Prospectus
February 1, 2000
Revised September 20, 2000
MALACHI MILLENNIUM INCOME TRUST
TREASURERS' GOVERNMENT MONEY MARKET FUND
The Treasurers' Government Money Market Fund is a money market fund that seeks
high current income consistent with stability of capital and liquidity by
investing in a portfolio of U.S. government securities.
TABLE OF CONTENTS
Page
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RISK/RETURN SUMMARY...........................................................2
FEES AND EXPENSES.............................................................4
WHO SHOULD INVEST IN THE FUND.................................................4
FUND MANAGEMENT...............................................................5
DIVIDENDS AND TAXES...........................................................5
TRANSACTION POLICIES..........................................................5
BUYING AND SELLING SHARES.....................................................6
FINANCIAL HIGHLIGHTS..........................................................8
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
<PAGE>
RISK/RETURN SUMMARY
-------------------
INVESTMENT OBJECTIVE
The Treasurers' Government Money Market Fund (the "Fund") seeks high current
income consistent with stability of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its investment objective by investing in marketable U.S.
government securities such as:
o U. S. Treasury bills, notes, and bonds
o other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities
o repurchase agreements with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York
All these investments must have remaining maturities of one year or less at the
time of purchase.
The Fund's investment manager, Trias Capital Management, Inc. ("Trias")
purchases and sells securities based on monetary conditions, the available
supply of appropriate investments, and its projections for short-term interest
rate movements. Of course, there can be no guarantee that by following these
investment strategies, the Fund will achieve its objective.
The Fund maintains a dollar weighted average maturity of 90 days or less and
Trias manages the Fund to maintain a net asset value of $1 per share.
PRINCIPAL RISKS
Interest rates fluctuate over time. As with any investment whose yield reflects
current interest rates, the Fund's yield will change over time. During periods
when interest rates are low, the Fund's yield (and total return) also will be
low.
Your investment is not a bank deposit. An investment in the portfolio is not
insured or guaranteed by the Federal Deposit Insurance Company or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.
The Fund could lose money if an issuer or a party to a repurchase contract
defaults. Some securities issued by U.S. Government agencies or
instrumentalities are supported only by the credit of that agency or
instrumentality, while other securities have an additional line of credit with
the U.S. Treasury. There is no guarantee that the U.S. Government will provide
support to such agencies or instrumentalities. A portfolio investment default
could cause the Fund's share price or yield to fall.
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The Fund's strategy may not perform as expected. Trias' maturity decisions will
affect the Fund's yield, and in unusual circumstances, potentially could affect
its share price. To the extent Trias anticipates interest rate trends
imprecisely, the Fund's yield could lag those of other money market funds. The
Fund's emphasis on quality and stability also could cause it to underperform
other money funds, particularly those that take greater maturity and credit
risks.
PERFORMANCE
The chart and table below are intended to help you assess how the Fund's
performance has varied from year to year and how it averages out over time (and
consequently, the risks of investing in the Fund). Keep in mind that future
performance may differ from past performance.
[GRAPHIC OMITTED]
5.25% 5.23% 5.42% 5.08%
Bar Chart
1996 1997 1998 1999
Best quarter: 1.36% Quarter ended March 31, 1998
Worst quarter: 1.20% Quarter ended June 30, 1999
Average annual total returns as of December 31, 1999:
Since
inception
1 Year (10/2/95)
------------------------
5.08% 5.25%
To obtain a current seven-day yield for the Fund, call toll free 888-534-2001
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FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
FEE TABLE
----------------------------------------------------
Shareholder Fees
(charged to you directly by the Fund): None
----------------------------------------------------
Annual operating expenses
(expenses paid by the Fund):
----------------------------------------------------
Management fees 0.20%
Distribution (12b-1) fees None
Other Expenses 0.49%
-----
Total annual operating expenses 0.69%(1)
--------------------------------------------------
(1) Trias has voluntarily agreed to temporarily reimburse the Fund's ordinary
operating expenses to the extent that such expenses exceed 0.25% of the
average daily net assets of the Fund. Trias may discontinue this voluntary
reimbursement at any time.
EXAMPLE
The following is designed to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. This example uses the same
assumptions as all mutual fund prospectuses: a $10,000 investment and 5% return
each year. It also assumes that the Fund's operating expenses remain the same.
Your actual costs may be higher or lower.
1 Year 3 Years 5 Years 10 Years
$ 70 $ 218 $ 378 $ 843
WHO SHOULD INVEST IN THE FUND
-----------------------------
The Fund is designed for PUBLIC FUNDS, EMPLOYEE BENEFIT PLANS and other
institutional investors with the need to invest:
o Operating cash
o Proceeds of tax-exempt bond issues
o Local government investment pools
o Cash balances between investments or
o Other short term investment needs
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FUND MANAGEMENT
---------------
Like other investment companies, the Trust retains various organizations to
provide specialized services for the Fund.
The investment adviser for the Fund is Trias Capital Management, Inc., 140 South
Dearborn Street, Suite 1620, Chicago, Illinois. Collectively, the principals of
Trias have been engaged in the management of investment funds for approximately
40 years. In addition to serving as the investment adviser to the Fund, Trias
provides investment advice and manages investment portfolios for endowments,
foundations, corporate cash, pension, profit sharing and individual accounts.
As the investment adviser, Trias oversees the asset management of the Fund. As
compensation for these services, Trias receives an annual fee not to exceed .20%
of the Fund's assets. Trias has agreed to temporarily reimburse the Fund's
ordinary operating expenses to the extent that they exceed .25% of the Fund's
assets.
The Malachi Group, Inc., 3495 Piedmont Road, Suite 410, Atlanta, Georgia, serves
as the Fund's principal underwriter.
DIVIDENDS AND TAXES
-------------------
The Fund distributes to its shareholders substantially all of its net investment
income and any realized capital gains. The Fund declares a dividend every
business day based on its determination of its net investment income and
realized capital gains. The Fund generally pays its dividends on the last
business day of every month.
The dividends paid by the Fund are generally taxable as ordinary income. No
portion of the Fund's distributions is eligible for the dividends received
deduction available to corporations.
At the beginning of every year, the Fund provides shareholders with information
detailing the tax status of any dividends the Fund declared during the previous
calendar year.
TRANSACTION POLICIES
--------------------
The Fund calculates its share price at 11:30 a.m. (Central time) on each day
which the New York Stock Exchange is open for trading. The Fund's share price is
its net asset value, or NAV, which is the Fund's net assets divided by the
number of its shares outstanding. The Fund seeks to maintain a stable NAV of $1.
Orders that are received in good order are executed at the next NAV to be
calculated and will receive that day's dividend.
The Fund values its investment holdings on the basis of amortized cost (cost
plus any discount, or minus any premium, accrued since purchase). Most money
market funds use this method to calculate NAV.
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<PAGE>
The Fund and transfer agent reserve certain rights, including the following:
o To automatically redeem your shares if your balance falls below the
minimum for the Fund as a result of selling your shares.
o To refuse any purchase order
o To change or waive the Fund's investment minimum.
o To suspend the right to sell shares back to the Fund and delay sending
proceeds, during times when trading on the NYSE is restricted or
halted, or as otherwise permitted by the SEC.
o To withdraw or suspend any part of the offering made by this
prospectus.
The Fund's minimum initial investment is $250,000. There is no minimum amount
for subsequent investments.
BUYING AND SELLING SHARES
-------------------------
TO OPEN AN ACCOUNT: To open without an immediate purchase skip to # 3
1. Call the Fund at 888-534-2001 to tell a representative of the Fund:
The name of the account,
the tax id number and
the dollar amount of the purchase
We will give you the new account number.
2. Instruct your bank to immediately wire Fed Funds (see below for
instructions).
3. Complete the Account Information Form, then:
Fax the completed form to: Mail the signed original immediately to:
Ultimus Fund Solutions, LLC Ultimus Fund Solutions, LLC
513-587-3450 P.O. Box 46707
Cincinnati, OH 45246-9453
----------------------------------------------------------------------
NO REDEMPTIONS CAN BE PROCESSED BEFORE THE FUND RECEIVES THE SIGNED ACCOUNT
INFORMATION FORM.
FOR QUESTIONS ABOUT YOUR ACCOUNT Ultimus Fund Solutions, LLC
OR TO OBTAIN CURRENT YIELD INFORMATION Phone: 888-534-2001
Fax: 513-587-3450
FOR ADDITIONAL PROSPECTUSES, Trias Capital Management, Inc.
NEW ACCOUNT FORMS, AND Phone:312-223-9400
QUESTIONS ABOUT THE FUND Fax: 312-223-9430
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TO BUY Purchase requests received by 11:30 am (Central time) will start to
SHARES earn interest that day provided that the Fund's custody account is
credited with Fed Funds by close of business that day.
1. Call 888-534-2001 before 11:30 am to tell the representative of the Fund:
The account name and number; and the dollar amount of the purchase.
If you do not have a Fund account number, see other side "TO OPEN AN ACCOUNT"
2. Instruct your bank to immediately wire Fed Funds to:
Fifth Third Bank
ABA # 042 000 314
Attn: Treasurers' Government MMF
Acct # 999-43307
For further credit to: [insert the account name and number]
THE INVESTOR IS RESPONSIBLE FOR NOTIFYING THE FUND OF ALL PURCHASE ORDERS BEFORE
SENDING ANY MONEY.
TO SELL If a redemption request is received by 11:30 am (Central time), Fed
SHARES Funds will be wired to the investor that day.
Call 888-534-2001 before 11:30 am to tell a representative of the
Fund: the account name and number; and the dollar amount of the
redemption.
PROCEEDS OF REDEMPTIONS MAY ONLY BE SENT TO THE PRE-AUTHORIZED BANK ACCOUNT OF
THE INVESTOR.
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<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP, whose
report, along with the Fund's financial statements, are included in the Fund's
Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
Year Ended September 30
----------------------------------------------------------
1999 1998 1997 1996
---------- ---------- ---------- ----------
Per share data for a share outstanding:
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ----------
Net investment income 0.049 0.053 0.051 0.052
Distributions from net investment income (0.049) (0.053) (0.051) (0.052)
Net asset value at end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ==========
Total Return 5.03% 5.33% 5.06% 5.27%
========== ========== ========== ==========
Net assets at end of period (000's) $ 65,541 $ 33,708 $ 111 $ 132
Ratios net of expenses waived or absorbed by manager
Ratio of net expenses to average net assets 0.25% 0.22% 0.00% 0.00%
Ratio of net investment income to average
net assets 4.92% 5.33% 5.06% 5.25%
Ratios assuming no fee waiver or expense absorption
Ratio of expenses to average net assets 0.69% 0.80% 30.19% 14.42%
Ratio of net investment income to average
net assets 4.48% 4.74% (25.13%) (9.17%)
</TABLE>
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<PAGE>
MALACHI MILLENNIUM INCOME TRUST
TREASURERS' GOVERNMENT MONEY MARKET FUND
This prospectus contains important information on the Fund and should be read
and kept for reference. You also can obtain more information from the following
sources.
Annual and Semi-Annual reports, which are mailed to current Fund shareholders,
discuss recent performance and portfolio holdings.
The Statement of Additional Information (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting the Fund or by viewing or
downloading these documents from the EDGAR Database on the SEC's internet
web-site at www.sec.gov. All materials from the Fund are free. You can also
review these materials in person at the SEC's Public Reference Room. Information
on the operation of the Public Reference Room may be obtained by calling the SEC
at 202-942-8090. The SEC charges a duplicating fee.
Please address your requests to:
Malachi Millennium Income Trust
140 South Dearborn Street, Suite 1620
Chicago, Illinois 60603
888-534-2001
or
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0102
202-942-8090 (Public Reference Section)
[email protected]
SEC File Number: 811-8816
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<PAGE>
MALACHI MILLENNIUM INCOME TRUST
TREASURERS' GOVERNMENT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000 (revised September 20, 2000)
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of the Treasurers' Government Money Market
Fund dated February 1, 2000. A copy of the Prospectus can be obtained by writing
the Fund at 140 South Dearborn Street, Suite 1620, Chicago, Illinois 60603.
This Statement of Additional Information shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
TABLE OF CONTENTS
Page
----
THE TRUST......................................................................3
INVESTMENT OBJECTIVE AND POLICIES..............................................3
INVESTMENT LIMITATIONS.........................................................7
TRUSTEES AND OFFICERS..........................................................9
INVESTMENT MANAGEMENT.........................................................11
SECURITIES TRANSACTIONS.......................................................12
NET ASSET VALUE...............................................................13
TAXES.........................................................................14
REDEMPTION IN KIND............................................................14
HISTORICAL PERFORMANCE INFORMATION............................................15
UNDERWRITER...................................................................16
TRANSFER AGENT................................................................16
CUSTODIAN.....................................................................16
LEGAL COUNSEL.................................................................16
INDEPENDENT PUBLIC ACCOUNTANTS................................................16
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<PAGE>
THE TRUST
Malachi Millennium Income Trust (the "Trust") was organized as a Massachusetts
business trust on August 19, 1994. The Trust currently offers one series of
shares to investors, the Treasurers' Government Money Market Fund (the "Fund").
This Statement of Additional Information provides information relating to the
Fund.
Each share of the Fund represents an equal proportionate interest in the assets
and liabilities belonging to the Fund with each other share of the Fund and is
entitled to such dividends and distributions out of the income belonging to the
Fund as are declared by the Board of Trustees (the "Trustees"). The shares do
not have cumulative voting rights or any preemptive or conversion rights, and
the Trustees have the authority from time to time to divide or combine the
shares of any Fund into a greater or lesser number of shares of that Fund so
long as the proportionate beneficial interest in the assets belonging to the
Fund and the rights of shares of any other Fund are in no way affected. In case
of any liquidation of the Fund, the holders of shares will be entitled to
receive as a class a distribution out of the assets, net of the liabilities
belonging to the Fund. No shareholder is liable to further calls or to
assessment by the Trust without its express consent.
Under Massachusetts law, in certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 (the "1940 Act") have been formed as Massachusetts business trusts,
and the Trust is not aware of an instance where such result has occurred. In
addition, the Trust Agreement of Millennium Income Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Trust or the Trustees. The Trust Agreement also provides for
indemnification out of the Trust property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Moreover,
the Trust Agreement provides that the Trust will, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Trust and satisfy any judgment thereon. As a result, and particularly
because the Trust's assets are readily marketable and ordinarily substantially
exceed liabilities, the risk of shareholder liability is slight and limited to
circumstances in which both inadequate insurance existed and the Trust was
unable to meet its obligations. In view of the above, the risk of shareholder
liability is remote.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek high current income, consistent
with protection of capital. The Fund pursues its objective by investing
exclusively in obligations issued or guaranteed as to principal and interest by
the United States Government, its agencies or instrumentalities ("U.S.
Government Obligations"), and repurchase agreements collateralized by such U.S.
Government Obligations. All securities purchased mature within 12 months or
less, and the Fund maintains a weighted average portfolio maturity of 90 days or
less. Except where otherwise indicated, all investment policies, practices and
limitations of the Fund are non-fundamental which means they may be changed by
the Board of Trustees (the "Trustees") without shareholder approval. There can
be no assurance that the investment objective of the Fund will be achieved.
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<PAGE>
U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations include securities that
are issued or guaranteed by the United States Treasury and by various agencies
of the United States Government. U.S. Treasury obligations are backed by the
full faith and credit of the United States Government. Other U.S. Government
Obligations may not be backed by the full faith and credit of the United States.
In the case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment and may not be able to assert a claim
against the United States in the event the agency or instrumentality does not
meet its commitments.
United States Treasury obligations ("U.S. Treasuries") include Treasury bills,
Treasury notes, and Treasury bonds. U.S. Treasuries also include the separate
principal and interest components of U.S. Treasuries that are traded under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Government agencies that issue or guarantee securities backed by the
full faith and credit of the United States include the Government National
Mortgage Association and the Small Business Administration. Government agencies
and instrumentalities that issue or guarantee securities not backed by the full
faith and credit of the United States include the Federal Farm Credit Banks, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal
Land Bank, the Bank for Cooperatives, the Federal Intermediate Credit Bank, the
Federal Financing Bank, the Resolution Funding Corporation, the Financing
Corporation of America and the Tennessee Valley Authority.
The Fund may invest in securities issued or guaranteed by any of the entities
listed above or by any other agency established or sponsored by the United
States Government, provided that the securities are otherwise permissible
investments of the Fund. Certain U.S. Government Obligations that have a
variable rate of interest readjusted no less frequently than annually will be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
The Fund's yield will fluctuate due to changes in interest rates, economic
conditions, quality ratings and other factors. The prepayment experience of the
mortgages underlying mortgage-related securities, such as obligations issued by
the Government National Mortgage Association, may affect the value of, and
return on, an investment in such securities.
STRIPS. STRIPS are U.S. Treasury bills, notes and bonds that have been issued
without interest coupon or stripped of their unmatured interest coupons,
interest coupons that have been stripped from such U.S. Treasury securities, and
receipts or certificates representing interests in such stripped U.S. Treasury
securities and coupons. A STRIPS security pays no interest in cash to its holder
during its life although interest is accrued for federal income tax purposes.
Its value to an investor consists of the difference between its face value at
the time of maturity and the price for which it was acquired, which is generally
an amount significantly less than its face value. Investing in STRIPS may help
to preserve capital during periods of declining interest rates. For example, if
interest rates decline, Government National Mortgage Association Certificates
purchased at greater than par are more likely to be prepaid, which would cause a
loss of principal. In anticipation of this, the Fund might
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<PAGE>
purchase STRIPS, the value of which would be expected to increase when interest
rates decline.
STRIPS do not entitle the holder to periodic payments of interest prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make periodic distributions of interest. On the other hand,
because there are no periodic interest payments to be reinvested prior to
maturity, STRIPS eliminate the reinvestment risk and lock in a rate of return to
maturity. Current federal tax law requires that a holder of a STRIPS security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund received no interest payment in cash on the
security during the year.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the Fund
purchases a security and simultaneously commits to resell that security to the
seller at an agreed upon time and price, thereby determining the yield during
the term of the agreement. In the event of a bankruptcy or other default by the
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
the Fund intends to enter into repurchase agreements only with its Custodian,
banks having assets in excess of $10 billion and primary U.S. Government
securities dealers. The Fund may only enter into repurchase agreements fully
collateralized by U.S. Government Obligations. The Fund may enter into
repurchase agreements with the Custodian, with banks having assets in excess of
$10 billion and with broker-dealers who are recognized as primary dealers in
U.S. Government obligations by the Federal Reserve Bank of New York. Although
the securities subject to the repurchase agreement might bear maturities
exceeding one year, settlement for the repurchase would never be more than one
year after the Fund's acquisition of the securities and normally would be within
a shorter period of time. The resale price will be in excess of the purchase
price, reflecting an agreed upon market rate effective for the period of time
the Fund's money will be invested in the securities and will not be related to
the coupon rate of the purchased security. At the time the Fund enters into a
repurchase agreement, the value of the underlying security, including accrued
interest, will equal or exceed 102% of the value of the repurchase agreement,
and in the case of a repurchase agreement exceeding one day, the seller will
agree that the value of the underlying security, including accrued interest,
will at all times equal or exceed 102% of the value of the repurchase agreement.
The collateral securing the seller's obligation will be held by the Custodian or
in the Fund's account in the Federal Reserve Book Entry System. The Fund will
not enter into a repurchase agreement not terminable within seven business days
if, as a result thereof, more than 10% of the value of the net assets of the
Fund would be invested in such securities and other illiquid securities.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
a Fund to the seller subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the securities purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the securities before repurchase of the security under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the security. If the court characterized the transaction as
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<PAGE>
a loan and the Fund has not perfected a security interest in the security, the
Fund may be required to return the security to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt obligation purchased for
the Fund, the Fund's investment adviser seeks to minimize the risk of loss
through repurchase agreements by analyzing the creditworthiness of the obligor,
in this case the seller. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security, in which case the Fund may incur a loss if the proceeds to the Fund of
the sale to a third party are less than the repurchase price. However, if the
market value of the securities subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed 102% of the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
DELAYED SETTLEMENT TRANSACTIONS. The Fund will make commitments to purchase
securities on a When-Issued ("WI") or To-Be-Announced ("TBA") basis. Obligations
issued on a when-issued basis are settled by delivery and payment after the date
of the transaction, usually within 15 to 45 days. In a to-be-announced
transaction, the Fund commits to purchasing or selling securities for which all
specific information is not yet known at the time of the trade, particularly the
face amount in transactions involving mortgage-related securities. The Fund will
only make commitments to purchase obligations on a when-issued or
to-be-announced basis with the intention of actually acquiring the obligations,
but the Fund may sell these securities before the settlement date if it is
deemed advisable as a matter of investment strategy or in order to meet its
obligations, although it would not normally expect to do so. The Fund intends to
invest less than 5% of its net assets in securities purchased on this basis, and
the Fund will not enter into a delayed settlement transaction which settles in
more than 120 days.
In connection with these investments, the Fund will direct the Custodian to
place liquid securities in a segregated account in an amount sufficient to make
payment for the securities to be purchased. When a segregated account is
maintained because the Fund purchases securities on a WI or TBA basis, the
assets deposited in the segregated account will be valued daily at market for
the purpose of determining the adequacy of the securities in the account. If the
market value of such securities declines, additional cash or securities will be
placed in the account on a daily basis so that the market value of the account
will equal the amount of the Fund's commitments to purchase securities on a WI
or TBA basis. To the extent funds are in a segregated account, they will not be
available for new investment or to meet redemptions. Securities in the Fund's
portfolio are subject to changes in market value based upon changes in the level
of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates decline and depreciation when interest rates
rise). Therefore, if in order to achieve higher returns, the Fund remains
substantially fully invested at the same time that it has purchased securities
on a WI or TBA basis, there will be a possibility that the market value of the
Fund's assets will have greater fluctuation. The purchase of securities on a WI
or TBA basis may involve a risk of loss if the broker-dealer selling the
securities fails to deliver after the value of the securities has risen.
- 6 -
<PAGE>
When the time comes for the Fund to make payment for securities purchased on a
WI or TBA basis, the Fund will do so by using then available cash flow, by sale
of the securities held in the segregated account, by sale of other securities
or, although it would not normally expect to do so, by directing the sale of the
securities purchased on a WI or TBA basis themselves (which may have a market
value greater or less than the Fund's payment obligation).
LENDING PORTFOLIO SECURITIES. The Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes the Fund to the risk that the borrower may fail to return the loaned
securities, may not be able to provide additional collateral or that the Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash or U.S. Government obligations with the Fund's Custodian in an amount at
least equal to the market value of the loaned securities. The Fund will limit
the amount of its loans of portfolio securities to no more than 25% of its net
assets. This lending policy is fundamental and may not be changed without the
affirmative vote of a majority of the Fund's outstanding securities, as defined
in the 1940 Act. The Fund will provide shareholders thirty (30) days prior
notice before lending any portfolio securities.
BORROWING AND PLEDGING. The Fund may borrow money from banks (provided there is
300% asset coverage) or other persons (in an amount not exceeding 5% of its
total assets) for temporary purposes. The Fund may pledge assets in connection
with borrowings, but the Fund will not pledge more than one-third of its assets.
The Fund will not make any additional purchases of portfolio securities if
outstanding borrowings exceed 5% of the value of its total assets. The Fund's
policies on borrowing and pledging are fundamental policies that may not be
changed without the affirmative vote of a majority of its outstanding
securities.
The Fund receives amounts equal to the interest on loaned securities and also
receives one or more of (a) negotiated loan fees, (b) interest on securities
used as collateral or (c) interest on short-term debt securities purchased with
such collateral; either type of interest may be shared with the borrower. The
Fund may also pay fees to placing brokers as well as custodian and
administrative fees in connection with loans. Fees may only be paid to a placing
broker provided that the Trustees determine that the fee paid to the placing
broker is reasonable and based solely upon services rendered, that the Trustees
separately consider the propriety of any fee shared by the placing broker with
the borrower and that the fees are not used to compensate the Fund's investment
adviser or any affiliated person of the Trust or an affiliated person of the
Fund's investment adviser. The terms of the Fund's loans must meet applicable
tests under the Internal Revenue Code and permit the Fund to reacquire the
loaned securities on five days' written notice or in time to vote on any
important matter.
INVESTMENT LIMITATIONS
The Trust has adopted certain fundamental investment limitations designed to
reduce the risk of an investment in the Fund. These limitations may not be
changed without the affirmative vote of a majority of the outstanding securities
of the Fund. The term "majority of the outstanding securities" of the Trust (or
of the Fund) means the lesser of (1) 67% or more of the outstanding shares of
the Trust (or the Fund) present at a meeting, if the holders of more
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<PAGE>
than 50% of the outstanding shares of the Trust (or the Fund) are present or
represented at such meeting or (2) more than 50% of the outstanding shares of
the Trust (or the Fund).
The limitations applicable to the Fund are:
1. Borrowing Money. The Fund will not borrow money, except (a) from a bank,
provided that immediately after such borrowing there is asset coverage of 300%
for all borrowings of the Fund; or (b) from a bank or other entity for temporary
purposes only, provided than when made, such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets. The Fund also will not make
any borrowing which would cause its outstanding borrowings to exceed one-third
of the value of its total assets.
2. Pledging. The Fund will not mortgage, pledge, or hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge, or hypothecate more
than one-third of its assets in connection with borrowings.
3. Underwriting. The Fund will not act as underwriter of securities issued by
other persons. This limitation is not applicable to the extent that, in
connection with the disposition of its portfolio securities (including
restricted securities), the Fund may be deemed an underwriter under certain
federal securities laws.
4. Illiquid Investments. The Fund will not invest more than 10% of its net
assets in securities for which there are legal or contractual restrictions on
resale and other illiquid securities.
5. Real Estate. The Fund will not purchase, hold or deal in real estate.
6. Commodities. The Fund will not purchase, hold or deal in commodities or
commodities future contracts or invest in oil, gas or other mineral exploration
or development programs. This limitation is not applicable to the extent that
the U.S. Government obligations in which the Fund may otherwise invest would be
considered to be such commodities, contracts or investments.
7. Loans. The Fund will not make loans to other persons, except (a) by loaning
portfolio securities, or (b) by engaging in repurchase agreements. For purposes
of this limitation, the term "loans" shall not include the purchase of a portion
of an issue of U.S. Government obligations.
8. Margin Purchases. The Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short-term
credit obtained by the Fund for the clearance of purchase and sales or
redemptions of securities.
9. Short Sales and Options. The Fund will not sell any securities short or
sell put and call options. This limitation is not applicable to the extent that
sales by the Fund of securities in which the Fund may otherwise invest would be
considered to be sales of options.
10. Other Investment Companies. The Fund will not invest in the securities of
any investment company except as permitted by the Investment Company Act of
1940.
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<PAGE>
11. Concentration. The Fund will not invest more than 25% of its total assets
in the securities of issuers in a particular industry; this limitation is not
applicable to investments in obligations issued or guaranteed by the United
States Government, its agencies and instrumentalities or repurchase agreements
with respect thereto.
12. Mineral Leases. The Fund will not purchase oil, gas or other mineral leases
or exploration or development programs.
13. Senior Securities. The Fund will not issue senior securities as defined in
the Investment Company Act of 1940. Notwithstanding any other investment policy
the Fund may invest all, but not less than all, of its investable assets in the
securities of beneficial interests of a single pooled investment entity having
substantially the same objective, policies and limitations as the Fund.
With respect to the percentages adopted by the Trust as maximum limitations on
the Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money) will not be a violation of the policy or restriction unless the excess
results immediately and directly from the acquisition of any security or the
action taken.
The Trust does not presently intend to pledge, mortgage or hypothecate the
assets of the Fund. The Trust does not presently intend to acquire securities
issued by any other investment companies. The Trust does not presently intend to
invest all its assets in securities issued by any other single pooled investment
entity. The statements of intention in this paragraph reflect nonfundamental
policies that may be changed by the Board of Trustees without shareholder
approval.
TRUSTEES AND OFFICERS
The Board of Trustees has overall responsibility for the conduct of the Fund's
affairs. The officers and trustees of the Fund, their principal occupations and
affiliations, if any, with the Adviser, and their ages, are listed below.
James A. Casselberry, Jr., Trustee, Chairman of the Board, President and
Treasurer*, 140 South Dearborn Street, Suite 1620, Chicago, Illinois; Chairman
and Chief Executive Officer of Trias Capital Management, Inc. (the investment
adviser of the Trust) beginning in 1996. From 1995 through 1996, Chief Operating
officer of Wedgewood Capital Management, an investment adviser. From 1991 to
1995, Investment Manager at the MacArthur Investment Group and Director of Fixed
Income Investments for the John D. and Catherine T. MacArthur Foundation, a
501(c)(3) foundation. From 1987 to 1991, portfolio manager of First National
Bank of Chicago, managing the First Prairie money market funds. (age 40)
Albert R. Grace, Jr., Trustee**, 175 W. Jackson, Chicago, Illinois; President
and COO of Loop Capital Markets LLC, a registered broker-dealer, since 1997.
From 1994 until 1997, Vice President Northern Trust Company, a national bank.
From 1987 through 1993, he was associated with Kemper Financial Services, Inc.
(a registered broker-dealer and investment adviser) most recently as President
of the Selected Funds. (age 48)
Eileen R. Henderson, Trustee**, 115 Dempster, Evanston, Illinois; retired Vice
President of Finance of Akzo Nobel Inc., the North American holding company of
Akzo Nobel n.v., a
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<PAGE>
multinational company headquartered in The Netherlands. She is the Treasurer of
the Chicago Board of UNICEF and sits on the Board of Trustees of Lewis
University. (age 52)
Marjorie H. O'Laughlin, Trustee**, 3838 N. Rural Street, Indianapolis, Indiana;
Treasurer, Health & Hospital Corporation of Marion County, a municipal
corporation created by the Indiana General Assembly. From 1987 through February
1995, Treasurer of the State of Indiana. (age 70)
Sally M. Tassani, Trustee**, 13014 Brighton Lane, Carmel, Indiana; Director and
Executive Vice President of Paul Harris Stores, Inc., a specialty retailer of
moderately price women's apparel and accessories since July 1998. From January
1998 to June 1998, Managing Director of Tassani Partners LLC, marketing
communication consultants. From October 1995 through 1997, Senior Vice-President
of Leo Burnett Company, an advertising agency. Formerly Chief Executive Officer
of Tassani & Paglia Inc., an advertising agency. (age 51)
Barbara E. Wallace, Trustee**, 875 N. Michigan Avenue, Chicago, Illinois;
Executive Vice President of SMG Marketing Group, Inc., a firm providing
information and consulting to the health care industry. (age 50)
John F. Splain, Secretary, 135 Merchant Street, Suite 230, Cincinnati, Ohio;
Managing Director of Ultimus Fund Solutions, LLC, a registered transfer agent,
and Ultimus Fund Distributors, LLC, a registered broker-dealer. Prior to March
1999, First Vice President and Secretary of Countrywide Fund Services, Inc., a
mutual fund services company, and affiliated companies. (age 44)
Robert G. Dorsey, Assistant Vice President, 135 Merchant Street, Suite 230,
Cincinnati, Ohio; Managing Director of Ultimus Fund Solutions, LLC and Ultimus
Fund Distributors, LLC. Prior to March 1999, President of Countrywide Fund
Services, Inc. (age 43)
Mark J. Seger, Assistant Treasurer, 135 Merchant Street, Suite 230, Cincinnati,
Ohio; Managing Director of Ultimus Fund Solutions, LLC and Ultimus Fund
Distributors, LLC. Prior to March 1999, First Vice President of Countrywide Fund
Services, Inc. (age 38)
* An "interested person" of the Trust within the meaning of Section 2(a)(19)
of the of 1940 Act. Mr. Casselberry is an affiliated person of Trias
Capital Management, Inc., the Trust's investment adviser.
** Member of the Audit Committee
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
The Fund pays Trustees who are not interested persons of the investment adviser
a fee of $1,000 for each Board meeting attended plus $250 for each committee
meeting attended. The table below shows the amounts paid to Trustees during the
Trust's 1999 fiscal year.
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<PAGE>
Aggregate Pension or Retirement Total
Compensation Benefits Accrued as Compensation
Name of Trustee from Trust Part of Trust Expenses from Trust
---------------------- ------------ ----------------------- ------------
Marjorie H. O'Laughlin $4,000 $0 $4,000
Albert R. Grace, Jr. $2,000 $0 $2,000
Sally M. Tassani $4,000 $0 $4,000
Barbara E. Wallace $4,000 $0 $4,000
On November 1, 1999, the trustees and officers as a group owned less than 1% of
the outstanding shares of the Fund. Those record owners which owned beneficially
5% or more of the outstanding shares of the Fund are: City of Detroit - Water
Bond 97 Fund for 83, 2 Woodward Ave, Detroit, MI 48226, 16.66%; Chicago Housing
Authority/Section 8, 626 W. Jackson, Chicago, IL, 60661, 39.64%; Treasurer State
of Illinois, 300 W. Jefferson, Springfield, IL 62702, 7.75%; and New America
Insurance Company, 7640 Southgate Blvd, N. Lauderdale FL 33068, 22.80%.
INVESTMENT MANAGEMENT
The Fund's investment manager is Trias Capital Management, Inc. ("Trias"), 140
South Dearborn Street, Chicago, Illinois 60603. Under the terms of an investment
advisory agreement (the "Advisory Agreement") with the Trust, Trias provides the
investment advice to the Fund subject to the supervision of the board of
trustees. Trias has complete discretion to purchase and sell portfolio
securities for the Fund within the Fund's investment objective, restrictions and
policies. In addition to serving as the investment adviser to the Fund, Trias
provides investment advice and manages investment portfolios for endowments,
foundations, corporate cash, pension, profit sharing and individual accounts.
Trias is controlled by Mr. James A. Casselberry, Jr.
Mr. James A. Casselberry, Jr. is the Chief Executive Officer of Trias, and the
Fund's portfolio manager. Mr. Casselberry has more than 10 years of experience
as a fixed income strategist. Prior to founding Trias Capital Management, Mr.
Casselberry was the Chief Operating Officer at Wedgewood Capital Management in
Washington, D.C. His primary responsibility was to oversee the firm's marketing,
client services and operations divisions. Before joining Wedgewood Capital
Management, Mr. Casselberry was a Partner in the MacArthur Investment Group and
was the Director of Fixed Income Investments for the John D. and Catherine T.
MacArthur Foundation. Preceding his four years at the MacArthur Foundation, Mr.
Casselberry served as Portfolio Manager and Credit Analyst for First National
Bank of Chicago. Mr. Casselberry managed two tax-exempt money market funds,
First Prairie Tax-Exempt Money Market Fund ($400 Million) and the Personal
Investments Tax-Exempt Fund ($500 Million). Mr. Casselberry graduated from the
University of Illinois at Chicago with a Bachelor of Science degree in
Economics. Mr. Casselberry is an associate member of the Financial Analysts
Federation, a member of the Chicago Quantitative Alliance, a member of the Urban
Bankers' Forum, and the Treasurer of the National Association of Security
Professionals.
For performing its responsibilities, the Fund pays Trias an annual fee, payable
monthly, of .20% of the Fund's average daily net assets. Trias has agreed to
temporarily reimburse the Fund's total operating expenses to the extent that
they exceed .25% of the average daily net assets of the Fund on an annual basis.
For this purpose "operating expenses" do not include
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<PAGE>
taxes, interest, extraordinary expenses, brokerage commissions or transaction
costs. Upon notice to the Fund, Trias may terminate this expense absorption at
any time.
By its terms, the Trust's Advisory Agreement will remain in force until June 30,
2001 and from year to year thereafter, subject to annual approval by (a) the
Board of Trustees or (b) a vote of the majority of the Fund's outstanding voting
securities; provided that in either event continuance is also approved by a
majority of the Trustees who are not interested persons of the Trust, by a vote
cast in person at a meeting called for the purpose of voting such approval. The
Advisory Agreement may be terminated at any time, on sixty days' written notice,
without the payment of any penalty, by the Board of Trustees, by a vote of the
majority of the Fund's outstanding voting securities, or by Trias. The Advisory
Agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act and the rules thereunder. For the fiscal years ended September 30
1999, 1998, and 1997, the Fund accrued $64,495, $25,202 and $301, respectively,
for the investment management services. Trias has voluntarily waived all of such
fees, however, in order to reduce the operating expenses of the Fund.
Trias shall not be liable for any losses that may be sustained in the purchase,
holding or sale of any security or for anything done or omitted by it except
acts or omissions involving willful misfeasance of the duties imposed upon it by
its contract with the Trust.
The Fund is responsible for the payment of all expenses incurred in connection
with the organization, registration of shares and operations of the Fund,
including such extraordinary or non-recurring expenses as may arise, such as
litigation to which the Trust may be a party.
The Fund may have an obligation to indemnify the Trust's officers and Trustees
with respect to such litigation except in instances of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office. The Fund will not be responsible for the compensation
and expenses of any officer, Trustee or employee of the Trust who is an officer,
partner or employee of Trias.
SECURITIES TRANSACTIONS
Decisions to buy and sell securities for the Fund and the placing of the Fund's
securities transactions and negotiation of commission rates where applicable are
made by Trias and are subject to review by the Trustees. In the purchase and
sale of portfolio securities, Trias seeks best execution for the Fund, taking
into account such factors as price (including the applicable brokerage
commission or dealer spread), the execution capability, financial responsibility
and responsiveness of the broker or dealer and the brokerage and research
services provided by the broker or dealer. Trias generally seeks favorable
prices and commission rates that are reasonable in relation to the benefits
received.
Generally, the Fund attempts to deal directly with the dealers who make a market
in the securities involved unless better prices and execution are available
elsewhere. Such dealers usually act as principals for their own account. On
occasion, portfolio securities may be purchased directly from the United States
Treasury. Because the portfolio securities of the Fund are generally traded on a
net basis and transactions in such securities do not normally involve brokerage
commissions, the cost of portfolio securities transactions of the Fund will
consist primarily of dealer and underwriting spreads that will involve the Fund
paying a mark-up or mark-down for such security.
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<PAGE>
Trias is specifically authorized to select brokers who also provide brokerage
and research to the Fund and/or other accounts over which Trias exercises
investment discretion and to pay such brokers a commission in excess of the
commission another broker would charge if Trias determines in good faith that
the commission is reasonable in relation to the value of the brokerage and
research services provided. The determination may be viewed in terms of a
particular transaction or Trias's overall responsibilities with respect to the
Fund and to accounts over which it exercises investment discretion.
Research services include securities and economic analyses, reports on issuers'
financial conditions and future business prospects, newsletters and opinions
relating to interest trends, general advice on the relative merits of possible
investment securities for the Fund and statistical services and information with
respect to the availability of securities or purchasers or sellers of
securities. Although this information is useful to the Fund and Trias, it is not
possible to place a dollar value on it. Research services furnished by brokers
through whom the Fund effects securities transactions may be used by Trias in
servicing all of its accounts and not all such services may be used by Trias in
connection with the Fund.
NET ASSET VALUE
The NAV of the shares of the Fund is determined as of 11:30 p.m. Central time,
on each Business Day. Business Day means any day on which the New York Stock
Exchange is open for trading. For a description of the method used to determine
the NAV see "Transaction Policies" in the Prospectus.
Pursuant to Rule 2a-7 promulgated under the 1940 Act, the Fund values its
portfolio securities on an amortized cost basis. The use of the amortized cost
method of valuation involves valuing an instrument at its cost and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. Under the amortized cost method of valuation, neither the amount
of daily income nor the NAV of the Fund is affected by any unrealized
appreciation or depreciation of the portfolio. The Board of Trustees has
determined in good faith that utilization of amortized cost is appropriate and
represents the fair value of the portfolio securities of the Fund. Pursuant to
Rule 2a-7, the Fund maintains a dollar weighed average portfolio maturity of 90
days or less, purchases only securities having remaining maturities of one year
or less and invests only in United States dollar-denominated securities
determined by the Board of Trustees to be of high quality and to present minimal
credit risks. If a security ceases to be an eligible security, or if the Board
of Trustees believes such security no longer presents minimal credit risks, the
Trustees will cause the Fund to dispose of the security as soon as practicable.
The maturity of U.S. Government obligations which have a variable rate of
interest readjusted no less frequently then annually will be deemed to be the
period of time remaining until the next readjustment of the interest rate.
The Board of Trustees has established procedures designed to stabilize, to the
extent reasonably possible, the price per share of the Fund as computed for the
purpose of sales and redemptions at $1 per share. The procedures include review
of the Fund's portfolio holdings by the Board of Trustees to determine whether
the Fund's NAV, calculated by using available market quotations, deviates more
than one-half of one percent from $1 per share and, if so, whether such
deviation may result in material dilution or is otherwise unfair to existing
shareholders. In the event the Board of Trustees determines that such a
deviation exists, it will take corrective action as it regards necessary and
appropriate, including the sale
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<PAGE>
of portfolio securities prior to maturity to realize capital gains or losses or
to shorten average portfolio maturities, the withholding of dividends, the
redemption of shares in kind, or the establishment of a NAV per share by using
available market quotations. The Board of Trustees has also established
procedures designed to ensure that the Fund complies with the quality
requirements of Rule 2a-7. While the amortized cost method provides certainty in
valuation, it may result in periods during which the value of an instrument, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During periods of declining interest rates,
the daily yield on shares of the Fund may tend to be higher than a like
computation made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio securities. Thus, if the use of amortized cost by the Fund resulted in
a lower aggregate portfolio value on a particular day, a prospective investor in
the Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors
would receive less investment income. The converse would apply in a period of
rising interest rates.
TAXES
The Prospectus describes generally the tax treatment of distributions by the
Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
A Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carry forwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its net capital gains recognized during
the one year period ending on October 31 of the calendar year plus undistributed
amounts from prior years. The Fund intends to make distributions sufficient to
avoid imposition of the excise tax. The Trust is required to withhold and remit
to the U.S. Treasury a portion (31%) of dividend income on any account unless
the shareholder provides a taxpayer identification number and certifies that
such number is correct and that the shareholder is not subject to backup
withholding.
REDEMPTION IN KIND
Although the Trust intends to redeem Fund shares in cash, it reserves the right
under circumstances when the Board of Trustees deems it in the best interests of
the Fund's shareholders, to pay the redemption price in whole or in part in
securities of the Fund taken at current value. If any such redemption in kind is
to be made, the Fund intends to make an election pursuant to Rule 18f-1 under
the 1940 Act. This election will require the Fund to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90 day period for any one shareholder. Should payment be made in
securities, the redeeming shareholder will generally incur brokerage costs in
converting such securities to cash. Portfolio securities which are issued in an
"in-kind" redemption will, to the extent available, be readily marketable.
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<PAGE>
HISTORICAL PERFORMANCE INFORMATION
Yield quotations on investments in the Fund are provided on both a current and
an effective (compounded) basis. The current yield for the 7 day period ended
September 30, 1999 was 5.06%. Current yield is calculated by determining the net
change in the value of a hypothetical account for a seven calendar day period
(base period) with a beginning balance of one share, dividing by the value of
the account at the beginning of the base period to obtain the base period
return, multiplying the result by (365/7) and carrying the resulting yield
figure to the nearest hundredth of one percent. The effective yield for the 7
day period ended September 30, 1999 was 5.19%. Effective yield reflects daily
compounding and is calculated as follows: Effective yield = (base period return
* 1)(365/7)-l. For purposes of these calculations, no effect is given to
realized or unrealized gains or losses (the Fund does not normally recognize
unrealized gains and losses under the amortized cost valuation method).
To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements regarding the Fund may discuss
various measures of Fund performance, including current performance ratings
and/or rankings appearing in financial magazines, newspapers and publications
that track mutual fund performance. Advertisements may also compare performance
(using the calculation methods set forth in the Prospectus) to performance as
reported by other investments, indices and averages. The performance of the Fund
may be compared to that of other money market mutual funds tracked by mutual
fund rating services, various indices of investment performance or direct
investments in United States government obligations or bank certificates of
deposit, or other investments for which reliable performance data is available.
The Fund performance may also be compared with other well known market rates,
including the Federal Funds rate, or investments for which its institutional
clients request comparative data. The Fund may use the following publications or
indices to discuss or compare Fund performance:
Donoghue's Money Fund Report provides a comparative analysis of performance
for various categories of money market funds. The Fund may compare
performance with any other individual money market fund or any of the
taxable fund categories.
Federal Reserve Publication H.15 and G.13 Selected Interest Rates provides
weekly and monthly averages of various direct investments including U.S.
Treasury Bills and the Federal Funds rate.
Lipper Fixed Income Fund Performance Analysis measures total return and
average current yield for the mutual fund industry and ranks individual
mutual fund performance over specified time periods assuming reinvestment
of all distributions, exclusive of sales loads. The Fund may provide
comparative performance information appearing in the Short Term U.S.
Government Funds or the Institutional Government Money Market Funds
category.
In assessing such comparisons of performance with indices, averages, other
funds, direct investments or market rates, an investor should keep in mind that
the composition of the investments in the reported funds, indices and averages
is not identical to the Fund's portfolio, that the averages are generally
unmanaged and that the items included in the
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<PAGE>
calculations of such averages may not be identical to the formula used by the
Fund to calculate its performance. Additionally, some direct investments may be
insured by, or direct obligations of, the U.S. Government, while the Fund is
not. In addition, there can be no assurance that the Fund will continue its
comparative performance record.
UNDERWRITER
The Malachi Group, Inc. (the "Underwriter"), as principal underwriter for the
Fund, is the exclusive agent for distribution of shares of the Fund. Shares of
the Fund are offered on a continuous basis. The address of the Underwriter is
3495 Piedmont Road, Suite 410, Atlanta, Georgia 30305.
TRANSFER AGENT
The Fund's transfer agent, Ultimus Fund Solutions, LLC ("Ultimus"), 135 Merchant
Street, Suite 230, Cincinnati, Ohio 45246, maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. Ultimus also provides administrative services to the Fund,
calculates daily net asset value per share and maintains such books and records
as are necessary to enable Ultimus to perform its duties. For the performance of
these services, the Fund pays Ultimus a fee of $5,000 per month plus an
additional asset-based fee computed at the annual rate of 0.1% of average daily
net assets of the Fund in excess of $50 million.
Millennium Financial LLC, 10814 Bull Valley Road, Woodstock, Illinois, was the
former administrator to the Fund. For the fiscal years ended September 30, 1999,
1998 and 1997, the Fund paid administrative fees to Millennium Financial LLC in
the amount of $16,124, $6,300 and $20, respectively.
CUSTODIAN
Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has been retained
to act as Custodian for the Fund's investments. Fifth Third Bank acts as the
Fund's depository, safekeeps its portfolio securities, collects all income and
other payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
LEGAL COUNSEL
Legal counsel is provided by Bell, Boyd & Lloyd LLC, 70 West Madison Street,
Suite 3300, Chicago, Illinois.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, has been
selected as independent public accountants for the Trust for the fiscal year
ending September 30, 2000. The financial statements as of September 30, 1999
appearing in the registration statement have been audited by Arthur Andersen LLP
as set forth in their reports thereon appearing in the registration statement.
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<PAGE>
MILLENNIUM INCOME TRUST
TREASURERS' GOVERNMENT MONEY MARKET FUND
ANNUAL REPORT
September 30, 1999
<PAGE>
November 29, 1999
Dear Shareholder,
We are pleased to provide you with the annual report of the Millennium Income
Trust for the year ended September 30, 1999. During the period the Treasurers'
Government Money Market Fund portfolio registered solid performance and achieved
its objective of providing maximum current income from high quality money market
securities while maintaining stability of principal.
Thank you for choosing the Treasurers' Government Money Market Fund. We look
forward to the continued opportunity to meet your investment needs.
James A. Casselberry, Jr.
President
<PAGE>
TREASURERS' GOVERNMENT MONEY MARKET FUND
YIELD SUMMARY
As of 9/30/99
7-day current yield 5.06%
7-day effective yield 5.19%
Average maturity 5 days
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/99
1-year 5.03%
Since inception
(on 10/2/95) 5.27%
Treasurers Government Money Market Fund compared to 3 month U. S. Treasury
bills* from 10/1/98 through 9/30/99
[Line graph]
* Source Federal Reserve Statitiscal Release H15
Past performance is no guarantee of future results.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
ASSETS:
Investment securities, at cost and value (Note 2) $ 65,380,653
Receivables
Accrued income 167,024
Receivable from related party 99,450
Other assets 8,984
------------
Total assets 65,656,111
------------
LIABILITES:
Income distribution payable 84,440
Accrued Expenses 30,897
------------
Total liabilities 115,337
------------
Net assets $ 65,540,774
============
Net assets consist of
Paid-in capital $ 65,560,153
Accumulated net realized losses from
security transactions (19,379)
============
Net assets $ 65,540,774
============
Shares of beneficial interest outstanding
(Unlimited number of shares authorized,
no par value) 65,560,153
============
Net asset value, redemption price and
offering price per share (Note 2) $ 1.00
============
See accompanying Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
Year Ended September 30, 1999
INVESTMENT INCOME:
Interest income
U.S. government and agency obligations $ 1,167,989
Repurchase agreements 500,574
------------
Total Income 1,668,563
EXPENSES: (Note 3)
Management fees 64,495
Administration fees 16,124
Service fees 49,914
Professional fees 15,745
Insurance expense 9,167
Trustees fees & expenses 16,485
S & P rating fee 36,667
Registration fees 9,396
Amortization of organization expenses 5,984
------------
Total Expenses 223,977
Less expenses reimbursed by the Manager (Note 3) 143,361
------------
Net Expenses 80,616
------------
NET INVESTMENT INCOME 1,587,947
------------
NET REALIZED LOSSES FROM SECURITY TRANSACTIONS (19,379)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,568,568
============
See accompanying Notes to Financial Statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998
------------- -------------
From operations:
<S> <C> <C>
Net investment income $ 1,587,947 $ 673,426
Net realized loss from security transactions (19,379) --
------------- -------------
Net increase in net assets from operation 1,568,568 --
From dividends:
Dividends to shareholders from net
investment income (1,587,947) (673,426)
From capital share transactions:
Proceeds from shares sold 171,492,461 33,475,179
Shares issued in reinvestment of dividends 841,401 321,417
Less payments for shares redeemed (140,481,515) (200,000)
------------- -------------
Net increase in net assets due to
capital share transactions 31,852,347 33,596,596
------------- -------------
Total increase in net assets 31,832,968 33,596,596
Net assets:
Beginning of year (Note 1) 33,707,806 111,210
------------- -------------
End of year $ 65,540,774 $ 33,707,806
============= =============
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
SCHEDULE OF INVESTMENTS
September 30, 1999
U. S. GOVERNMENT AGENCY OBLIGATIONS - 23.4%
Par Value
----------- -----------
Federal Farm Credit Bank
5.17% discount rate, due 10/1/99 $ 1,216,000 $ 1,216,000
5.64%, Floating Rate Note, due 10/1/99 2,000,000 2,000,000
Federal Home Loan Bank
5.82%, due 12/2/99 500,000 500,123
7.92%, due 12/23/99 400,000 401,945
Federal Home Loan Mortgage Corp
5.19% discount rate, due 10/1/99 1,120,000 1,120,000
Federal National Mortgage Association
5.20% discount rate, due 10/1/99 1,685,000 1,685,000
5.18% discount rate, due 10/25/99 3,443,000 3,431,018
5.81%, due 10/1/99 700,000 700,000
8.40%, due 10/25/99 1,600,000 1,603,228
5.95%, due 11/5/99 610,000 610,267
Student Loan Marketing Association
5.45%, Floating Rate Note, due 2/17/00 2,000,000 2,000,000
-----------
TOTAL US GOVERNMENT & AGENCY OBLIGATIONS
(Amortized Cost $15,267,581) 15,267,581
REPURCHASE AGREEMENTS (1) - 76.6 % Proceeds Value
----------- -----------
Bear Stearns
5.31%, Issue date 9/30/99, due 10/1/99 $40,118,988 $40,113,072
Lehman Brothers
5.25%, Issue date 9/30/99, due 10/7/99 10,010,209 10,000,000
----------- -----------
TOTAL REPURCHASE AGREEMENTS 50,129,197 50,113,072
----------- -----------
TOTAL INVESTMENTS $65,380,653
(Amortized Cost $ 65,380,653) -----------
(1) Repurchase agreements are fully collateralized by U.S. Government agency
securities.
See accompanying Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended September 30
1999 1998 1997 1996
---------- ---------- ---------- ----------
Per share data for a share outstanding:
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ----------
Net investment income 0.049 0.053 0.051 0.052
Distributions from net investment income (0.049) (0.053) (0.051) (0.052)
Net asset value at end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ==========
Total Return 5.03% 5.33% 5.06% 5.27%
========== ========== ========== ==========
Net assets at end of period (000's) $ 65,541 $ 33,708 $ 111 $ 132
Ratios net of expenses waived or absorbed
by manager (Note 3)
Ratio of net expenses to average net assets 0.25% 0.22% 0.00% 0.00%
Ratio of net investment income to average
net assets 4.92% 5.33% 5.06% 5.25%
Ratios assuming no fee waiver or expense
absorption (Note 3)
Ratio of expenses to average net assets 0.69% 0.80% 30.19% 14.42%
Ratio of net investment income to average
net assets 4.48% 4.74% (25.13%) (9.17%)
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(1) Organization
The Millennium Income Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end diversified management
investment company. The Trust was established as a Massachusetts business trust
under a Declaration of Trust dated August 19, 1994. The Trust has established
one fund series, the Treasurers' Government Money Market Fund (the "Fund"). The
Fund had no operations prior to the public offering (which occurred on October
2, 1995) of shares except for the initial issuance of shares; accordingly, no
financial statement information is presented for the period prior to fiscal
1996. The Fund's investment objective is to seek high current income, consistent
with protection of capital.
(2) Significant Accounting Policies
The following is a summary of the Fund's significant accounting policies:
Security valuation - Securities are valued on the amortized cost basis, which
approximates market value. This involves initially valuing a security at its
original cost and thereafter assuming a constant amortization to maturity of any
discount or premium. This method of valuation is expected to enable the Fund to
maintain a constant net asset value per share.
Repurchase agreements - Repurchase agreements are collateralized by U.S.
Government securities and are valued at cost which, together with accrued
interest, approximates market. Collateral for repurchase agreements is held in
safekeeping in the the Fund's custodian customer-only account at the Federal
Reserve Bank of Cleveland. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will be equal to or exceed the face amount of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying security and losses. These losses would equal the
face amount of the repurchase agreement(s) and accrued interest, net of any
proceeds received in liquidation of the underlying securities. To minimize the
possibility of loss, the Fund enters into repurchase agreements only with
institutions deemed to be creditworthy.
Security transactions - Investment transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Fund share valuation, investment income and distributions to shareholders - The
net asset value per share of the Fund is calculated twice a day by dividing the
total value of the Fund's assets, less liabilities, by the number of shares
outstanding. Interest income is accrued as earned. Distributions from net
investment income are declared daily and paid on or about the first business day
of each month.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Federal income tax - It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of Federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made. In order to avoid
imposition of the excise tax applicable to regulated investment companies, it is
also the Fund's intention to declare as dividends in each calendar year at least
98% of its net investment income (earned during the calendar year) and 98% of
its net realized capital gains (earned during the twelve months ended October
31) plus undistributed amounts from prior years.
(3) Transactions with Affiliates
The President of the Trust is the chairman and controlling shareholder of Trias
Capital Management, Inc. ("Trias"), the Trust's investment manager. The
Secretary/Treasurer of the Trust is the chairman and controlling member of
Millennium Financial LLC ("MFL"), the Trust's administrator, and Millennium
Capital LLC ("MCL"), the Trust's principal underwriter.
Investment Management Agreement - The Fund's investments are managed by Trias
pursuant to the terms of a management agreement. Under the terms of the
management agreement, the Fund pays Trias a fee, which is computed and accrued
daily and paid monthly at the annual rate of .20% of its average daily net
assets. For fiscal 1999 Trias agreed to reimburse the Fund the amount by which
its total operating expenses exceeded .25% of average daily net assets. For the
year ended September 30, 1999, the total of such reimbursements were $ 143,361.
Administration Agreement - The Fund's business affairs are managed by MFL
pursuant to the terms of an administration agreement. Under the terms of the
administration agreement, the Fund pays MFL a fee, which is computed and accrued
daily and paid monthly at the annual rate of .05% of its average daily net
assets.
Transfer Agent and Shareholder Service Agreement - The Fund has a Transfer,
Dividend Disbursing, Shareholder Service and Plan Agency Agreement with
Countrywide Fund Services, Inc. ("CFS"). For the services provided under this
agreement, CFS receives a monthly fee at an annual rate of $20 per shareholder
account, subject to a minimum monthly fee not to exceed $1,500. In addition, the
Fund pays CFS' out-of-pocket expenses including, but not limited to, postage and
supplies.
Accounting Services Agreement - The Fund has an Accounting Services Agreement
with CFS. For the services provided under this agreement CFS receives a monthly
fee. Based on current asset levels this fee is $2,000 per month.
Organizational Expenses - Expenses paid by MFL amounting to $23,500, were
incurred in connection with the organization of the Trust and the initial
offering of shares. Such organizational expenses were capitalized and amortized
on a straight-line basis over the last five years.
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of the
Treasurers' Government Money Market Fund of Millennium Income Trust:
We have audited the accompanying statement of assets and liabilities of the
Treasurers' Government Money Market Fund of Millennium Income Trust (a
Massachusetts business trust), including the schedule of investments as of
September 30, 1999, and the related statement of operations, the statements of
changes in net assets, and the financial highlights for the periods indicated
thereon. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Treasurers' Government Money Market Fund of the Millennium Income Trust as of
September 30, 1999, the results of its operations, the changes in its net
assets, and the financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Cincinnati, Ohio,
November 8, 1999
