in the premises.
5 Shares remaining after the redemption referred to in Paragraph No. 3
will be credited to my account.
6 The duties of Declaration Service Company are only such as are herein
provided being purely ministerial in nature, and it shall incur no liability
whatever except for willful misconduct or gross negligence so long as it has
acted in good faith. It shall be under no responsibility other than faithfully
to follow the instructions herein. It may consult with legal counsel and shall
be fully protected in any action taken in good faith in accordance with advice
from such counsel. It shall not be required to defend any legal proceedings
which may be instituted against it in respect of the subject matter of this
Agreement unless requested to do so and indemnified to its satisfaction against
the cost and expense of such defense.
7 If my total purchases are more than the intended purchases and such
total is sufficient to qualify for an additional quantity discount, a
retroactive price adjustment shall be made for all
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<PAGE>
purchases made under such Statement to reflect the quantity discount applicable
to the aggregate amount of such purchases during the thirteen-month period.
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TELEPHONE REDEMPTION AUTHORIZATION
[ ] If you wish to authorize redemption by telephone please check the box to the
left and complete the following information.
I (we) hereby authorize Declaration Service Company, Millenium
Advisers, Inc., Rickel Securities, Inc., and/or Millenium Tax-Free Income Fund,
Inc. to act upon instructions received by telephone or telegraph, believed by
them to be genuine, and to redeem shares in my (our) account in the Fund and to
wire the proceeds of such redemption to the predesignated bank listed below. I
(we) hereby agree that neither Declaration Service Company, nor Millenium
Advisers, Inc., Rickel Securities, Inc., and/or Millenium Tax-Free Income Fund,
Inc nor any of their officers or employees, will be liable for any loss,
liability, cost or expense for acting upon such instructions.
- --------------------------------- --------------------------------
Signature of Shareholder Signature of Co-Shareholder
- --------------------------------- --------------------------------
Name of Commercial Bank (Title of Account at Bank)
- --------------------------------- --------------------------------
(Street) (Account Number at Bank)
- --------------------------------- --------------------------------
(City) (State) (Zip) (ABA/Transit Routing Number)
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ACCOUNT APPLICATION
Mail to : Millenium Tax-Free Income Fund, Inc. c/o Declaration Service Company,
P.O. Box 844, Conshohocken, PA 19428-0844. Use this application for all
accounts. For assistance call 1-888-___-____.
1. ACCOUNT REGISTRATION [ ] Individual Account
Please check only one box [ ] Joint Tenant
[ ] Tenants in Common
[ ] Uniform Transfers to Minors Act (UM) or
Uniform Gifts to Minors Act (UGMA) - use
the name of the adult custodian on the
shareholder line and the name of the
child on the co-shareholder line. Use
the child's Social Security Number.
[ ] Trust Account - please indicate the
name(s) of the trustee(s) authorized to
act on behalf of the trust on the
shareholder line and the name of the
trust and date of the trust on the
co-shareholder line.
[ ] Retirement Plan - please indicate the
name(s) of the trustee(s) on the
shareholder line and the name of the
retirement plan on the co-shareholder
line.
[ ] I am a Dealer Firm registered
representative or employee entitled to
NAV purchases of Class A Shares.
[ ] Other form of ownership (please specify
____________________________________)
PLEASE PRINT CLEARLY. Name of shareholder ________________________
Social Security number or taxpayer
ID number (required by law) ________________
Name of co-shareholder (if any) ____________
Address ____________________________________
City ______________ State ________ Zip _____
Telephone Number ___________________________
Citizenship ________________________________
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2. CLASS SELECTION
[ ] Check enclosed for $___________ (Minimum
$5,000 for Class A Shares, $25,000 for
Class (C Shares,) payable to "Millenium
Tax-Free Income Fund, Inc."), for
investment in the following Class(es)
of Shares:
[ ] $_______ in Class A Shares.
[ ] $_______ in Class C Shares.
[ ] My investment dealer, named below,
ordered my initial purchase of shares,
under wire order # ______________.
Please consider the following account options on the reverse side:
* Dividend and Capital Gain * Rights of Accumulation * Payments to Others
Instructions
* Statement of Intention * Telephone Privileges * Automatic Withdrawals
* Automatic Investment Plan * Electronic Wire Privileges
3. DEALER INFORMATION
When opening your ______________________________________________________
account through a Dealer name (as it appears on Selling Group Agreement)
dealer, have them
complete this section. ______________________________________________________
Address of home office
______________________________________________________
City State Zip
______________________________________________________
Authorized signature of dealer
______________________________________________________
Address of office servicing account
______________________________________________________
City State Zip
______________________________________________________
Registered representative's name and no. appearing on
firm's registration
______________________________________________________
Registered representative's telephone number
4. YOUR SIGNATURE
All registered shareholders
must sign.
I am of legal age and have read the current
prospectus and this application. I agree to the
terms thereof including any amendments thereto. I
hold harmless and indemnify Millenium Tax-Free
Income Fund, Inc., Rickel Securities, Inc. and
each of their respective partners, affiliates,
directors, officers, employees and agents from any
losses, expenses, costs or liability (including
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<PAGE>
attorney fees) which I many incur in connection
with my instructions in this application and any
other instructions given in writing, by telephone
or electronically and reasonably believed to be
genuine. UNDER THE PENALTY OF PERJURY, I CERTIFY
THAT (1) THE SOCIAL SECURITY NUMBER OR TAXPAYER
IDENTIFICATION NUMBER SHOWN ON THIS FORM IS MY
CORRECT TAXPAYER IDENTIFICATION NUMBER, AND (2) I
AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER
BECAUSE I HAVE NOT BEEN NOTIFIED BY THE INTERNAL
REVENUE SERVICE (IRS) THAT I AM SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL
INTEREST AND DIVIDENDS, OR THE IRS HAS NOTIFIED ME
THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING.
THE IRS DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING. If I am affiliated with, or work for,
a NASD member firm, I will attach information
concerning my employment.
__________________________________________________
Signature of shareholder Date
__________________________________________________
Signature of co-shareholder (if any) Date
For more information and prospectus(es) call 1-888-___-____.
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ACCOUNT OPTIONS
5 DIVIDEND AND CAPITAL All dividend and capital gain distributions will be
GAIN INSTRUCTIONS paid in cash unless otherwise indicated here:
DIVIDENDS:
[ ] Reinvest Into The Fund. (May not select if using
Automatic Withdrawal Plan.)
CAPITAL GAIN DISTRIBUTIONS:
[ ] Reinvest into the Fund.
6 STATEMENT OF
INTENTION I understand that through accumulated investments I
can reduce my sales charges of the Class A Shares. I
intend to invest over a 13-month period beginning
(date) ___________________ in shares of the Fund for
an aggregate amount of at least:
[ ] $100,000 [ ] $250,000 [ ] $500,000
[ ] $750,000 [ ] $1,000,000
7 RIGHTS OF [ ] I own Class A shares in more than one account, which
ACCUMULATION may entitle me to a reduced sales charge. Please
link my account numbers to qualify (Attach an
additional sheet if necessary):
___________ ___________ ___________
8 TELEPHONE AUTOMATICALLY APPLIES UNLESS BOX IS CHECKED. I elect
PRIVILEGE the telephone privileges as described in the
prospectus. (Calls may be recorded or monitored for
verification and quality assurance purposes.)
[ ] No, I do not want telephone privileges.
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<PAGE>
9. ELECTRONIC WIRE [ ] I authorize the Fund to wire redemption proceeds
PRIVILEGE when requested by either Automated Clearing House
Please attach a (ACH) or by Wire (a fee is charged) as specified
Check or by my redemption instructions.
Encoded Deposit _________________________________________________
Slip Name and Address of Depository Institution
_________________________________________________
Account Number with Depository Institution
Type of account: [ ] Checking [ ] Savings
AUTOMATIC WITHDRAWAL [ ] I want to withdraw from the Fund
PLAN account number (if known) ___________________
This plan requires a
$10,000 minimum [ ] $__________ (exact dollars-$25 minimum) OR
balance and the [ ] ___________ % (per year-calculated each withdrawal)
reinvestment of OR
dividends. [ ] __________ (number of withdrawals until the account
is closed)
I want to receive checks: [ ] Monthly [ ] Quarterly
[ ] Annually
11. PAYMENT TO OTHERS Make checks payable and send to:
Complete if dividend
or withdrawal checks Name ________________________________________________
are to be payable to
someone other than Address ______________________________________________
the registered
shareholder(s). City ____________________State______________Zip ________
12 AUTOMATIC INVESTMENT
PLAN
Important: Attach an
unsigned voided check.
The account balance Please transfer $____________ ($25 minimum) from my bank
must meet the minimum account and invest into the Fund
investment account number (if known) ______________________________
requirements as on the ___________ day of each month.
detailed in the
prospectus within 12 Name of your bank ______________________________________
months of initial ABA number _____________________________________________
investment. Print your name(s) _____________________________________
Bank Account Number_____________________________________
Street address of your bank ____________________________
City _________________ State ______________ Zip ________
44
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
_____________, 1998
MILLENIUM TAX-FREE INCOME FUND, INC.
P.O. BOX 844
CONSHOHOCKEN, PA 19428-0844
TABLE OF CONTENTS
TOPIC PAGE
General Information and History.........................................
Fundamental Investment Restrictions.....................................
Municipal Obligations...................................................
Temporary Investments...................................................
Portfolio Transactions..................................................
Directors and Officers..................................................
Directors' Compensation Schedule........................................
Investment Advisory Services............................................
Custodian...............................................................
Auditors................................................................
Determining the Price of Shares.........................................
Reduction of Class A Sales Charge.......................................
Distribution of Fund Shares.............................................
Performance Data........................................................
Non-Standard Distribution Rates.........................................
<PAGE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE CLASS A AND CLASS C PROSPECTUS DATED_________ , 1998.
THE PROSPECTUS MAY BE OBTAINED FROM THE FUND.
GENERAL INFORMATION AND HISTORY
The Fund has been recently organized for the purposes set forth in the
Prospectus. It has had no prior history of operations.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions set forth below and the Fund's investment
objective set forth in the Prospectus may not be changed without the approval of
the holders of more than 50% of the eligible votes. All percentage limitations
set forth in these restrictions apply as of the time of an investment without
regard to later increases or decreases in the value of securities or total or
net assets.
1. The Fund may not invest in securities other than municipal obligations
and temporary investments, and may not make loans to others except through such
investments.
2. The Fund may not purchase or sell real estate (but this will not
prevent the Fund from investing in municipal obligations secured by real estate
or interests therein) or commodities or commodity contracts.
3. The Fund may not purchase more than 50% of the outstanding debt
obligations of any one issuer. For this purpose, all debt obligations of an
issuer are treated as a single class of securities. This restriction does not
apply to debt obligations issued, guaranteed or insured by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Securities").
4. The Fund may not make an investment that would cause more than 5% of
the value of its total assets to be invested in the securities (other than U.S.
Government Securities) of any one issuer. For this purpose, each state or local
governmental entity shall be deemed a separate "issuer," except that where the
entity issuing a municipal obligation differs from the entity whose revenues are
the primary source of the payment of the obligation, the entity whose revenues
are the primary source of payment shall be deemed the sole issuer with regard to
that obligation.
5. The Fund may not make an investment that would cause 25% or more of the
value of its total assets to be invested in municipal obligations the issuers of
which are located in the same state. For this purpose, the location of an issuer
shall be deemed to be the location of the governmental entity issuing the
obligation, regardless of the location of the entity whose revenues are the
primary source of payment or the location of the project or facility which may
be the subject of the obligation.
6. The Fund may not write or purchase put or call options.
-2-
<PAGE>
7. The Fund may not make an investment that would cause 25% or more of the
value of its total assets to be invested in revenue bonds or notes the payment
for which comes from revenues from any one type of activity. For this purpose,
the term "type of activity" shall include, for example, the following: (a)
sewage treatment and disposal; (b) gas provision; (c) electric power provision;
(d) water provision; (e) mass transportation systems; (f) housing; (g)
hospitals; (h) street development and repair; (i) toll roads; (j) airport
facilities; and (k) educational facilities. This restriction does not apply to
general obligation bonds or notes or to pollution control revenue bonds.
8. The Fund may not purchase securities of other registered investment
companies (as defined in the Investment Company Act of 1940), except (i) shares
of open-end investment companies investing primarily in municipal obligations
with remaining maturities of 13 months or less, provided that such purchase does
not cause the Fund to (a) have more than 5% of its total assets invested in any
one such company, (b) have more than 10% of its total assets invested in the
aggregate of such companies or (c) own more than 3% of the total outstanding
voting stock of any such company; or (ii) as part of a merger, consolidation,
reorganization or acquisition of assets.
9. The Fund may not sell securities short or purchase securities on
margin, except for such short-term credits as are necessary for the clearance of
transactions.
10. The Fund may not, except for temporary defensive purposes, make an
investment in other than municipal obligations if such investment would cause
more than 20% of the value of the Fund's total assets to be invested in
securities other than municipal obligations which are not subject to the
alternative minimum tax.
11. The Fund may not issue senior securities, or borrow money except from
banks as a temporary measure for extraordinary or emergency purposes in amounts
not exceeding 10% of the value of the Fund's total assets (excluding the amount
borrowed) at the time of such borrowing. The Fund may not pledge or hypothecate
any of its assets except in connection with permitted borrowing in amounts not
exceeding 15% of the value of its total assets (excluding the amount borrowed)
at the time of such borrowing.
12. The Fund may not buy or continue to hold securities if the directors
and officers of the Fund or the Adviser own too many of the same securities.
This would happen if any of these individuals own 1/2 of 1% or more of the
securities and the people who own that much or more own 5% of such securities.
13. The Fund does not engage in the underwriting of securities; however,
if the Fund sells "restricted" securities it may technically be considered an
"underwriter."
NON-FUNDAMENTAL POLICIES. In addition to the foregoing restrictions,
the Fund may from time to time voluntarily undertake certain non-fundamental
policies which may be changed without shareholder approval.
MUNICIPAL OBLIGATIONS
-3-
<PAGE>
Occasionally, an issuing state or local governmental entity may
guarantee the payment of a revenue bond obligation, backing payment with its
taxing power. Normally, revenue bonds are paid solely from a particular revenue
source. The revenue source may be earnings from a public project such as tolls
from roads or bridges, airport revenues, earnings of publicly owned utilities or
special excises such as special improvement levies. The revenue source may also
be a private company which is utilizing a facility constructed through monies
obtained through a governmental agency or fund. There are two principal types of
revenue bonds for private facilities, industrial development bonds and pollution
control bonds. Occasionally, such bonds are also issued by governmental entities
to obtain funds for a privately operated general community facility such as a
hospital, convention hall or sports stadium.
Industrial development bonds are issued by a governmental entity to
obtain funds to finance a facility, typically an industrial plant or factory,
which is leased to or operated by a private (non-governmental) company. State
and local governments have the power in most states to permit the issuance of
industrial development bonds to provide financing aid to such companies in order
to encourage them to locate facilities within their communities. The Fund may at
times invest more than 25% of its assets in industrial development bonds.
Pollution control bonds are issued to provide funding for air or water
pollution control systems for privately operated industrial or commercial
facilities.
As described under "Investment Objectives and Policies" in the
Prospectus, the Fund may invest in municipal bonds and/or certificates of
participation that constitute investments in lease obligations or installment
purchase contract obligations (hereafter collectively called "lease
obligations") of municipal authorities or entities. As further described in the
Prospectus, certain of the lease obligations contain "non-appropriation"
clauses. The Fund will seek to minimize the special risks associated with such
securities by not investing more than 10% of its assets in lease obligations
that contain such clauses.
Municipal notes include tax, revenue and bond anticipation obligations
or general or revenue obligations of shorter maturities than municipal bonds,
generally five years or less, which are issued to obtain funds for various
public purposes.
There are, in addition, a variety of hybrid and special types of
municipal obligations as well as numerous differences in security, quality and
risk both within and among the classifications described above. Obligations of a
special governmental authority may, for instance, constitute a pledge of the
full credit and taxing power of the authority, and yet have somewhat less
security than a general state or city obligation in view of the limitations on
the authority's taxing power compared to the broader taxing power of a state or
a city.
Due to the increasing needs of state and local governments and their
widening view of public purpose, a variety of types of federal tax-exempt
financing obligations have been developed over the years and new types of
obligations may be expected in the future.
-4-
<PAGE>
The ratings of Moody's Investors Services Inc. ("Moody's") and Standard
and Poor's Corporation ("S&P") represent their opinions as to the quality of the
municipal obligations which they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, municipal bonds with the same maturity, coupon and rating may have
different yields while bonds of the same maturity and coupon with different
ratings may have the same yield.
From time to time, proposals have been introduced in Congress for the
purposes of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. Similar proposals may be introduced in the
future. If such a proposal were to be enacted, the availability of municipal
obligations for investment by the Fund and the value of the Fund's portfolio
would be affected. In such event, the Fund would re-evaluate its investment
objective and policies in view of such developments.
TEMPORARY INVESTMENTS
At various times the Fund may hold cash or invest in securities other
than municipal obligations. Income from such securities may be taxable as
ordinary income. Such temporary investments may be made in any of the following
circumstances, provided that such an investment does not cause over 20% of the
value of the Fund's total assets to be so invested: (1) when assets are
allocated for settlement of purchases; (2) when net cash inflow from sales of
the Fund's shares or sales of portfolio securities is of a size which does not
allow for prompt investment in attractively priced municipal obligations; or (3)
when highly liquid assets are needed to meet anticipated redemptions, dividends
or other cash needs.
In addition, during periods of adverse markets when it is deemed
advisable and practicable to take a temporary defensive position to protect
capital, the Fund may have more than 20% of its assets invested in temporary
investments and cash. While reserving this freedom to act for defensive
purposes, the Fund intends to limit its holdings of temporary taxable
investments and cash to meet the requirements for federal income tax exemption
on the dividends which the Fund pays from its municipal obligation or other
income exempt from federal income tax.
Although on occasion the Fund may purchase temporary investments, it is
the Fund's intention to be invested primarily in municipal obligations.
Temporary investments will be made only under the conditions specified herein.
Temporary investments will be made exclusively in: (1) shares of
investment companies primarily investing in short-term instruments the income of
which is exempt from federal income tax (subject to certain limitations as to
the Fund's investments in other investment companies set forth under
"Fundamental Investment Restrictions"); (2) U.S. Government Securities; (3)
commercial paper rated within the highest grade by either Moody's or S&P
(Prime-1 or A-1, respectively); (4) other short-term debt securities issued or
guaranteed by corporations having outstanding debt rated within the two highest
grades by Moody's (Aaa or Aa) or S&P (AAA or AA); (5) certificates of deposit of
domestic commercial banks subject to regulation by the U.S. Government, or any
of its agencies or instrumentalities, with assets of $1 billion or more based on
the most recent published reports; or (6) repurchase agreements with domestic
banks or securities dealers involving any of the securities
-5-
<PAGE>
which the Fund is permitted to hold. (Such agreements will involve the purchase
of securities subject to resale to the seller on a specified date within 7 days
of purchase at a specified price based on an agreed interest rate.) Rating
requirements apply as of the time of purchase.
PORTFOLIO TRANSACTIONS
Millenium Advisers, Inc. (the "Adviser") makes investment decisions and
arranges for the placement of portfolio transactions for the Fund, subject to
review by the Board of Directors and its Committee on Brokerage. In this regard,
the Adviser will seek to obtain the most favorable price and execution for the
transaction given the size and risk involved. In placing executions and paying
any brokerage commissions, the Adviser considers the dealer's financial
responsibility and reputation, range and quality of the services made available
to the Fund and the professional services rendered, including execution,
clearance procedures, wire service quotations and ability to provide
supplemental performance, statistical and other research information for
consideration, analysis and evaluation by the Adviser's staff. In accordance
with this policy, brokerage transactions, if any, are not executed solely on the
basis of the lowest commission rate available. Research services provided to the
Adviser by or through dealers who effect portfolio transactions for the Fund may
be used in servicing other accounts managed by the Adviser and, likewise,
services provided by dealers used for transactions of other accounts may be
utilized by the Adviser in performing services for the Fund. Subject to the
requirements of best execution, the placement of orders by securities firms for
shares of the Fund may be taken into account as a factor in the placement of
portfolio transactions.
The Adviser believes that research from dealers is desirable, although
not essential, in carrying out its functions, in that such outside research
supplements the efforts of the Adviser by corroborating data and enabling the
Adviser to consider the views, information and analyses of other research
staffs. Such views, information and analyses include such matters as
communicating with persons having special expertise on certain issuers,
industries, areas of the economy and/or securities prices, obtaining written
materials on these or other areas which might affect the economy and/or
securities prices, obtaining quotations on securities prices and obtaining
information on the activities of other institutional investors. The Adviser
researches, at its own expense, each security included in, or being considered
for inclusion in, the Fund's portfolio.
DIRECTORS AND OFFICERS
The names and addresses of the directors and officers of the Fund are
set forth below, together with their principal business affiliations and
occupations for the last five years. The asterisk following the names of John C.
Sabo and Susan P. Bowen indicates that they are each considered to be an
"interested person" of the Fund, as defined in the Investment Company Act.
JOHN C. SABO * (10/29/53), c/o Rickel Securities, Inc., 45 Essex Street,
Millburn, New Jersey 07041. Director, President and Chief Executive Officer of
the Fund; Chairman, Rickel Securities, Inc. (a registered broker-dealer) and
Millenium Advisers, Inc. (a registered investment adviser); formerly, President
(1995-1997) and Executive Vice President (1980-1995) of Rickel & Associates,
Inc. (a registered broker-dealer).
-6-
<PAGE>
MARK BLAUSTEIN (5/5/33), c/o Rickel Securities, Inc., 45 Essex Street, Millburn,
New Jersey 07041. Director of the Fund. Retired; formerly, President (until
1993) of the Essex County Personnel and Guidance Association.
PAUL A. HARPER, JR. (12/22/41), c/o Rickel Securities, Inc., 45 Essex Street,
Millburn, New Jersey 07041. Director of the Fund. Principal, Deep South Capital,
L.L.C. (provider of investment advisory services to various commercial
institutional borrowers); Owner, Pinkert Insurance Agency, commercial insurance
brokerage.
SUSAN P. BOWEN* (12/31/62), c/o Rickel Securities, Inc., 45 Essex Street,
Millburn, New Jersey 07041. Treasurer, Chief Financial Officer and Secretary of
the Fund. Vice President and Senior Analyst, Rickel Securities, Inc. (a
registered broker-dealer); formerly, Vice President and Senior Analyst of Rickel
& Associates, Inc. (a registered broker-dealer).
The Company does not pay salaries to any of its officers. The Adviser
performs certain services on behalf of the Company and is reimbursed by the
Company for the costs of providing these services. See "Investment Advisory
Services."
COMPENSATION SCHEDULE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
- -----------------------------------------------------------------------------------------------------------
Pension Or Fund Total Compensation
Aggregate Retirement Benefits Estimated Annual From Registrant
Name of Person, Compensation From Accrued As Part Of Benefits Upon and Fund Complex
Position Registrant Fund Expenses Retirement Paid to Directors
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John C. Sabo, -0- -0- -0- -0-
President and CEO
Susan P. Bowen, -0- -0- -0- -0-
Treasurer, CFO
And Secretary
Mark Blaustein, -0- -0- -0- -0-
Director
Paul A. Harper, Jr., -0- -0- -0- -0-
Director
</TABLE>
The Fund does not plan on paying its directors or officers compensation
out of the Fund; however, the Fund does reserve the right to begin paying such
compensation in the future.
INVESTMENT ADVISORY SERVICES
-7-
<PAGE>
Millenium Advisers, Inc. (the "Adviser") serves as investment
adviser for the Fund pursuant to an Advisory Agreement adopted in accordance
with the requirements of the Investment Company Act of 1940. Pursuant to the
Advisory Agreement, the Adviser, subject to the general supervision of the
Fund's Board of Directors, manages the day to day investment operations of the
Fund, provides management advice, and furnishes statistical, executive and
clerical personnel, bookkeeping, office space, and equipment necessary to carry
out its management functions and such corporate managerial duties as are
requested by the Board of Directors of the Fund. The Fund bears all expenses
other than those specifically assumed by the Adviser under the Agreement,
including preparation of its tax returns, financial reports to regulatory
authorities, dividend determinations and transaction and accounting matters
related to its custodian bank, transfer agency, custodial and shareholder
services, and qualification of its shares under federal and state laws.
The Adviser is a wholly-owned subsidiary of the Distributor, Rickel
Securities, Inc. The Chairman, Chief Executive Officer and majority stockholder
of the Distributor is John C. Sabo, who also serves as the President, Chief
Executive Officer and director of each of the Adviser and the Fund. The
Distributor is a registered broker-dealer specializing in municipal securities.
It was formed in August, 1997 by certain former principals of Rickel &
Associates, Inc., another broker-dealer which specializes in municipal
securities.
For the Adviser's services, the Fund pays the Adviser a monthly fee at
the annual rate as follows: 0.65% on average net assets up to $250 million,
0.60% on the next $250 million of average net assets and 0.55% on average net
assets over $500 million. The Adviser has agreed to waive the receipt of
management fees from the Fund with respect to any fiscal quarter if, on the last
day of such quarter, the Fund's net assets are less than $15,000,000.
The Advisory Agreement also makes provisions for portfolio transactions
and brokerage policies of the Fund which are discussed above under "Portfolio
Transactions."
In accordance with the provisions of the Investment Company Act, the
Advisory Agreement will terminate automatically upon assignment and is subject
to cancellation upon 60 days' written notice by the Fund's Board of Directors,
the vote of the holders of a majority of the Fund's outstanding shares or the
Adviser. The continuance of each Agreement must be approved at least annually by
the Fund's Board of Directors or by the vote of holders of a majority of the
outstanding shares of the Fund. In addition, any new agreement or the
continuation of the existing agreement must be approved by a majority of
directors who are not parties to the agreement or interested persons of any such
party.
The Advisory Agreement provides that the Adviser, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties, will not be liable for any act or omission in the cause of, or connected
with rendering service under the Agreement or for any losses that may be
sustained in the purchase, holding or sale of any security.
The Adviser has adopted a Code of Ethics which regulates the personal
securities transactions of their investment personnel and other employees and
affiliates with access to information regarding securities transactions of the
Fund. Such Code of Ethics requires investment
-8-
<PAGE>
personnel to disclose personal securities holdings upon commencement of
employment and all subsequent trading activity to the firm's Compliance Officer.
Investment personnel are prohibited from engaging in any securities
transactions, including the purchase of securities in a private offering,
without the prior consent of the Compliance Officer. Additionally, such
personnel are prohibited from purchasing securities in an initial public
offering and are prohibited from trading in any securities (i) for which the
Fund has a pending buy or sell order, (ii) which the Fund is considering buying
or selling, or (iii) which the Fund purchased or sold within seven calendar
days.
YEAR 2000 COMPLIANCE
The Fund's operations depend upon the seamless functioning of computer
systems in the financial services industry, including those of the Adviser, the
Custodian and the Transfer Agent. The failure of computer systems to properly
process date-related information after December 31, 1999 because of the method
by which dates are encoded could adversely affect the handling of securities
trades, pricing and account servicing for the Fund. The Adviser has made Year
2000 compliance a priority and is taking steps that it believes are reasonably
designed to address Year 2000 issues with respect to its computer systems. The
Adviser also has been informed that comparable steps are being taken by the
Fund's other major service providers. The Adviser does not currently anticipate
that the Year 2000 issues will have a material impact on its ability to fulfill
its duties as investment adviser to the Fund.
CUSTODIAN
The Custodian of the Fund's assets is UMB Bank, N.A., 928 Grand Blvd.,
Kansas City, Missouri 64106. The Custodian maintains all of the instruments
representing the investments of the Fund and all cash. The Custodian delivers
securities against payment upon sale and pays for securities against delivery
upon purchase. The Custodian also remits Fund assets in payment of Fund
expenses, pursuant to instructions of officers or resolutions of the Board of
Directors.
AUDITORS
The Fund's auditors are Tait, Weller And Baker, CPAs. The audit will
include examination of annual financial statements furnished to shareholders and
filed with the Securities and Exchange Commission, consultation on financial
accounting and reporting matters, and meeting with the Audit Committee of the
Board of Directors. In addition, the auditors will review federal and state
income tax returns and related forms.
DETERMINING THE PRICE OF SHARES
The Fund will not price its shares or accept orders for purchases or
redemptions on days when the New York Stock Exchange is closed. Such days
currently include New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
-9-
<PAGE>
REDUCTION OF CLASS A SALES CHARGES
There are a number of ways to reduce the sales charge imposed on the
purchase of the Fund's Class A shares, as described below. These reductions are
based upon the fact that there is less sales effort and expense involved in
respect to purchases by affiliated persons and purchases made in large
quantities.
FAMILY OR GROUP PURCHASES. Certain purchases made by or for more than
one person may be considered to constitute a single purchase, including (i)
purchases for family members, including spouses and children under 21 and (ii)
purchases made by an organized group of persons, whether incorporated or not, if
the group has a purpose other than buying shares of mutual funds. For further
information on group purchase reductions, contact the Distributor or your
dealer.
STATEMENTS OF INTENTION. Another way to reduce the sales charge is by
signing a Statement of Intention. A Statement is included in the Application
Form included in the Prospectus. Please read it carefully before completing it.
If you enter into a Statement of Intention you (or any "single
purchaser") may state that you intend to invest at least $100,000 in the Fund's
Class A shares over a 13-month period. The amount you say you intend to invest
may include Class A shares which you already own, valued at the offering price,
at the end of the period covered by the Statement. A Statement may be backdated
up to 90 days to include purchases made during that period, but the total period
covered by the Statement may not exceed 13 months.
Shares having a value of 5% of the amount you state you intend to
invest will be held "in escrow" to make sure that any additional sales charges
are paid.
No additional sales charge will be payable if you invest the amount you
have indicated. Each purchase under a Statement will be made as if you were
buying at one time the total amount indicated. For example, if you indicate that
you intend to invest $100,000, you will pay a sales charge of 3-1/2% on each
purchase.
If you buy additional amounts during the period to qualify for an even
lower sales charge, you will be charged such lower charge. For example, if you
indicate that you intend to invest $100,000 and actually invest $250,000, you
will, by retroactive adjustment, pay a sales charge of 2-1/2%.
If during the 13-month period you invest less than the amount you have
indicated, you will pay an additional sales charge. For example, if you state
that you intend to invest $250,000 and actually invest only $100,000, you will,
by retroactive adjustment, pay a sales charge of 3- 1/2%. The sales charge you
actually pay will be the same as if you had purchased the shares in a single
purchase.
A Statement does not bind you to buy, nor does it bind the Distributor
to sell, the shares covered by the Statement.
-10-
<PAGE>
RIGHTS OF ACCUMULATION. Another way to reduce the sales charge is under
a right of accumulation. This means that the larger purchase entitled to a lower
sales charge need not be in dollars invested at one time. The larger purchases
that you (or any "single purchaser") make at any one time can be determined by
adding to the amount of a current purchase the value of Fund shares (at offering
price) already owned by you.
For example, if you owned $100,000 worth (at offering price) of the
Fund's Class A shares and invest $5,000 in additional shares, the sales charge
on that $5,000 investment would be 3-1/2%, not 4-3/4%.
If you claim this right of accumulation, you or your dealer must so
notify the Distributor (or Declaration Service Company if the investment is
mailed to Declaration Service Company) when the purchase is made. Enough
information must be given to verify that you are entitled to such right.
ISSUANCE OF SHARES AT NET ASSET VALUE. There are many situations where
the sales charge will not apply to the purchase of Class A shares, as discussed
in the Prospectus. In addition, the Fund occasionally may be provided with an
opportunity to purchase substantially all the assets of a public or private
investment company or to merge another such company into the Fund. This offers
the Fund the opportunity to obtain significant assets. No dealer concession is
involved. It is industry practice to effect such transactions at net asset value
as it would adversely affect the Fund's ability to do such transactions if the
Fund had to impose a sales charge.
DISTRIBUTION OF FUND SHARES
Rickel Securities, Inc. ("the Distributor") acts as principal
underwriter of the Fund's shares on a continuing basis pursuant to a
Distributing Agreement. Pursuant to such Distributing Agreement, the Distributor
pays for all expenses in connection with the preparation, printing and
distribution of advertising and sales literature for use in offering the Fund's
shares to the public, including reports to shareholders to the extent they are
used as sales literature. The Distributor also pays for prospectuses in excess
of those which the Fund must file with the Securities and Exchange Commission
and other regulatory authorities or those forwarded to existing shareholders.
The continuation and assignment provisions of the Distributing Agreement are the
same as those of the Advisory Agreement.
In addition, the Fund has adopted distribution plans with respect to
each class of its shares pursuant to Rule 12b-1 under the Investment Company Act
(the "Distribution Plans"). Payments under the Class A Distribution Plan are
limited to an annual rate of 0.25% of the average daily net asset value of the
Class A shares. Payments under the Class C Distribution Plan are limited to an
annual rate of 1.50% of the average daily net asset value of such shares.
-11-
<PAGE>
To the extent that any investment advisory fees paid by the Company may
be deemed to be indirectly financing any activity which is primarily intended to
result in the sale of shares of the Company within the meaning of Rule 12b-1,
the payments of such fees are authorized under the Plans.
The Distribution Plans continue annually so long as they are approved
in the manner provided by Rule 12b-1 or unless earlier terminated by vote of the
majority of the Fund's Independent Directors or a majority of the outstanding
shares. The Adviser is required to furnish quarterly written reports to the
Board of Directors detailing the amounts expended under the Distribution Plans.
The Distribution Plans may be amended provided that all such amendments comply
with the applicable requirements then in effect under Rule 12b-1. Presently,
Rule 12b-1 requires, among other procedures, that it be continued only if a
majority of the Independent Directors approve continuation at least annually and
that amendments materially increasing the amount to be spent for distribution be
approved by the Independent Directors and the shareholders. As long as the
Distribution Plans are in effect, the Fund must commit the selection and
nomination of candidates for new Independent Directors to the sole discretion of
the existing Independent Directors.
PERFORMANCE DATA
YIELD. Yield is computed in accordance with a standardized method
prescribed by the rules of the Securities and Exchange Commission and is
calculated separately for each class. Yield is a measure of the net investment
income per share (as defined) earned over a specified 30-day period expressed as
a percentage of the maximum offering price of the Fund's shares at the end of
the period. The Fund's yield figures will be determined by dividing the net
investment income per share earned during the a specified 30-day period by the
maximum offering price per share on the last day of the period, according to the
following formula:
Yield = 2 [(a - b + 1) 6 -1]
----------------------------
cd
a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last
day of the period.
TAX EQUIVALENT YIELD. Tax equivalent yield is the yield that a taxable
investment must generate in order to equal the Fund's yield for an investor in a
stated federal income tax bracket. The Fund's tax equivalent yield will be
computed separately for each class in accordance with the standardized method
prescribed by the Securities and Exchange Commission, by dividing that portion
of such Fund's yield (computed as described above) that is tax exempt by one
minus the stated federal
-12-
<PAGE>
income tax rate, and adding the resulting number to that portion, if any, of the
Fund's yield that is not tax exempt.
TOTAL RETURN. Total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in the Fund's portfolio. The Fund's
total return figures will be computed separately for each class in accordance
with the standardized method prescribed by the Securities and Exchange
Commission by determining the average annual compounded rates of return over the
periods indicated in the advertisement that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and (ii) deducts (a) the maximum front-end or applicable contingent
deferred sales charge from the hypothetical initial $1,000 investment for the
one year calculation, and (b) all recurring fees, such as advisory fees, charged
as expenses to all shareholder accounts.
NON-STANDARD DISTRIBUTION RATES
DISTRIBUTION RATES. Distribution rates are computed by dividing the
income dividends for a stated period by the maximum offering price on the last
day of such period.
ANNUALIZED CURRENT DISTRIBUTION RATES. Annualized current distribution
rates are computed by multiplying income dividends for a specified month by
twelve and dividing the resulting figure by the maximum offering price on the
last day of the specified period.
TAX EQUIVALENT DISTRIBUTION RATE. Tax equivalent distribution rate is
computed by dividing that portion of the annualized current distribution rate
(computed as described above) which is tax-exempt by one minus the stated
federal income tax rate (at present, the maximum federal income tax rate of
39.6%), and adding the resulting figure to that portion, if any, of the
annualized current distribution rate which is not tax-exempt.
-13-
<PAGE>
FORM N-1A
MILLENIUM TAX-FREE INCOME FUND, INC.
PART C
OTHER INFORMATION
-----------------
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements: Not Applicable.
(b) Exhibits:
(1) Articles of Incorporation.*
(2) Bylaws.*
(3) Not applicable.
(4) Not applicable.
(5) Advisory Agreement.*
(6) Distributor's Agreement.*
(7) Not applicable.
(8) Custody Agreement and Fee Schedule
(9) Investment Company Services Agreement.
(10) Opinion and Consent of Counsel (McCarter & English).*
(11) Not applicable.
(12) Not applicable.
(13) Subscription Agreement between Rickel Securities, Inc.
as initial shareholder and the Fund.*
(14) Not applicable.
-14-
<PAGE>
(15)(a) Distribution Plan for Class A shares.*
(15)(b) INTENTIONALLY DELETED
(15)(c) Distribution Plan for Class C Shares.**
(16) Not Applicable.
(17) Powers of Attorney.*
(18) Plan pursuant to Rule 18f-3.
**
*Previously filed.
**Amended form of document previously filed.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------
John C. Sabo is the majority stockholder of Rickel Securities, Inc.,
a New Jersey corporation, owning 75% of the issued and outstanding shares of
capital stock of that corporation.
Rickel Securities, Inc. owns 100% of the issued and outstanding
shares of capital stock of the following corporations:
Millenium Advisers, Inc., a New Jersey corporation.
American Corporate Receipts, Inc., a New Jersey corporation.
Millenium Tax-Free Income Fund, Inc., a Maryland corporation.*
* Rickel Securities, Inc. has provided the $100,000 initial capital of the Fund
required by the Investment Company Act of 1940. See Exhibit 13.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
--------------------------------
Not applicable.
Item 27. INDEMNIFICATION.
----------------
The indemnification provisions of the Maryland General Corporation
Law (the "Law") permit, among other things, corporations to indemnify directors
and officers UNLESS it is proved that the individual (1) acted in bad faith or
with active and deliberate dishonesty, (2) actually received an improper
personal benefit in money, property or services, or (3) in the case of a
criminal proceeding, had reasonable cause to believe that his act or omission
was unlawful. The Law also permits
-15-
<PAGE>
corporations to indemnify directors and officers for amounts paid in settlement
of stockholders' derivative suits.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers & controlling person of the
registrant, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
----------------------------------------------------
The Investment Adviser of the Registrant, Millenium Advisers, Inc.,
also may be engaged as an investment adviser for accounts other than mutual
funds, although this is not presently business of a substantial nature.
John C. Sabo is the President and Chief Executive Officer of
Millenium Advisers, Inc. He also serves as the President and Chief Executive
Officer of the Fund and as Chairman and Chief Executive Officer of the
Distributor, Rickel Securities, Inc.
Susan P. Bowen is the Chief Financial Officer, Vice President and
Senior Analyst of Millenium Advisers, Inc. She also serves as the Vice President
and Senior Analyst of the Distributor, Rickel Securities, Inc.
Item 29. PRINCIPAL UNDERWRITERS
----------------------
(a) Rickel Securities, Inc., located at 45 Essex Street, Millburn,
New Jersey 07041, the principal underwriter for the Registrant, does not
currently act as principal underwriter for any other investment company.
(b) Management of the Principal Underwriter.
-16-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
(1) (2) (3)
Name and Principal
BUSINESS Positions and Offices with Positions and Offices with
_____ADDRESS*_____ _____UNDERWRITER_____ ______REGISTRANT_____
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John C. Sabo Chairman and Chief Chief Executive Officer
Executive Officer and President
- -----------------------------------------------------------------------------------------------------------------------------
Susan P. Bowen Vice President and Senior Chief Financial Officer,
Analyst Treasurer and Secretary
- -----------------------------------------------------------------------------------------------------------------------------
Arnold I. Cohen President None
- -----------------------------------------------------------------------------------------------------------------------------
Steven Nadler Executive Vice President None
- -----------------------------------------------------------------------------------------------------------------------------
David Netkin Executive Vice President None
- -----------------------------------------------------------------------------------------------------------------------------
Michael Belsky Senior Vice President None
- -----------------------------------------------------------------------------------------------------------------------------
Paul Petrello Senior Vice President None
- -----------------------------------------------------------------------------------------------------------------------------
Coleman Carven Senior Vice President None
- -----------------------------------------------------------------------------------------------------------------------------
James Friar Senior Vice President None
- -----------------------------------------------------------------------------------------------------------------------------
Maxwell Smith Senior Vice President None
- -----------------------------------------------------------------------------------------------------------------------------
Anthony Branca Compliance Officer None
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise noted, the principal business address of each person is c/o
Rickel Securities, Inc., 45 Essex Street, Millburn, New Jersey 07041.
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
Declaration Service Company, P.O. Box 844, Conshohocken,
Pennsylvania, 19428-0844.
Item 31. MANAGEMENT SERVICES
-------------------
Not applicable
Item 32. UNDERTAKINGS
------------
Registrant hereby undertakes to file a post-effective amendment
within four to six months of the effective date of this Registration Statement
containing financial statements of the Registrant as of and for a time period
reasonably close or as soon as practicable to the date of such amendment.
-17-
<PAGE>
MILLENIUM TAX-FREE INCOME FUND, INC.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-effective Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Millburn
and State of New Jersey on the 5TH day of May, 1998.
MILLENIUM TAX-FREE INCOME FUND, INC.
By: /s/ JOHN C. SABO
------------------------------
John C. Sabo
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Chief Executive Officer, May 5, 1998
/s/ JOHN C. SABO President & Interested Director
- -----------------------
John C. Sabo
Principal Financial May 5, 1998
/s/ SUSAN P. BOWEN and Accounting Officer
- -----------------------
Susan P. Bowen
* Independent Director May 5, 1998
- ------------------------
Mark Blaustein
* Independent Director May 5, 1998
- -------------------------
Paul A. Harper, Jr.
*By /s/ John C. Sabo
- -------------------------
John C. Sabo
(attorney-in-fact)
-18-
NWK3: 217403.03]
EXHIBIT 8
CUSTODY AGREEMENT
Dated April 3, 1998
Between
UMB BANK, N.A.
and
Millenium Tax-Free Income, Fund, Inc.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 2
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 4
(e) Purchases of Assets 4
(f) Sales of Assets 5
(g) Options 5
(h) Futures Contracts 6
(i) Segregated Accounts 6
(j) Depositary Receipts 6
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 6
(l) Interest Bearing Deposits 7
(m) Foreign Exchange Transactions 7
(n) Pledges or Loans of Securities 8
(o) Stock Dividends, Rights, Etc. 8
(p) Routine Dealings 8
(q) Collections 8
(r) Bank Accounts 9
(s) Dividends, Distributions and Redemptions 9
(t) Proceeds from Shares Sold 9
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 9
(v) Books and Records 9
(w) Opinion of Fund's Independent Certified Public Accountants 10
(x) Reports by Independent Certified Public Accountants 10
(y) Bills and Others Disbursements 10
5. Subcustodians 10
(a) Domestic Subcustodians 10
(b) Foreign Subcustodians 10
(c) Interim Subcustodians 11
<PAGE>
(d) Special Subcustodians 11
(e) Termination of a Subcustodian 11
(f) Certification Regarding Foreign Subcustodians 11
6. Standard of Care 12
(a) General Standard of Care 12
(b) Actions Prohibited by Applicable Law, Events Beyond 12
Custodian's Control, Armed Conflict, Sovereign Risk, etc.
(c) Liability for Past Records 12
(d) Advice of Counsel 12
(e) Advice of the Fund and Others 12
(f) Instructions Appearing to be Genuine 13
(g) Exceptions from Liability 13
7. Liability of the Custodian for Actions of Others 13
(a) Domestic Subcustodians 13
(b) Liability for Acts and Omissions of Foreign Subcustodians 13
(c) Securities Systems, Interim Subcustodians, Special
Subcustodians, Securities Depositories and Clearing Agencies 13
(d) Defaults or Insolvency's of Brokers, Banks, Etc. 14
(e) Reimbursement of Expenses 14
8. Indemnification 14
(a) Indemnification by Fund 14
(b) Indemnification by Custodian 14
9. Advances 14
10. Liens 15
11. Compensation 15
12. Powers of Attorney 15
13. Termination and Assignment 15
14. Additional Funds 15
15. Notices 16
16. Miscellaneous 16
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this 3rd day of April, 1998, between UMB Bank,
n.a., a national banking association with its principal place of business
located at Kansas City, Missouri (hereinafter "Custodian"), and each of the
Funds which have executed the signature page hereof together with such
additional Funds which shall be made parties to this Agreement by the execution
of a separate signature page hereto (individually, a "Fund" and collectively,
the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for the
custody of Assets (as hereinafter defined) owned by such Fund which Assets are
to be held in such accounts as such Fund may establish from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as custodian of
Assets belonging to each such Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
script, warrants, interim certificates and all negotiable or nonnegotiable paper
commonly known as Securities and other instruments or obligations.
(b) "Assets" shall mean Securities, monies and other property held by the
Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a
written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed
1
<PAGE>
or initialed by or on behalf of a Fund by an Authorized Person; (ii) a
telephonic or other oral communication from a person the Custodian reasonably
believes to be an Authorized Person; or (iii) a communication effected directly
between an electro-mechanical or electronic device or system (including, without
limitation, computers) on behalf of a Fund. Instructions in the form of oral
communications shall be confirmed by the appropriate Fund by tested telex or in
writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by the Custodian in
reliance upon such oral Instructions prior to the Custodian's receipt of such
confirmation. Each Fund authorizes the Custodian to record any and all
telephonic or other oral Instructions communicated to the Custodian.
(c)(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of a Fund or any other person designated by the Treasurer of such Fund
in writing, which countersignature or confirmation shall be included on the same
instrument containing the Instructions or on a separate instrument relating
thereto.
(c)(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions shall be
continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution does
not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly certified or
authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund as
in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Each Fund shall promptly furnish the Custodian with copies of any updates,
amendments or supplements to the foregoing documents.
2
<PAGE>
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Instructions
or any other notice, request, direction, instruction, certificate or instrument
on behalf of each Fund, and (b) the names, titles and signatures of those
persons authorized to countersign or confirm Special Instructions on behalf of
each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and certificates may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Instructions or to countersign
or confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or confirm
Special Instructions. Unless the certificate specifically requires that the
approval of anyone else will first have been obtained, the Custodian will be
under no obligation to inquire into the right of the person giving such
Instructions or Special Instructions to do so. Notwithstanding any of the
foregoing, no Instructions or Special Instructions received by the Custodian
from a Fund will be deemed to authorize or permit any director, trustee,
officer, employee, or agent of such Fund to withdraw any of the Assets of such
Fund upon the mere receipt of such authorization, Special Instructions or
Instructions from such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to Sections
5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the
powers and duties hereinafter set forth in this Section 4. For purposes of this
Section 4 all references to powers and duties of the "Custodian" shall also
refer to any Domestic Subcustodian appointed pursuant to Section 5(a).
3
<PAGE>
(a) Safekeeping.
The Custodian will keep safely the Assets of each Fund which are delivered
to it from time to time. The Custodian shall not be responsible for any property
of a Fund held or received by such Fund and not delivered to the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which
have been delivered to it in physical form, by registering the same in the name
of the appropriate Fund or its nominee, or in the name of the Custodian or its
nominee, for whose actions such Fund and Custodian, respectively, shall be fully
responsible. Upon the receipt of Instructions, the Custodian shall hold such
Securities in street certificate form, so called, with or without any indication
of fiduciary capacity. However, unless it receives Instructions to the contrary,
the Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an account
of the Custodian containing only assets of the appropriate Fund or only assets
held by the Custodian as a fiduciary, provided that the records of the Custodian
shall indicate at all times the Fund or other customer for which such Securities
are held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a) The Depository
Trust Company; (b) The Participants Trust Company; and (c) any book-entry system
as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or
(iii) the book-entry regulations of federal agencies substantially in the form
of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic Securities owned by a Fund in any other
domestic clearing agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the capacity of depository or
clearing agent for the Securities or other assets of investment companies) which
acts as a Securities depository. Each of the foregoing shall be referred to in
this Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board and SEC rules and regulations,
if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through
one or more agents or Subcustodians which are also qualified to act as
custodians for investment companies.
(ii) The Custodian shall deposit and/or maintain the Securities
in a Securities System, provided that such Securities are represented in an
account ("Account") of the Custodian
4
<PAGE>
in the Securities System that includes only assets held by the Custodian as a
fiduciary, custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds which are
maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the
account of a Fund only upon (a) receipt of advice from the Securities System
that such Securities have been transferred to the Account of the Custodian in
accordance with the rules of the Securities System, and (b) the making of an
entry on the records of the Custodian to reflect such payment and transfer for
the account of such Fund. The Custodian shall transfer Securities sold for the
account of a Fund only upon (a) receipt of advice from the Securities System
that payment for such Securities has been transferred to the Account of the
Custodian in accordance with the rules of the Securities System, and (b) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of such Fund. Copies of all advices from the Securities
System relating to transfers of Securities for the account of a Fund shall be
maintained for such Fund by the Custodian. The Custodian shall deliver to a Fund
on the next succeeding business day daily transaction reports that shall include
each day's transactions in the Securities System for the account of such Fund.
Such transaction reports shall be delivered to such Fund or any agent designated
by such Fund pursuant to Instructions, by computer or in such other manner as
such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding Securities deposited in the
Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund as promptly as
practicable and shall take all actions reasonably practicable to safeguard the
Securities of such Fund maintained with such Securities System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible Securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
5
<PAGE>
Without Instructions, the Custodian is authorized to exchange Securities
held by it in temporary form for Securities in definitive form, to surrender
Securities for transfer into a name or nominee name as permitted in Section
4(b)(2), to effect an exchange of shares in a stock split or when the par value
of the stock is changed, to sell any fractional shares, and, upon receiving
payment therefor, to surrender bonds or other Securities held by it at maturity
or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment will be made only upon
receipt of Securities by the Custodian, a clearing corporation of a national
Securities exchange of which the Custodian is a member, or a Securities System
in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a repurchase
agreement, the Custodian may release funds to a Securities System prior to the
receipt of advice from the Securities System that the Securities underlying such
repurchase agreement have been transferred by book-entry into the Account
maintained with such Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System require that the Securities
System may make payment of such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of Interest Bearing
Deposits, currency deposits, and other deposits, foreign exchange transactions,
futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m)
hereof, the Custodian may make payment therefor before receipt of an advice of
transaction; and (iii) in the case of Securities as to which payment for the
Security and receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the instrument representing
the Security expected to take place in different locations or through separate
parties, such as commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar Securities, the Custodian may make payment for
such Securities prior to delivery thereof in accordance with such generally
accepted trade practice or the terms of the instrument representing such
Security.
(2) Other Assets Purchased. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall pay for and receive other Assets
for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the Custodian
will, with respect to a sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person specified in the
Instructions relating to such sale. Unless the Custodian has received Special
Instructions to the contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank cashier's
check, bank credit, or bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national
6
<PAGE>
Securities exchange of which the Custodian is a member; or (c) credit to the
Account of the Custodian with a Securities System, in accordance with the
provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, Securities
held in physical form may be delivered and paid for in accordance with "street
delivery custom" to a broker or its clearing agent, against delivery to the
Custodian of a receipt for such Securities, provided that the Custodian shall
have taken reasonable steps to ensure prompt collection of the payment for, or
return of, such Securities by the broker or its clearing agent, and provided
further that the Custodian shall not be responsible for the selection of or the
failure or inability to perform of such broker or its clearing agent or for any
related loss arising from delivery or custody of such Securities prior to
receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase of an option
or sale of a covered call option, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the purchase or writing of
the option by a Fund; (b) if the transaction involves the sale of a covered call
option, deposit and maintain in a segregated account the Securities (either
physically or by book-entry in a Securities System) subject to the covered call
option written on behalf of such Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any notices or other
communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the
appropriate Fund and the broker-dealer shall enter into an agreement to comply
with the rules of the OCC or of any registered national securities exchange or
similar organizations(s). Pursuant to that agreement and such Fund's
Instructions, the Custodian shall: (a) receive and retain confirmations or other
documents, if any, evidencing the writing of the option; (b) deposit and
maintain in a segregated account, Securities (either physically or by book-entry
in a Securities System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the securities or options exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The appropriate Fund and the broker-dealer shall be
responsible for determining the quality and quantity of assets held in any
segregated account established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
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(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such Procedural Agreements. The
appropriate Fund and such futures commission merchant shall be responsible for
determining the type and amount of Assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and maintain
on its books a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred Assets of such Fund, including
Securities maintained by the Custodian in a Securities System pursuant to
Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance by the Fund
with required procedures noted in (ii) above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered Securities to the depositary used for such Securities by an issuer
of American Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence satisfactory
to the organization surrendering the same that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such Securities in the
name of the Custodian or a nominee of the Custodian, for delivery in accordance
with such instructions.
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Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver warrants,
puts, calls, rights or similar Securities to the issuer or trustee thereof (or
to the agent of such issuer or trustee) for the purpose of exercise or sale,
provided that the new Securities, cash or other Assets, if any, acquired as a
result of such actions are to be delivered to the Custodian; and (b) deposit
Securities upon invitations for tenders thereof, provided that the consideration
for such Securities is to be paid or delivered to the Custodian, or the tendered
Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall notify the appropriate Fund of such action in writing by
facsimile transmission or in such other manner as such Fund and Custodian may
agree in writing.
The Fund agrees that if it gives an Instruction for the performance of an
act on the last permissible date of a period established by any optional offer
or on the last permissible date for the performance of such act, the Fund shall
hold the Bank harmless from any adverse consequences in connection with acting
upon or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase interest
bearing fixed term and call deposits (hereinafter referred to, collectively, as
"Interest Bearing Deposits") for the account of a Fund, the Custodian shall
purchase such Interest Bearing Deposits in the name of such Fund with such banks
or trust companies, including the Custodian, any Subcustodian or any subsidiary
or affiliate of the Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions.
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(1) Each Fund hereby appoints the Custodian as its agent in the
execution of all currency exchange transactions. The Custodian agrees to provide
exchange rate and U.S. Dollar information, in writing, to the Funds. Such
information shall be supplied by the Custodian at least by the business day
prior to the value date of the foreign exchange transaction, provided that the
Custodian receives the request for such information at least two business days
prior to the value date of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of a Fund with such
currency brokers or Banking Institutions as such Fund may determine and direct
pursuant to Instructions. If, in its Instructions, a Fund does not direct the
Custodian to utilize a particular currency broker or Banking Institution, the
Custodian is authorized to select such currency broker or Banking Institution as
it deems appropriate to execute the Fund's foreign currency transaction.
(3) Each Fund accepts full responsibility for its use of third party
foreign exchange brokers and for execution of said foreign exchange contracts
and understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange. The Custodian shall have no
responsibility or liability with respect to the selection of the currency
brokers or Banking Institutions with which a Fund deals or the performance of
such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made available
to a Fund its services as a principal in foreign exchange transactions and
subject to any separate agreement between the parties relating to such
transactions, the Custodian shall enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the pledgees
designated in such Instructions by way of pledge or hypothecation to secure
loans incurred by such Fund with various lenders including but not limited to
UMB Bank, n.a.; provided, however, that the Securities shall be released only
upon payment to the Custodian of the monies borrowed, except that in cases where
additional collateral is required to secure existing borrowings, further
Securities may be released or delivered, or caused to be released or delivered
for that purpose upon receipt of Instructions. Upon receipt of Instructions, the
Custodian will pay, but only from funds available for such purpose, any such
loan upon re-delivery to it of the Securities pledged or hypothecated therefor
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and upon surrender of the note or notes evidencing such loan. In lieu of
delivering collateral to a pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged Securities to a segregated account for
the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a separate
Securities Lending Agreement, the Custodian will release Securities held in
custody to the borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The Custodian
shall have no responsibility or liability for any loss arising from the delivery
of Securities prior to the receipt of collateral. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends, rights, and
other items of like nature and, upon receipt of Instructions, take action with
respect to the same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from the Assets
for disbursements and out-of-pocket expenses incidental to handling Securities
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to each Fund with
respect to portfolio Securities and other Assets; (b) promptly credit to the
account of each Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and any particular Fund; (c) promptly endorse and deliver any
instruments required to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all federal, state, local
and foreign tax purposes in connection with receipt of income or other payments
with respect to portfolio Securities and other Assets, or in connection with the
transfer of such Securities or other Assets; provided, however, that with
respect to portfolio Securities registered in so-called street name, or physical
Securities with variable interest rates, the Custodian shall use its best
efforts to collect amounts due and payable to any such Fund. The Custodian shall
notify a Fund in writing by facsimile transmission or in
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such other manner as such Fund and Custodian may agree in writing if any amount
payable with respect to portfolio Securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio Securities or
other Assets that are in default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open and operate a bank account or
accounts on the books of the Custodian; provided that such bank account(s) shall
be in the name of the Custodian or a nominee thereof, for the account of one or
more Funds, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to any one or more such Funds for deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall release cash or Securities
insofar as available. In the case of cash, the Custodian shall, upon the receipt
of Instructions, transfer such funds by check or wire transfer to any account at
any bank or trust company designated by each such Fund in such Instructions. In
the case of Securities, the Custodian shall, upon the receipt of Special
Instructions, make such transfer to any entity or account designated by each
such Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds representing cash payments received for
shares issued or sold from time to time by each Fund, and shall credit such
funds to the account of the appropriate Fund. The Custodian shall notify the
appropriate Fund of Custodian's receipt of cash in payment for shares issued by
such Fund by facsimile transmission or in such other manner as such Fund and the
Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a)
deliver all federal funds received by the Custodian in payment for shares as may
be set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund as of
specified times agreed upon from time to time by such Fund and the Custodian, in
the amount of checks received in payment for shares which are deposited to the
accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders Communication
Act of 1985.
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the
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Custodian nor any Subcustodian or nominee shall vote upon any such Securities,
or execute any proxy to vote thereon, or give any consent or take any other
action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer which
requests such information pursuant to the Shareholder Communications Act of 1985
for the specific purpose of direct communications between such issuer and any
such Fund unless a particular Fund directs the Custodian otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records relating to its activities under
this Agreement as are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open
for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during normal business
hours of the Custodian.
The Custodian shall provide accountings relating to its activities under
this Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as each Fund may request to
obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause to be
paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
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From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of any one or more Funds. A Domestic
Subcustodian, in accordance with the provisions of this Agreement, may also
appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to
act on behalf of any one or more Funds. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint any bank as
defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity,
any of which meet the requirements of a custodian under Section 17(f) of the
1940 Act and the rules and regulations thereunder, to act for the Custodian on
behalf of any one or more Funds as a subcustodian for purposes of holding Assets
of such Fund(s) and performing other functions of the Custodian within the
United States (a "Domestic Subcustodian"). Each Fund shall approve in writing
the appointment of the proposed Domestic Subcustodian; and the Custodian's
appointment of any such Domestic Subcustodian shall not be effective without
such prior written approval of the Fund(s). Each such duly approved Domestic
Subcustodian shall be listed on Appendix A attached hereto, as it may be
amended, from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a Domestic Subcustodian to
appoint, any bank, trust company or other entity meeting the requirements of an
"eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules
and regulations thereunder to act for the Custodian on behalf of any one or more
Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic
Subcustodian) for purposes of holding Assets of the Fund(s) and performing other
functions of the Custodian in countries other than the United States of America
(hereinafter referred to as a "Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the Custodian shall have
obtained written confirmation from each Fund of the approval of the Board of
Directors or other governing body of each such Fund (which approval may be
withheld in the sole discretion of such Board of Directors or other governing
body or entity) with respect to (i) the identity of any proposed Foreign
Subcustodian (including branch designation), (ii) the country or countries in
which, and the securities depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"), if any, through which, the
Custodian or any proposed Foreign Subcustodian is authorized to hold Securities
and other Assets of each such Fund, and (iii) the form and terms of the
subcustodian agreement to be entered into with such proposed Foreign
Subcustodian. Each such duly approved Foreign Subcustodian and the countries
where and the Securities Depositories and Clearing Agencies through which they
may hold Securities and other Assets of the Fund(s) shall be listed on Appendix
A attached hereto, as it may be amended, from time to time. Each Fund shall be
responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country in which no Foreign Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian, or any Domestic Subcustodian,
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to effect the appropriate arrangements with a proposed Foreign Subcustodian,
including obtaining approval as provided in this Section 5(b). In connection
with the appointment of any Foreign Subcustodian, the Custodian shall, or shall
cause the Domestic Subcustodian to, enter into a subcustodian agreement with the
Foreign Subcustodian in form and substance approved by each such Fund. The
Custodian shall not consent to the amendment of, and shall cause any Domestic
Subcustodian not to consent to the amendment of, any agreement entered into with
a Foreign Subcustodian, which materially affects any Fund's rights under such
agreement, except upon prior written approval of such Fund pursuant to Special
Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event that a Fund shall invest in an
Asset to be held in a country in which no Foreign Subcustodian is authorized to
act, the Custodian shall notify such Fund in writing by facsimile transmission
or in such other manner as such Fund and the Custodian shall agree in writing of
the unavailability of an approved Foreign Subcustodian in such country; and upon
the receipt of Special Instructions from such Fund, the Custodian shall, or
shall cause its Domestic Subcustodian to, appoint or approve an entity (referred
to herein as an "Interim Subcustodian") designated in such Special Instructions
to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on behalf of a
Fund, appoint one or more banks, trust companies or other entities designated in
such Special Instructions to act for the Custodian on behalf of such Fund as a
subcustodian for purposes of: (i) effecting third-party repurchase transactions
with banks, brokers, dealers or other entities through the use of a common
custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions designated by
such Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by the appropriate Fund in Special Instructions. The
Custodian shall not amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
(e) Termination of a Subcustodian.
The Custodian may, at any time in its discretion upon notification to the
appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance
with the termination provisions under the applicable subcustodian agreement, and
upon the receipt of Special Instructions, the Custodian will terminate any
Subcustodian in accordance with the termination provisions under the applicable
subcustodian agreement.
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(f) Certification Regarding Foreign Subcustodians.
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting from
the negligence or willful misfeasance of the Custodian; provided, however, in no
event shall the Custodian be liable for special, indirect or consequential
damages arising under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, Securities System, Securities Depository or
Clearing Agency utilized by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually, a "Person") is
prevented, forbidden or delayed from performing, or omits to perform, any act or
thing which this Agreement provides shall be performed or omitted to be
performed, by reason of: (a) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or of
any foreign country, or political subdivision thereof or of any court of
competent jurisdiction (and neither the Custodian nor any other Person shall be
obligated to take any action contrary thereto); or (b) any event beyond the
control of the Custodian or other Person such as armed conflict, riots, strikes,
lockouts, labor disputes, equipment or transmission failures, natural disasters,
or failure of the mails, transportation, communications or power supply; or (ii)
for any loss, damage, cost or expense resulting from "Sovereign Risk." A
"Sovereign Risk" shall mean nationalization, expropriation, currency
devaluation, revaluation or fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event beyond the
Custodian's or such other Person's control.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records
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that were maintained for such Fund by entities other than the Custodian or any
Domestic Subcustodian prior to the Custodian's employment hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled to receive
and act upon advice of counsel of its own choosing on all matters. The Custodian
and all Domestic Subcustodians shall be without liability for any actions taken
or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the advice of
any Fund and upon statements of such Fund's accountants and other persons
believed by it in good faith to be expert in matters upon which they are
consulted, and neither the Custodian nor any Domestic Subcustodian shall be
liable for any actions taken or omitted, in good faith, pursuant to such advice
or statements.
17
<PAGE>
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully protected and
indemnified in acting as a custodian hereunder upon any Resolutions of the Board
of Directors or Trustees, Instructions, Special Instructions, advice, notice,
request, consent, certificate, instrument or paper appearing to it to be genuine
and to have been properly executed and shall, unless otherwise specifically
provided herein, be entitled to receive as conclusive proof of any fact or
matter required to be ascertained from any Fund hereunder a certificate signed
by any officer of such Fund authorized to countersign or confirm Special
Instructions.
(g) Exceptions from Liability.
Without limiting the generality of any other provisions hereof, neither
the Custodian nor any Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for
any Fund, the legality of the purchase thereof or evidence of ownership required
to be received by any such Fund, or the propriety of the decision to purchase or
amount paid therefor;
(ii) the legality of the sale of any Securities by or for any Fund,
or the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities, borrowings
or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of any such Fund, or any such
Fund's currently effective Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian to the same extent as if such actions or omissions were performed
by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
The Custodian shall be liable to a Fund for any loss or damage to such
Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian and such Foreign
Subcustodian, the Foreign Subcustodian has failed to perform in accordance with
the standard of conduct imposed under such subcustodian agreement and the
18
<PAGE>
Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under
the applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians, Special Subcustodians,
Securities Depositories and Clearing Agencies.
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by the
actions or omissions of a Securities System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and Clearing Agency unless such loss,
damage or expense is caused by, or results from, the negligence or willful
misfeasance of the Custodian.
19
<PAGE>
(d) Defaults or Insolvency's of Brokers, Banks, Etc.
The Custodian shall not be liable for any loss, damage or expense suffered
or incurred by any Fund resulting from or occasioned by the actions, omissions,
neglects, defaults or insolvency of any broker, bank, trust company or any other
person with whom the Custodian may deal (other than any of such entities acting
as a Subcustodian, Securities System or Securities Depository and Clearing
Agency, for whose actions the liability of the Custodian is set out elsewhere in
this Agreement) unless such loss, damage or expense is caused by, or results
from, the negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
Each Fund agrees to reimburse the Custodian for all out-of-pocket expenses
incurred by the Custodian in connection with this Agreement, but excluding
salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each Fund agrees
to indemnify and hold harmless the Custodian and its nominees from all losses,
damages and expenses (including attorneys' fees) suffered or incurred by the
Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to
such Fund being liable for the payment of money or incurring liability of some
other form, such Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in addition to
the obligations provided in Sections 6 and 7, the Custodian agrees to indemnify
and hold harmless each Fund from all losses, damages and expenses suffered or
incurred by each such Fund caused by the negligence or willful misfeasance of
the Custodian.
9. ADVANCES.
20
<PAGE>
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing Agency
acting either directly or indirectly under agreement with the Custodian (each of
which for purposes of this Section 9 shall be referred to as "Custodian"), makes
any payment or transfer of funds on behalf of any Fund as to which there would
be, at the close of business on the date of such payment or transfer,
insufficient funds held by the Custodian on behalf of any such Fund, the
Custodian may, in its discretion without further Instructions, provide an
advance ("Advance") to any such Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the Custodian is directed by
Instructions to make any payment or transfer of funds on behalf of any Fund as
to which it is subsequently determined that such Fund has overdrawn its cash
account with the Custodian as of the close of business on the date of such
payment or transfer, said overdraft shall constitute an Advance. Any Advance
shall be payable by the Fund on behalf of which the Advance was made on demand
by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall
accrue interest from the date of the Advance to the date of payment by such Fund
to the Custodian at a rate agreed upon in writing from time to time by the
Custodian and such Fund. It is understood that any transaction in respect of
which the Custodian shall have made an Advance, including but not limited to a
foreign exchange contract or transaction in respect of which the Custodian is
not acting as a principal, is for the account of and at the risk of the Fund on
behalf of which the Advance was made, and not, by reason of such Advance, deemed
to be a transaction undertaken by the Custodian for its own account and risk.
The Custodian and each of the Funds which are parties to this Agreement
acknowledge that the purpose of Advances is to finance temporarily the purchase
or sale of Securities for prompt delivery in accordance with the settlement
terms of such transactions or to meet emergency expenses not reasonably
foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund
of any Advance. Such notification shall be sent by facsimile transmission or in
such other manner as such Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any purpose
or in the event that the Bank or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of its duties hereunder, except such as may arise from its or
its nominee's negligent action, negligent failure to act or willful misconduct,
any Property at any time held for the Custody Account shall be security therefor
and the Fund hereby grants a security interest therein to the Bank. The Fund
shall promptly reimburse the Bank for any such advance of cash or securities or
any such taxes, charges, expenses, assessments, claims or liabilities upon
request for payment, but should the Fund fail to so reimburse the Bank, the Bank
shall be entitled to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund with
the Bank including, without limitation, the Custody Account, in connection with
any such advance and any interest on such advance as the Bank deems reasonable.
11. COMPENSATION.
21
<PAGE>
Each Fund will pay to the Custodian such compensation as is agreed to in
writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the
appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets held by it
hereunder to the appropriate Fund or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
This Agreement may not be assigned by the Custodian or any Fund without
the respective consent of the other, duly authorized by a resolution by its
Board of Directors or Trustees.
14. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement after the
date hereof by an instrument in writing to such effect signed by such Fund or
Funds and the Custodian. If this Agreement is terminated as to one or more of
the Funds (but less than all of the Funds) or if an additional Fund or Funds
shall become a party to this Agreement, there shall be delivered to each party
an Appendix B or an amended Appendix B, signed by each of the additional Funds
(if any) and each of the remaining Funds as well as the Custodian, deleting or
adding such Fund or Funds, as the case may be. The termination of this Agreement
as to less than all of the Funds shall not affect the obligations of the
Custodian and the remaining Funds hereunder as set forth on the signature page
hereto and in Appendix B as revised from time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other writings
delivered to [INSERT FUND COMPLEX ADDRESS], postage prepaid, or to such other
address as any particular Fund
22
<PAGE>
may have designated to the Custodian in writing, shall be deemed to have been
properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration department of the Custodian at its office at 928 Grand
Blvd., 10th Floor, Attn: Jennifer Riggs, Kansas City, Missouri 64106, or mailed
postage prepaid, to the Custodian's Securities Administration department, Post
Office Box 226, Attn: Jennifer Riggs, Kansas City, Missouri 64141, or to such
other addresses as the Custodian may have designated to each Fund in writing,
shall be deemed to have been properly delivered or given to the Custodian
hereunder; provided, however, that procedures for the delivery of Instructions
and Special Instructions shall be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of Missouri and
shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived, in
any manner except in writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities
Depositories and Clearing Agencies are approved or terminated according to the
terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
Term Section
---- -------
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(1)
23
<PAGE>
Term Section
---- -------
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liens 10
OCC 4(g)(1)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and
Clearing Agencies 5(b)
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement
to be executed by their respective duly authorized officers.
Millenium Tax-Free Income Fund, Inc.
Attest: By: /s/ John C. Sabo
- -------------------------------- -----------------------------------------
Name: John C. Sabo
-----------------------------------------
Title: Chairman, Chief Executive Officer
-----------------------------------------
Date: April 3, 1998
-----------------------------------------
24
<PAGE>
UMB BANK, N.A.
Attest: By: /s/ Ralph R. Santoro
- -------------------------------- ------------------------------------
Name: Ralph R. Santoro
------------------------------------
Title: Senior Vice President
------------------------------------
Date: April 3, 1998
------------------------------------
25
<PAGE>
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
- --------- --------------------- -----------------
Euroclear
Millenium Tax-Free Income Fund, Inc. UMB BANK, N.A.
By: /s/ John C. Sabo By: /s/ Ralph R. Santoro
- ------------------------------------- ------------------------------------
Name: John C. Sabo Name: Ralph R. Santoro
- ------------------------------------- ------------------------------------
Title: Chairman, Chief Executive
Officer Title: Senior Vice President
- ------------------------------------- ------------------------------------
Date: April 3, 1998 Date: April 3, 1998
- ------------------------------------- ------------------------------------
26
<PAGE>
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are
hereby made parties to the Custody Agreement dated April 3, 1998, with UMB Bank,
n.a. ("Custodian") and Millenium Tax-Free Income Fund, Inc., and agree to be
bound by all the terms and conditions contained in said Agreement:
[LIST THE FUNDS]
Millenium Tax-Free Income Fund, Inc.
Attest: By: /s/ John C. Sabo
- ------------------------------------- ------------------------------------
Name: John C. Sabo
------------------------------------
Title: Chairman, Chief Executive
Officer
------------------------------------
Date: April 3, 1998
------------------------------------
UMB BANK, N.A.
Attest: By: /s/ John C. Sabo
- ------------------------------------- ------------------------------------
Name: Ralph R. Santoro
------------------------------------
Title: Senior Vice President
------------------------------------
Date: April 3, 1998
------------------------------------
27
<PAGE>
UMB BANK, n.a.
Domestic Custody Fee Schedule
Net Asset Value Fees
To be computed as of month-end on the average net asset value of each
portfolio at the annual rate of:
1.00 basis point on the first $100,000,000 of each portfolio's
net assets; plus
.75 basis point on the next $100,000,000 of each portfolio's
net assets; plus
.50 basis points on each portfolio's net assets in excess of
$200,000,000; subject to a $250.00 per month minimum per
portfolio.
Portfolio Transaction Fees
DTC* $ 6.00
PTC* 12.00
Fed Book Entry* 8.00
Physical* 20.00
Principal & Interest Payment 5.00
Option/Future 25.00
Corporate Action/Call/Reorg. 25.00
Third-Party VRDN (Bank Book Entry)* 15.00
UMB Repurchase Agreement* 5.00
Tri-Party Repurchase Agreement( 15.00
Checks Issued (Non-Settlement Related) 8.00
Wires In/Out (Non-Settlement Related) 8.00
* A transaction includes buys, sells, maturities, or free security movements
Out-of-Pocket Expenses
Includes, but is not limited to, security transfer fees, certificate fees,
shipping/courier fees or charges, FDIC insurance premiums, specialized
programming charges, and system access/connect charges.
28
EXHIBIT 9
Investment Company Services Agreement
Millenium Tax- Free Income Fund, Inc.
This AGREEMENT, dated as of the 2nd day of April, 1998, made by and
between Millenium Tax- Free Income Fund, Inc., (the "Fund"), a corporation
operating as an open-end, management investment company registered under the
Investment Company Act of 1940, as amended (the "Act"), duly organized and
existing under the laws of the State of Maryland, and Declaration Service
Company ("Declaration"), a corporation duly organized under the laws of the
Commonwealth of Pennsylvania (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Fund is authorized by its Articles of Incorporation and By-
Laws to issue separate series of shares representing interests in separate
investment portfolios which are identified on Schedule "C" attached hereto and
which Schedule "C" may be amended from time to time by mutual agreement of the
Fund and Declaration; and
WHEREAS, the Parties desire to enter into an agreement whereby Declaration
will provide the services to the Fund as specified herein and set forth in
particular in Schedule "A" which is attached hereto and made a part hereof.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and in exchange of good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the Parties hereto,
intending to be legally bound, do hereby agree as follows:
GENERAL PROVISIONS
<PAGE>
Section 1. Appointment. The Fund hereby appoints Declaration as servicing
agent and Declaration hereby accepts such appointment. In order that Declaration
may perform its duties under the terms of this Agreement, the Board of Directors
of the Fund shall direct the officers, investment adviser, legal counsel,
independent accountants and custodian of the Fund to cooperate fully with
Declaration and, upon request of Declaration, to provide such information,
documents and advice relating to the Fund which Declaration requires to execute
its responsibilities hereunder. In connection with its duties, Declaration shall
be entitled to rely, and will be held harmless by the Fund when acting in
reasonable reliance, upon any instruction, advice or document relating to the
Fund as provided to Declaration by any of the aforementioned persons on behalf
of the Fund. All fees charged by any such persons acting on behalf of the Fund
will be deemed an expense of the Fund.
Any services performed by Declaration under this Agreement will conform to
the requirements of:
(a) the provisions of the Act and the Securities Act of 1933, as amended,
and any rules or regulations in force thereunder;
(b) any other applicable provision of state and federal law;
(c) the provisions of the Articles of Incorporation and the By-Laws as
amended from time to time and delivered to Declaration;
(d) any policies and determinations of the Board of Directors of the Fund
which are communicated to Declaration; and
(e) the policies of the Fund as reflected in the Fund's registration
statement as filed with the U.S. Securities and Exchange Commission.
Nothing in this Agreement will prevent Declaration or any officer thereof
from providing the same or comparable services for or with any other person,
firm or corporation. While the services supplied to the Fund may be different
than those supplied to other persons, firms or corporations, Declaration will
provide the Fund equitable treatment in supplying services. The Fund recognizes
that it will not receive preferential treatment from Declaration as compared
with the treatment provided to other Declaration clients.
Section 2. Duties and Obligations of Declaration.
<PAGE>
Subject to the provisions of this Agreement, Declaration will
provide to the Fund the specific services as set forth in Schedule "A"
attached hereto.
Section 3. Definitions. For purposes of this Agreement:
<PAGE>
"Certificate" will mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement. To be effective, such
Certificate shall be given to and received by the custodian and shall be signed
on behalf of the Fund by any two of its designated officers, and the term
Certificate shall also include Instructions communicated to the custodian by
Declaration.
"Custodian" will refer to that agent which provides safekeeping of the
assets of the Fund.
"Instructions" will mean communications containing instructions
transmitted by electronic or telecommunications media including, but not limited
to, Industry Standardization for Institutional Trade Communications,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed by an officer or unsigned) and tested telex.
"Oral Instruction" will mean an authorization, instruction, approval, item
or set of data, or information of any kind transmitted to Declaration in person
or by telephone, telegram, telecopy or other mechanical or documentary means
lacking original signature, by a person or persons reasonably identified to
Declaration to be a person or persons so authorized by a resolution of the Board
of Directors of the Fund to give Oral Instructions to Declaration on behalf of
the Fund.
"Shareholders" will mean the registered owners of the shares of the Fund
in accordance with the share registry records maintained by Declaration for the
Fund.
"Shares" will mean the issued and outstanding shares of the Fund.
"Signature Guarantee" will mean the guarantee of signatures by an
"eligible guarantor institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. Broker-dealers guaranteeing signatures must be members of a
clearing corporation or maintain net capital of at least $100,000. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program.
<PAGE>
"Written Instruction" will mean an authorization, instruction, approval,
item or set of data or information of any kind transmitted to Declaration in an
original writing containing an original signature or a copy of such document
transmitted by telecopy including transmission of such signature reasonably
identified to Declaration to be the signature of a person or persons so
authorized by a resolution of the Board of Directors of the Fund, or so
identified by the Fund to give Written Instructions to Declaration on behalf of
the Fund.
Concerning Oral and Written Instructions For all purposes under this
Agreement, Declaration is authorized to act upon receipt of the first of
any Written or Oral Instruction it receives from the Fund or its agents.
In cases where the first instruction is an Oral Instruction that is not in
the form of a document or written record, a confirmatory Written
Instruction or Oral Instruction in the form of a document or written
record shall be delivered. In cases where Declaration receives an
Instruction, whether Written or Oral, to enter a portfolio transaction
onto the Fund's records, the Fund shall cause the broker/dealer executing
such transaction to send a written confirmation to the Custodian.
Declaration shall be entitled to rely on the first Instruction received.
For any act or omission undertaken by Declaration in compliance therewith,
it shall be free of liability and fully indemnified and held harmless by
the Fund, provided however, that in the event a Written or Oral
Instruction received by Declaration is countermanded by a subsequent
Written or Oral Instruction received prior to acting upon such
countermanded Instruction, Declaration shall act upon such subsequent
Written or Oral Instruction. The sole obligation of Declaration with
respect to any follow-up or confirmatory Written Instruction or Oral
Instruction in documentary or written form shall be to make reasonable
efforts to detect any such discrepancy between the original Instruction
and such confirmation and to report such discrepancy to the Fund. The Fund
shall be responsible and bear the expense of its taking any action,
including any reprocessing, necessary to correct any discrepancy or error.
To the extent such action requires Declaration to act, the Fund shall give
<PAGE>
Declaration specific Written Instruction as to the action required.
The Fund will file with Declaration a certified copy of each resolution of
the Fund's Board of Directors authorizing execution of Written
Instructions or the transmittal of Oral Instructions as provided above.
<PAGE>
Section 4. Indemnification.
(a) Declaration, its directors, officers, employees, shareholders, and
agents will be liable for any loss suffered by the Fund resulting from the
willful misfeasance, bad faith, gross negligence or reckless disregard on the
part of Declaration in the performance of its obligations and duties under this
Agreement.
(b) Any director, officer, employee, shareholder or agent of Declaration,
who may be or become an officer, director, employee or agent of the Fund, will
be deemed, when rendering services to the Fund, or acting on any business of the
Fund (other than services or business in connection with Declaration' duties
hereunder), to be rendering such services to or acting solely for the Fund and
not as a director, officer, employee, shareholder or agent of, or under the
control or direction of Declaration even though such person may be receiving
compensation from Declaration.
(c) The Fund agrees to indemnify and hold Declaration harmless, together
with its directors, officers, employees, shareholders and agents from and
against any and all claims, demands, expenses and liabilities (whether with or
without basis in fact or law) of any and every nature which Declaration may
sustain or incur or which may be asserted against Declaration by any person by
reason of, or as a result of:
(i) any action taken or omitted to be taken by Declaration except
claims, demands, expenses and liabilities arising from willful misfeasance, bad
faith, gross negligence or reckless disregard on the part of Declaration in the
performance of its obligations and duties under this Agreement; or
(ii) any action taken or omitted to be taken by Declaration in
reliance upon any Certificate, instrument, order or stock certificate or other
document reasonably believed by Declaration to be genuine and signed,
countersigned or executed by any duly authorized person, upon the Oral
Instructions or Written Instructions of an authorized person of the Fund, or
upon the written opinion of legal counsel for the Fund or Declaration; or
(iii) the offer or sale of shares of the Fund to any person, natural
or otherwise, which is in violation of any state or federal law.
<PAGE>
If a claim is made against Declaration as to which Declaration may seek
indemnity under this Section, Declaration will notify the Fund promptly after
receipt of any written assertion of such claim threatening to institute an
action or proceeding with respect thereto and will notify the Fund promptly of
any action commenced against Declaration within ten (10) days after Declaration
has been served with a summons or other legal process. Failure to notify the
Fund will not, however, relieve the Fund from any liability which it may have on
account of the indemnity under this Section so long as the Fund has not been
prejudiced in any material respect by such failure.
The Fund and Declaration will cooperate in the control of the defense of
any action, suit or proceeding in which Declaration is involved and for which
indemnity is being provided by the Fund to Declaration. The Fund may negotiate
the settlement of any action, suit or proceeding subject to Declaration's
approval, which will not be unreasonably withheld. Declaration reserves the
right, but not the obligation, to participate in the defense or settlement of a
claim, action or proceeding with its own counsel. Costs or expenses incurred by
Declaration in connection with, or as a result of such participation, will be
borne solely by the Fund if:
(i) Declaration has received an opinion of counsel from counsel to
the Fund stating that the use of counsel to the Fund by Declaration would
present an impermissible conflict of interest;
(ii) the defendants in, or targets of, any such action or proceeding
include both Declaration and the Fund, and legal counsel to Declaration has
reasonably concluded that there are legal defenses available to it which are
different from or additional to those available to the Fund or which may be
adverse to or inconsistent with defenses available to the Fund (in which case
the Fund will not have the right to direct the defense of such action on behalf
of Declaration); or
(iii) the Fund authorizes Declaration to employ separate counsel at
the expense of the Fund.
(d) The terms of this Section will survive the termination of this
Agreement.
Section 5. Representations and Warranties.
(a) Declaration represents and warrants that:
<PAGE>
(i) it is a corporation duly organized and existing and in good
standing under the laws of Pennsylvania;
<PAGE>
(ii) it is empowered under applicable laws and by its Certificate of
Incorporation and By-Laws to enter into and perform this Agreement;
(iii) all requisite corporate proceedings have been taken to
authorize Declaration to enter into and perform this Agreement;
(iv) it has and will continue to have access to the facilities,
personnel and equipment required to fully perform its duties and obligations
hereunder;
(v) no legal or administrative proceeding have been instituted or
threatened which would impair Declaration' ability to perform its duties and
obligations under this Agreement;
(vi) its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or obligation of
Declaration or any law or regulation applicable to it;
(vii) it is registered as a transfer agent under Section 17A(c)(2)
of the Exchange Act;
(viii) this Agreement has been duly authorized by Declaration and,
when executed and delivered, will constitute valid, legal and binding obligation
of Declaration, enforceable in accordance with its terms.
(b) The Fund represents and warrants that:
(i) it is a business Fund duly organized and existing and in good
standing under the laws of the State of Maryland;
(ii) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize the
Fund to enter into and perform this Agreement;
(iv) no legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform its duties and
obligations under this Agreement;
<PAGE>
(v) the Fund's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligations of the Fund, or any law or regulation applicable to either;
(vi) the Shares are properly registered or otherwise authorized for
issuance and sale;
(vii) this Agreement has been duly authorized by the Fund and, when
executed and delivered, will constitute valid, legal and binding obligation of
the Fund, enforceable in accordance with its terms.
(c) Delivery of Documents
The Fund will furnish or cause to be furnished to Declaration the
following documents;
(i) current Prospectus and Statement of Additional Information;
(ii) most recent Annual Report;
(iii) most recent Semi-Annual Report for registered investment
companies on Form N-SAR;
(iv) certified copies of resolutions of the Fund's Board of
Directors authorizing the execution of Written Instructions or
the transmittal of Oral Instructions and those persons
authorized to give those Instructions.
(d) Record Keeping and Other Information
Declaration will create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule "A" in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the Act. All such records will be the property of the Fund and will be
available during regular business hours for inspection, copying and use by the
Fund. Where applicable, such records will be maintained by Declaration for the
periods and in the places required by Rule 31a-2 under the Act. Upon termination
of this Agreement, Declaration will deliver all such records to the Fund or such
person as the Fund may designate.
<PAGE>
In case of any request or demand for the inspection of the Share records
of the Fund, Declaration shall notify the Fund and secure instructions as to
permitting or refusing such inspection. Declaration may, however, exhibit such
records to any person in any case where it is advised by its counsel that it may
be held liable for failure to do so.
Section 6. Compensation. The Fund agrees to pay Declaration compensation
for its services, and to reimburse it for expenses at the rates, times, manner
and amounts as set forth in Schedule "B" attached hereto and incorporated herein
by reference and as will be set forth in any amendments to such Schedule "B"
agreed upon in writing by the Parties. Upon receipt of an invoice therefor,
Declaration is authorized to collect such fees by debiting the Fund's custody
account. In addition, the Fund agrees to reimburse Declaration for any
out-of-pocket expenses paid by Declaration on behalf of the Fund within five (5)
calendar days of the Fund's receipt of an invoice therefor.
For the purpose of determining fees payable to Declaration, the value of
the Fund's net assets will be computed at the times and in the manner specified
in the Fund's Prospectus and Statement of Additional Information then in effect.
During the term of this Agreement, should the Fund seek services or
functions in addition to those outlined below or in Schedule "A" attached
hereto, a written amendment to this Agreement specifying the additional services
and corresponding compensation will be executed by the Parties.
In the event that the Fund is more than thirty (30) days delinquent in its
payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by the Fund),
this Agreement may be terminated upon thirty (30) days' written notice to the
Fund by Declaration. The Fund must notify Declaration in writing of any
contested amounts within five (5) days of receipt of a billing for such amounts.
Disputed amounts are not due and payable while they are being disputed.
<PAGE>
Section 7. Days of Operation. Nothing contained in this Agreement is
intended to or will require Declaration, in any capacity hereunder, to perform
any functions or duties on any holiday, day of special observance or any other
day on which the New York Stock Exchange ("NYSE") is closed. Functions or duties
normally scheduled to be performed on such days will be performed on and as of
the next succeeding business day on which the NYSE is open. Notwithstanding the
foregoing, Declaration will compute the net asset value of the Fund on each day
required pursuant to Rule 22c-1 promulgated under the Act.
Section 8. Acts of God, etc. Declaration will not be liable or responsible
for delays or errors caused by acts of God or by reason of circumstances beyond
its control including, acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war, riots,
or failure or unavailability of transportation, communication or power supply,
fire, flood or other catastrophe.
In the event of equipment failures beyond Declaration' control,
Declaration will, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions but will have no liability with respect thereto.
The foregoing obligation will not extend to computer terminals located outside
of premises maintained by Declaration. Declaration has entered into and
maintains in effect agreements making reasonable provision for emergency use of
electronic data processing equipment to the extent appropriate equipment is
available.
Section 9. Inspection and Ownership of Records. In the event of a request
or demand for the inspection of the records of the Fund, Declaration will use
its best efforts to notify the Fund and to secure instructions as to permitting
or refusing such inspection. Declaration may, however, make such records
available for inspection to any person in any case where it is advised in
writing by its counsel that it may be held liable for failure to do so after
notice to the Fund.
Declaration recognizes that the records it maintains for the Fund are the
property of the Fund and will be surrendered to the Fund upon written notice to
Declaration as outlined under Section 10(c) below. The Fund is responsible for
the payment in advance of any fees
<PAGE>
owed to Declaration. Declaration agrees to maintain the records and all other
information of the Fund in a confidential manner and will not use such
information for any purpose other than the performance of Declaration' duties
under this Agreement.
<PAGE>
Section 10. Duration and Termination.
(a) The initial term of this Agreement will be for the period of two (2)
years, commencing on the date hereinabove first written (the "Effective Date")
and will continue thereafter subject to termination by either Party as set forth
in subsection (c) below.
(b) The fee schedules set forth in Schedule "B" attached hereto will be
fixed for the initial term commencing on the Effective Date of this Agreement
and will continue thereafter subject to their review and any adjustment.
(c) After the initial term of this Agreement, a Party may give written
notice to the other (the day on which the notice is received by the Party
against which the notice is made shall be the "Notice Date") of a date on which
this Agreement shall be terminated ("Termination Date"). The Termination Date
shall be set on a day not less than one hundred eighty (180) days after the
Notice Date. The period of time between the Notice Date and the Termination Date
is hereby identified as the "Notice Period". Any time up to, but not later than
fifteen (15) days prior to the Termination Date, the Fund will pay to
Declaration such compensation as may be due as of the Termination Date and will
likewise reimburse Declaration for any out-of-pocket expenses and disbursements
reasonably incurred or expected to by incurred by Declaration up to and
including the Termination Date.
(d) In connection with the termination of this Agreement, if a successor
to any of Declaration' duties or responsibilities under this Agreement is
designated by the Fund by written notice to Declaration, Declaration will
promptly, on the Termination Date and upon receipt by Declaration of any
payments owed to it as set forth in Section 10(c) above, transfer to the
successor, at the Fund's expense, all records which belong to the Fund and will
provide appropriate, reasonable and professional cooperation in transferring
such records to the named successor.
<PAGE>
(e) Should the Fund desire to move any of the services outlined in this
Agreement to a successor service provider prior to the Termination Date,
Declaration shall make a good faith effort to facilitate the conversion on such
prior date, however, there can be no guarantee that Declaration will be able to
facilitate a conversion of services prior to the end of the Notice Period.
Should services be converted to a successor service provider prior to the end of
the Notice Period, or if the Fund is liquidated or its assets merged or
purchased or the like with another entity, payment of fees to Declaration shall
be accelerated to a date prior to the conversion or termination of services and
calculated as if the services had remained at Declaration until the expiration
of the Notice Period and shall be calculated at the asset levels on the Notice
Date.
(f) Notwithstanding any other provisions of Paragraph 10, and after the
passage of one (1) year from the effective date of this Agreement; in the event
the Fund deregisters as an Investment Company with the United States Securities
and Exchange Commission ("SEC"), this Agreement may be terminated by the Fund
upon ninety (90) days written notice to Declaration. The Termination Date shall
be ninety (90) days after the receipt of such notice by Declaration. Any time up
to, but not later than fifteen (15) days prior to the Termination Date, the Fund
will pay to Declaration such compensation as may be due as of the Termination
Date and will likewise reimburse Declaration for any out- of- pocket expenses
and disbursements reasonably incurred or expected to be incurred by Declaration
up to and including the Termination Date.
(g) Notwithstanding the foregoing, this Agreement may be terminated at any
time by either Party in the event of a material breach by the other Party
involving gross negligence, willful misfeasance, bad faith or a reckless
disregard of its obligations and duties under this Agreement provided that such
breach shall have remained unremedied for sixty (60) days or more after receipt
of written specification thereof.
Section 11. Rights of Ownership. All computer programs and procedures
developed
<PAGE>
to perform services required to be provided by Declaration under this Agreement
are the property of Declaration. All records and other data except such computer
programs and procedures are the exclusive property of the Fund and all such
other records and data will be furnished to the Fund in appropriate form as soon
as practicable after termination of this Agreement for any reason.
<PAGE>
Section 12. Amendments to Documents. The Fund will furnish Declaration
written copies of any amendments to, or changes in, the Articles of
Incorporation, By-Laws, Prospectus or Statement of Additional Information in a
reasonable time prior to such amendments or changes becoming effective. In
addition, the Fund agrees that no amendments will be made to the Prospectus or
Statement of Additional Information of the Fund which might have the effect of
changing the procedures employed by Declaration in providing the services agreed
to hereunder or which amendment might affect the duties of Declaration hereunder
unless the Fund first obtains Declaration' approval of such amendments or
changes.
Section 13. Confidentiality. Both Parties hereto agree that any non-public
information obtained hereunder concerning the other Party is confidential and
may not be disclosed to any other person without the consent of the other Party,
except as may be required by applicable law or at the request of the U.S.
Securities and Exchange Commission or other governmental agency. Declaration
agrees that it will not use any non-public information for any purpose other
than performance of its duties or obligations hereunder. The obligations of the
Parties under this Section will survive the termination of this Agreement. The
Parties further agree that a breach of this Section would irreparably damage the
other Party and accordingly agree that each of them is entitled, without bond or
other security, to an injunction or injunctions to prevent breaches of this
provision.
Section 14. Notices. Except as otherwise provided in this Agreement, any
notice or other communication required by or permitted to be given in connection
with this Agreement will be in writing and will be delivered in person or sent
by first class mail, postage prepaid or by prepaid overnight delivery service to
the respective parties as follows:
<PAGE>
If to the Fund: If to Declaration:
Millenium Tax- Free Income Fund, Inc Declaration Service Company.
C/O Millenium Advisers, Inc. 555 North Lane, Suite 6160
45 Essex Street Conshohocken, PA 19428
Millburn, NJ 07041
Attention: John C. Sabo Attention: Terence P. Smith
President President
Section 15. Amendment. No provision of this Agreement may be amended or
modified in any manner except by a written agreement properly authorized and
executed by the Parties. This Agreement may be amended from time to time by
supplemental agreement executed by the Parties and the compensation stated in
Schedule "B" attached hereto may be adjusted accordingly as mutually agreed
upon.
Section 16. Authorization. The Parties represent and warrant to each other
that the execution and delivery of this Agreement by the undersigned officer of
each Party has been duly and validly authorized; and when duly executed, this
Agreement will constitute a valid and legally binding enforceable obligation of
each Party.
Section 17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which when so executed will be deemed to be an original,
but such counterparts will together constitute but one and the same instrument.
Section 18. Assignment. This Agreement will extend to and be binding upon
the Parties hereto and their respective successors and assigns; provided,
however, that this Agreement will not be assignable by the Fund without the
written consent of Declaration or by Declaration without the written consent of
the Fund which consent shall be authorized or approved by a resolution by its
respective Boards of Directors.
<PAGE>
Section 19. Governing Law. This Agreement will be governed by the laws of
the State of Pennsylvania and the exclusive venue of any action arising under
this Agreement will be Montgomery County, Commonwealth of Pennsylvania.
Section 20. Severability. If any part, term or provision of this Agreement
is held by any court to be illegal, in conflict with any law or otherwise
invalid, the remaining portion or portions will be considered severable and not
be affected and the rights and obligations of the parties will be construed and
enforced as if the Agreement did not contain the particular part, term or
provision held to be illegal or invalid, provided that the basic agreement is
not thereby materially impaired.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
consisting of fifteen (15) typewritten pages, together with Schedules "A," "B"
and "C" (pages 16-24, attached), to be signed by their duly authorized officers
as of the day and year first above written.
Millenium Tax- Free Income Fund, Inc. Declaration Service Company
/s/ John C. Sabo /s/ Terence P. Smith
- ----------------------- ---------------------------
By: John C. Sabo By: Terence P. Smith
President President
<PAGE>
SCHEDULE A
Accounting Services Provided by Declaration Service Company
- --------------------------------------------------------------------------------
o Journalize each Portfolio's investment, capital share and income and
expense activities.
o Verify investment buy/sell trade tickets when received from the advisor
and transmit trades to the Fund's custodian for proper settlement.
o Maintain individual ledgers for investment securities.
o Maintain historical tax lots for each security.
o Reconcile cash and investment balances of each Portfolio with the
custodian, and provide the advisor with the beginning cash balance
available for investment purposes.
o Update the cash availability throughout the day as required by the
advisor.
o Post to and prepare each Portfolio's Statement of Assets and Liabilities
and Statement of Operations.
o Calculate expenses payable pursuant to the Fund's various contractual
obligations.
o Control all disbursements from the Fund on behalf of each Portfolio and
authorize such disbursements upon instructions of the Fund.
o Calculate capital gains and losses.
o Determine each Portfolio's net income.
o Obtain security market prices and exchange rates or if such market prices
or exchange rates are not readily available, then obtain such prices from
services approved by the advisor, and in either case calculate the market
or fair value of each Portfolio's investments. Price and exchange rate
quotation costs for fixed income and international securities will be at
the expenses of the respective portfolio.
o Where applicable, calculate the amortized cost value of debt instruments.
o Transmit or mail a copy of the portfolio valuations to the advisor.
<PAGE>
Research and Corporate Action notices
o Monitor Custodian to insure tax reclaims are collected on a timely basis.
o Compute the net asset value of each Portfolio in accordance with
applicable laws..
o Report applicable net asset value and performance data to performance
tracking organizations.
o Compute each Portfolio's yields, total returns, expense ratios and
portfolio turnover rate in accordance with applicable laws.
o Prepare and monitor the expense accruals and notify Fund management of any
proposed adjustments.
o Prepare monthly financial statements, which will include, without
limitation, the Schedule of Investments, the Statement of Assets and
Liabilities, the Statement of Operations, the Statement of Changes in Net
Assets, the Cash Statement, and the Schedule of Capital Gains and Losses.
o Prepare monthly security transactions listings.
o Prepare monthly broker security transactions summaries.
o Supply various Fund and Portfolio statistical data as requested on an
ongoing basis.
o Assist in the preparation of support schedules necessary for completion of
Federal and state tax returns.
o Assist in the preparation and filing of the Fund's annual and semiannual
reports with the SEC on Form N-SAR.
o Assist in the preparation and filing of the Fund's annual and semiannual
reports to shareholders and proxy statements.
o Assist with the preparation of amendments to the Fund's Registration
Statements on From N-1A and other filings relating to the registration of
shares.
o Monitor each Portfolio's status as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended from time to
time ("Code").
o Determine the amount of dividends and other distributions payable to
shareholders as necessary to, among other things, maintain the
qualification as a regulated investment company of each Portfolio of the
Fund under the Code.
<PAGE>
o Provide other accounting services as may be agreed upon from time to time
in writing by the Fund and Declaration.
<PAGE>
Administrative Services Provided by Declaration Service Company
- --------------------------------------------------------------------------------
o Provide overall day-to-day Fund administrative management, including
coordination of investment advisor, custodian, transfer agency,
distribution and pricing and accounting services.
o Preparation of filing of all Federal and State reports including:
o Fund's post-effective amendments under the Securities Act of 1933
and the Investment Company Act of 1940.
o Form N-SAR - Semi-Annual report for Registered Investment Companies.
o The Fund's Annual and Semi-Annual Report.
o Rule 24f-2 Notice - filing regarding sale(s) of securities.
o Rule 17g-1 filing with the SEC regarding Fidelity Bond coverage.
o Prepare and file such reports, applications and documents as may be
necessary or desirable to register the Fund's shares with the Federal and
state securities authorities, and monitor the sale of Fund shares for
compliance with Federal and state securities laws.
o Prepare and file reports to shareholders, including the annual report to
shareholders, and coordinate mailing Prospectuses, notices, proxy
statements, proxies and other reports to shareholders.
o Assist with layout and printing of shareholder communications, including
Prospectuses and reports to shareholders.
o Administer contracts on behalf of the Fund with, among others, the Fund's
investment advisor, custodian, transfer agent/shareholder servicing agent,
distributor, and accounting services agent.
o Prepare and maintain materials for directors/management meetings
including, agendas, minutes, attendance records and minute books.
o Coordinate shareholder meetings, including assisting Fund counsel in
preparation of proxy materials, preparation of minutes and tabulation of
results.
<PAGE>
o Monitor and pay Fund bills, maintain Fund budget and report budget
expenses and variances to Fund management.
o Monitor the Fund's compliance with the investment restrictions and
limitations imposed by the 1940 Act and state Blue Sky laws and applicable
regulations thereunder, the fundamental and non-fundamental investment
policies and limitations set forth in the Fund's Prospectuses and
Statement of Additional Information, and the investment restrictions and
limitations necessary for each Portfolio of the Fund to qualify as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended, or any successor statute.
o Prepare and distribute to appropriate parties notices announcing the
declaration of dividends and other distributions to shareholders.
o Provide other administrative services as may be agreed from time to time
in writing by the Fund and Declaration.
Blue Sky Administration
o Produce and mail the following required filings:
o Initial Filings - produce all required forms and follow-up on any
comments, including notification of SEC Effectiveness.
o Renewals - produce all renewal documents and mail to states,
includes follow-up to ensure all is in order to continue selling in
states.
o Sales Reports - produce all the relevant sales reports for the
states and complete necessary documents to properly file sales
reports with states.
o Annual Report Filings - file copies of all annual reports with
states.
o Prospectus Filings - file all copies of Definitive SAI &
Prospectuses with the states.
o Post-Effective Amendment Filing - file all Post-Effective Amendments
with the states, as well as, any other required documents.
o On demand additional states - complete filing for any states that you
would like to add.
o Amendments to current permits - file in a timely manner any amendment to
registered share amounts.
<PAGE>
o Update and file hard copy of all data pertaining to individual permits.
<PAGE>
Transfer Agent, Shareholder Servicing Agent and Dividend Disbursing Agent
Services provided by Declaration Service Company
- --------------------------------------------------------------------------------
o Examine and process new accounts, subsequent payments, liquidations,
exchanges, transfers, telephone transactions, check redemptions automatic
withdrawals, and wire order trades.
o Reinvest or pay dividends and make other distributions.
o Answer investor and dealer telephone and/or written inquiries, except as
otherwise agreed by the Transfer Agent and the Fund.
o Process and confirm address changes.
o Process standard account record changes as required, i.e. Dividend Codes,
etc.
o Microfilm and/or store source documents for transactions, such as account
applications and correspondence.
o Perform backup withholding for those accounts in accordance with Federal
regulations.
o Solicit missing taxpayer identification numbers.
o Provide remote access inquiry to Fund records via Fund supplied hardware
(fund responsible for connection line and monthly fee).
o Maintain the following shareholder information in such a manner as the
Transfer Agent shall determine:
o Name and address, including zip code.
o Balance of Shares.
o Number of Shares, issuance date of each share outstanding and
cancellation date of each share no longer outstanding, if issued.
o Balance of dollars available for redemption.
o Dividend code (daily accrual, monthly reinvest, monthly cash or
quarterly cash).
o Type of account code.
o Establishment date indicating the date an account was opened,
carrying forward pre-conversion data as available.
o Original establishment date for accounts opened by exchange.
o W-9 withholding status and periodic reporting.
<PAGE>
o State of residence code.
o Social security or taxpayer identification number, and indication of
certification.
o Historical transactions on the account for the most recent 18
months, or other period as mutually agreed to from time to time.
o Indication as to whether phone transaction can be accepted for this
account. Beneficial owner code, i.e. male, female, joint tenant,
etc.
o Provide the following reports and statements:
o Prepare daily journals for Fund reflecting all shares and dollar
activity for the previous day.
o Supply information monthly for Fund's preparation of Blue Sky
reporting.
o Supply monthly purchase, redemption and liquidation information for
use in Fund's N-SAR report.
o Provide monthly average daily balance reports for the Fund.
o Prepare and mail copies of summary statements to dealers and
investment advisors.
o Mail transaction confirmation statements daily to investors.
o Address and mail four periodic financial reports (material must be
adaptable to Transfer Agent's mechanical equipment as reasonably
specified by the Transfer Agent).
o Mail periodic statement to investors.
o Compute, prepare and furnish all necessary reports to governmental
authorities: Forms 1099R, 1099DIV, 1099B, 1042 and 1042S.
o Enclose various marketing material as designated by the Fund in
statement mailings, i.e. monthly and quarterly statements (material
must be adaptable to mechanical equipment as reasonably specified by
the Transfer Agent).
o Prepare and mail confirmation statements to dealers daily.
o Prepare certified list of stockholders for proxy mailing.
<PAGE>
SCHEDULE B
Compensation Schedule for Services Provided by Declaration Service Company
Transfer Agent/ Shareholder Services (per Portfolio):
First Year: $18,000 for first class of shares
$ 9,000 for second class of shares
$ 4,500 for third class of shares
Thereafter: same fees as first year plus an account fee of $7.50 per
shareholder account with open ledger.
Fund Administration (per first Portfolio, which has three classes of shares):
$33,000 Average Annual Assets $ 0 to $50,000,000
.02% Average Annual Assets $50,000,001 to $100,000,000
.01% Average Annual Assets in excess of $100,000,000
Fund Accounting (per first Portfolio, which has three classes of shares):
$35,000 Average Annual Assets $ 0 to $50,000,000
.02% Average Annual Assets $50,000,001 to $100,000,000
.01% Average Annual Assets in excess of $100,000,000
Plus out-of-pocket expenses to include, but not limited to: wire fees, bank
service charges, printing, copying, postage, courier, account statement/
confirmation (including programming costs for specialized statements/
confirmations), portfolio price quotation service, asset allocation charges,
travel, telephone, registration fees, and other standard miscellaneous items.
Additional Portfolios or classes of shares per Portfolio
Each category of fee (including annual minimums) increases by 50% for the second
class of shares per portfolio, and by 25% for each additional class of shares
per portfolio.
<PAGE>
SCHEDULE C
Millenium Tax-Free Income Fund, Inc.
Portfolios covered by this Agreement:
Millenium Tax-Free Income Fund, Inc.
<PAGE>
EXHIBIT 15(c)
MILLENIUM TAX-FREE INCOME FUND, INC.
RULE 12B-1 DISTRIBUTION PLAN
FOR CLASS C SHARES
1. Purpose. The Company shall finance the distribution of its Class C shares
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act")
according to the terms of this Distribution Plan (the "Plan").
2. Fees. Amounts, not exceeding in the aggregate a maximum annual amount equal
to the lesser of (a) 1.5% of the average daily net asset value of the Class C
shares or (b) the maximum amount provided by an applicable rule or regulation of
the National Association of Securities Dealers, Inc., during each fiscal quarter
of the Company elapsed after the inception of the Plan may be paid by the
Company to the Distributor out of the assets attributable to such shares at any
time after the effective date of the Plan in order: (i) to pay the Distributor
commissions in respect of shares of the Company previously sold at any time
after the inception of the Plan, all or any part of which may be or may have
been reallowed or otherwise paid to others by the Distributor in respect of or
in furtherance of sales of shares of the Company after the inception of the
Plan; and (ii) to enable the Distributor to pay or to have paid to others who
sell the Company's shares a maintenance or service fee, at such intervals as the
distributor may determine, in respect of the Company's shares previously sold by
any such others at any time after the inception of the Plan and remaining
outstanding during the period in respect of which such fee is or has been paid.
To the extent that any investment advisory fees paid by the Company may be
deemed to be indirectly financing any activity which is primarily intended to
result in the sale of shares of the Company within the meaning of Rule 12b-1,
the payments of such fees are authorized under this Plan.
3. Required Approvals and Terms. Subject to paragraph 8, the Plan shall not take
effect until it has been approved, together with any related agreements, by
votes of the majority of both (i) the Board of Directors of the Company and (ii)
those directors of the Company who are not "Interested Persons" of the Company
as defined in the Act and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to it (the "Independent
Directors"), cast in person at a meeting called for the purpose of voting on the
Plan or such agreements. Unless sooner terminated pursuant to the terms hereof,
the Plan shall continue in effect for a period of one year from its effective
date, and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for by Rule 12b-1
under the Act.
4. Periodic Reports. Any person authorized to direct the disposition of monies
paid or payable by the Company pursuant to the Plan or any related agreement
shall provide to
2
<PAGE>
the Company's Board of Directors, and the Board of Directors shall review at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
5. Termination. Subject to paragraph 8, the Plan may be terminated at any time
by a vote of a majority of the Independent Directors, or by a majority vote of
the Company's outstanding Class C shares.
6. Related Agreements. Any agreement related to the Plan shall be in writing,
and shall provide:
(i) That such agreement may be terminated at any time, without payment of
penalty, by vote of a majority of the Independent Directors or by a
majority vote of the Company's outstanding Class C shares on not more than
60 days written notice to any other party to the agreement; and
(ii) That such agreement shall terminate automatically in the event of its
assignment.
7. Amendments. The Plan may not be amended to increase materially the amount of
distribution expenses provided in paragraph 2 unless such amendment is approved
in the manner provided in paragraph 3, and no material amendment to the Plan
shall be made unless approved by the Board of Directors and the Independent
Directors.
8. Special Procedures for Series Company If the Company is or becomes a series
company (as defined in Rule 18f-2 under the Act), then the Plan shall not take
effect as to the Class C shares of any series and no amendment may be effected
to increase materially the amount of distribution expenses as to the Class C
shares of any series until it has been approved as to the Class C shares of such
series by the Board of Directors and the Independent Directors of such series in
the manner provided in paragraph 3; and no material amendment to the Plan in
respect of such shares shall be made unless approved as to such shares by the
Board of Directors and Independent Directors. The Plan may be terminated as to
any series at any time by vote of a majority of the Independent Directors or by
majority vote of the Class C shareholders of the series.
3
Exhibit 18
Millenium Tax-Free Income Fund, Inc.
Plan Pursuant to Rule 18f-3, as amended
Registrant elects to offer different classes of shares of its common
stock pursuant to Rule 18f-3 under the following Plan.
1. Registrant's current Plan encompasses two classes of shares that may be
offered as follows:
(a) Class A shares with a front end sales charge ("FESC") subject to certain
exceptions, a contingent deferred sales charge ("CDSC") under certain
circumstances, and to Rule 12b-1 fees ("Rule 12b-1 fees"). The applicable
FESC, including reductions and exceptions, application of the CDSC and the
Rule 12b-1 fees are set forth in Exhibits "A" and "C" attached hereto.
(b) Class C shares at net asset value subject to a fee upon redemption within
one year of purchase and Rule 12b-1 fees. The terms and conditions of the
Class C shares are as set forth in Exhibits "B" and "C" attached hereto.
2. Income, realized and unrealized capital gains and losses and expenses
not allocated to a particular class are allocated to each class on the basis of
relative net assets.
Expenses allocable to a specific class are expenses specifically incurred
for such class, including the following:
(a) Rule 12b-1 expenses;
(b) Incremental transfer agency expenses, if any;
(c) Incremental costs of preparing, printing and mailing shareholder reports,
proxy materials and prospectuses related to such class;
(d) Registration fees and other expenses of registration of the shares of such
class under laws or regulations of any jurisdiction in which the class of
shares is to be offered;
(e) Directors' fees and expenses incurred as a result of issues relating
solely to such class; and
(f) Legal and accounting expenses relating solely to such class.
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3. Each class will vote separately with respect to any matter as required
by applicable law or which separately affects that class. As provided in the
Articles of Incorporation, each dollar of net asset value per share is entitled
to one vote.
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Exhibit A
CLASS A SHARES. Class A shares are sold at their net asset value
plus a sales charge. The amounts of the sales charges are shown in the following
table.
Sales Charge Charge as
as Percentage Approximate
Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested
- ------------------ -------------- ---------------
$99,999 or less 4-3/4% 5.0%
$100,000 to $249,999 3-1/2% 3.6%
$250,000 to $499,999 2-1/2% 2.6%
$500,000 to $749,999 2% 2.0%
$750,000 to $999,999 1% 1.0%
$1,000,000 or more 0% 0.0%
On purchases of $1,000,000 or more, the investor pays no front-end sales charge
but a contingent deferred sales charge of 0.75% may be imposed if shares are
redeemed within the first year after purchase. The Distributor may pay the
financial service firm a commission during the first year after such purchase at
an annual rate as follows:
Purchase Amount Commission
- --------------- ----------
First $3,000,000 .75%
Next $2,000,000 .50%
Over $5,000,000 .25%
Where a commission is paid for purchases of $1 million or more, such payment
will be made from 12b-1 distribution fees received from the Fund and, in cases
where the limits of the distribution plan in any year have been reached, from
the Distributor's own resources.
There are a number of ways to reduce the sales charge on the
purchase of Class A shares, as set forth below.
(i) Family Purchases: Purchases made by an individual, such individual's
spouse and children under 21 are combined and treated as a purchase of a
single person.
(ii) Group Purchases: The purchases of an organized group, whether or not
incorporated, are combined and treated as the purchase of a single person.
The organization must have been organized for a purpose other than to
purchase shares of mutual funds.
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(iii) Purchases for Employee Benefit Plans: Trustee or other fiduciary accounts
and Individual Retirement Accounts ("IRA") of a single employer are
treated as purchases of a single person. Purchases of and ownership by an
individual and such individual's spouse under an IRA are combined with
their other purchases and ownership.
(iv) Purchases under a Statement of Intention: By executing the "Statement of
Intention" included in the Application Form at the back of the Fund's
Prospectus, purchases of Class A shares of $100,000 or more made over a
13-month period may be made at the applicable price for the aggregate
shares actually purchased during the period.
(v) Rights of Accumulation: If investors notify their dealers or the
Distributor, they may include the Class A shares they already own (valued
at maximum offering price) in calculating the price applicable to their
current purchases.
(vi) Sales at Net Asset Value: The sales charge will not apply to: (1) Class A
shares purchased through the automatic reinvestment of dividends and
distributions; (2) Class A shares purchased by directors, officers and
employees of any fund for which the Adviser acts as investment adviser or
officers and employees of the Adviser, Sub-Adviser or Distributor
including former directors and officers and any spouse, child, parent,
grandparent, brother or sister ("immediate family members") of all of the
foregoing, and any employee benefit or payroll deduction plan established
by or for such persons; (3) Class A shares purchased by any registered
representatives, principals and employees (and any immediate family
member) of securities dealers having a sales agreement with the
Distributor; (4) initial purchases of Class A shares totaling at least
$250,000 but less than $5,000,000, made at any one time by banks, trust
companies and other financial institutions on behalf of one or more
clients for which such institution acts in a fiduciary capacity; (5) Class
A shares purchased by any single account covering a minimum of 250
participants (this 250 participant minimum may be waived for certain fee
based mutual fund marketplace programs) and representing a defined benefit
plan, defined contribution plan, cash or deferred plan qualified under
401(a) or 401(k) of the Internal Revenue Code or a plan established under
section 403(b), 457 or 501(e)(9) of such Code or "rabbi trusts"; (6) Class
A shares purchased by persons participating in a "wrap account" or similar
fee-based program sponsored and maintained by a registered broker-dealer
approved by the Fund's Distributor or by investment advisors or financial
planners who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their
services; and clients of such investment advisors or financial planners
who place trades for their own accounts if the accounts are linked to the
master account of such investment advisor or financial planner on the
books and records of the broker or agent; and (7) Class A shares amounting
to less than $5,000,000 purchased by any state, county, city, department,
authority or similar agency. Investors may be charged a fee if they effect
purchases in fund shares through a broker or agent. The Fund may also
issue Class A shares at
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net asset value incident to a merger with or acquisition of assets of an
investment company.
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Exhibit B
CLASS C SHARES. Class C shares are offered at net asset value
without a sales charge at the time of purchase. Class C shares redeemed within
one year of purchase will be subject to a 1% charge upon redemption. Class C
shares do not have a conversion feature. The Fund will not accept any purchases
of Class C shares when Class A shares may be purchased at net asset value.
The Distributor will pay a commission to the firm responsible for
the sale of Class C shares. No other fees will be paid by the Distributor during
the one-year period following purchase. The Distributor will be reimbursed for
the commission paid from 12b-1 fees paid by the Fund during the one-year period.
If Class C shares are redeemed within the one-year period after purchase, the 1%
redemption charge will be paid to the Distributor. After Class C shares have
been outstanding for more than one year, the Distributor will make quarterly
payments to the firm responsible for the sale of the shares in amounts equal to
[1.125%] of the annual average daily net asset value of such shares for sales
fees and [0.375%] of the annual average daily net asset value of such shares for
service and maintenance fees.
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Exhibit C
CONTINGENT DEFERRED SALES CHARGES. Any contingent deferred sales
charge imposed upon the redemption of Class A or Class C shares is a percentage
of the lesser of (i) the net asset value of the shares redeemed or (ii) the
original cost of such shares. No contingent deferred sales charge is imposed
when the investor redeems amounts derived from (a) increases in the value of
shares redeemed above the net cost of such shares or (b) certain shares with
respect to which the Fund did not pay a commission on issuance, including shares
acquired through reinvestment of dividend income and capital gains
distributions. Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed.
The contingent deferred sales charge (CDSC) on Class A and C Shares
that are subject to a CDSC will be waived if the redemption relates to the
following: (a) in the event of the total disability (as evidenced by a
determination by the federal Social Security Administration) of the shareholder
(including registered joint owner) occurring after the purchase of the shares
being redeemed; (b)in the event of the death of the shareholder (including a
registered joint owner); (c) for redemptions made pursuant to an automatic
withdrawal plan in an amount, on an annual basis, up to 12% of the value of the
account at the time the shareholder elects to participate in the automatic
withdrawal plan; (d) for redemptions from a qualified retirement plan or IRA
that constitute a tax-free return of contributions to avoid tax penalty; (e) on
redemptions of shares sold to directors, officers and employees of any fund for
which the Adviser acts as investment adviser or officers and employees of the
Adviser or Distributor including former directors and officers and immediate
family members of all of the foregoing, and any employee benefit or payroll
deduction plan established by or for such persons; and (f) on redemptions
pursuant to the right of the Fund to liquidate a shareholder's account if the
aggregate net asset value of the shares held in such account falls below an
established minimum amount.
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