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PROSPECTUS APRIL 30, 1999
MILLENIUM
MUNICIPAL INCOME FUND
P.O. Box 844 Conshohocken, PA 19428-0844
Like shares of all mutual funds, these shares have not been approved or
disapproved by the Securities and Exchange Commission nor has the Commission
passed upon the accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
MILLENIUM ADVISORS [LOGO]
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PROSPECTUS APRIL 30, 1999
Class A and Class C
Millenium Municipal Income
Fund, Inc.
P.O. Box 844 Conshohocken, PA 19428-0844
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MINIMUM INVESTMENT PLANS AVAILABLE
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Initial Purchase $5,000 Automatic Investment
(Class A) Plan
Initial Purchase $25,000 Automatic Withdrawals
(Class C) Plan
Subsequent Investment $250
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Millenium Municipal 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 April 30, 1999, 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
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Page
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Summary.................................................. 3
Special Considerations................................... 6
Investment Objective and Policies........................ 6
Adviser and Distributor.................................. 11
Distribution Plans....................................... 12
Purchase of Shares....................................... 14
Redemption of Shares..................................... 18
Additional Information About Redemptions................. 19
Determining the Price of Shares.......................... 20
Dividends and Distributions.............................. 21
Federal Income Taxes..................................... 21
Fund Shares.............................................. 22
Performance Data......................................... 23
Shareholder Inquiries.................................... 24
Appendix -- Quality Ratings of Debt Securities........... 25
Terms and Conditions for a Statement of Intention (Class
A Shares Only)......................................... 27
Telephone Redemption Authorization....................... 29
Account Application...................................... 29
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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.
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Shareholder Transaction Expenses Class A Class C
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Maximum sales load (as a percentage of offering price) 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
Redemption Fee**...................................................... None None
Exchange Fee.......................................................... None None
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* 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 "REDEMPTION OF SHARES."
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees (after waiver)*.......................................... 0.00% 0.00%
12b-1 Fees**............................................................. 0.20% 1.00%
Other Expenses***........................................................ 0.60% 0.60%
Total Fund Operating Expenses............................................ 0.80% 1.60%
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* The Adviser may waive the receipt of management fees from the Fund with
respect to any fiscal quarter if the Adviser determines, in its sole
discretion, that such waiver would be desirable for competitive purposes. If
the Adviser's 0.65% management fee were to be added to the table above, then
the Total Fund Operating expenses would be 1.45% for the Class A Shares and
2.25% 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 April
30, 2000. Actual Fund expenses may be greater than or less than these
amounts.
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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:
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1 Year 3 Years
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Class A................................................................ $ 281 $ 414
Class C*............................................................... $ 137 $ 266
Class C* (assuming no redemption at end of period)..................... $ 86 $ 266
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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:
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1 Year 3 Years
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Class A................................................................ $ 312 $ 509
Class C*............................................................... $ 170 $ 365
Class C* (assuming no redemption at end of period)..................... $ 119 $ 365
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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 Municipal 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, 0.20% of the Fund's aggregate average daily net assets attributable to
the Class A shares and (ii) for Class C shares, 1% 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
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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 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 Advisors, Inc., (the
"Adviser") is the investment adviser for the Fund. Atlantic Securities Group,
Incorporated (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 at
888-840-3132 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 19428.
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.
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
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(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 1-877-375-1205.
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, including
municipal obligations subject to the alternative minimum tax (except for
temporary defensive purposes). 30% TO 40% 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 100% 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,
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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.
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
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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 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.
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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.
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 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. When the Fund is pursuing a
temporary defensive posture, it may not achieve its investment objective.
10
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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%, although turnover rates may be higher in the
early years of the Fund.
"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 Advisors, 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. Atlantic
Securities Group, Incorporated ("the Distributor"), the parent corporation of
the Adviser, is
11
<PAGE>
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 may waive the
receipt of management fees from the Fund with respect to any fiscal quarter if
the Adviser determines, in its sole discretion, that such waiver would be
desirable for competitive purposes.
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
Lawrence T. McDermott will be the primary portfolio manager of the Fund.
Until February, 1999, he served as a Managing Director and Senior Portfolio
Manager (1981-1999) at Salomon Smith Barney, creating and maintaining fifteen
mutual funds, including money market, intermediate and long term fixed income
portfolios. Until September, 1981, he served as Assistant Vice President
(1979-1981) in the Trust Department of Citibank, N.A., co-managing the bank's
common trust fund and state-specific, national and high yield funds. Mr.
McDermott has over twenty years of experience in the field of fixed income
securities as a director 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 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 0.20% 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
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<PAGE>
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 0.20%
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% 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.
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.
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<PAGE>
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 (plus sales load, if any) next
determined after the order is received 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 accompanies this prospectus and mailing it,
together with a check or money order made payable to:
The Millenium Municipal 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.
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 888-840-3132 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.
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<PAGE>
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:
- - Investments must be received in good order 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.
- - 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.
- - 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 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.
15
<PAGE>
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.
<TABLE>
<CAPTION>
CUSTOMARY
CHARGE AS CONCESSION TO
SALES CHARGE AS APPROXIMATE YOUR DEALER AS
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- -------------------------------------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
$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%
</TABLE>
- ------------
* 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:
<TABLE>
<CAPTION>
PURCHASE AMOUNT COMMISSION
- --------------------------------------------------------------------- ---------------
<S> <C>
First $3,000,000 .75%
Next $2,000,000 .50%
Over $5,000,000 .25%
</TABLE>
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.
(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.
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<PAGE>
(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.
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.
17
<PAGE>
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 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 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 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 19); 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 19.)
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
18
<PAGE>
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.
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 1-877-375-1205.
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 888-840-3132 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.
19
<PAGE>
(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.
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."
20
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
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.
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
21
<PAGE>
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 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.
22
<PAGE>
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.
"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
23
<PAGE>
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 888-840-3132 for prompt service on any questions about your account.
24
<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.
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.
25
<PAGE>
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.
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.
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<PAGE>
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 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 Atlantic Securities Group, Incorporated 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 Atlantic Securities Group, Incorporated,
or my dealer, Declaration Service Company, will redeem an appropriate number of
the escrowed shares in order to realize such difference.
27
<PAGE>
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 purchases made under such Statement to
reflect the quantity discount applicable to the aggregate amount of such
purchases during the thirteen-month period.
28
<PAGE>
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 Advisors,
Inc., Atlantic Securities Group, Incorporated, and/or Millenium Municipal 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., Atlantic Securities Group, Incorporated, and/or Millenium
Municipal 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.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
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)
</TABLE>
ACCOUNT APPLICATION
Mail to: Millenium Municipal 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 888-840-3132.
<TABLE>
<C> <S> <C> <C>
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.
</TABLE>
29
<PAGE>
<TABLE>
<C> <S> <C> <C>
[ ] 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
2. CLASS SELECTION [ ] Check enclosed for $ (Minimum $5,000 for
Class A Shares, $25,000 for Class (C Shares,)
payable to "Millenium Municipal 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 # .
</TABLE>
<TABLE>
<S> <C> <C>
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
</TABLE>
<TABLE>
<C> <S> <C> <C>
3. DEALER INFORMATION -------------------------------------------------
When opening your account Dealer name (as it appears on Selling Group
through a dealer, have Agreement)
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
</TABLE>
30
<PAGE>
<TABLE>
<C> <S> <C> <C>
4. YOUR SIGNATURE
All registered I am of legal age and have read the current
shareholders must sign. prospectus and this application. I agree to the
terms thereof including any amendments thereto. I
hold harmless and indemnify Millenium Municipal
Income Fund, Inc., Atlantic Securities Group,
Incorporated and each of their respective
partners, affiliates, directors, officers,
employees and agents from any losses, expenses,
costs or liability (including 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
1-877-375-1205.
ACCOUNT OPTIONS
5. DIVIDEND AND CAPITAL GAIN All dividend and capital gain distributions will
INSTRUCTIONS be 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.
</TABLE>
31
<PAGE>
<TABLE>
<C> <S> <C>
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:
</TABLE>
<TABLE>
<S> <C> <C> <C>
[ ] $100,000 [ ] $250,000 [ ] $500,000
[ ] $750,000 [ ] $1,000,000
</TABLE>
<TABLE>
<C> <S> <C>
7. RIGHTS OF ACCUMULATION [ ] I own Class A shares in more than one account,
which may entitle me to a reduced sales charge.
Please link my account numbers to qualify (Attach
an additional sheet if necessary):
_______________ _______________ _______________
8. TELEPHONE PRIVILEGE AUTOMATICALLY APPLIES UNLESS BOX IS CHECKED. I
elect 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.
9. ELECTRONIC WIRE PRIVILEGE [ ] I authorize the Fund to wire redemption proceeds
Please attach a Check or when requested by either Automated Clearing House
Encoded Deposit Slip (ACH) or by Wire (a fee is charged) as specified
by my redemption instructions.
_________________________________________________
Name and Address of Depository Institution
_________________________________________________
Account Number with Depository Institution
Type of account: [ ] Checking [ ] Savings
10. AUTOMATIC WITHDRAWAL
PLAN [ ] I want to withdraw from the Fund account number
This plan requires a (if known) __________________________________
$10,000
minimum balance and the [ ] $_______ (exact dollars -- $25 minimum) OR
reinvestment of [ ] ________% (per year-calculated each withdrawal)
dividends. OR
[ ] _________(number of withdrawals until the account is closed)
</TABLE>
<TABLE>
<S> <C>
I want to receive checks: [ ] Monthly [ ] Quarterly
[ ] Annually
11. PAYMENT TO OTHERS Make checks payable and send to:
Complete if dividend or Name _____________________________________________________
withdrawal checks are to be Address __________________________________________________
payable to someone other City ______________________ State________Zip______________
than the registered
shareholder(s).
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
12. AUTOMATIC INVESTMENT Please transfer $________ ($25 minimum) from my bank
PLAN and invest into the Fund account number (if known) ______
Important: Attach an unsigned on the _______ day of each month.
voided check.
The account balance must Name of your bank _______________________________________
meet the minimum account ABA number ______________________________________________
investment requirements as Print your name(s) ______________________________________
detailed in the prospetus Bank Account Number _____________________________________
within 12 months of initial Street address of your bank _____________________________
investment. City ____________________ State ________ Zip ____________
</TABLE>
33
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION APRIL 30, 1999
Millenium Municipal Income Fund, Inc.
P.O. Box 844 Conshohocken, PA 19428-0844
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Topic Page
- --------------------------------------------------------- -----------
<S> <C>
General Information and History.......................... 3
Fundamental Investment Restrictions...................... 3
Municipal Obligations.................................... 4
Temporary Investments.................................... 5
Portfolio Transactions................................... 6
Directors and Officers................................... 7
Compensation Schedule.................................... 7
Investment Advisory Services............................. 8
Year 2000 Compliance..................................... 9
Custodian................................................ 9
Auditors................................................. 9
Determining the Price of Shares.......................... 9
Reduction of Class A Sales Charge........................ 9
Distribution of Fund Shares.............................. 11
Performance Data......................................... 11
Non-Standard Distribution Rates.......................... 12
</TABLE>
2
<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 APRIL 30,
1999. 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.
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.
3
<PAGE>
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.
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
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.
4
<PAGE>
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.
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
5
<PAGE>
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 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 Advisors, 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.
6
<PAGE>
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 Lawrence T.
McDermott 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.
LAWRENCE T. MCDERMOTT* (6/7/48), c/o Atlantic Securities Group,
Incorporated, 45 Essex Street, Millburn, New Jersey 07041. Director, President
and Chief Executive Officer of the Fund; formerly, a Managing Director and
Senior Portfolio Manager (1981-1999) of Salomon Smith Barney (a registered
broker dealer).
MARK BLAUSTEIN (5/5/33), c/o Atlantic Securities Group, Incorporated, 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 Atlantic Securities Group, Incorporated,
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 Atlantic Securities Group, Incorporated, 45
Essex Street, Millburn, New Jersey 07041. Treasurer, Chief Financial Officer and
Secretary of the Fund. Vice President and Senior Analyst, Atlantic Securities
Group, Incorporated (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>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) (2) (3) (4)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Pension Or Fund
Retirement Benefits Estimated Annual
Aggregate Compensation Accrued As Part Of Benefits Upon
Name of Person, Position From Registrant Fund Expenses Retirement
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lawrence T. McDermott, -0- -0- -0-
President and CEO
Susan P. Bowen, -0- -0- -0-
Treasurer, CFO
And Secretary
Mark Blaustein, -0- -0- -0-
Director
Paul A. Harper, Jr., -0- -0- -0-
Director
</TABLE>
7
<PAGE>
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
Millenium Advisors, 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, Atlantic
Securities Group, Incorporated. The Chairman, Chief Executive Officer and
majority stockholder of the Distributor is John C. Sabo. The President and Chief
Executive Officer of the Adviser is Lawrence T. McDermott. 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 may waive the receipt of management fees from the Fund
with respect to any fiscal quarter if the Adviser determines, in its sole
discretion, that such waiver would be desirable for competitive purposes.
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 personnel to disclose personal
securities holdings upon commencement of employment and all subsequent trading
activity to the firm's Compliance Officer.
8
<PAGE>
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. In addition, Year 2000 issues may
adversely affect the issuers in which the Fund invests. For example, issuers may
incur substantial costs to address the problem. They may also suffer losses
caused by corporate and governmental data processing errors.
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.
REDUCTION OF CLASS A SALES CHARGE
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.
9
<PAGE>
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.
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
10
<PAGE>
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
Atlantic Securities Group, Incorporated ("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 0.20% 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% of the average daily net asset value of such shares.
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) to the power of 6 - 1]
--------------------------------------
cd
11
<PAGE>
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 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)to the power of 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.
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