<PAGE> 1
1933 Act Registration No. 33-7788
1940 Act Registration No. 811-4788
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [____]
Pre-Effective Amendment No. _____ [____]
Post-Effective Amendment No. 11 [ X ]
----- ----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [____]
Amendment No. 13 [ X ]
----- ----
VLC TRUST
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Regency Plaza
Providence, Rhode Island 02903
----------------------------------------
(Address of Principal Executive Offices)
(401) 421-1411
-------------------------------
(Registrant's Telephone Number)
Margaret D. Farrell, Esquire
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
---------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[_____] immediately upon filing pursuant to Rule 485(b)
[ X ] on March 1, 1996 pursuant to Rule 485(b)
-----
[_____] 60 days after filing pursuant to Rule 485(a)
[_____] on (date) pursuant to Rule 485(a)
The Registrant hereby declares, pursuant to Section (a)(1) of Rule 24f-2 under
the Investment Company Act of 1940, that the Registrant has registered an
indefinite number of its shares under the Securities Act of 1933 pursuant to
that Section and that the Rule 24f-2 Notice for the Registrant's fiscal year
ended October 31, 1995 was filed on December 27, 1995.
<PAGE> 2
<TABLE>
VLC TRUST
Cross Reference Sheet
(Pursuant to Rule 495)
Showing location in Prospectus and Statement of Additional Information
<CAPTION>
Part A INFORMATION REQUIRED IN A PROSPECTUS Caption
-------
<S> <C> <C>
Item 1. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis. . . . . . . . . . . . . . . . . . . . Summary
Item 3. Condensed Financial Information . . . . . . . . Financial
Highlights
Item 4. General Description of Registrant . . . . . . . Introduction;
General
Information;
Investment of the
Fund's Assets;
Investment
Restrictions
Item 5. Management of the Fund. . . . . . . . . . . . . Management
Arrangements
Item 5A. Management Discussion of Fund Performance...... Discussion of Fund
Performance
Item 6. Capital Stock and other Securities. . . . . . . General
Information;
Dividends and Tax
Information
Item 7. Purchase of Securities Being Offered. . . . . . How to Invest in
the Fund; Net Asset
Value
Item 8. Redemption or Repurchase. . . . . . . . . . . . How to Redeem Your
Investment
Item 9. Pending Legal Proceedings . . . . . . . . . . . Not Applicable
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . Not Applicable
Item 13. Investment Objectives and Policies. . . . . . . Investment of the
Fund's Assets;
Municipal Bonds;
Investment
Restrictions
Item 14. Management of the Fund. . . . . . . . . . . . . Trustees and
Officers
Item 15. Control Persons and Principal Holders of
Securities. . . . . . . . . . . . . . . . . . . General
Information*
Item 16. Investment Advisory and Other Services. . . . . Additional
Information as to
Management
Arrangements
Item 17. Brokerage Allocation and Other Practices. . . . Investment of the
Fund's Assets
Item 18. Capital Stock and Other Securities. . . . . . . General Information
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered . . . . . . . . . . . . . . . . . Computation of Net
Asset Value;
Automatic
Withdrawal Plan
Item 20. Tax Status. . . . . . . . . . . . . . . . . . . Dividends and Tax
Information*;
Investment of the
Fund's Assets
Item 21. Underwriters. . . . . . . . . . . . . . . . . . How to Invest in
the Fund*;
Distribution
Arrangements
Item 22. Calculation of Performance Data . . . . . . . . Yield Information
Item 23. Financial Statements are incorporated into and provided as
attachment to the Statement of Additional Information
<FN>
___________________
* Included under referenced caption in the Prospectus
</TABLE>
<PAGE> 3
LOGO
OCEAN STATE TAX-EXEMPT FUND
ONE REGENCY PLAZA
PROVIDENCE, RHODE ISLAND 02903
1-800-300-1116
401-421-1411
PROSPECTUS
MARCH 1, 1996
The objective of Ocean State Tax-Exempt Fund (the "Fund") of VLC Trust (the
"Trust") is to seek to provide as high a level of current income, exempt from
Rhode Island and Federal income taxes, as is consistent with preservation of
capital. The Fund invests primarily in Rhode Island Obligations, i.e.,
obligations (including those of non-Rhode Island issuers) which, in the opinion
of bond counsel, pay interest exempt from Rhode Island State and Federal income
taxes. Thus the name of the Fund does not mean that it will invest solely or
even primarily in the obligations of Rhode Island Issuers, but rather that the
interest received by the Fund will be free from Rhode Island State and Federal
income taxes. Under normal market conditions, the Fund will invest at least 80%
of its net assets in Rhode Island Obligations.
This Prospectus concisely states information about the Fund that a
prospective investor should know before investing. A Statement of Additional
Information dated March 1, 1996 about the Fund and the Trust (the "Additional
Statement") has been filed with the Securities and Exchange Commission and is
available without charge upon written request to Provident Financial Processing
Corporation, the Trust's transfer agent, at the address given below, or by
calling the telephone number given below. The Additional Statement contains
information about the Fund and its management not included in this Prospectus.
The Additional Statement is incorporated by reference in its entirety in this
Prospectus. Only when this Prospectus and the Additional Statement are both read
are all facts about the Fund available to the investor.
- --------------------------------------------------------------------------------
FOR PURCHASE, REDEMPTION OR ACCOUNT INQUIRIES CONTACT
THE FUND'S TRANSFER AGENT: PFPC, INC.
P.O. BOX 8950, WILMINGTON, DELAWARE 19899
TOLL FREE 1-800-992-2207
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOR GENERAL INQUIRIES AND YIELD INFORMATION, CALL 1-800-300-1116 OR 401-421-1411
- --------------------------------------------------------------------------------
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE
----------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4
SUMMARY
THE FUND
The Fund is the sole investment portfolio of the Trust, an open-end,
nondiversified investment company organized in August 1986 as a Massachusetts
business trust. The Fund's Investment objective is to provide as high a level of
current income which is exempt from both Rhode Island and Federal income taxes
as is consistent with preservation of capital. In pursuit of its objective, the
Fund will, under normal market conditions, invest at least 80% of its assets in
Rhode Island Obligations. See "Investment of the Fund's Assets". There is no
assurance that the Fund can achieve its objective.
MANAGEMENT
Van Liew Capital Inc. serves as the Fund's Adviser and Administrator. The
fees payable to the Advisor for its advisory and administrative services are at
a total rate of .60% of the Fund's average daily net assets adjusted downward
with the increase in the Fund's size. See "Management Arrangements".
PURCHASE AND REDEMPTION OF SHARES
Shares of beneficial interest of the Fund are sold through sales
representatives of Van Liew Securities Inc., the Fund's Distributor, at the net
asset value per share next determined on a daily basis plus a sales charge in
the maximum amount of 4% of the offering price (4.17% of the amount invested).
The sales charge is reduced on purchases in excess of $25,000. The minimum
initial investment is $1,000. See "How To Invest In The Fund".
Shares may be redeemed on any business day at their net asset value next
determined. The Fund has the right to redeem shares and close accounts with a
balance of less than $500. See "How To Redeem Your Investment".
RISK FACTORS
The Fund will concentrate in Rhode Island Obligations and is classified as
a "nondiversified" investment company and, therefore, may not have as much
diversification among securities, and thus diversification of risk, as if it
were a "diversified" investment company. The Fund may buy and sell Municipal
Bond Index Futures which may involve investment risks different from those of
Rhode Island Obligations. From time to time proposals have been introduced
before Congress to restrict or eliminate the Federal income tax exemption for
interest on municipal obligations. Such proposals, if enacted, might materially
adversely affect the availability of municipal obligations for investment by the
Fund and the value of the Fund's portfolio. See "Introduction" and "Investment
Of The Fund's Assets". The Adviser has had limited experience in managing
investment companies. See "Management Arrangements".
2
<PAGE> 5
<TABLE>
EXPENSE SUMMARY
The purpose of the following information is to assist an investor in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information is based on expenses incurred for the
fiscal year ended October 31, 1995.
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........... 4.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees*................................ 0.60%
12b-1 Expenses.................................. 0.01%
Other Expenses*................................. 0.37%
Total Fund Operating Expenses*.................. 0.98%
</TABLE>
Example of Expenses
An investor would pay the following expenses on a $1,000 investment in the
Fund assuming a 5% annual return and redemption at the end of each time
period**:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$50 $70 $93 $160
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The example is included to provide a means for the investor to
compare expense levels of funds with different fee structures over varying
investment periods. To facilitate such comparison, all funds are required to
utilize a 5% annual return assumption. The example set forth above should not be
considered a representation of past or future expenses. Actual expenses may be
greater or lesser than those shown. Similarly, the annual rate of return is not
an estimate or guarantee of future investment performance.
- ---------------
* Includes advisory and administration fees totalling $251,752.
** There are no charges imposed upon redemption.
</TABLE>
3
<PAGE> 6
FINANCIAL HIGHLIGHTS
<TABLE>
The following table represents selected data for a single Fund share
outstanding throughout the period shown which, with respect to the fiscal years
ended October 31, 1995, October 31, 1994, October 31, 1993, October 31, 1992,
October 31, 1991, October 31, 1990, and October 31, 1989, has been examined by
Ernst & Young LLP, independent auditors, whose opinion thereon appears in the
Fund's Annual Report. For the fiscal periods ended October 31, 1987 and October
31, 1988, the financial information has been examined by the previous
independent auditors to the Fund. This information should be read in conjunction
with the financial statements and related notes that also appear in the Fund's
Annual Report, which financial statements and notes are incorporated by
reference into the Additional Statement. The Fund's Annual Report accompanies
the Additional Statement.
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR 12/08/86
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
10/31/95 10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 10/31/88 10/31/87
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value,
Beginning
of Year................ $10.10 $10.95 $10.32 $10.14 $9.73 $9.80 $9.74 $9.13 $10.18
Net Investment income.... .58 .59 .56 .63 .64 .67 .62 .66 .62
Net realized and
unrealized gain (loss)
on securities.......... .49 (.84) .63 .18 .41 (.09) .07 .62 (1.05)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations............. 1.07 (.25) 1.19 .81 1.05 .58 .69 1.28 (.43)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income...... (.58) (.59) (.56) (.63) (.64) (.65) (.63) (.66) (.62)
Distribution from net
realized
gains.................. (.00) (.01) (.00) (.00) (.00) (.00) (.00) (.01) (.00)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions...... (.58) (.60) (.56) (.63) (.64) (.65) (.63) (.67) (.62)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value End of
Year................... $10.59 $10.10 $10.95 $10.32 $10.14 $9.73 $9.80 $9.74 $9.13
======== ======= ======= ======= ======= ======= ======= ======= =======
Total investment return
at Net Asset Value..... 10.89% (2.04)% 12.35% 8.00% 10.96% 5.89% 7.10% 14.30% (4.99)%(b)
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Year
(000's omitted)........ $43,088 $41,346 $45,043 $36,854 $29,750 $20,675 $12,159 $9,745 $6,149
Ratio of Expenses to
average net assets(a).. .98% .88% .81% .85% .92% 1.27% 1.36% 1.10% 1.15%(b)
Ratio of net investment
income to average net
assets(a).............. 5.58% 5.55% 5.70% 6.13% 6.40% 6.45% 6.34% 6.84% 6.95%(b)
Portfolio turnover....... 11.77% 8.48% 13.27% 36.29% 21.57% 10.16% 37.90% 45.58% 96.39%(b)
Adviser/Administrator
waived fees............ .00 .01 .01 .01 .03 .02 .03 .08 .06
Fund expenses without
waiver................. .10 .10 .09 .10 .12 .12 .16 .19 .16
Net Investment Income
without waiver......... .58 .58 .55 .62 .61 .65 .59 .58 .56
Ratio of Expenses to
average net assets
without waiver......... .98% .93% .81% .95% 1.17% 1.51% 1.69% 1.88% 1.86%(b)
Ratio of net investment
income to average net
assets without waiver.. 5.58% 5.50% 5.58% 6.02% 6.15% 6.21% 6.02% 6.06% 6.24%(b)
<FN>
- ---------------
(a) Annualized for 1987.
(b) Commencing in fiscal year 1990, data included the combined operations of the
Fund and the Rhode Island Tax-Free Bond Fund (the "RI Fund") for the period
from the date of the acquisition of the assets of the RI Fund by the Fund
(November 1, 1989). The data shown above for the periods prior thereto are
the historical results of the Fund.
(c) Total investment return does not reflect sales load.
</TABLE>
4
<PAGE> 7
DISCUSSION OF FUND PERFORMANCE
In accordance with the reporting requirements of the Securities and
Exchange Commission, the following data is supplied for the nine-year period
ended October 31, 1995, with all distributions reinvested in shares. The average
annualized total returns for one year, five years and since inception on
December 8, 1986 were 6.46%, 8.05% and 8.39%, respectively and reflect payment
of the maximum sales charge of 4%. All performance data shown represents past
performance and should not be considered indicative of future performance.
<TABLE>
The graph below compares the performance of the Fund to the performance of
the Lehman Brothers Municipal Bond Index (the "Index"). The Index is comprised
of approximately 20,000 actual bonds. The bonds are all investment-grade,
fixed-rate, long-term maturities and are selected from issues larger than $50
million dated since January 1984.
The graph assumes a $10,000 hypothetical investment at inception through
October 31, 1995 with all distributions invested in shares. The Fund graph line
illustrates the maximum sales charge of 4% and all fund expenses. The Index
graph line does not reflect any expenses or sales charges.
PERFORMANCE COMPARISON
OCEAN STATE TAX EXEMPT FUND VS. LEHMAN BROTHERS MUNICIPAL BOND INDEX
<CAPTION>
OCEAN STATE
TAX-EXEMPT LEHMAN
FUND WITH 4% MUNICIPAL BOND
LOAD INDEX
<S> <C> <C>
08-DEC-86 9,603.77 10,000.00
31-OCT-87 9,164.18 9,750.11
31-OCT-88 10,501.32 11,126.68
31-OCT-89 11,290.36 11,917.82
31-OCT-90 11,970.91 12,642.85
31-OCT-91 13,303.98 13,798.58
31-OCT-92 14,398.75 14,615.22
31-OCT-93 16,177.41 15,946.23
31-OCT-94 14,924.50 15,510.52
31-OCT-95 16,540.99 16,980.04
</TABLE>
5
<PAGE> 8
October 31, 1995, was the end of the Fund's ninth fiscal year. During the
prior 12 months, the Fund's net asset value rose from $10.10 to $10.59 per share
for a gain of 4.85% on principal value. Net assets rose from $41.3 million to
$43.1 million while dividends per share declined from $0.60 to $0.58.
After 1994, fiscal 1995 was a breath of fresh air. Thirty-year Treasury
rates declined 164 basis points from 7.97% to 6.33%. Ten-year rates performed
even better, dropping from 7.81% to 6.02% as the yield curve flattened
dramatically during the year. (Remember, bond prices rise as bond yields fall.)
Unusual in this cycle was that the drop in yields was accompanied by low
inflation, a worldwide economic slowdown, and optimism that a federal
deficit-reduction plan would be reached. Under Alan Greenspan, the Federal
Reserve has tended to change policy very slowly which will probably continue.
This municipal market underperformed other fixed income investments
largely because of a decline in demand. Clearly, a record-breaking performance
by the stock market has held the attention of most investors.
INTRODUCTION
The Funds is an open-end investment company which is designed to be a
suitable investment for individuals, corporations, institutions and fiduciaries
who seek as high a current income exempt from Federal and Rhode Island income
taxes as is consistent with preservation of capital.
Cash of investors may be invested in shares of the Fund as an alternative
to direct investment in Rhode Island Obligations. The Fund offers the
opportunity to keep cash reserves fully invested in a vehicle that provides
investors with a professionally managed portfolio of Rhode Island Obligations
which may, but not necessarily will, be more diversified among Rhode Island
Obligations, higher yielding or more stable and more liquid than they might be
able to obtain on an individual basis. Through an investment in the Fund,
investors are also relieved of the inconvenience of making direct investments,
including the selection, purchasing, handling and safekeeping of Rhode Island
Obligations.
Rhode Island Obligations are a type of municipal obligation. Municipal
obligations are issued by or on behalf of states, territories and possessions of
the United States and their political subdivisions, agencies, and
instrumentalities to obtain funds for various public purposes. Municipal notes
are generally used to provide for short-term capital needs and generally have
maturities of one year or less while municipal bonds have extended maturities.
Municipal notes include: Tax Anticipation Notes; Revenue Anticipation Notes;
Bond Anticipation Notes; and Construction Loan Notes. Municipal obligations are
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, highways, bridges,
schools, hospitals, housing, mass transportation, streets and water and sewer
works. Other public purposes for which municipal obligations may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses and the obtaining of funds to lend to other public
institutions and facilities.
6
<PAGE> 9
The two principal classifications of Municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special tax or other specific revenue source such as the user of
the facility being financed. Industrial development bonds are in most cases
revenue bonds and are not payable from the unrestricted revenues of the
municipal issuer, but from the revenues derived from payments of the private
user. Therefore, these bonds may present greater investment risks than
securities issued by government subdivisions. The Fund's ability to meet its
objectives depends on the ability of the various issuers to meet their scheduled
payments of principal and interest, and the pledge, if any, of real and personal
property so financed as security for such payment. Under the Internal Revenue
Code (the "Code") the interest on certain such bonds is taxable while the
interest on certain other such bonds is exempt from Federal income taxes. The
Fund will invest in such bonds only if the interest is so tax free to the Fund.
Proposals have been introduced periodically before Congress to restrict or
eliminate the Federal income tax exemption for interest on municipal bonds.
Similar proposals may be introduced in the future. If such a proposal were
enacted, the availability of municipal bonds for investment by the Fund and the
value of the Fund's portfolio would be affected. In that event the Fund would
reevaluate its investment policies and restrictions and consider recommending to
its shareholders changes in both.
INVESTMENT OF THE FUND'S ASSETS
In seeking its objective of providing as high a level of current income
which is exempt from both Rhode Island and Federal Income taxes as is consistent
with the preservation of capital, the Fund will invest primarily in Rhode Island
Obligations (as defined below). There is no assurance that the Fund will achieve
this objective. However, this objective is a fundamental policy of the Fund
which may not be changed without the approval of the holders of a majority (as
defined in the Investment Company Act of 1940) of the Fund's outstanding shares.
Subject to the limitations set forth below, the Fund may also invest in Taxable
Short-Term Obligations (see below), in Municipal Bond Index Futures (see below)
for protective (hedging) purposes and in Non-Rhode Island Obligations (see
below) for temporary defensive purposes. As used in this Prospectus and the
Additional Statement, the term "Rhode Island Obligations" means obligations,
including those of non-Rhode Island issuers of any maturity which pay interest
exempt, in the opinion of bond counsel, from Rhode Island State and Federal
income taxes. (The non-Rhode Island issuers the interest on which is so exempt
under present law, in the opinion of counsel, are Guam, Puerto Rico and the
Virgin Islands.) The Rhode Island Obligations which the Fund will purchase must,
at the time of purchase, either (i) be rated within the four highest grades
assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"); or (ii) if unrated, be judged by the Fund's Investment
adviser to be of comparable quality to municipal obligations so rated. Municipal
Obligations rated in the fourth highest grade are considered by such rating
agencies to be of medium quality and have speculative characteristics and thus
may present investment risks not
7
<PAGE> 10
present in more highly rated obligations. For example, the prices of such bonds
tend to be more sensitive to economic changes and other circumstances than
higher-rated investments which are affected primarily by interest rate changes
since adverse economic conditions are more likely to adversely affect the
issuer's capacity to meet its payment obligations. It is the policy of the Fund
to dispose of an Obligation held by the Fund if its rating drops below the
fourth highest grade, unless the Adviser determines that the decline in rating
is temporary and immediate disposition of the bond would not be in the best
interests of the Fund. See Appendix A to the Additional Statement for further
information as to these ratings.
The Fund may purchase industrial development bonds only if they meet the
definition of Rhode Island Obligations, i.e., the interest on them is exempt
from Rhode Island State and Federal income taxes. However, since the interest on
newly issued private activity bonds is an item of "tax preference" subject to
the Federal alternative minimum tax for individuals and corporations, such bonds
("AMT Obligations") shall not be included in the term "Rhode Island Obligations"
for purposes of calculating the percentage of the Fund's net assets so invested.
See "Tax Information".
The Fund may invest in Rhode Island Obligations with demand features,
including variable rate demand notes which meet the quality standards set forth
above. Although there may be no active secondary market with respect to a
particular variable rate demand note purchased by the Fund, the Fund may, upon
notice specified in the note, demand payment in full of the principal of and
accrued interest on the note at any time and may resell the note at any time to
a third party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of the variable rate demand note in the event
the issuer of the note defaulted on its payment obligation, and the Fund could,
for this or other reasons, suffer a loss to the extent of the default.
The "Taxable Short-Term Obligations" which the Fund may purchase are
obligations maturing in one year or less from the date of purchase by the Fund
and which are either (i) obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities ("U.S. Government Obligations"); see the
Additional Statement for further information; (ii) commercial paper rated
Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P (see Appendix A to the
Additional Statement); or (iii) bank obligations, such as certificates of
deposit, bankers acceptances and fixed time deposits, issued by a domestic bank
subject to regulation by the U.S. Government having total assets of at least
$1.5 billion. For instance, the Fund might choose to invest in Taxable
Short-Term Obligations pending investment in Rhode Island Obligations of the
proceeds of the sale of shares or the sale of Rhode Island Obligations, pending
settlement of purchases of Rhode Island Obligations or if it is attempting to
maintain liquidity to meet anticipated redemptions. Under normal market
conditions the Fund will invest at least 80% of its net assets in Rhode Island
Obligations and may not purchase Taxable Short-Term Obligations if thereafter
more than 20% of its total assets would consist of Taxable Short-Term
Obligations, AMT Obligations and cash. However, the Fund may temporarily invest
more than 20% of its total assets in Taxable Short-Term Obligations, AMT
Obligations, and municipal obligations which pay interest which is exempt from
Federal, but not Rhode Island, income tax ("Non-Rhode Island Obligations") as a
"defensive" measure during times of adverse market conditions affecting the
market for Rhode Island Obligations, i.e., unavailability of suitable Rhode
Island Obligations or in anticipation of a decline or possible decline in the
8
<PAGE> 11
value of Rhode Island Obligations. The Fund may also enter into repurchase
agreements as to Taxable Short-Term Obligations; see "Repurchase Agreements"
below.
The Fund is classified as a "non-diversified" investment company under the
Investment Company Act of 1940 (the "1940 Act"). The Fund also intends to
qualify as a "regulated investment company" under the Internal Revenue Code (the
"Code"). One of the tests for such qualification under the Code is, in general,
that at the end of each fiscal quarter of the Fund, at least 50% of its assets
must consist of (i) cash; and (ii) securities which, as to any one issuer, do
not exceed 5% of the value of the Fund's assets. If the Fund had elected to
register under the 1940 Act as a "diversified" investment company, it would have
to meet a similar test as to 75% of its assets. The Fund may therefore not have
as much diversification among securities, and thus diversification of risk, as
if it had made this election under the 1940 Act. In addition, because the Fund
is non-diversified its share price may be subject to greater fluctuations as a
result of changes in the financial condition or the market's assessment of an
individual issuer.
MUNICIPAL BOND INDEX FUTURES
For the purpose of protecting (hedging) the value of the Fund's assets, the
Fund may buy and sell futures contracts relating to indices on municipal bonds
("Municipal Bond Index Futures" or "Futures"). Futures transactions may attempt
to serve as a hedge against changes in the market price of the Fund's Rhode
Island Obligations caused by interest rate fluctuations. As a matter of
fundamental policy the Fund will not buy or sell a Municipal Bond Index Future
if thereafter more than 10% of its net assets would be in initial or variation
margin on such Futures. The primary risks associated with the use of Municipal
Bond Index Futures are: (i) imperfect correlation between the change in the
market value of the securities held in the Fund's portfolio and the prices of
Futures purchased or sold by the Fund; (ii) incorrect forecasts by the Adviser
concerning interest rates which may result in the hedge being ineffective; and
(iii) possible lack of a liquid secondary market for a Future; the resulting
inability to close a futures position could adversely affect the Fund's hedging
ability. For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security being hedged. The risk
of imperfect correlation of these price changes is increased as the composition
of the Fund's portfolio is divergent from the debt securities underlying the
index. To date the Adviser has had no experience in the use of Futures.
The "sale" of a Future means the acquisition by the Fund of an obligation
to deliver an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of the last trading day of the
Future and the price at which the Future is originally struck (which the Fund
anticipates will be lower because of a subsequent rise in interest rates and a
corresponding decline in the index value). This is referred to as having a
"short" Futures position. The "purchase" of a Future means the acquisition by
the Fund of an obligation to take delivery of such an amount of cash. In this
case, the Fund anticipates that the closing index value will be higher than the
price at which the Future is originally struck. This is referred to as having a
"long" Futures position. No physical delivery of the bonds making up the index
is made as to either a long or a short Futures position.
9
<PAGE> 12
WHEN-ISSUED AND DELAYED DELIVERY PURCHASES
The Fund may buy Rhode Island Obligations on a when-issued or delayed
delivery basis when it has the intention of acquiring them; the Rhode Island
Obligations so purchased are subject to market fluctuation and no interest
accrues to the Fund until delivery and payment take place; their value at the
delivery date may be less than the purchase price. For example, delivery and
payment may take place a month or more after the date of the transaction. The
Fund may not enter into when-issued commitments exceeding in the aggregate 15%
of the market value of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Fund chooses to dispose
of the right to acquire a when-issued Obligation prior to its acquisition, it
could, as with the disposition of any other portfolio holding, incur a gain or
loss due to market fluctuation; any such gain would be taxable short-term gain.
See the Additional Statement for further information.
REPURCHASE AGREEMENTS
The Fund may purchase securities (limited to Taxable Short-Term
Obligations) subject to repurchase agreements. Income from repurchase agreements
is taxable and therefore is not included in the "exempt-interest" dividends
which the Fund will pay; see "Dividend and Tax Information". Repurchase
agreements may be entered into only with commercial banks or broker dealers. A
repurchase agreement occurs when, at the time the Fund purchases a security, the
Fund also resells it to the vendor and must deliver the security (or securities
substituted for it) to the vendor on an agreed-upon date in the future. (The
securities so resold or substituted are referred to herein as the "Resold
Securities".) The Resold Securities will be held by the Fund's Custodian bank.
The resale price is in excess of the purchase price in that it reflects an
agreed-upon market interest rate effective for the period of time during which
the Fund's money is invested in the Resold Securities. The majority of these
transactions run from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The Fund's risk is
limited to the ability of the vendor to pay the agreed-upon sum upon the
delivery date; in the event of bankruptcy or other default by the vendor, there
may be possible delays and expenses in liquidating the Resold Securities,
decline in their value and loss of interest. Repurchase agreements can be
considered as loans "collateralized" by the Resold Securities (such agreements
being defined as "loans" in the Investment Company Act of 1940). The return on
such "collateral" may be more or less than that from the repurchase agreement.
The Resold Securities under any repurchase agreement will be marked to market
every business day so that the value of the "collateral" is at least equal to
the value of the loan, including the accrued interest earned thereon, plus
sufficient additional market value as is considered necessary to provide a
margin of safety. Additionally, the Adviser will regularly review the financial
strength of all vendors of repurchase agreements to the Fund, in accordance with
procedures established by the Board of Trustees.
LIMITATION TO 10% AS TO CERTAIN INVESTMENTS
Due to their possible limited liquidity, the Fund may not make certain
investments if thereafter more than 10% of its net assets would consist of such
investments. The investments included in this 10% limit are (i) repurchase
agreements maturing in more than seven days; (ii) fixed time deposits subject to
withdrawal penalties other than overnight deposits; (iii) restricted securities,
10
<PAGE> 13
i.e., securities which cannot freely be sold for legal reasons (which the Fund
does not expect to own); and (iv) securities for which market quotations are not
readily available. However, this 10% limit does not include any obligations
having minimal credit risks in the opinion of the Adviser and which are payable
at principal amount plus accrued interest on demand or within seven days after
demand.
FACTORS WHICH MAY AFFECT THE VALUE OF THE FUND'S INVESTMENTS AND THEIR YIELDS
The value of the Rhode Island Obligations, Non-Rhode Island Obligations and
Short-Term Taxable Obligations (collectively, "Obligations") in which the Fund
invests will fluctuate depending in large part on changes in prevailing interest
rates. If the prevailing interest rates go up after the Fund buys Obligations,
the value of the Obligations may go down; if these rates go down, the value of
the Obligations may go up. Changes in value and yield based on changes in
prevailing interest rates may have different effects on short-term Obligations
than on long-term Obligations. Long-term Obligations (which often have higher
yields) may fluctuate in value more than short-term ones. The Fund is not aware
of any economic or legal factors special to Rhode Island or the other
jurisdictions issuing Rhode Island Obligations creating any risks not applicable
to other municipal obligations of the same quality as the Rhode Island
Obligations in which the Fund may invest.
ECONOMIC FACTORS AFFECTING RHODE ISLAND AND PUERTO RICO
The following is a summary of economic factors which may affect the ability
of the issuers of Municipal Bonds to repay general obligation and revenue bonds.
Such information is derived from sources that are generally available to
investors and is believed by the Fund to be accurate, but has not been
independently verified and may not be complete.
The State of Rhode Island (the "State") draws substantially all of its
revenue from non-property related taxes and excises, principal among them being
the personal income tax and general retail sales and use tax. Additional revenue
is obtained from federal assistance payments and grants-in-aid and from earnings
and receipts from certain State-operated programs and facilities such as the
State higher education system. The State experienced an excess of resources and
other financing sources over expenditures during the 1985 through 1989 fiscal
years resulting in a free surplus balance for future appropriations at the end
of each of the fiscal years 1985 through 1989. During fiscal years 1990 through
1992, a revenue short-fall occurred due to a regional downturn of the economy.
To deal with this shortfall, the State utilized its free surpluses and most of
its State Budget Reserve and Cash Stabilization Account, reduced and deferred
certain aid payments and other commitments, and used other extraordinary one
time measures. Efforts by the State to increase revenues over the past several
fiscal years have included, among other things, an increase in the business
corporation tax rate from 8% to 9% together with an acceleration of the due
dates for installment payments, an increase in the sales and use tax rate from
6% to 7%, an increase in the cigarette tax and an increase in the minimum tax
charged on gasoline.
For fiscal year 1995, total resources to fund the budget of approximately
$1,670.5 million resulted in a surplus of approximately $6.1 million. Under
Rhode Island law, unexpended or unencumbered balances of general revenue
appropriations constitute free surplus for future
11
<PAGE> 14
appropriations by the General Assembly. The free surplus of approximately $6.1
in the General Fund at the end of fiscal year 1995 is up from the fiscal year
1994 free surplus of approximately $3.48 million. Under the fiscal year 1996
budget of approximately $1,702.7 million, there is no free surplus expected at
the end of fiscal 1996.
In January 1991, the collapse of the Rhode Island Share and Deposit
Indemnity Corporation precipitated the closure of 45 financial institutions with
a total deposit liability of approximately $1.7 billion. In response, the State
created the Rhode Island Depositors Economic Protection Corporation ("DEPCO") to
assist in the resolution of the banking crisis. By the middle of 1992,
substantially all of the frozen deposits had been repaid or otherwise made
available to depositors through the reopening, sale or liquidation of the closed
institutions. To facilitate the sale of certain institutions and the payout of
frozen deposits, DEPCO has issued various general and special obligation bonds.
It has outstanding approximately $361 million of special obligation bonds.
Receipts from .6% of the State's sales and use tax rate are dedicated to a
special revenue fund to be used for repayment of the special obligation bonds.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to "A-1" by Moody's Investors Service, Inc. and "AA-" from
Standard & Poor's Corporation. There were no changes in the rating in 1995.
Below the level of State government, Rhode Island is divided into 39 cities
and towns which exercise the functions of local general government. Every city
or town has only the power to levy, assess and collect taxes, or borrow money,
as specifically authorized by the General Assembly. In addition, State statutes
require every city and town to adopt a balanced budget for each fiscal year.
Local governments rely principally upon general real and tangible personal
property taxes and automobile excise taxes for provision of revenue. Under Rhode
Island law, the power of the cities and towns to pay their general obligation
bonds and notes is unlimited and each city or town is required to levy ad
valorem taxes upon all the taxable property for the payment of such bonds and
notes and the interest thereon, without limitation as to rate or amount.
Rhode Island cities and towns receive aid from the State to fund a portion
of the costs of major public expenditures, and also participate in a general
revenue sharing program. Aid to cities and towns has risen from approximately
$389.7 million in fiscal year 1991 to a projected $478.1 million for fiscal year
1996. The largest category of State aid to cities and towns involves assistance
programs for school operations and school buildings. In addition to
reimbursement of operations costs, state school construction aid is also
provided at levels ranging from 30% to 87% of the construction cost of new
facilities. The budget, as enacted for fiscal year 1996, suspended the education
aid formula which had previously been in place and calculated education aid
using the fiscal year 1995 budgeted amount ($413.3 million), with special
criteria add-on amounts allocated totalling $18.5 million.
The 1987 session of the General Assembly enacted legislation which
consolidated all prior revenue sharing components into one general revenue
sharing program and incorporated a distribution formula based upon relative
population, tax effort and personal income of each city and
12
<PAGE> 15
town. In addition, the State continues to provide municipal aid programs which
give wage supplements as an incentive to municipal police and firemen earning
specialized education credits, and distributes the proceeds of a statewide tax
imposed on the tangible personal property of telephone, telegraph, cable,
express and telecommunications companies. The 1991 General Assembly passed
legislation which dedicates, beginning in fiscal year 1994, an amount equal to
one percent of second prior year total state tax revenues to general state aid.
In fiscal year 1995, the State expended $13.6 million for this purpose.
In January 1991, the Central Falls Review Commission found the City of
Central Falls, Rhode Island to be in serious financial condition, and made
thirteen recommendations for State and city aid. In July 1992, the State took
over full financial and administrative responsibility for the Central Falls
school system. State funding for that system in the amount of $18.4 million was
appropriated for fiscal year 1995.
The Commonwealth of Puerto Rico (the "Commonwealth") draws its revenue from
income taxes, excise taxes, property taxes, licenses, Federal taxes returned to
the Commonwealth, Federal grants, and a tollgate tax on dividends and profit
shares repatriated to United States corporations subject to Section 936 of the
Internal Revenue Code. As of January 1996, general obligation bonds issued by
the Commonwealth would qualify to receive a "Baa 1" rating from Moody's
Investor's Service, Inc. Bonds rated "Baa 1" are considered to be of medium
quality and have speculative characteristics, but are believed by Moody's to
possess the strongest investment attributes in the "Baa" class. As of January
1996, general obligation bonds issued by the Commonwealth would qualify for an
"A" rating from Standard and Poor's Corporation.
Despite substantial long-term progress in raising its living standards, the
Commonwealth's problems of poverty and unemployment persist. Income levels on
the island are lower than even the poorest of the fifty states, and unemployment
rates consistently exceed those on the mainland. The unemployment rates for
fiscal years 1994 and 1995 were 16.0% and 13.8%, respectively. The Commonwealth
has a high debt load, due in part to the scope of the development tasks it had
undertaken. Debt policy has sought to keep the rate of growth of debt at that of
gross domestic product. Over fiscal years 1991 to 1995, public sector debt
increased 24.7% while gross product rose 24.4%. This slightly greater increase
in the rate of public sector debt relative to the rate of increase in gross
product over the subject period was principally the result of debt service
refinancings. Operating deficits have occurred in the general fund in two of the
past four fiscal years. Financial trends during these years reflect the
influence of both economic slowdown and a high level of public sector
employment. As financial operations have come under pressure from the economic
slowdown, the Commonwealth has attempted to maintain budgetary balance, but with
regular reliance on nonrecurring measures. The general fund budget for fiscal
1996 provides appropriations of $5,193 million, a decrease of $161 million over
the fiscal 1995 amount. Spending is balanced by an equal amount of resources,
but again these include many nonrecurring items. Preliminary fiscal year 1996
general fund total revenues are approximately $4,906 million, a decrease of $174
million (3.4%) over fiscal year 1995. Total projected expenditures for fiscal
year 1996 increased by $90.8 million when compared to fiscal year 1995, with an
ending general fund cash balance for fiscal year 1996 estimated to be $170.4
million.
13
<PAGE> 16
PORTFOLIO TURNOVER
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of such securities during the year, excluding certain
debt securities. Since the turnover rate of the Fund will be affected by a
number of factors (see below), the Fund is unable to predict what rate the Fund
will have in any particular period or periods, although such rate is not
expected to exceed 100%. However, the rate could be substantially higher or
lower in any particular period. The factors which may affect the rate include
(i) assuming or moving away from a temporary defensive position; (ii) the
possible necessary sales of Obligations to meet redemptions; and (iii) the
possibility of purchasing or selling Obligations without regard to the length of
time the Obligations have been held to attempt to take advantage of short-term
differentials in bond yields with the objective of seeking exempt-interest
income while conserving capital. Short-term trading increases portfolio turnover
and transaction costs and may generate taxable capital gains. See "Tax
Information" for a discussion of the income tax consequences arising from
short-term trading. For the fiscal year ended October 31, 1995, the portfolio
turnover rate of the Fund was 12%.
INVESTMENT RESTRICTIONS
The Fund has a number of rules about what it may and may not do. These
rules may not be changed unless the holders of a "majority", as defined in the
Investment Company Act of 1940 (the "1940 Act"), of the Fund's outstanding
shares vote to change them. Some of the more important of these rules are set
forth below; the rest are listed in the Additional Statement.
1. THE FUND INVESTS ONLY IN CERTAIN LIMITED SECURITIES.
The Fund may not buy any securities other than the Obligations listed under
"Investment of the Fund's Assets"; provided the Fund may also purchase and sell
Municipal Bond Index Futures within the 10% limit discussed under "Municipal
Bond Index Futures." Under normal market conditions, the Fund will invest at
least 80% of its assets in Rhode Island Obligations.
2. THE FUND HAS INDUSTRY INVESTMENT REQUIREMENTS.
The Fund may not buy the Obligations of issuers in any one industry (see
below for discussion) if more than 25% of its total assets would then be of
issuers of that industry; Rhode Island Obligations and U.S. Government
Obligations are not included in this limit. In applying this restriction, the
Fund will consider that a nongovernmental user of facilities financed by
industrial development bonds is an issuer in an industry.
See "Dividend And Tax Information" below for certain diversification
requirements under the Internal Revenue Code which the Fund intends to meet and
as to possible risk factors due to meeting only these diversification
requirements.
3. THE FUND CAN MAKE LOANS ONLY BY LENDING SECURITIES OR ENTERING INTO
REPURCHASE AGREEMENTS.
The Fund can buy those Obligations which it is permitted to buy (see
"Investment of the Fund's Assets"); this is investing, not making a loan. The
Fund can, to increase its income, lend its portfolio securities up to 10% of the
value of its total assets on a collateralized basis to broker-dealers, banks and
certain financial institutions, (see the Additional Statement) and enter into
repurchase agree-
14
<PAGE> 17
ments (see "Repurchase Agreements" above). The Fund may be considered as the
beneficial owner of the loaned securities in that any gain or loss in their
market price during the loan inures to the Fund and its shareholders; thus, when
the loan is terminated, the value of the securities may be more or less than
their value at the beginning of the loan. Income from securities loans is
taxable and therefore it is not included in the "exempt-interest" dividends
which the Fund may pay.
4. THE FUND CAN ONLY BORROW IN LIMITED AMOUNTS FOR SPECIAL PURPOSES.
The Fund can borrow from banks for temporary or emergency purposes but only
up to 10% of its total assets. It can mortgage or pledge its assets only in
connection with such borrowing and only up to the lesser of the amounts borrowed
or 5% of the value of its total assets. The Fund will not borrow to purchase
Obligations or to increase its income but only to meet redemptions so that it
will not have to sell Obligations to pay for redemptions. Interest on borrowings
would reduce the Fund's income. The Fund will not purchase any Obligations while
it has any outstanding borrowings which exceed 5% of the value of its total
assets.
The Fund will not invest more than 25% of its total assets in (i) Rhode
Island Obligations the interest on which is paid from revenues of similar type
projects or (ii) in industrial development bonds unless this Prospectus and/or
the Additional Statement are supplemented to reflect the change and to give
additional information and current shareholders are also notified of the change.
NET ASSET VALUE PER SHARE
The Fund's Net Asset Value and offering price per share are determined at
4:30 p.m., Eastern time on each day the New York Stock Exchange is open. The Net
Asset Value per share is determined by dividing the value of the net assets of
the Fund (i.e. the value of the assets less liabilities) by the total number of
shares outstanding. The Fund's business days will be the same as those of the
New York Stock Exchange. The value of the Fund's assets is, subject to the
direction and control of the Fund's Board of Trustees, in general based on fair
value, except that Obligations maturing in 60 days or less are generally valued
at amortized cost; see the Additional Statement for further information.
HOW TO INVEST IN THE FUND
The Fund's shares may be purchased through Van Liew Securities Inc. (the
"Distributor") or through any dealer (a "selected dealer") which has a sales
agreement with the Distributor. There are two ways to make an initial
investment; either (i) complete the Application included in this Prospectus and
mail it with check payable to Ocean State Tax-Exempt Fund to PFPC, Inc. (the
"Agent") at the address on the Application; or (ii) order the shares through
your dealer, if it is a selected dealer, and include a completed Application.
The minimum initial investment is $1,000 except as otherwise stated in this
Prospectus or the Additional Statement. Subsequent investments may be in any
amount (except for investors having an Automatic Withdrawal Plan) and may be
made through a selected dealer or by forwarding
15
<PAGE> 18
payments to the Agent, with the name(s) of all account owner(s), the account
number and the name of the Fund. Please send the pre-printed stub attached to
the Fund's confirmations.
Shares are sold at their offering price. The offering price will be the
next determined (see below) net asset value per share plus a sales charge. The
offering price applies to all purchase orders received by the Transfer Agent
from selected dealers that day, except that orders received by it after 4:00
p.m. Eastern time will receive that day's offering price only if such orders
were received by selected dealers from customers prior to such time and
transmitted to the Distributor prior to its close of business that day (normally
5:00 p.m. Eastern time). Dealers are required to transmit orders promptly.
Investments by mail are made at the offering price next determined after receipt
of the purchase order by the Agent. Purchase orders received on other than a
business day will be executed on the next succeeding business day. The sale of
shares will be suspended during any period when the determination of net assets
value is suspended and may be suspended by the Distributor when the Distributor
judges it in the Fund's best interest to do so.
Certain commercial banks are making shares of the Fund available to their
customers on an agency basis. A portion of the sales charge paid by these
customers is retained by or remitted to the banks in the amounts indicated below
as an agency commission. Under the Glass-Steagall Act, banks are prohibited from
underwriting Fund shares; however, the Glass-Steagall Act does permit certain
agency transactions and the banking regulators have not indicated that these
particular agency transactions are not permitted under such Act.
<TABLE>
The following table shows the amount of the sales charges to a "single
purchaser" (defined below):
<CAPTION>
Sales Charge As Dealer's
Sales Charge As Approximate Allowance or
Percentage of Public Percentage of Agency
Amount of Purchase Offering Price Amount Invested Commission
- ------------------------------------ -------------------- --------------- ------------
<S> <C> <C> <C>
Less than $25,000................... 4.00% 4.17% 3.00%
$25,000 but less than $50,000....... 3.75 3.90 3.00
$50,000 but less than $100,000...... 3.50 3.63 2.75
$100,000 but less than $250,000..... 3.25 3.36 2.75
$250,000 but less than $500,000..... 3.00 3.09 2.50
$500,000 but less than $1,000,000... 2.50 2.56 2.25
$1,000,000 but less than
$2,500,000........................ 0.75 0.76 0.50
$2,500,000 and over................. 0.25 0.25 0.20
</TABLE>
Upon notice to all selected dealers the Distributor may reallow up to the
full applicable sales charge as shown in the above schedule during periods
specified in such notice. During periods when all or substantially all of the
entire sales charge is reallowed, such dealers may be deemed to be underwriters
as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases by a "single
purchaser", i.e.: (a) an individual; (b) an individual, his or her spouse and
their children under the age of 21 purchasing shares for his or her own
accounts; (c) a trustee or other fiduciary purchasing shares for a single trust
estate or a single fiduciary account; (d) a pension, profit-sharing or other
16
<PAGE> 19
employee benefit plan qualified or non-qualified under Section 401 of the Code;
and (e) tax-exempt organizations enumerated in Section 501(c)(3) or (13) of the
Code.
REDUCED SALES CHARGES
Right of Accumulation: "Single purchasers" may also benefit from a
reduction of the sales charge in accordance with the above schedule if the
cumulative value (at cost or current net asset value, whichever is higher) of
shares purchased with a sales charge, together with shares previously purchased
with such a charge, amounts to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales charges will
also be available to "single purchasers" who enter into a written Letter of
Intent (included in the Application) providing for the purchase, within a
thirteen-month period, of shares of the Fund through the Distributor or through
a single selected dealer. Shares of the Fund sold with a sales charge at time of
purchase which were previously purchased during a 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent and still owned by
the shareholder may also be included in determining the applicable reduction.
For further details, including escrow provisions. See the Letter of Intent
provisions of the Application.
Net Asset Value Swap: Shares of the Fund may be purchased at Net Asset
Value by investors who are selling shares held for more than six months in any
other mutual fund in order to purchase shares of the Fund on a dollar for dollar
basis. Each swap must involve shares having an aggregate value of at least
$5,000 redeemed within the previous 60 days. An investor wishing to make a swap
may do so by submitting the Application contained in this Prospectus to the
Distributor, along with a check or money order in the proper amount of the
investment, a photocopy of the redemption request and redemption check from the
fund from which shares were sold to make the investment and evidence that such
shares have been held for more than six months.
Purchases at Net Asset Value: The Fund's Trustees and the directors,
officers and certain employees and representatives of the Adviser, Distributor
and Selected Dealers, certain plans for their benefit, and investment advisory
clients of the Adviser may buy the Fund's shares at Net Asset Value without a
sales charge. In addition, trust departments of banks, trust companies and other
financial institutions may buy the Fund's shares at Net Asset Value without a
sales charge if the total amount of the purchase equals or exceeds $250,000, or
such purchases are made pursuant to a written Letter of Intent providing for the
purchase of shares with a cumulative value (at cost or current net asset value,
whichever is higher) of $250,000 or more, within a thirteen-month period, of
shares through the Distributor. A form of Letter of Intent for such purpose may
be obtained from the Distributor. See the Additional Statement for further
information.
CONFIRMATION AND SHARE CERTIFICATES
All purchases of shares will be confirmed and credited to the shareholder
in an account maintained for the shareholder at the Agent in full and fractional
shares of the Fund (rounded to the nearest 1/1000 of a share). Share
certificates will not be issued unless requested in writing from the Agent by
the investor. No certificates will be issued for fractional shares or to
shareholders who
17
<PAGE> 20
have elected predesignated bank account method of redemption. (See "How to
Redeem Your Investment" below.)
The Fund and the Distributor reserve the right to reject any order for the
purchase of shares. In addition, the offering of shares may be suspended at any
time and resumed at any time thereafter.
DISTRIBUTOR AND DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan under Rule 12b-1 (the "Rule")
under the 1940 Act. The Rule provides in substance that an investment company
may not engage directly or indirectly in financing any activity which is
primarily intended to result in the sale of its shares except pursuant to a
written plan adopted under the Rule. There are no payments to the Distributor by
the Fund pursuant to the Distribution Plan. The purpose of the Distribution Plan
is to protect against any claim against or involving the Fund that some of the
expenses (for example, the cost of printing all prospectuses, statements of
additional information and reports and notices to shareholders, even those which
are not sent to existing shareholders, registration and "blue sky" fees) which
might be considered to be sales related which the Fund pays or may pay come
within the purview of the Rule. During the fiscal year ended October 31, 1995,
the only expense paid by the Fund under the Plan was for the printing of
prospectuses and reports to shareholders which were sent to nonshareholders. See
the Additional Statement for further information regarding the Distribution
Plan.
The Distributor is a registered broker-dealer formed in 1990. The
Distributor is an affiliate of the Adviser. Under the Distribution Agreement,
the Distributor is responsible for the payment of certain expenses; in brief,
these expenses relate to the preparation, printing and distribution costs
relating to sales literature and advertising material. The Fund will not
reimburse the Distributor for such expenses.
HOW TO REDEEM YOUR INVESTMENT
An investor may redeem all or any part of his shares at the next determined
Net Asset Value after acceptance of his redemption request at PFPC, Inc. (the
"Agent") by the various methods described below. Except for shares recently
purchased by check as discussed below, there is no minimum period for any
investment in the Fund. There are no redemption fees or withdrawal penalties. A
completed purchase Application must have been received by the Agent before
redemption requests can be honored. A redemption may result in a taxable
transaction to the investor.
EXPEDITED REDEMPTION METHODS (NON-CERTIFICATE SHARES)
As to shares not represented by certificates (see above) a shareholder has
the flexibility of two alternative expedited redemption methods:
1. BY MAIL. If payment is to be made to a predesignated bank account,
redemptions may be made by a letter of instruction sent to: PFPC, Inc.,
Attention: Ocean State Tax-Exempt Fund, P.O. Box 8950, Wilmington,
Delaware 19899, indicating account number, amount to be redeemed, and
any payment directions, signed by the registered holder(s). Signature
guarantees are not required. Cash proceeds from the redemption of shares
will be mailed
18
<PAGE> 21
(or wired, wherever possible, upon request, if in an amount of $1,000 or
more) to the bank account specified in the Expedited Redemption section
of the investor's Application.
2. BY TELEPHONE. The Agent will accept instructions to redeem shares
and make payments to a predesignated bank account by telephone request
from anyone. Cash proceeds in any amount from the redemption of shares
will be mailed (or wired, wherever possible, upon request, if in an
amount of $1,000 or more) to the bank account specified in the Expedited
Redemption section of the investor's Application. The name of the
registered shareholder and his account must be supplied.
To redeem an investment by this method, telephone:
Toll Free 1-800-992-2207
A shareholder wishing to use the above procedure should so elect on the
Expedited Redemption section of his Application and provide the required
information concerning his commercial bank account number. The bank account must
be in the exclusive name(s) of the shareholder as registered with the Fund. A
shareholder may change the bank account designated by him at any time by
completing and returning a form available from the Fund. For protection of the
investor's assets, this form requires signature guarantees and possible
additional documentation.
REGULAR REDEMPTION METHOD (CERTIFICATE AND NON-CERTIFICATE SHARES)
1. CERTIFICATE SHARES. Certificates representing shares to be redeemed
and payment instructions should be sent to: PFPC, Inc., Attention: Ocean
State Tax-Exempt Fund, P.O. Box 8950, Wilmington, Delaware 19899 with a
stock assignment form signed by the registered shareholder(s) exactly as
the account is registered; (for shareholder protection, certificates and
signed redemption documentation should be sent separately if mailed).
For the redemption request to be in "proper form", the signature or
signatures must be the same as in the registration of the account. In a
joint account, the signatures of both shareholders are necessary.
Additional documentation may be required where shares are held by a
corporation, a partnership, trustee or executor, or if redemption is
requested by other than the shareholder of record. Signatures must be
guaranteed by an "eligible guarantor institution" which complies with
the written standards and procedures established by PFPC, Inc. "Eligible
guarantor institutions", as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, include banks, savings associations, credit
unions, brokers, dealers, securities exchanges and associations and
clearing agencies. Questions regarding signature guarantee requirements
should be directed to the Distributor.
2. NON-CERTIFICATE SHARES. A shareholder owning non-certificate shares
registered on the books of the Fund and who has not elected Expedited
Redemption to a predesignated bank account, must use the Regular
Redemption Method of redemption. Under this redemption method the
shareholder should send a letter of instruction to: PFPC, Inc.,
Attention: Ocean State Tax-Exempt Fund, P.O. Box 8950, Wilmington,
Delaware 19899 containing:
- Account Number
19
<PAGE> 22
- Dollar amount or number of shares to be redeemed or a statement
that all shares held in the account are to be redeemed
- Payment instructions (normally redemption proceeds will be mailed
to the shareholder's address as registered with the Fund)
- Signature(s) of the registered shareholder(s)
- Signature(s) guaranteed by an eligible guarantor institution.
REDEMPTION PAYMENTS
Redemption payments will ordinarily be mailed to the shareholder at his
address of record. Redemption proceeds will also be wired, upon shareholder
request, to a bank, wherever possible, if in the amount of $1,000 or more. The
Fund may impose a charge, not exceeding $5.00 per wire redemption, after written
notice to investors who have elected this redemption procedure. The Fund has no
present intention of making this charge. The recipient bank may also impose a
charge in connection with a wire redemption.
The Fund will normally make payment for all shares redeemed on the next
business day following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set forth below,
in no event will payment be made more than seven days after acceptance of such a
redemption request. However, the right of redemption may be suspended or the
date of payment postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission by rule or
regulation; (ii) during periods in which an emergency, as determined by the
Securities and Exchange Commission, exists which causes disposal of, or
evaluation of the Net Asset Value of, the portfolio securities to be
unreasonable or impracticable; or (iii) for such other periods as the Securities
and Exchange Commission may permit. Redemption by any method of shares which
were recently purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) may be delayed up to 15
days or until the check clears or a determination has been made that the
purchase check will be honored. Such determination may also be made by telephone
or written assurance to the Agent from the bank on which the purchase check was
drawn, which must be arranged by the shareholder requesting redemption and must
be satisfactory to the Agent and the Fund. Possible delays in remittance of
redemption proceeds can be eliminated by using wire payments or Federal Reserve
drafts to pay for purchases.
Within 30 days of a redemption of shares on which a sales charge was paid,
an investor may reinvest all or part of the redemption proceeds in shares of the
Fund at the net asset value next computed after the Agent's receipt of the
reinvestment order. The privilege may be exercised only once by a shareholder
with respect to the Fund. If the shareholder has realized a gain on the
redemption and reinvestment in the Fund, the transaction is taxable, and
reinvestment will not alter any capital gains tax payable. If there has been a
loss on the redemption, some of the loss may be tax deductible, depending on the
amount reinvested.
If the Trustees determine that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the
20
<PAGE> 23
redemption price in whole or in part by the distribution in kind of securities
from the portfolio of the Fund, in lieu of cash, in conformity with applicable
rules of the Securities and Exchange Commission. See the Additional Statement
for details.
The Fund has the right to compel the redemption of shares held in any
account if the aggregate Net Asset Value of such shares is less than $500. If
the Board elects to do this, shareholders who are affected will receive prior
written notice and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases shares of the Fund having a Net Asset
Value of at least $5,000 may establish an Automatic Withdrawal Plan under which
he will receive a monthly or quarterly check in a stated amount, not less than
$50. All dividends and distributions must be reinvested. Redemption of shares to
make payments under the Plan will give rise to a gain or loss for tax purposes.
See the Automatic Withdrawal Plan provisions of the Application included in this
Prospectus and the Additional Statement under "Automatic Withdrawal Plan" and
"Dividend and Tax Information" below.
Purchase of additional shares concurrently with withdrawals are undesirable
because of sales charges when purchases are made. Accordingly, a Planholder may
not maintain a Withdrawal Plan while simultaneously making regular purchases.
While an occasional lump sum investment may be made, such investment should
normally be an amount equivalent to three times the annual withdrawal or $5,000,
whichever is less.
MANAGEMENT ARRANGEMENTS
THE BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction and
control of its Board of Trustees. The Additional Statement lists the Fund's
Trustees and officers and provides further information about them.
ADVISORY AGREEMENT
Van Liew Capital Inc. (the "Adviser") supervises the investment program of
the Fund and the composition of its portfolio. The Adviser is a registered
investment adviser incorporated in Rhode Island in 1984 and acts as an
investment adviser for individuals, charitable institutions, financial
institutions and pension plans primarily in the New England area. As of October
31, 1995, the Adviser had approximately $268 million under management. The
Adviser does not serve as an adviser to any other registered investment
companies. The Adviser is controlled by Alfred B. Van Liew, a Trustee and
President of the Fund. See the Additional Statement for more information
regarding Mr. Van Liew.
Samuel H. Hallowell, Jr. is responsible for management of the Fund's
portfolio in accordance with its investment objectives and policies. Mr.
Hallowell has been a Vice President of the Fund since it's inception in December
1986 and the Adviser since June 1992. He is a founding Partner of the Adviser
and Vice President of Van Liew Trust Company, and manages over $136.5 million of
investments for individuals and institutions. With over 20 years experience in
the investment
21
<PAGE> 24
business Mr. Hallowell previously served as a Senior Portfolio Manager and Vice
President at Rhode Island Hospital Trust National Bank.
The services of the Adviser are rendered under an Investment Advisory
Agreement which provides, subject to the control of the Board of Trustees, for
investment, supervisory and certain corporate administrative services. The
Investment Advisory Agreement states that the Adviser shall, at its expense,
provide to the Fund all office space and facilities, equipment and clerical
personnel necessary for the carrying out of its duties under the Advisory
Agreement and the keeping of the accounting records of the Fund, including the
computation of the Net Asset Value per share and the dividends.
Under the Advisory Agreement, the Adviser pays all compensation of those of
the Fund's officers and employees and of those Trustees who are affiliated with
the Adviser. Under the Advisory Agreement, the Fund bears the cost of the
preparation, setting in type and printing of its prospectuses and reports to
shareholders (whether or not sent to existing shareholders) and the costs of
distributing those copies of such prospectuses and reports as are sent to
shareholders. Under the Advisory Agreement, all other expenses not expressly
assumed by the Adviser under the Advisory Agreement are paid by the Fund. The
Advisory Agreement lists examples of such expenses; the major categories of such
expenses relate to legal and audit expenses, custodian and transfer agent, or
shareholder servicing agency expenses, stock issuance and redemption costs,
certain printing costs, registration costs of the Fund and its shares under
Federal and State securities laws, interest, taxes and brokerage commissions,
and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Adviser also provides all administrative
services to the Fund other than those relating to its investment portfolio and
the maintenance of its accounting books and records. Such administration
services include but are not limited to (i) providing office space and equipment
in connection with the maintenance of the headquarters of the Fund; (ii)
maintenance of books and records (other than accounting books and records); and
(iii) overseeing the relationship between the Fund and its custodian and
transfer agent. See the Additional Statement for a further description of
administrative functions listed in the Advisory Agreement as part of such
duties.
Under the Advisory Agreement, the Fund pays a fee at the annual rate of .60
of 1% for the first $200 million of average annual net assets and .50 of 1% of
such average annual net assets above $200 million. Fees are computed and accrued
daily and paid monthly.
The Adviser agrees that in the event the operating expenses of the Fund
exceed the expense limitations applicable to the Fund imposed by the securities
laws or regulations of any state in which the Fund's shares are qualified for
sale, the above fees shall be reduced, but not below zero, by an amount equal to
such excess expenses. The payment of fees at the end of any month will be
reduced or postponed so that at no month end will there be any accrued but
unpaid liability under an expense limitation. Currently, no expense limitation
is applicable to the Fund. Additionally, the Adviser has indicated to the Fund
that it may, but is not obligated to, waive all or a portion of these fees. The
Adviser waived $34,920 of the total $197,855 in fees due under the Advisory
Agreement for the fiscal year ended October 31, 1992, $48,840 of the total
$244,301 in fees due under the Advisory Agreement for the fiscal year ended
October 31, 1993 and $23,636 of the total $261,545 in
22
<PAGE> 25
fees due under the Advisory Agreement for the fiscal year ended October 31,
1994. Accordingly, the actual fees received by the Adviser for such periods were
$162,935, $195,461 and $237,909, respectively. The waiver of such fees had the
effect of increasing the Fund's yield for these periods. The Adviser will not
seek reimbursement for such fees to the extent waived.
The Advisory Agreement was approved by a majority (as defined in the
Investment Company Act of 1940) of the Fund's shareholders on May 5, 1988 and
became effective on that date. Prior to such shareholder approval, investment
management and administrative services were provided by the Adviser under two
separate agreements. The combined fees payable and the services rendered under
the prior agreements were identical to those provided under the existing
Advisory Agreement.
DIVIDEND AND TAX INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare dividends from net investment income daily. Net
income for dividend purposes includes interest income accrued by the Fund since
the previous dividend declaration, including accretion of any original issue or
market discount, less expenses paid or accrued including any amortization of any
original issue or market premium. Dividends are declared as to any shares
outstanding beginning at the close of business (i) in the case of investments by
mail, on the day after the day on which the shares are issued (see "How To
Invest in The Fund"); or (ii) in the case of dealer orders, on the day after the
day on which actual dealer payment for such shares is timely received by the
Agent, irrespective of the earlier issuance of the shares (see the same
caption). Timely receipt of actual dealer payment by the Agent means either (i)
receipt by the Agent prior to 12:00 Noon Eastern time on a business day of
checks, drafts or other orders for the payment of U.S. dollars as well as wire
payments to the Custodian but does not include a receivable from a selected
dealer to make payment for shares ordered by it; or (ii) a guarantee from the
selected dealer that such payment will be received by the Agent on such business
day. Any loss resulting from this payment policy must be satisfied immediately
by a party other than the Fund. Dividends so declared will be paid within a week
after the end of each month. Redeemed shares continue to earn dividends through
and including the day which is the earlier of (i) the day before the day on
which the redemption proceeds are mailed or wired by the Custodian or paid by
the Custodian to a selected dealer; or (ii) the day which is the fifth day on
which the New York Stock Exchange is open after the day on which the Net Asset
Value of the redeemed shares has been determined (see "How To Redeem Your
Investment").
Net investment income includes amounts of income from the Rhode Island
Obligations in the Fund's portfolio which is allocated as "exempt-interest
dividends" (see below) and is therefore free from Federal income tax. This
allocation will be made by the use of one designated percentage applied
uniformly to all income dividends made during the Fund's tax year. Such
designation will normally be made in the first month after the end of each of
the Fund's fiscal years as to income dividends paid in the prior year. The
percentage of income designated as tax-exempt for any particular dividend may be
substantially different from the percentage of the Fund's income that was
tax-exempt during the period covered by the dividend. Distributions ("capital
gains distributions")
23
<PAGE> 26
from net realized capital gains, if any, will be paid on an annual basis. If net
capital losses are realized in any year, they are charged against principal and
not against net investment income which is distributed regardless of gains or
losses. Under the Interest and Dividend Tax Compliance Act of 1983, the Fund may
be required to impose backup withholding at a rate of 31% upon payment of
redemptions to shareholders, and from taxable dividends and short and long-term
gains distributions (if any), if shareholders do not comply with provisions of
the law relating to the furnishing of taxpayer identification numbers and
reporting of dividends.
Unless a shareholder requests otherwise by letter addressed to PFPC, Inc.
or by filing an appropriate application prior to a given ex-dividend date,
dividends and distributions will be automatically reinvested in full and
fractional shares of the Fund at net asset value on the record date for the
dividend or distribution or other date fixed by the Board of Trustees. An
election by a shareholder to receive cash will continue in effect until written
notification of a change is received by the Agent. Shareholders whose dividends
are being reinvested will receive a monthly summary of their accounts indicating
the reinvestment of dividends. There is no fixed dividend rate. None of the
Fund's dividends will qualify for the 70% dividend received deduction for
corporations.
TAX INFORMATION
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code (the "Code"), it will not be liable for Federal income
taxes on amounts paid by it as dividends and distributions. The Fund has so
qualified and expects to continue to do so. However, the Code contains a number
of complex tests relating to such qualification and it is possible that the Fund
might not meet one or more of these tests in any particular year. If it does not
so qualify, it would be treated for tax purposes as an ordinary corporation,
would receive no tax deduction for payments made to shareholders and would be
unable to pay "exempt-interest dividends" as discussed below.
One of the tests for such qualifications is, in general, that at the end of
each fiscal quarter of the Fund, at least 50% of the value of its assets must
consist of (i) cash; (ii) U.S. Government Obligations; and (iii) securities of
any one issuer which do not exceed 5% of the value of the Fund's assets. See the
Additional Statement for further information as to the tests for such
qualification and for tax information on Futures.
In addition, the Code imposes a nondeductible excise tax on the Fund equal
to 4% of the excess, if any, of the required distribution over the amount
actually distributed for a calendar year. The Fund intends to make the required
distributions and thereby to avoid any such excise tax.
For dividends and distribution purposes, realized gains and losses would
include those gains and losses on Futures which are required to be reported for
Federal income tax purposes. Gains from the closing out of Futures are not free
from Federal income tax and thus cannot be included in the "exempt-interest
dividends" (see below) the Fund pays. Instead, any such gains will be taxable to
shareholders for Federal income tax purposes when the Fund distributes them.
In addition, the Fund intends to qualify during each fiscal year under the
Code to pay "exempt interest dividends" to its shareholders. Exempt-interest
dividends which are derived from net income earned by the Fund on Rhode Island
Obligations will be excludable from gross income of the
24
<PAGE> 27
shareholders for Federal income tax purposes and, therefore, tax-free. A
shareholder receiving a dividend from net interest income earned by the Fund
from one or more of (i) Taxable Short-Term Obligations; (ii) income from
repurchase agreements and securities loans; and (iii) an excess of net
short-term capital gain over net long-term capital loss, treats the dividend as
a receipt of ordinary income in the computation of his gross income regardless
of whether it is reinvested in Fund shares. In addition, gain on the disposition
of a tax-exempt obligation or any other market discount bond that is acquired
after April 30, 1993 for a price that is less than the principal amount of the
bond generally will be treated as ordinary income (instead of capital gain) to
the extent of accrued market discount.
Long-term gains distributions, if any, are taxable to shareholders as
long-term capital gains irrespective of the length of time a shareholder has
held his stock and regardless of whether the distributions are reinvested in
Fund shares. Long-term gains distributions are not eligible for the dividend
received deduction for corporations. Even if the Fund has a net realized capital
gains in any taxable year, the amount of any distribution may be reduced or
eliminated by an applicable capital loss carryover.
Information as to the tax status of the Fund's dividends and distributions
will be mailed to shareholders annually.
Under the Code, tax-exempt interest on private activity bonds issued after
August 7, 1986, other than qualified 501(c)(3) bonds, constitutes a tax
preference subject to the Federal individual and corporate alternative minimum
tax. To the extent the Fund invests in these bonds, individual and corporate
shareholders, depending on their status, might be subject to the alternative
minimum tax on the part of the Fund's distributions derived from the bonds.
Interest income on Municipal Obligations is included in corporate "earnings and
profits" for purposes of computing the Federal alternative minimum tax
applicable to corporations. In addition, certain corporate shareholders may be
subject to a Federal "environmental" tax on the Fund's dividends for taxable
years beginning after December 31, 1986.
Interest on loans to purchase shares of the Fund may not be deducted for
Federal tax purposes. Under rules used by the Internal Revenue Service for
determining when borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Fund may be considered
to have been made with borrowed funds even though the borrowed funds are not
directly traceable to the purchase of shares. Furthermore, in view of Section
147(a) of the Code, persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds should consult
their own tax advisers before purchasing shares, since the income from those
obligations may not be tax exempt for substantial users.
Under the Tax Reform Act of 1986, instead of separate volume limits for
most private activity bonds and for qualified mortgage bonds, a single annual
volume cap, effective for bonds issued after August 15, 1986, covers exempt
facility bonds, small issue bonds, qualified redevelopment bonds, student loan
bonds, qualified mortgage bonds and private loan bonds. Bonds not covered by a
volume cap include qualified 501(c)(3) bonds, exempt facility bonds for
governmentally owned
25
<PAGE> 28
airports and docks and moors, and exempt facility bonds for solid waste disposal
facilities, if all property financed with the bonds is governmentally owned.
The new unified annual volume cap for each state after 1987, is equal to
the greater of $50 per resident of the state or $150 million. The $150 million
limit will apply to Obligations of Rhode Island issuers. Consequently, relative
to states with greater populations which will be subject to the dollar per
resident limitation, Rhode Island will have greater ability to finance various
projects on a tax exempt basis because it will be able to issue more bonds per
resident, since it is subject to the higher cap. In recent years the demand for
Rhode Island Obligations has exceeded supply, which tends to increase bond
prices and reduce yields. The Fund, as one of the largest purchasers of Rhode
Island Obligations, may not be as adversely affected by these market forces as
other investors.
TAX EFFECTS OF REDEMPTIONS
If you redeem your shares, you will have a short- or long-term (depending
on how long you have held your shares) gain or loss (depending on whether you
receive more or less on the redemption than your tax basis, usually cost).
However, if the shares redeemed (or sold or exchanged) were held for not more
than six months (commencing on an original purchase or an exchange), any
short-term capital loss is disallowed to the extent of any exempt-interest
dividend on these shares. However, the Treasury may, by regulation, prescribe a
shorter holding period than six months in the case of a regulated investment
company which distributes at least 90% of its net tax-exempt interest.
If you have a gain on a redemption, some of it may represent interest on
Rhode Island Obligations earned but not yet paid out. If you wait to redeem
until shortly after you are entitled to receive the next dividend, all or most
of the dividend will be tax exempt, while the gain would have been taxable.
RHODE ISLAND TAX INFORMATION
The Fund, and dividends and distributions made by the Fund to Rhode Island
residents, will generally be treated for Rhode Island income tax purposes in the
same manner as they are treated under the Code for Federal income tax purposes.
Under Rhode Island law, however, interest derived from obligations of States
(and their political subdivisions) other than Rhode Island will not be exempt
from Rhode Island income taxation. (Interest derived from obligations of the
following is exempt from Rhode Island income taxation: Guam, Puerto Rico, and
the Virgin Islands).
Persons or entities who are not Rhode Island residents should not be
subject to Rhode Island income taxation on dividends and distributions made by
the Fund but may be subject to other State and local taxes.
YIELD INFORMATION
Yield information on shares of the Fund may appear from time to time in
advertisements and in communications to shareholders and others. The yield
quoted may be provided in a number of ways. The "current yield" is, in general,
the net average annualized yield for a 30-day period calculated at simple
interest rates. This is computed by annualizing the Fund's net investment
26
<PAGE> 29
income per share for a recent 30-day (or one month) period divided by the
maximum public offering price per share (including sales charge) on the last day
of the period. The "tax equivalent yield" is, in general, the current yield
divided by a factor equal to one minus stated income tax rate and reflects the
yield a taxable investment would have to achieve in order to equal on an
after-tax basis a specified tax-exempt yield. Any yield quotation will be
accompanied by total return quotations for specified periods. See the Additional
Statement for further information as to the methods of calculating these yields
and returns.
GENERAL INFORMATION
DESCRIPTION OF THE FUND AND ITS SHARES
The Fund is the sole investment portfolio of the Trust, an open-end,
non-diversified investment company organized in August 1986, as a Massachusetts
business trust. (See the second paragraph under "Tax Information" above for
further information about the Fund's status as "non-diversified".) The
Declaration of Trust permits the Trustees to issue an unlimited number of full
and fractional shares and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate beneficial
interests in the Fund. Each share represents an equal proportionate interest in
the Fund with each other share. Upon liquidation of the Fund shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders. All shares are presently of the same class;
however, if they deem it advisable and in the best interests of shareholders,
the Board of Trustees of the Trust may create additional classes of shares which
may differ from each other only as to dividends (subject to rules and
regulations of the Securities and Exchange Commission or by exemptive order) or
the Board of Trustees may, at its own discretion, create additional series of
shares each of which may have separate assets and liabilities (in which case any
such series would be designated as a separate "series" or "fund"). See the
Additional Statement for further information as to possible additional series.
On November 1, 1989, the Fund acquired all of the assets of the Rhode
Island Tax-Free Bond Fund (the "R.I. Fund") in exchange for shares of the Fund
pursuant to the terms of an Agreement and Plan of Reorganization. Under the
terms of the reorganization, each shareholder of the R.I. Fund became a
shareholder of the Fund, receiving shares of the Fund with a value equal to the
value of the shareholder's interest in the R.I. Fund. Approximately 212,150
shares of the Fund were issued in connection with the reorganization.
LIABILITY AND INDEMNIFICATION OF SHAREHOLDERS AND TRUSTEES
Under Massachusetts law, shareholders of such a Trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. The Declaration of Trust does, however, contain an express disclaimer of
shareholder liability of acts or obligations of the Fund 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 Declaration of Trust
provides for indemnification out of the Trust's property of any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that the Trust shall, 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. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to the relatively
remote circumstances in which the Trust itself would be unable to meet its
27
<PAGE> 30
obligations. In the event the Trust had two or more funds or series, and if any
such fund or series were to be unable to meet the Trust's obligations
attributable to it (which, as is the case with the Fund, is relatively remote)
other fund or series would be subject to such obligations, with corresponding
increase in the risk of the shareholder liability mentioned in the prior
sentence.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares held) and will vote in the election of
Trustees and on other matters submitted to the vote of shareholders. The holders
of shares have no pre-emptive or conversion rights. Shares are fully paid and
nonassessable, except as set forth above. The Fund may be terminated upon the
vote of the holders of a majority of the outstanding shares of the Fund or by
the Trustees by written notice to the shareholders. If not so terminated, the
Fund will continue indefinitely.
Under the 1940 Act, shareholders of record of no fewer than two-thirds of
the outstanding shares of the trust may remove a Trustee through a declaration
in writing or by vote cast in person or by proxy at a meeting called for that
purpose. The Trustees are required promptly to call a meeting of shareholders
for the purposes of voting upon the question of removal of any Trustee when
requested in writing to do so by the shareholders of record of not less than 10%
of the Trust's outstanding shares.
28
<PAGE> 31
<TABLE>
<CAPTION>
OCEAN STATE TAX EXEMPT FUND ("THE FUND")
c/o PFPC, INC. ("THE AGENT")
P.O. BOX 8950
A. APPLICATION PLEASE PRINT CLEARLY WILMINTON, DELAWARE 19899
- ------------------------------------------------------------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION:
- ------------------------------------------------------------------------------------------------------------------------------------
COMPLETE ONLY THE APPLICABLE SECTIONS WHICH WILL TELL US HOW YOUR ACCOUNT SHOULD BE REGISTERED.
<S> <C>
/ / Individual ---------------------------------------------------------------------------------------------- ---------------
and (First Name) (Middle Initial) (Last Name) Soc. Sec. No.
/ / Joint ----------------------------------------------------------------------------------------------
Registrant (First Name) (Middle Initial) (Last Name)
(if any)2 1 Only one Social Security Number is needed for tax reporting.
2 The account registration will be joint tenants with right of survivorship and not tenants in common unless
tenants in common or community property registrations are requested.
/ / Gifts to Name of Adult Custodian (Only 1 permitted):
Minors as Custodian for
--------------------------------------------------------------------------------------------
(First Name) (Middle Initial) (Last Name)
Name of Minor (Only 1 permitted):
-------------------------------------------------------------------------------------------- under the
(First Name) (Middle Initial) (Last Name)
Uniform Gifts to Minors Act
------------------------------------------------- ------------------------
(Name of State) Minor's Soc. Sec. No.
/ / Corporations
Partnerships -------------------------------------------------------------------------------------------------------------
Trusts & (Name of Corporation or Partnership. If a Trust, includes the name(s) of Trustees in which account will be
Others registered and the name and date of the Trust instrument. Account for a Pension or Profit Sharing Plan or
Trust may be registered in the name of the Plan or Trust itself.)
PLEASE INDICATE TYPE OF ORGANIZATION: --------------------------------
/ / Corporation / / Partnership / / Trust / / Other (Taxpayer I.D. No.)
-----------------
2. ADDRESS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(Street Address)
- ---------------------------------------------------------------------------------- --------- ----------------------------------
(City) (State) (Zip) Area Code Daytime Tel.
Citizen or resident of: / / U.S. / / Other Check here / / if you are a non-U.S. Citizen or resident and
--------------- not subject to back-up withholding (see certification in 8 below.)
(specify)
3. AMOUNT OF INVESTMENT
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT OF INVESTMENT $ MINIMUM INITIAL INVESTMENT $1,000
--------------------- Enclose check payable to: Ocean State Tax Exempt Fund
/ / Please check here if establishing an Automatic Withdrawal Plan (minimum investment $5,000) and complete Section 6 of
this application.
4. DIVIDEND AND DISTRIBUTION INSTRUCTIONS: (Dividends and Capital Gains will be reinvested unless indicated otherwise)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends are to be: / / Reinvested / / Paid in cash Capital Gains Distributions are to be: / / Reinvested / / Paid in cash
5. RIGHT OF ACCUMULATION/LETTER OF INTENT:
- ------------------------------------------------------------------------------------------------------------------------------------
IF YOU ARE ALREADY A FUND SHAREHOLDER, YOU MAY BE ENTITLED TO A REDUCED SALES CHARGE UNDER RIGHT OF ACCUMULATION OR LETTER OF
INTENT. TO QUALIFY, YOU MUST COMPLETE THIS SECTION. List all your accounts, including those in your spouse's name, joint accounts
with your spouse, and accounts held for your minor children. If you need more space, please attach a separate sheet. This account
qualifies for reduced sales charge under:
/ / RIGHT OF ACCUMULATION: My existing Fund account numbers are: LETTER OF INTENT: / / Submitted with this application
(complete Section b)
/ / Previously submitted for accounts
listed below:
- ----------------------------------------------------------------- -----------------------------------------------------------
</TABLE>
<PAGE> 32
<TABLE>
6. AUTOMATIC WITHDRAWAL PLAN:
- ------------------------------------------------------------------------------------------------------------------------------------
Please establish an Automatic Withdrawal Plan for this account, subject to the terms of such Plan as set forth below. To
realize the amount stated below, the Agent is authorized to redeem sufficient shares from this account at the then Net Asset
Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ beginning Payments to be made: / / Monthly or / / Quarterly.
-------------- -------------
(Minimum: $50) (Month)(Year)
Checks should be made payable to (if check is payable to a bank for your commercial bank account, indicate bank name, address and
your account number):
<S> <C>
- ------------------------------------------------------------------------------------ ------------------------------------------
(First Name) (Middle Initial) (Last Name) (Bank Name and Address)
- ------------------------------------------------------------------------------------ ------------------------------------------
(Street)
- ------------------------------------------------------------------------------------ ------------------------------------------
(City) (State) (Zip)
------------------------------------------
(Bank Account Number)
7. TELEPHONE REDEMPTION
- ------------------------------------------------------------------------------------------------------------------------------------
When shares are redeemed by telephone or wire, please wire redemption proceeds of $1,000 or more in federal funds to my (our)
COMMERCIAL bank account which must be in the same name as this Fund account is registered. (Please attach a deposit slip or voided
check.)
- --------------------------------------------------------- ------------------------------ ----------------------------------------
Name of Bank Bank a/c no. Bank ABA no.
- --------------------------------------------------------- -------------------------------------------------------------------------
Street City State Zip
8. SIGNATURE(S):
- ------------------------------------------------------------------------------------------------------------------------------------
The undersigned warrants that he/she has full authority and is of legal age to purchase shares of the Fund and has received and read
a current Prospectus of the Fund and agrees to its terms. The Agent will not be liable for acting upon instructions it believes are
genuine. Under penalties of perjury, the undersigned whose Social Security (Tax I.D.) Number is shown above certifies (i) that
Number is my correct taxpayer identification number and (ii) currently I am not under IRS notification that I am subject to backup
withholding (line out (ii) if under notification). If no such Number is shown, the undersigned further certifies, under penalties of
perjury, that either (a) no such Number has been issued, and a Number has been or will soon be applied for; if a Number is not
provided to you within sixty days, the undersigned understands that all payments (including liquidations) are subject to 31%
withholding under federal tax law, until a Number is provided; or (b) that the undersigned is not a citizen or resident of the
U.S.; and either does not expect to be in the U.S. for 183 days during each calendar year and does not conduct a business in the
U.S. which woul receive any gain from the Fund, or is exempt under an income tax treaty.
- ------------------------------------------------------- ----------------------------------------- ----------------------------
Individual (or Custodian) Joint Registrant, if any Date
- ------------------------------------------------------- ----------------------------------------- ----------------------------
Corporate Officer, Partner, Trustee, etc. Title Date
9. INVESTMENT DEALER: (IMPORTANT - TO BE COMPLETED BY DEALER):
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------- --------------------------------------------------------------------
Dealer Name Branch #/Rep. #/ Name
- -------------------------------------------------------------
Address
( )
- ------------------------------------------------------------- --------------------------------------------------------------------
Area Code Telephone Dealer No./Branch Office -- City & State
IMPORTANT INFORMATION ABOUT TAXPAYER IDENTIFICATION NUMBERS:
- ------------------------------------------------------------------------------------------------------------------------------------
Because of important changes made to the Internal Revenue Code in 1983, we must be certain that we have a record of your correct
Social Cecurity Number or other Taxpayer Identification Number. If you have not certified that you have provided us with the correct
number, your account will be subject to special Federal income tax withholding (called "backup withholding"); the law will then
require us to withhold 31% of each taxable dividend or capital gain distribution paid to you in cash or reinvested in your account
and will require us to withhold 31% of any liquidation or the amount you exchange to establish a new account. The amount withheld is
paid to the Internal Revenue Service toward the amount of Federal income taxes you owe. the Fund will not return to you an amount
withheld due to your failure to provide a correct certified number. In addition, you may be subject to a $50 I.R.S. penalty.
Therefore, please include your correct Social Security Number or Taxpayer Identification Number. The appropriate taxpayer
identification number must be inserted on the application in the space provided.
The following sets forth examples of what identification number to list:
Type of Account Registration Taxpayer Number to be Used
- ------------------------------------------------------------------------------------------------------------------------------------
Individual Account Social Security Number of Applicant
Joint Account Social Security Number of Person Reporting Tax
Custodian Account for a Minor Social Security Number of Minor
Corporation, Partnership, Trust Estate, Pension Trust, Broker, etc. Taxpayer Identification Number
Nonresident Alien None Required
</TABLE>
<PAGE> 33
<TABLE>
b. LETTER OF INTENT SEE TERMS BELOW
- -----------------------------------------------------------------------------------------------------------------------------------
-----------------------
DATE
Gentlemen:
I intend to invest in shares of the Fund during the 13-month period from the date of my first purchase pursuant to this
Letter (which purchase cannot be more than 90 days prior to this Letter), an aggregate amount (excluding any reinvestments of
dividends or distributions) of a least $25,000 which, together with my present holdings of Fund shares (at public offering price on
date of this Letter), will equal or exceed the minimum amount checked below:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000
Subject to conditions specified below, each purchase will be made at the public offering price applicable to a single
transaction of the dollar amount checked above.
I am making no commitment to purchase shares, but if my purchases within thirteen months from the date of my first purchase
do not aggregate $25,000, or, if such purchases added to my present holdings do not aggregate the minimum amount specified above, I
will pay the increased amount of sales charge prescribed in terms of escrow below. It is understood that 3% of the minimum dollar
amount checked above will be held in escrow in the form of shares (computed to the nearest full share). These shares will be held
subject to the terms of escrow.
The commission to the dealer, if any, named herein shall be at the rate applicable to the minimum amount of my specified
intended purchases checked above. If my actual purchases do not reach this minimum amount, the commissions previously paid to the
dealer will be adjusted to the rate applicable to my total actual purchases. If my total purchases exceed the dollar amount of my
intended purchases and pass the next commission break-point, I shall receive the lower sales charge, provided that the dealer
returns to the Distributor the excess of commissions previously allowed or paid to him over that which would be applicable to the
amount of my total purchases.
In determining from time to time the total amount of purchases made hereunder, shares disposed of by the undersigned prior
to the termination of this Letter will be deducted.
My dealer shall refer to this Letter of Intent in placing any future purchase orders for me while this Letter is in effect.
Terms Accepted
<S> <C> <C>
- ------------------------------------------ ---------------------------------------- --------------------------------------------
(Dealer) Print name(s) of Investor(s) Print name(s) of Investor(s)
By
---------------------------------------- ---------------------------------------- --------------------------------------------
(Authorized Signature) Address Address
Date
-------------------------------------- ---------------------------------------- --------------------------------------------
City City
Accepted:
---------------------------------------- --------------------------------------------
State and Zip State and Zip
By
---------------------------------------- ---------------------------------------- --------------------------------------------
Distributor Signature(s) of Investor(s) Signature(s) of Investor(s)
Number of shares to be held in / / --------------------------------------------
Escrow under this Letter of Intent Expiration Date of Letter
TERMS OF ESCROW FOR LETTER OF INTENT
- ----------------------------------------------------------------------------------------------------------------------------------
In submitting a Letter of Intent, the investor agrees to be bound by the terms and conditions applicable to Letters of Intent
appearing below.
1. Out of the initial purchase (or subsequent purchaw if necessary), 3% of the dollar amount specified in the Letter of
Intent ("Letter") shall be held in escrow in shares of the Fund by the Agent. All dividends and any capital distributions on the
escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter of Intent is completed with a thirteen-month period, the
escrowed shares will be promptly released to the investor. However, shares disposed of prior to completion of the purchase
requirement under the Letter of Intent will be deducted from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter of Intent are less than the amount specified in the Letter as the
intended aggregate purchases, the investor must remit to the Distributor an amount equal to the difference between the dollar amount
of sales charges actually paid and the amount of sales charges which would have been paid if the total amount purchase had been made
a single time. If such difference in sales charges is not apid within twenty days after receipt of a request from the Distributor or
the dealer, the Distributor will, within sixty days after the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full shares and any cash proceeds for a fractional share remaining after such
redemption will be released to the investor. The eescrow of shares will not be released until any additional sales charge due has
been paid as stated in this section.
4. By signing the Letter, the investor irrevocably constitutes and appoints the Agent or the Distributor his attorney
to surrender for redemption any or all escrowed shares on the books of the Fund.
</TABLE>
<PAGE> 34
<TABLE>
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
- ------------------------------------------------------------------------------------------------------------------------------------
By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms and conditions applicable to such plans, as stated
below.
<S> <C>
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as agent for the person (the "Planholder") who
executed the Plan authorization.
2. Certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Agent will
credit all such shares to the Planholder on the records of the Fund. Any certificates now held by the Planholder may be surrendered
unendorsed to the Agent with the application so that the shares represented by the certificates may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund at Net Asset Value without a sales charge.
4. Redemption of shares in connection with disbursement payments will be made at the Net Asset Value per share in
effect at the close of business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to which checks are to be mailed may be
changed, at any time, by the Planholder on written notification to the Agent. The Planholdre should allow at least two week's time
in mailing such notification before the requested change can be put into effect.
6. The Planholder may, at any time, instruct the Agent by written notice (in proper form in accordance with the
requirements of the ten current prosepectus of the Fund) to redeem all, or any part of, the shares held under the Plan. In such case
the Agent will redeem the number of shares requested at the Net Asset Value per share in effect in accordance with the Fund's usual
redemption procedures and will mail a check for the proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written notice to the Agent, or by the Agent upon
receiving directions to that effect from the Fund. The Agent will also terminate the Plan upon receipt of evidence satisfactory to
it of the death or legal incapacity of the Planholder. Upon termination of the Plan by the Agent of the Fund, shares remianing
unredeemed will be held in an uncertificated account in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertified account unless and until proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for the Fund, the Planholder will be deemed to have
appointed any successor transfer agent to act as his agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are undesirable because sales charges when purchases
are made. Accordingly, a Planholdr may not maintain this Plan while simultaneously making regular purchases. While an occasional
lump sum investment may be made, such investment should normally be an amount equivalent ot three times the annual withdrawal or
$5,000, whichever is less.
</TABLE>
<PAGE> 35
NOTES
<PAGE> 36
6. AUTOMATIC WITHDRAWAL PLAN:
- --------------------------------------------------------------------------------
Please establish an Automatic Withdrawal Plan for this account, subject to the
terms of such Plan as set forth below. To realize the amount stated below, the
Agent is authorized to redeem sufficient shares from this account at the then
Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $
- ---------- beginning
- ---------- Payments to be made: / / Monthly or / / Quarterly.
(Minimum: $50)
(Month)(Year)
Checks should be made payable to (if check is payable to a bank for your
commercial bank account, indicate bank name, address and your account number):
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------- ---------------------------------------
(First Name) (Middle Initial) (Last Name) (Bank Name and Address)
- ----------------------------------------------------------------------- ---------------------------------------
(Street)
- ----------------------------------------------------------------------- ---------------------------------------
(City) (State) (Zip)
---------------------------------------
(Bank Account Number)
</TABLE>
7. TELEPHONE REDEMPTION:
- --------------------------------------------------------------------------------
When shares are redeemed by telephone or wire, please wire redemption proceeds
of $1,000 or more in federal funds to my (our) commercial bank account which
must be in the same name as this Fund account is registered. (Please attach a
deposit slip or voided check.)
- -------------------------------------------------------
Name of Bank
- -------------------------------------------------------
Street
- ---------------------------
- ---------------------------
Bank a/c no. Bank ABA no.
- -------------------------------------------------------
City State Zip
8. SIGNATURE(S):
- --------------------------------------------------------------------------------
The undersigned warrants that he/she has full authority and is of legal age to
purchase shares of the Fund and has received and read a current Prospectus of
the Fund and agrees to its terms. The Agent will not be liable for acting upon
instructions it believes are genuine. Under penalties of perjury, the
undersigned whose Social Security (Tax I.D.) Number is shown above certifies (i)
that Number is my correct taxpayer identification number and (ii) currently I am
not under IRS notification that I am subject to backup withholding (line out
(ii) if under notification). If no such Number is shown, the undersigned further
certifies, under penalties of perjury, that either (a) no such Number has been
issued, and a Number has been or will soon be applied for; if a Number is not
provided to you within sixty days, the undersigned understands that all payments
(including liquidations) are subject to 31% withholding under federal tax law,
until a Number is provided; or (b) that the undersigned is not a citizen or
resident of the U.S.; and either does not expect to be in the U.S. for 183 days
during each calendar year and does not conduct a business in the U.S. which
would receive any gain from the Fund, or is exempt under an income tax treaty.
<TABLE>
<S> <C> <C>
- ------------------------------------------ ------------------------------------------ ------------------------
Individual(or Custodian) Joint Registrant, if any Date
- ------------------------------------------ ------------------------------------------ ------------------------
Corporate Officer, Partner, Trustee, etc. Title Date
</TABLE>
9. INVESTMENT DEALER: (IMPORTANT--TO BE COMPLETED BY DEALER):
- --------------------------------------------------------------------------------
- -------------------------------------------------------
Dealer Name
- -------------------------------------------------------
Address
( )
- -------------------------------------------------------
Area Code Telephone
- -------------------------------------------------------
Branch #/Rep. #/Name
- -------------------------------------------------------
Dealer No./Branch Office--City & State
IMPORTANT INFORMATION ABOUT TAXPAYER IDENTIFICATION NUMBERS:
- --------------------------------------------------------------------------------
Because of important changes made to the Internal Revenue Code in 1983, we must
be certain that we have a record of your correct Social Security Number or other
Taxpayer Identification Number. If you have not certified that you have provided
us with the correct number, your account will be subject to special Federal
income tax withholding (called "backup withholding"); the law will then require
us to withhold 31% of each taxable dividend or capital gain distribution paid to
you in cash or reinvested in your account and will require us to withhold 31% of
any liquidation or the amount you exchange to establish a new account. The
amount withheld is paid to the Internal Revenue Service toward the amount of
Federal income taxes you owe. The Fund will not return to you an amount withheld
due to your failure to provide a correct certified number. In addition, you may
be subject to a $50 I.R.S. penalty. Therefore please include your correct Social
Security Number or Taxpayer Identification Number. The appropriate taxpayer
identification number must be inserted on the application in the space provided.
The following sets forth examples of what identification number to list:
<TABLE>
<S> <C>
Type of Account Registration Taxpayer Number to be Used
- ------------------------------------------------------------------------------------------------------------------
Individual Account Social Security Number of Applicant
Joint Account Social Security Number of Person Reporting Tax
Custodian Account for a Minor Social Security Number of Minor
Corporation, Partnership, Trust Estate, Pension Trust, Broker, Taxpayer Identification Number
etc.
Nonresident Alien None Required
</TABLE>
<PAGE> 37
B. LETTER OF INTENT SEE TERMS BELOW
- --------------------------------------------------------------------------------
------------------------------
DATE
Gentlemen:
I intend to invest in shares of the Fund during the 13-month period from the
date of my first purchase pursuant to this Letter (which purchase cannot be more
than 90 days prior to this Letter), an aggregate amount (excluding any
reinvestments of dividends or distributions) of at least $25,000 which, together
with my present holdings of Fund shares (at public offering price on date of
this Letter), will equal or exceed the minimum amount checked below:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $500,000 /
/ $1,000,000
Subject to conditions specified below, each purchase will be made at the
public offering price applicable to a single transaction of the dollar amount
checked above.
I am making no commitment to purchase shares, but if my purchases within
thirteen months from the date of my first purchase do not aggregate $25,000, or,
if such purchases added to my present holdings do not aggregate the minimum
amount specified above, I will pay the increased amount of sales charge
prescribed in terms of escrow below. It is understood that 3% of the minimum
dollar amount checked above will be held in escrow in the form of shares
(computed to the nearest full share). These shares will be held subject to the
terms of escrow.
The commission to the dealer, if any, named herein shall be at the rate
applicable to the minimum amount of my specified intended purchases checked
above. If my actual purchases do not reach this minimum amount, the commissions
previously paid to the dealer will be adjusted to the rate applicable to my
total actual purchases. If my total purchases exceed the dollar amount of my
intended purchases and pass the next commission break-point, I shall receive the
lower sales charge, provided that the dealer returns to the Distributor the
excess of commissions previously allowed or paid to him over that which would be
applicable to the amount of my total purchases.
In determining from time to time the total amount of purchases made
hereunder, shares disposed of by the undersigned prior to the termination of
this Letter will be deducted.
My dealer shall refer to this Letter of Intent in placing any future
purchase orders for me while this Letter is in effect.
Terms Accepted
<TABLE>
<S> <C> <C>
- ------------------------------------ ------------------------------------ ------------------------------------
(Dealer) Print name(s) of Investor(s) Print name(s) of Investor(s)
By
------------------------------------ ------------------------------------
(Authorized Signature) Address Address
Date
------------------------------------ ------------------------------------
City City
Accepted:
------------------------------------ ------------------------------------
State and Zip State and Zip
By
------------------------------------ ------------------------------------
Distributor Signature(s) of Investor(s) Signature(s) of Investor(s)
---------------------------
NUMBER OF SHARES TO BE HELD
IN
ESCROW UNDER THIS LETTER OF
INTENT
---------------------------
</TABLE>
---------------------------
Expiration Date of Letter
TERMS OF ESCROW FOR LETTER OF INTENT
- --------------------------------------------------------------------------------
In submitting a Letter of Intent, the investor agrees to be bound by the terms
and conditions applicable to Letters of Intent appearing below.
1. Out of the initial purchase (or subsequent purchase if necessary), 3% of
the dollar amount specified in the Letter of Intent ("Letter") shall be held in
escrow in shares of the Fund by the Agent. All dividends and any capital
distributions on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter of Intent is
completed with a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to completion of the
purchase requirement under the Letter of Intent will be deducted from the amount
required to complete the investment commitment.
3. If the total purchases pursuant to the Letter of Intent are less than
the amount specified in the Letter as the intended aggregate purchases, the
investor must remit to the Distributor an amount equal to the difference between
the dollar amount of sales charges actually paid and the amount of sales charges
which would have been paid if the total amount purchased had been made at a
single time. If such difference in sales charges is not paid within twenty days
after receipt of a request from the Distributor or the dealer, the Distributor
will, within sixty days after the expiration of the Letter, redeem the number of
escrowed shares necessary to realize such difference in sales charges. Full
shares and any cash proceeds for a fractional share remaining after such
redemption will be released to the investor. The escrow of shares will not be
released until any additional sales charge due has been paid as stated in this
section.
4. By signing the Letter, the investor irrevocably constitutes and appoints
the Agent or the Distributor his attorney to surrender for redemption any or all
escrowed shares on the books of the Fund.
<PAGE> 38
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
- --------------------------------------------------------------------------------
By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms
and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as
agent for the person (the "Planholder") who executed the Plan authorization.
2. Certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Agent will credit all such shares to the
Planholder on the records of the Fund. Any certificates now held by the
Planholder may be surrendered unendorsed to the Agent with the application so
that the shares represented by the certificates may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund at
Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of business on the
last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the Planholder on
written notification to the Agent. The Planholder should allow at least two
week's time in mailing such notification before the requested change can be put
into effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the ten current
prospectus of the Fund) to redeem all, or any part of, the shares held under the
Plan. In such case the Agent will redeem the number of shares requested at the
Net Asset Value per share in effect in accordance with the Fund's usual
redemption procedures and will mail a check for the proceeds of such redemption
to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that effect
from the Fund. The Agent will also terminate the Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder. Upon
termination of the Plan by the Agent or the Fund, shares remaining unredeemed
will be held in an uncertificated account in the name of the Planholder, and the
account will continue as a dividend-reinvestment, uncertificated account unless
and until proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any successor transfer
agent to act as his agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made. Accordingly, a
Planholder may not maintain this Plan while simultaneously making regular
purchases. While an occasional lump sum investment may be made, such investment
should normally be an amount equivalent to three times the annual withdrawal or
$5,000, whichever is less.
<PAGE> 39
NOTES
<PAGE> 40
[LOGO] OCEAN STATE
TAX EXEMPT FUND
INVESTMENT ADVISER
Van Liew Capital Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
DISTRIBUTOR
Van Liew Securities Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
CUSTODIAN
P.N.C. Bank, N.A.
Airport Business Center
200 Stevens Drive, Suite 440
Lester, Pennsylvania 19113
TRANSFER AGENT
PFPC, Inc.
P.O. Box 8950
Wilmington, Delaware 19899
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
COUNSEL
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
<TABLE>
TABLE OF CONTENTS
<S> <C>
Summary..................................... 2
Financial Highlights........................ 4
Discussion of Fund Performance.............. 5
Introduction................................ 6
Investment Of The Fund Assets............... 7
Investment Restrictions..................... 14
Net Asset Value Per Share................... 15
How To Invest In The Fund................... 16
How To Redeem Your Investment............... 18
Automatic Withdrawal Plan................... 21
Management Arrangements..................... 21
Dividend And Tax Information................ 23
General Information......................... 27
Application And Letter of Intent
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE
PROSPECTUS IN CONNECTION WITH ANY
OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH
INFORMATION MUST NOT BE RELIED ON AS
HAVING BEEN AUTHORIZED BY THE FUND.
THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY THE FUND IN ANY
JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
A tax-free
income vehicle
PROSPECTUS
<PAGE> 41
STATEMENT OF ADDITIONAL INFORMATION
OCEAN STATE TAX-EXEMPT FUND
ONE REGENCY PLAZA
PROVIDENCE, RHODE ISLAND 02903
401-421-1411
1-800-300-1116
MARCH 1, 1996
This Statement of Additional Information ("Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction
with the Prospectus (the "Prospectus") dated March 1, 1996 of Ocean State
Tax-Exempt Fund (the "Fund"), which may be obtained by written request to
the Fund's transfer agent, PFPC, Inc. by writing to the transfer agent at:
P.O. Box 8950, Wilmington, Delaware 19899, or by calling it at the
following number:
Toll free 1-800-992-2207
or by written request to Van Liew Securities Inc., the Fund's Distributor,
One Regency Plaza, Providence, Rhode Island 02903.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
Investment of the Fund's Assets. . . . . . . . . . . . . . . . . . . . . . . . 2
Municipal Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Yield Information .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Distribution Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Limitation of Redemptions in Kind. . . . . . . . . . . . . . . . . . . . . . . 13
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Additional Information as to Management Arrangements . . . . . . . . . . . . . 17
Computation of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . 18
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE> 42
INVESTMENT OF THE FUND'S ASSETS
The investment objective and policies of the Fund are described in
the Prospectus, which refers to the matters described below. See the Prospectus
for the definitions of "Rhode Island Obligations", "Non-Rhode Island
Obligations" and "Taxable Short-Term Obligations" (collectively "Obligations").
INFORMATION ON U.S. GOVERNMENT SECURITIES
U.S. Government Securities (i.e., obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities) include securities
issued by the U.S. Government, which in turn include Treasury Bills (which
mature within one year of the date they are issued) and Treasury Notes and Bonds
(which are issued with longer maturities). All Treasury securities are backed
by the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or
guarantee securities include, but are not limited to, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
General Services Administration, Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, the Tennessee Valley Authority,
District of Columbia Armory Board, the Inter-American Development Bank, the
Asian-American Development Bank, and the International Bank for Reconstruction
and Development.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by the Federal National Mortgage
Association, are supported only by the credit of the instrumentality and not by
the Treasury. If the securities are not backed by the full faith and credit of
the United States, the owner of the securities must look principally to the
agency issuing the obligation for repayment and may not be able to assert a
claim against the United States in the event that the agency or instrumentality
does not meet its commitment. The Fund will invest in securities of agencies
and instrumentalities only if Van Liew Capital Inc. (the "Adviser") is satisfied
that the credit risk involved is minimal.
RATINGS
The ratings assigned by Moody's Investors Service, Inc. (Moody's")
or Standard & Poor's Corporation ("S&P") represent their respective opinions of
the quality of the municipal bonds and notes and Short-Term Taxable Obligations
which they undertake to rate. It should be emphasized, however, that ratings
are general and not absolute standards of quality. Consequently, obligations
with the same maturity, stated interest rate and rating may have different
yields, while obligations of the same maturity and stated interest rate with
2
<PAGE> 43
different ratings may have the same yield. See Appendix A to this Additional
Statement for further information about the ratings of Moody's and S&P as to the
various rated Rhode Island Obligations, Non-Rhode Island Obligations and Short-
Term Taxable Obligations which the Fund may purchase.
WHEN-ISSUED AND DELAYED DELIVERY OBLIGATIONS
The Fund may purchase Obligations on a when-issued or delayed
delivery basis. The purchase price and the interest rate payable on the
Obligations are fixed on the transaction date. At the time the Fund makes the
commitment to purchase Obligations on a when-issued or delayed delivery basis,
it will record the transaction and thereafter reflect the value each day of such
Obligations in determining its net asset value. The Fund will make commitments
for such when-issued transactions only when it has the intention of actually
acquiring the Obligations. To facilitate such acquisitions, the Fund will
maintain with the Custodian a separate account with portfolio Obligations in an
amount at least equal to such commitments. On delivery dates for such
transactions, the Fund will meet its commitments by selling the Obligations held
in the separate account and/or from cash flow.
MUNICIPAL BOND INDEX FUTURES
The Fund is permitted to use Municipal Bond Index Futures
("Municipal Bond Index Futures" or "Futures") as a possible means to protect the
asset value of the Fund during changing interest rate markets, although in fact
the Fund may never do so. A Future is a contract to deliver or accept delivery
of a cash settlement based on the movement of a security index. The following
discussion is intended to explain briefly the workings of Futures.
Unlike when the Fund purchases or sells an Obligation, no price is
paid or received by the Fund upon the purchase or sale of a Future. Initially,
however, when such transactions are entered into, the Fund will be required to
deposit with the futures commission merchant ("broker") an amount of cash or
Obligations equal to a varying specified percentage of the contract amount.
This amount is known as initial margin. Subsequent payments, called variation
margin, to and from the broker, will be made on a daily basis as the price of
the underlying index fluctuates making the Future more or less valuable, a
process known as mark to market. Insolvency of the broker may make it more
difficult to recover initial or variation margin. Changes in variation margin
are recorded by the Fund as unrealized gains or losses. Margin deposits do not
involve borrowing by the Fund and may not be used to support any other
transactions. At any time prior to expiration of the Future, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the Future. A final determination of variation
margin is then made. Additional cash is required to be paid by or released to
the Fund and it realizes a gain or a loss. Although Futures by their terms call
for the actual delivery or acceptance of cash, in most cases the contractual
obligation is fulfilled without having to make or take delivery. All
transactions in the futures markets are subject to commissions payable by the
Fund and are made
3
<PAGE> 44
offset or fulfilled through a clearing house associated with the exchange on
which the contracts are traded. Although the Fund intends to buy and sell
Futures only on an exchange where there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for
any particular Future at any particular time. In such event, or in the event
of an equipment failure at a clearing house, it may not be possible to close a
futures position.
One risk in employing Futures to attempt to protect against the
price volatility of the Fund's Rhode Island Obligations is that the Adviser
could be incorrect in its expectations as to the extent of various interest rate
movements or the time span within which the movements take place. For example,
if the Fund sold a Future in anticipation of an increase in interest rates, and
then interest rates went down instead, the Fund would lose money on the sale.
Another risk as to Futures arises because of the imperfect
correlation between movement in the price of the Future and movements in the
prices of the Rhode Island Obligations which are the subject of the hedge. The
risk of imperfect correlation increases as the composition of the Fund's
portfolio diverges from the municipal bonds included in the applicable index.
The price of the Future may move more than or less than the price of the Rhode
Island Obligations being hedged. If the price of the Future moves less than the
price of the Rhode Island Obligations which are the subject of the hedge, the
hedge will not be fully effective but, if the price of the Rhode Island
Obligations being hedged has moved in an unfavorable direction, the Fund would
be in a better position than if it had not hedged at all. If the price of the
Rhode Island Obligations being hedged has moved in a favorable direction, this
advantage will be partially offset by the Future. If the price of the Future
moved more than the price of the Rhode Island Obligations, the Fund will
experience either a loss or gain on the Future which will not be completely
offset by movements in the price of the Rhode Island Obligations which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of the Rhode Island Obligations being hedged and movements in the
price of the Futures, the Fund may buy or sell Futures in a greater dollar
amount than the dollar amount of the Rhode Island Obligations being hedged if
the historical volatility of the prices of the Rhode Island Obligations being
hedged is less than the historical volatility of the debt securities which are
included in the index. It is also possible that, where the Fund has sold
Futures to hedge its portfolio against decline in the market, the market may
advance and the value of the Rhode Island Obligations held in the Fund's
portfolio may decline. If this occurred the Fund would lose money on the Future
and also experience a decline in value of its portfolio securities.
Where Futures are purchased to hedge against a possible increase in
the price of Rhode Island Obligations before the Fund is able to invest in them
in an orderly fashion, it is possible that the market may decline instead; if
the Fund then concludes not to invest in them at that time because of concern as
to possible further market decline or for other reasons, the Fund will realize a
4
<PAGE> 45
loss on the Futures that is not offset by a reduction in the price of the Rhode
Island Obligations which it had anticipated purchasing.
There are daily price fluctuation limits established by contract
markets which limit the amount of fluctuation in a futures contract price during
a single trading day. Once the daily limit has been reached on a contract, no
trades may be entered into at prices beyond the limit, thus preventing the
liquidation of open futures positions.
REGULATORY ASPECTS OF MUNICIPAL BOND INDEX FUTURES
The Fund will, due to requirements under the Investment Company Act
of 1940 (the "1940 Act"), deposit in a segregated account with its custodian
bank Rhode Island Obligations maturing in one year or less or cash, in an amount
equal to the fluctuating market value of long Futures it has purchased, less any
margin deposited on long positions.
The Fund must operate within certain restrictions as to its long and
short positions in Futures under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission ("CFTC") under the Commodity Exchange Act
(the "CEA") to be eligible for the exclusion provided by the CFTC Rule as a
"commodity pool operator" (as defined under the CEA), and must represent to the
CFTC that the Fund will operate within such restrictions. Under these
restrictions the Fund will not, as to any positions, whether long, short or a
combination thereof, enter into Futures for which the aggregate initial margins
exceed 5% of the fair market value of its assets. Under the restrictions, the
Fund also must, as to its short positions, use Futures solely for bona-fide
hedging purposes within the meaning and intent of the applicable provisions
under the CEA. As to the Fund's long positions which are used as part of its
portfolio strategy and are incidental to its activities in the underlying cash
market, the "underlying commodity value" (see below) of its Futures must not
exceed the sum of (i) cash set aside in an identifiable manner, or short-term
U.S. debt obligations or other U.S. dollar-denominated high quality short-term
money market instruments so set aside, plus any funds deposited as margin; (ii)
cash proceeds from existing investments due in 30 days and (iii) accrued profits
held at the futures commission merchant. (There is described above the
segregated account which the Fund must maintain with its custodian bank as to
its Futures' activities due to requirements other than those of the CFTC Rule;
the Fund will, as to long positions, be required to abide by the more
restrictive of this other requirement or the above requirements of the CFTC
Rule.) The "underlying commodity value" of a Future is computed by multiplying
the size of the Future by the daily settlement price of the Future.
TAX INFORMATION ON FUTURES
The Prospectus states that the Fund intends to qualify as a
"regulated investment company" under the Internal Revenue Code (the "Code") and
discusses one of the tests for such qualification.
5
<PAGE> 46
Other tests for such qualification are that (i) at least 90% of the
Fund's gross income must be derived from interest and gains from the sale or
other disposition of securities and (ii) that less than 30% of the Fund's gross
income must be derived from gains realized on the sale of certain securities
(stock, securities, options, futures, forward contracts, foreign currencies or
options, futures or forward contracts on foreign currencies) held for less than
three months. For purpose of applying the 30% test, any increase in the value
on a position that is part of a designated hedge is offset by any decrease in
value (whether or not realized) on any other position that is part of such
hedge.
In connection with the 90% test, while the Code does not explicitly
state that gains realized by the Fund in connection with transactions in Futures
are gains from the sale of securities within the meaning of the Code, the Fund
intends to treat such gains as so qualifying.
In connection with the 30% test, the Code requires, as further
discussed below, that certain Futures be "marked to market" at the end of each
fiscal year. In calculating gains from the sale of securities held for less
than three months, the Fund will exclude any "gains" resulting from marking to
market at the end of a fiscal year.
For Code purposes, the Futures held by the Fund which remain open at
fiscal year end which are not part of a "mixed straddle" are marked-to-market;
that is, treated as having been sold at market value. The resultant net gain or
loss will be included in Federal taxable income. Further, for Federal income
tax purposes, a realized or unrealized gain or loss with respect to Futures is
normally treated as a long-term capital gain or loss, to the extent of 60% of
such gain or loss, and as a short-term capital gain or loss, to the extent of
40% of such gain or loss.
If a Future is part of a "mixed straddle", as defined by the Code,
the Fund may take an election whereby the mark-to-market and 60/40 rules will be
inapplicable.
Code Section 1092 may also affect the taxation of Futures. Section
1092 defines a "straddle" as offsetting positions with respect to personal
property. Futures fall under the definition of personal property. Section 1092
generally provides that any loss from the disposition of a position in a
straddle can be deducted only to the extent that the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
that "wash sale" rules are applicable to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and that "short sale" rules are applicable to straddles. The Adviser will
consider the effect of Section 1092 and related regulations in managing the
Fund's portfolio.
LOAN OF PORTFOLIO SECURITIES
The Fund may, to increase its income, lend its Obligations on a
short or long term basis to broker-dealers, banks or certain other financial
institutions
6
<PAGE> 47
(see below) if (i) the loan is collateralized in accordance with
applicable regulatory requirements (the "Guidelines") and if, (ii) after any
loan, the value of the Obligations loaned does not exceed 10% of the value of
its total assets. The financial institutions other than broker-dealers or banks
to which the Fund can lend its Obligations are limited to "accredited
investors", as that term is defined in Section 2(15) of the Securities Act of
1933. (In general, such institutions are insurance companies, investment
companies and certain employee benefit plans.) Under the present Guidelines
(which are subject to change) the loan collateral must, on each business day, at
least equal the value of the loaned obligations and must consist of cash, bank
letters of credit or U.S. Government Securities. To be acceptable as
collateral, a letter of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. Such terms and the
issuing banks would have to be satisfactory to the Fund. Any loan might be
secured by any one or more of the three types of collateral.
The Fund receives amounts equal to the interest or other
distributions on loaned obligations and also receives one or more of the
negotiated loan fees, interest on obligations used as collateral or interest on
the securities purchased with such collateral, either of which type interest may
be shared with the borrower. The Fund may also pay reasonable finder's,
custodian and administrative fees but only to persons not affiliated with the
Fund. The terms of the Fund's loans will meet certain tests under the Internal
Revenue Code and permit the Fund to terminate the loan and thus reacquire loaned
securities on five days' notice.
PORTFOLIO TRANSACTIONS
As most purchases of Obligations made by the Fund are principal
transactions at net prices, the Fund incurs little or no brokerage costs. The
Fund deals directly with the selling or purchasing principal or market maker
without incurring charges for the services of a broker on its behalf unless it
is determined that better price or execution may be obtained by utilizing the
services of a broker. Purchases of Obligations from underwriters include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include a spread between the bid and asked price. The Fund seeks
to obtain prompt execution of orders at the most favorable net price. All
principal transactions are with unaffiliated parties. Transactions are directed
to dealers based upon best execution and availability of securities. The Fund
is authorized to direct brokerage to dealers for their execution and research
services, on which no dollar value can be placed. There is no formula for such
allocation. The research information received may or may not be useful to the
Fund and/or other accounts of the Adviser; information received by these other
accounts may or may not be useful to the Fund. The research information
obtained may help the Fund and the Adviser in a number of ways. The information
may be in written form or through direct contact with individuals and includes
information on particular companies and industries, as well as market, economic
or institutional activity areas.
7
<PAGE> 48
The Fund may participate, if and when practicable, in bidding for
the purchase of municipal bonds directly from an issuer for the Fund's portfolio
in order to take advantage of the lower purchase price available to members of a
bidding group. The Fund will engage in this practice, however, only when the
Adviser, in its sole discretion, believes such practice to be otherwise in the
Fund's interest.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are "general
obligation" bonds and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith, credit and unlimited taxing power for the
payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or projects or, in a few cases, from the proceeds of a special excise or other
tax, but are not supported by the issuer's power to levy general taxes. There
are, of course, variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend on, among other things, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, the maturity of the obligation and rating of the
issue.
Since the Fund may invest in industrial development bonds, the Fund
may not be an appropriate investment for entities which are "substantial users"
of facilities financed by industrial development bonds or for investors who are
"related persons". Generally, an individual will not be a "related person"
under the Code unless such investor or his immediate family (spouse, brothers,
sisters and lineal descendants) own directly or indirectly in the aggregate more
than 50 percent in the value of the equity of a corporation or partnership which
is a "substantial user" of a facility financed from proceeds of "industrial
development bonds". A "substantial user" of such facilities is defined
generally as a "non-exempt person who regularly uses a part of (a) facility"
financed from the proceeds of industrial development bonds.
As set forth in the Prospectus, the Tax Reform Act of 1986
establishes new unified volume caps for most "private purpose" municipal bonds
(such as industrial development bonds and obligations to finance low-interest
mortgages on owner-occupied housing and student loans). The unified volume cap
is not expected to adversely affect the availability of Rhode Island Obligations
for investment by the Fund. However, it is possible that proposals will be
introduced before Congress to further restrict or eliminate the Federal income
tax exemption for interest on municipal obligations. Any such proposals, if
enacted, could adversely affect the availability of municipal bonds for
investment by the Fund and the value of the Fund's portfolio might be affected.
In that event, the Fund might reevaluate its investment policies and
restrictions and consider recommending to its shareholders changes in both.
8
<PAGE> 49
YIELD INFORMATION
From time to time the Fund may include its yield in advertisements
or in information furnished to present or prospective shareholders. The Fund's
"current yield" is the net average annualized return without compounding accrued
interest income. This is computed by annualizing the Fund's net investment
income per share for a recent 30-day (or one month) period divided by the
maximum public offering price (including sales charge) on the last day of the
period. The yield figure is calculated using certain uniform accounting
principles by which discount and premium of debt obligations are amortized into
income using the current market value of the obligations. Yield is rounded to 2
decimal places for advertisements and informational purposes. The Fund may also
furnish yield information based on the net asset value per share in addition to
the maximum public offering price.
The Fund's "tax-equivalent yield" is computed by dividing that
portion of the Fund's current yield which is tax-exempt by a factor equal to 1
minus a stated income tax rate and adding the product to that portion, if any,
of the Fund's current yield that is not tax-exempt. The "tax-equivalent yield"
reflects the yield a taxable investment would have to achieve in order to equal
on an after tax basis a specified tax-exempt yield.
The Fund's current yield for the 30-day period ended October 31,
1995 was 5.05%, based on the maximum public offering price (including sales
charge) of $11.03 on October 31, 1995. For shareholders with a combined federal
and state tax rate of 37.84%, this represents a tax-equivalent yield of 8.12%.
The 30-day yield for such period based on the net asset value of $10.59 on
October 31, 1995 was 5.26% (8.46% tax equivalent).
The Fund's yield varies from time to time depending upon market
conditions, the composition of its portfolio and operating expenses. These
factors and possible differences in the methods used in calculating yield and
other performance data should be considered when comparing the Fund's yield to
yields published for other investment companies and other investment vehicles.
Yield should also be considered relative to changes in the value of the Fund's
shares and to the risks associated with the Fund's investment objectives and
policies. At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any past yield will continue.
Any advertised yield quotation will be accompanied by average annual
total returns quotations for a one-year period and the entire period of the
Fund's operations. Average annual total return is calculated by determining the
average annual compounded rates of return over the specified periods that would
equate a hypothetical initial $1,000 investment at the beginning of the period
to the redeemable value at the end of the period. For purposes of the
calculation, the maximum sales load is deducted from the hypothetical $1,000
investment and all dividends and distributions by the Fund during the period are
assumed reinvested in shares at the net asset value per share on the
reinvestment dates during the period. The average annual total return of the
9
<PAGE> 50
Fund based on the maximum public offering price was 6.46% for the fiscal year
ended October 31, 1995, 8.05% for the five year period ended October 31, 1995
and 8.39% for the period from December 8, 1986 (commencement of operations)
through October 31, 1995. Both yield and total return are based on historical
earnings and may fluctuate. Past performance should not be considered an
indication of future performance.
INVESTMENT RESTRICTIONS
The Fund has a number of policies concerning what it may and may not
do. Those policies not set forth in the Prospectus are set forth below and may
not be changed unless the holders of a "majority" (as defined in the Investment
Company Act of 1940) of the Fund's outstanding shares vote to change them.
Under the Act, the vote of the holders of a "majority" of the Fund's outstanding
shares means the vote of the holders of the lesser of (a) 67% or more of the
Fund's shares present at a meeting or represented by proxy if the holders of 50%
or more of its shares are so present or represented; or (b) more than 50% of the
Fund's outstanding shares.
1. The Fund invests only in certain limited securities.
Since the Fund may not buy any securities other than those listed
under "Investment of the Fund's Assets" in the Prospectus, the Fund may not buy
any voting securities, any commodities or commodity contracts other than
Municipal Bond Index Futures, any mineral related programs or leases, any shares
of other investment companies or any warrants, puts, calls or combinations
thereof.
The Fund may not purchase or hold the securities of any issuer if,
to its knowledge, Trustees, directors or officers of the Fund or its Adviser
individually owning beneficially more than 1/2 of 1% of the securities of that
issuer together own in the aggregate more than 5% of such securities.
The Fund may not buy real estate nor any non-liquid interests in
real estate investment trusts; however, it may buy any securities which it may
otherwise buy even though the issuer invests in real estate or has interests in
real estate.
2. The Fund does not buy for control.
The Fund may not invest for the purpose of exercising control or
management of other companies.
3. The Fund does not sell securities it doesn't own or borrow from brokers to
buy securities.
Thus, it may not sell short or buy on margin; however, the Fund may
make margin deposits in connection with the purchase or sale of Municipal Bond
Index Futures.
10
<PAGE> 51
4. The Fund is not an underwriter.
The Fund may not engage in the underwriting of securities, that is,
the selling of securities or others. Also, it may not invest in restricted
securities. Restricted securities are securities which cannot freely be sold
for legal reasons.
5. The Fund may not issue senior securities.
The Fund may not issue senior securities or any shares of beneficial
interest having priority over any other class as to distribution of assets or
payment of dividends, provided that the Fund may issue additional classes and
series of shares to the extent permitted by the Investment Company Act of 1940.
DISTRIBUTION ARRANGEMENTS
DISTRIBUTOR
Van Liew Securities Inc., an affiliate of the Adviser, has served as
the Fund's Distributor since May 31, 1990, pursuant to a Distribution Agreement
approved by the Board of Trustees on May 22, 1990. Van Liew Securities Inc.
received $595 in underwriting fees and $27,324 in commissions as a result of
sales of Fund shares for the fiscal year ended October 31, 1993, $107 in
underwriting fees and $6,269 in commissions as a result of sales of Fund shares
for the fiscal year ended October 31, 1994 and $37 in underwriting fees and
$5,389 in commissions as a result of sales of Fund shares for the fiscal year
ended October 31, 1995.
The Distribution Agreement shall continue in effect from year to
year but only so long as its continuance is approved at least annually in the
same manner as the Distribution Plan described below. The Distribution
Agreement will terminate automatically in the event of its assignment (as
defined in the Investment Company Act of 1940) and may be terminated by either
the Fund or the Distributor on 60 days' written notice without further recourse.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") under Rule
12b-1 (the "Rule") under the Investment Company Act of 1940 (the "1940 Act").
The Rule provides in substance that an investment company may not engage
directly or indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a plan adopted under the
Rule. The Plan authorizes the Fund to pay for printing all prospectuses,
statements of
11
<PAGE> 52
additional information and reports and notices to shareholders,
even those which are not sent to existing shareholders, which expenses may be
related to the sale of the Fund's shares and, accordingly come within the
purview of the Rule. During the fiscal year ended October 31, 1995, the Fund
paid $5,719 for such printing costs. The Plan is also designed to protect
against any claim against or involving the Fund that some of the other expenses
related to the sale of the Fund's shares which the Fund pays or may pay come
within the purview of the Rule. If and to the extent that any payment as
specifically listed in the Plan is considered to be primarily intended to result
in or as indirect financing of any activity which is primarily intended to
result in the sale of Fund shares, these payments are authorized under the Plan.
The Plan states that if and to the extent that any of the payments
listed below are considered to be "primarily intended to result in the sale of"
shares issued by the Fund within the meaning of the Rule, such payments are
authorized under the Plan: (i) the costs of the preparation and printing of all
reports and notices to shareholders and the costs of mailing such reports and
notices to existing shareholders, irrespective of whether such reports or
notices contain or are accompanied by material intended to result in the sale of
shares of the Fund or other funds or other investments; (ii) the costs of the
preparation and printing of all prospectuses and statements of additional
information and the costs of mailing all prospectuses and statements of
additional information to existing shareholders; (iii) the costs of preparation,
printing and mailing of any proxy statements and proxies, irrespective of
whether any such proxy statement includes any item relating to, or directed
toward, the sale of the Fund's shares; (iv) all legal and accounting fees
relating to the preparation of any such reports, prospectuses, statements of
additional information, proxies and proxy statements; (v) all fees and expenses
relating to the qualification of the Fund and/or its shares under the securities
or "Blue-Sky" laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and 1940 Act, including fees in connection with any application for
exemption relating to or directed toward the sale of the Fund's shares; (vii)
all fees and assessments of the Investment Company Institute or any successor
organization, irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and mailing of
confirmations of shares sold or redeemed or share certificates, and reports of
share balances; and (ix) all costs of responding to telephone or mail inquiries
of investors.
The Plan states that while it is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested persons" of the
Fund shall be committed to the discretion of such disinterested Trustees but
that nothing in the Plan shall prevent the involvement of others in such
selection and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested Trustees.
The Plan requires the Fund's Adviser at least quarterly to report in
writing to the Fund's Trustees for their review on all costs of each item
specified in the second preceding paragraph (making estimates of such costs
where necessary or desirable) during the preceding calendar or fiscal quarter.
12
<PAGE> 53
The Plan has been approved: (i) by a vote of the Trustees of the
Fund and of those Trustees (the "Qualified Trustees") who are not "interested
persons" as defined in the Investment Company Act of 1940 of the Fund and have
no direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan, cast in person at a meeting called for the
purpose of voting on the Plan; and (ii) by a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities of the Fund at a
meeting held on May 5, 1988. Unless terminated as hereinafter provided, the
Plan shall continue in effect from year to year only so long as such continuance
is specifically approved at least annually by the Fund's Trustees and its
Qualified Trustees by a vote cast in person at a meeting called for the purpose
of voting on such continuance. The Plan may be terminated at any time by vote
of a majority of the Qualified Trustees or by the vote of the holders of a
"majority" (as defined above) of the outstanding voting securities of the Fund.
The Plan may not be amended to increase materially the amount of payments to be
made without shareholder approval as set forth in (ii) above, and all amendments
must be approved in the manner set forth in (i) above.
In voting on the implementation of the Plan, the Board of Trustees
concluded, in the exercise of reasonable business judgment and in light of their
fiduciary duties under state and federal law, that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders and must
reach a similar conclusion when voting on any continuance of the Plan. The
anticipated benefits of the Plan include the possibility of increasing the
Fund's assets to a level that would permit the Fund to invest in larger
denominations of some instruments that offer a higher effective yield than small
denomination investments in the same instruments and cost advantages resulting
from economies of scale.
LIMITATIONS OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent of the net asset
value of the Fund during any 90 day period for any one shareholder. Should
redemptions by any shareholder exceed such limitation, the Fund will have the
option of redeeming the excess in cash or in kind. If shares are redeemed in
kind, the redeeming shareholder might incur brokerage costs in converting the
assets into cash. The method of valuing securities used to make redemptions in
kind will be the same as the method of valuing portfolio securities described
under "Net Asset Value Per Share" in the Prospectus, and such valuation will be
made as of the same time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund, their affiliations, if any,
with the Administrator, and their principal occupations during at least the past
five years are set forth below. Trustees who are "interested persons" of the
Fund as
13
<PAGE> 54
that term is defined in the Investment Company Act of 1940 are
designated with an (*) asterisk. As of January 31, 1996, the Trustees and
officers of the Fund owned 49,039 shares or approximately 1.22% of the
outstanding shares of the Fund.
ALFRED B. VAN LIEW*, PRESIDENT AND TRUSTEE
One Regency Plaza, Suite One, Providence, Rhode Island 02903
Managing Partner of the Adviser, since 1984; Director of the
Distributor since May 1990; Chairman & Chief Executive Officer of Van Liew Trust
Company, a Rhode Island chartered trust company, since 1984; Executive Vice
President in charge of the trust & investment management businesses of Rhode
Island Hospital Trust National Bank (1981-1984); President & Chief Executive
Officer of Hospital Trust of Florida (1982-1984); Chairman & Chief Executive
Officer of HT Advisers, Inc. (1980-1984) and Director of HT Investors, Inc.
(1981-1984), registered investment counselling firms affiliated with RIHT
Financial Corp.; Trustee of RI School of Design (1974-1992); Board member, Rhode
Island Water Resources Board and Rhode Island Water Resources Board Corp. (1991-
1994); Trustee of The Heritage Foundation of RI since 1971; Adviser to the
National Trust for Historic Preservation since 1983; Trustee of St. Andrew's
School since 1984; Trustee of the Museum of Yachting since 1988; and Trustee of
the Seaman Institute, Newport, Rhode Island since 1994.
MILTON C. BICKFORD, JR., TRUSTEE
147 Beavertail Road, Jamestown, Rhode Island 02835
Private investor since 1989; CEO, National Bickford Foremost, Inc.
(national color printing firm) 1980-1989; CEO, National Bickford Graphics, Inc.
1972-1980; CEO, Bickford Engraving & Electrotype Company 1959-1972; President
Rotary Club of Providence 1970-1971; Vice President Greater Providence Chamber
of Commerce 1976-1979; Trustee Museum of Yachting 1990-1995; currently Vice
Chairman AAA Auto Club of Southcentral New England.
MICHAEL E. HOGUE, TRUSTEE
32 Keene Street, Providence, Rhode Island 02906
President, Young America, Inc. since June 1994; Managing Director,
Chairman and Chief Executive Officer of PW Group, Inc. (insurance) and Chairman
and Chief Executive Officer of the Providence Washington Insurance Group from
1986 to 1993; Chairman and Managing Director of Philadelphia Insurance Research
Group from 1975 to 1986 and Assistant Professor of Insurance at the Wharton
School, University of Pennsylvania, from 1973 to 1977.
ALICE M. MACINTOSH, TRUSTEE
861 Stratford Lane, Warwick, Rhode Island 02886
Marketing consultant; from 1986 to 1991, Chief Supervisory Clerk of
the State's Superior Court; previously a Marketing Consultant and Vice-President
of Marketing at Hospital Trust National Bank. Mrs. Macintosh is an honorary
14
<PAGE> 55
director of Narragansett Electric Company, a director of Bay Loan & Investment
Company (a subsidiary of FPL Group, Inc., a subsidiary of Florida Power and
Light) and The Convention Authority of the City of Providence and is also past
Chairman of the Board of AAA Auto Club of South Central New England, and past
President of the Rhode Island Bankers Association, the Business and Professional
Women of Rhode Island and past Regional Vice President of the National
Association of Bank Women (NABW) and co-founder of the Rhode Island Chapter.
RICHARD A. PLOTKIN, TRUSTEE
130 Bellevue Avenue, Newport, Rhode Island 02840
Managing Partner, Rooney, Plotkin & Willey (certified public
accountants) since 1973; Member, American Institute of Certified Public
Accountants and Rhode Island Society of Certified Public Accountants; Director
of Newport Health Care Corporation and Newport Health Care Ventures; Chairman of
the Board of Newport Health Foundation, Inc.; Vice Chairman, United Way of
Southeastern New England; Member, Audit Committee of Bank of Newport; Director,
Advantage Travel, Ltd; Director, Economic Innovation Center of Rhode Island.
JOHN ST. SAUVEUR, TRUSTEE
219 Great Road, North Smithfield, Rhode Island 02896
President and CEO, West Bank Realty; Senior Vice President
(governmental and consumer relations) of Valley Resources, Inc., (a natural gas
distributor) and its subsidiary companies from 1956 to 1994. He is a Director
of the Community College of Rhode Island Foundation; Chairman of the Board of
the Rhode Island Citizen Energy Conservation Corporation, doing business as
Rhode Island Saving Energy (RISE), a statewide organization funded by Rhode
Island electric and gas utility companies; Chairman of the Board of Directors of
the Woonsocket Industrial Development Corporation; Director of the Main Street
2000 Corporation (a Woonsocket non-profit corporation formed for the development
and revitalization of the city's Main Street business district), the Northern
Rhode Island Private Industry Council and the Northern Rhode Island Chamber of
Commerce; Commissioner of the Rhode Island Solid Waste Corporation, Secretary of
the Greater Woonsocket Industrial Development Foundation and Vice Chairman of
the North Smithfield Industrial Development Commission; a vice president and
director of the Rhode Island Chamber of Commerce Federation and member of the
Rhode Island State Job Training Coordinating Council; also Trustee, Landmark
Health System and Landmark Health Foundation.
THOMAS R. WESCHLER, TRUSTEE
391 Indian Avenue, Portsmouth, Rhode Island 02871
Vice Admiral, U.S. Navy, Retired (l975) after 35 years active
service, ending as Director, Logistics, Joint Chiefs of Staff. Past Chairman,
Naval Operations Department, U.S. Naval War College, 1976-1981; Elective
Professor, 1981-1988; Trustee, American Sail Training Association; Trustee, Sea
Education Association; National Advisor, Seaport '76; Member, URI Marine
Programs Advisory Council.
15
<PAGE> 56
SAMUEL H. HALLOWELL, JR., VICE PRESIDENT
One Regency Plaza, Suite One, Providence, Rhode Island 02903
Partner of the Adviser and Vice President of Van Liew Trust Company
since 1984; formerly Vice President and Senior Portfolio Manager at Rhode Island
Hospital Trust National Bank, specializing in the management of large personal
portfolios, and a member of the Strategy Committee from 1981 to 1984; previously
with Bay Bank Harvard Trust with responsibilities that included portfolio
management, investment consulting, trading, and investment research, and a
member of its Trust Investment and Administrative Committee; prior thereto, he
was associated with the brokerage firm of Moseley, Hallgarten, Estabrook &
Weeden, Inc.
KEVIN M. OATES, TREASURER
One Regency Plaza, Suite One, Providence, Rhode Island 02903
Since April 1991, Vice President-Administration and Controller of
the Adviser and Vice President of Van Liew Trust Company and the Distributor,
affiliated companies of the Adviser; Director of Business Administration (August
1988 to April 1991) and Manager (August 1985 to October 1987) at Finkel,
DiSanto, Fine & Co. (certified public accountants); previously a Senior Tax
Consultant with Ernst & Whinney.
MARGARET D. FARRELL, SECRETARY
1500 Fleet Center, Providence, Rhode Island, 02903
Partner, Hinckley, Allen & Snyder, general legal counsel to the
Fund, since November 1981; Director of Care New England Health System; Director
and Secretary of Women and Infants Corporation; Trustee and Secretary of Women &
Infants Hospital of Rhode Island; Trustee of Butler Hospital; Trustee of
Hospital Association of Rhode Island; and Secretary of AMTROL Inc. (manufacturer
of water systems and HVAC products).
The Fund does not pay fees to Trustees affiliated with the Adviseror to any
of its officers. The Fund pays Trustees who are not interested persons of the
Fund an annual retainer of $2,000 plus $250 per meeting attended. For the
fiscal year ended October 31, 1995, such fees totalled $19,750.
16
<PAGE> 57
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
ADDITIONAL INFORMATION AS TO THE ADVISORY AGREEMENT
Under the Advisory Agreement, subject to the control of the Fund's
Board of Trustees, the Adviser provides all administrative services to the Fund
other than those relating to its investment portfolio and the maintenance of its
accounting books and records; as part of such duties, the Adviser (i) provides
office space, facilities and equipment for the performance of the following
functions and as is necessary in connection with the maintenance of the
headquarters of the Fund; (ii) maintains the Fund's books and records (other
than accounting books and records); oversees its insurance relationships and
prepares for it (or assists counsel and auditors in the preparation of) all
required tax returns, proxy statements and reports to its shareholders and
Trustees and reports to and other filings with the Securities and Exchange
Commission and any other governmental agency; (iii) arranges for the preparation
of, on the Fund's behalf and at the Fund's expense, such applications and
reports as may be necessary to register or maintain the Fund's registration
and/or the registration of its shares under the securities or "blue sky" laws of
such jurisdictions as may be determined from time to time by the Adviser; (iv)
responds to all inquiries or other communications of shareholders and broker-
dealers, if any, or, if any such inquiry or other communication is more properly
to be responded to by the Fund's transfer agent, oversees such transfer agent's
response thereto; and (vi) oversees all relationships between the Fund and its
custodian and transfer agent, including the negotiation of agreements in
relation thereto and the supervision of the performance of such agreements and
oversees all administrative matters which are necessary or desirable in
connection with the sale or redemption of the Fund's shares. Since the Fund
pays its own legal and audit expenses, to the extent that the Fund's counsel and
accountants prepare or assist in the preparation of prospectuses, proxy
statements and reports to shareholders, the costs of such preparation or
assistance are paid by the Fund.
The Advisory Agreement may be terminated by the Adviser at any time
without penalty upon giving the Fund sixty days' written notice, and may be
terminated by the Fund at any time without penalty upon giving the Adviser sixty
days' written notice, provided that such termination by the Fund shall be
directed or approved by the vote of a majority of all its Trustees in office at
the time or by the vote of the holders of a majority (as defined in the
Investment Company Act of 1940) of its voting securities at the time outstanding
entitled to vote; it automatically terminates in the event of its assignment (as
so defined). However, in the Advisory Agreement, the Adviser agrees that it
will not exercise its termination rights for at least two years from the
effective date of the Advisory Agreement except in the event of a material
breach by the Fund or the Board of Trustees of the Fund of its or their
obligations thereunder or a material violation by the Fund or the Board of
Trustees of the Fund of its or their duties or obligations with respect to the
Fund or under the 1940 Act or the Securities Act of 1933.
17
<PAGE> 58
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Adviser is not liable for any loss sustained by the
adoption of any investment policy or the purchase, sale or retention of any
security and permits the Adviser to act as investment adviser for any other
person, firm or corporation. The Fund agrees to indemnify the Adviser to the
full extent permitted under the Fund's Declaration of Trust.
The Advisory Agreement states that it is agreed that the Adviser
shall have no responsibility or liability for the accuracy or completeness of
the Fund's Registration Statement under the Securities Act of 1933 and the
Investment Company Act of 1940 except for the information supplied by the
Adviser for inclusion therein.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined at 4:30 p.m.,
Eastern time on each day the New York Stock Exchange is open by dividing the
value of the Fund's net assets by the total number of its shares then
outstanding.
Securities having a remaining maturity of less than sixty days when
purchased and securities originally purchased with maturities in excess of sixty
days but which currently have maturities of sixty days or less are valued at
cost adjusted for amortization of premiums and accretion of discounts. All
other portfolio securities are valued at the mean between bid and asked
quotations which, for Rhode Island Obligations, may be obtained from a reputable
pricing service or from one or more broker/dealers dealing in Rhode Island
Obligations either of which may, in turn, obtain quotations from broker/dealers
or banks which deal in specific issues. However, since Rhode Island Obligations
are ordinarily purchased and sold on a "yield" basis by banks or dealers which
act for their own account and do not ordinarily make continuous offerings,
quotations obtained from such sources may be subject to greater fluctuations
than is warranted by prevailing market conditions. Accordingly, some or all of
the Rhode Island Obligations in the Fund's portfolio may be priced, with the
approval of the Fund's Board of Trustees, by differential comparisons to the
market in other municipal bonds under methods which include consideration of the
current market value of tax-free debt instruments having varying characteristics
of quality, yield and maturity. Any securities or assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Fund's Board of Trustees. In the case of
Rhode Island Obligations, such procedures may include "matrix" comparisons to
the prices for other tax-free debt instruments on the basis of the comparability
of their quality, yield, maturity and other special factors, if any, involved.
With the approval of the Fund's Board of Trustees, the Adviser may at its own
expense employ a pricing service, bank or broker/dealer experienced in such
matters to perform any of the above described functions.
As indicated above, the Net Asset Value per share of the Fund's
shares will be determined on each day that the New York Stock Exchange is open.
That
18
<PAGE> 59
Exchange annually announces the days on which it will not be open. The most
recent announcement indicates that it will not be open on the following days:
New Year's Day, President's Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, that
Exchange may close on days not included in that announcement.
The Fund's Trustees and officers and the directors, officers and
certain employees and representatives of the Adviser, the Distributor and
Selected Dealers, and certain plans for their benefit, may buy the Fund's shares
at Net Asset Value without a sales charge. These purchasers must meet certain
tests under the Investment Company Act of 1940 and must give written assurance
that the purchase is for investment and that the shares will not be resold
except through redemption. There may be tax consequences arising from such
purchases. Purchasers should consult their own tax counsel.
REASONS FOR DIFFERENCES IN PUBLIC OFFERING PRICE
As described herein and in the Prospectus, there are a number of
instances in which the Fund's shares are sold or issued on a basis other than
the maximum public offering price, that is, the Net Asset Value plus the highest
sales charge. Some of these relate to lower or eliminated sales charges for
larger purchases, whether made at one time or over a period of time as under a
Letter of Intent or right of accumulation. (See the table of sales charges in
the Prospectus.) The reasons for these quantity discounts are, in general, that
(i) they are traditional and have long been permitted in the industry and are
therefore necessary to meet competition as to sales of shares of other funds
having such discounts; (ii) certain quantity discounts are required by rules of
the National Association of Securities Dealers, Inc. (as are elimination of
sales charges on the reinvestment of dividends and distributions); and (iii)
they are designed to avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses. Quantity discounts
are made available to certain related persons ("single purchasers") for reasons
of family unity and to provide a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges are as follows. Sales without sales charge are
permitted to Trustees, officers and certain others due to reduced or eliminated
selling expenses and in order to aid in the development of sound employee
relationships, encourage responsibility and promote an identification with the
aims and policies of the Fund. Limited reinvestments of redemptions at no sales
charge are permitted to attempt to protect against mistaken or incompletely
informed redemption decisions. Shares may be issued at no sales charge in plans
of reorganization due to reduced or eliminated sales expenses and since, in some
cases, such issuance is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in which there
is a reduced or eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Fund receives the Net
Asset Value per share of all shares sold or issued.
19
<PAGE> 60
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases shares of the Fund having a
net asset value of at least $5,000 may establish an Automatic Withdrawal Plan
under which he will receive a monthly or quarterly check in a stated amount, not
less than $50. Stock certificates will not be issued for shares held under an
Automatic Withdrawal Plan. All dividends and distributions must be reinvested.
Shares will be redeemed on the last business day of the month or quarter as may
be necessary to meet withdrawal payments. Redemption of shares for withdrawal
purposes may reduce or even liquidate the account. Monthly or quarterly
payments paid to shareholders may not be considered as a yield or income on
investment.
GENERAL INFORMATION
CAPITAL STOCK
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares held). The Fund's management is not
aware of any person who beneficially owned 5% or more of the Fund's outstanding
shares as of the date of this Additional Statement.
POSSIBLE ADDITIONAL SERIES
On December 15, 1987, the Trustees of the Trust voted to change the
name of the Trust from "Ocean State Tax-Exempt Fund" to "VLC Trust" and to
designate the outstanding shares of the Trust as shares of the Ocean State Tax-
Exempt Fund portfolio. If additional funds or series (as discussed in the
Prospectus) were created by the Board of Trustees, shares of each such fund or
series would be entitled to vote as a class only to the extent permitted by the
Investment Company Act of 1940 (see below) or as permitted by the Board of
Trustees. Income and operating expenses would be allocated fairly among two or
more funds or series by the Board of Trustees.
Under Rule 18f-2 under the Investment Company Act of 1940, as to any
investment company which has two or more series outstanding as to any matter
required to be submitted to shareholder vote, such matter is not deemed to have
been effectively acted upon unless approved by the holders of a "majority" (as
defined in that Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
CUSTODIAN AND INDEPENDENT AUDITORS
The Fund's Custodian, PNC Bank, N.A., is responsible for holding the
Fund's assets. The financial statements of the Fund and the financial
highlights incorporated herein by reference have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon and incorporated
herein by reference.
20
<PAGE> 61
FINANCIAL STATEMENTS
The following financial statements of the Fund, together with the
report of Ernst & Young LLP, independent auditors, are included in the Annual
Report to Shareholders which accompanies this Additional Statement and are
incorporated herein by reference:
1. Statement of Assets and Liabilities as of October 31, 1995
2. Statement of Operations for the fiscal year ended October 31,
1995
3. Statement of Changes in Net Assets for each of the two fiscal
years in the period ended October 31, 1995
4. Financial Highlights for each of the periods indicated therein.
5. Notes to Financial Statements
6. Schedule of Portfolio Investments as of October 31, 1995
20
<PAGE> 62
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
MUNICIPAL BOND RATINGS
STANDARD & POOR'S. A Standard & Poor's municipal obligation rating
is a current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors such
as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
o Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
o Nature of and provisions of the obligation;
o Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
STANDARD & POOR'S RATING SERVICE. A brief description of the applicable
Standard & Poor's rating symbols and their meaning follows:
AAA Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only
in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
22
<PAGE> 63
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.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
MOODY'S INVESTORS SERVICE. A brief description of the applicable
Moody's Investors Service rating symbols and their meaning follows:
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 edge." 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 most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than 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 in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time 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
23
<PAGE> 64
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.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
MOODY'S SHORT TERM LOAN RATINGS - There are four rating categories
for short-term obligations, all of which define an investment grade situation.
These are designated Moody's Investment Grade as MIG 1 through MIG 4. In the
case of variable rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of the
degree of risk associated with the demand feature. The short-term rating
assigned to the demand feature of VRDOs is designated as VMIG. When no rating
is applied to the long or short-term aspect of a VRDO, it will be designated NR.
Issues or the features associated with MIG or VMIG ratings are identified by
date of issue, date of maturity or maturities or rating expiration date and
description to distinguish each rating from other ratings. Each rating
designation is unique with no implication as to any other similar issue of the
same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issues specific structural or
credit features.
MIG1/VMIG1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broadbased access to the
market for refinancing.
MIG2/VMIG2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
MIG3/VMIG3 This designation denotes favorable quality. All security
elements are accounted for but there is 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.
MIG4/VMIG4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is
present and although not distinctly or predominantly
speculative, there is specific risk.
24
<PAGE> 65
[Ocean State Tax Exempt Fund Logo]
REPORT OF THE PRESIDENT
OCTOBER 31, 1995
October 31, 1995, was the end of the Fund's ninth fiscal year. During the
prior 12 months, the Fund's net asset value rose from $10.10 to $10.59 per share
for a gain of 4.85% on principal value. Net assets rose from $41.3 million to
$43.1 million while dividends per share declined from $0.59 to $0.58.
After 1994, fiscal 1995 was a breath of fresh air. Thirty-year Treasury
rates declined 164 basis points from 7.97% to 6.33%. Ten-year rates performed
even better, dropping from 7.81% to 6.02% as the yield curve flattened
dramatically during the year. (Remember, bond prices rise as bond yields fall.)
Unusual in this cycle was that the drop in yields was accompanied by low
inflation, a worldwide economic slowdown, and optimism that a federal
deficit-reduction plan would be reached. Under Alan Greenspan, the Fed has
tended to change policy very slowly which will probably continue.
The Municipal market underperformed other fixed income investments largely
because of a decline in demand. Clearly, a record-breaking performance by the
stock market has held the attention of most investors.
Keep in mind that part of our stated objective is to provide shareholders
with a high level of income consistent with safety of principal. The high
coupon, pre-refunded portion of the portfolio not only keeps up our dividend but
also hedges against a sudden, sharp rise in rates. Although we believe the
future trend of interest rates is lower and that the inventory of new Municipal
issues will continue to be tight, slow economic growth, combined with efforts of
Congress to pass more fiscal responsibilities to the states, could mean that
most of the decrease in Municipal yields has occurred.
We are pleased that Morningstar Mutual Funds continues to look favorably on
your Fund giving it a five-star rating as of the fiscal year-end.
Very truly yours,
/s/ Alfred B. Van Liew
ALFRED B. VAN LIEW
President and Chairman of the
Board of Trustees
<PAGE> 66
<TABLE>
OCEAN STATE TAX EXEMPT FUND
INVESTMENT PERFORMANCE REVIEW
AS OF OCTOBER 31, 1995
(UNAUDITED)
<CAPTION>
PRIOR SINCE INCEPTION
NOVEMBER 1, 1994 FISCAL YEAR NOVEMBER 1, 1990 DECEMBER 8, 1986
THROUGH ENDED THROUGH THROUGH
OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1995 OCTOBER 31, 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
TOTAL RATE OF RETURN(B)
Based on:
Net Asset
Value........ 10.89% (2.04)% 9.24% 9.20%
Offering
Price........ 6.46% (5.99)% 8.05% 8.39%
AS OF AS OF
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------
30-DAY CURRENT YIELD
Based on:
Net Asset
Value........ 5.26% 5.55%
Offering
Price........ 5.05% 5.33%
30-DAY TAX-EQUIVALENT
YIELD(A)
Based on:
Net Asset
Value........ 8.46% 8.93%
Offering
Price........ 8.12% 8.57%
</TABLE>
The Ocean State Tax Exempt Fund has placed a high priority on capital
preservation while at the same time striving for competitive after-tax
investment returns. The Fund has maintained the weighted average maturity of the
portfolio at 14.49 years as of October 31, 1995.
<TABLE>
The average quality rating of the investments, in the following table was
Aa/AA (Moody's and Standard & Poor's bond rating services).
PORTFOLIO QUALITY ANALYSIS
<CAPTION>
% OF TOTAL PORTFOLIO
-----------------------------------
AS OF AS OF
RATING 10/31/95 10/31/94
------ -------------- --------------
<S> <C> <C>
Aaa/AAA....................... 56.06% 55.78%
Aa/AA......................... 16.90% 15.48%
A............................. 19.19% 20.59%
Baa/BBB....................... 7.85% 8.15%
Not Rated..................... 0% 0%
</TABLE>
The Fund will continue its policy of seeking the highest tax advantaged
yields available, consistent with maintaining quality and diversification
objectives.
(a) For 1995 shareholders are subject to a maximum combined federal and state
tax rate of 37.84%.
(b) Past performance is no guarantee of future results.
2
<PAGE> 67
OCEAN STATE TAX EXEMPT FUND
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1995
ASSETS
<S> <C>
Investments at value (identified cost $40,291,897) (Note 1A).................. $42,700,606
Cash.......................................................................... 20,093
Interest receivable........................................................... 651,719
-----------
Total Assets........................................................ $43,372,418
LIABILITIES
Distribution payable to shareholders.......................................... $ 102,407
Payable for fund shares redeemed.............................................. 148,738
Accrued expenses.............................................................. 10,906
Accrued management fees....................................................... 22,138
-----------
Total Liabilities................................................... $ 284,189
-----------
Net Assets.......................................................... $43,088,229
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share)............................. $ 40,679
Additional paid-in capital (Note 4)........................................... 40,701,371
Dividends in excess of net investment income.................................. (4,799)
Accumulated net realized loss on investment transactions...................... (57,731)
Net unrealized appreciation of investments.................................... 2,408,709
-----------
Total -- Representing Net Assets at Value for 4,067,853 Shares Outstanding.... $43,088,229
===========
Computation of Net Asset Value & Offering Price:
Net Assets.................................................................... $43,088,229
Divided by number of shares outstanding....................................... 4,067,853
Net asset value............................................................... $ 10.59
===========
Offering price................................................................ $ 11.03
===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 68
OCEAN STATE TAX EXEMPT FUND
<TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<S> <C> <C>
INVESTMENT INCOME
Interest income (Note 1B)..................................................... $2,753,639
Expenses:
Adviser Fees (Note 2)....................................... $ 146,855
Administrator fees (Note 2)................................. 104,897
Legal fees and expenses..................................... 15,739
Trustees fees and expenses.................................. 19,750
Transfer agent fees......................................... 53,616
Custodian fees.............................................. 19,507
Insurance................................................... 3,500
Auditing.................................................... 26,200
Pricing..................................................... 4,685
Shareholder reports......................................... 7,988
Distribution Expenses (Note 5).............................. 5,719
Miscellaneous expenses...................................... 2,710
Registration fees........................................... 950
----------
$ 412,116
----------
Net Investment Income............................................... $2,341,523
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investments................................. 97,223
Net Change in Unrealized Appreciation of Investments............. 1,903,481
----------
Net gain on investments....................................................... 2,000,704
----------
Net Increase in Net Assets Resulting from Operations.......................... $4,342,227
==========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 69
OCEAN STATE TAX EXEMPT FUND
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income..................................... $ 2,341,523 $ 2,420,122
Net realized gain (loss) on investments................... 97,223 (125,800)
Change in unrealized appreciation of net investments...... 1,903,481 (3,370,233)
----------- -----------
Net increase (decrease) in net assets resulting from
operation............................................... 4,342,227 (1,075,911)
Dividends and distributions to shareholders from:
Net investment income ($.58 per share in 1995 and $.59 per
share in 1994).......................................... (2,354,085) (2,409,987)
Capital gain.............................................. (21,553)
Net Decrease from fund share transactions (Note 4)........ (246,199) (189,066)
----------- -----------
Total increase (decrease) in net assets.............. 1,741,943 (3,696,517)
NET ASSETS:
Beginning of year......................................... 41,346,286 45,042,803
----------- -----------
End of year (including $4,799 of dividends in excess of
net investment income in 1995 and $7,763 of
undistributed net investment income in 1994............. $43,088,229 $41,346,286
=========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 70
OCEAN STATE TAX EXEMPT FUND
<TABLE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
For a share outstanding throughout each period the following data includes
selected data and other performance information derived from the financial
statements.
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR 12/08/86
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
10/31/95 10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 10/31/88 10/31/87
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
Beginning
of Year................ $ 10.10 $ 10.95 $ 10.32 $ 10.14 $ 9.73 $ 9.80 $ 9.74 $ 9.13 $10.18
Net Investment income.... .58 .59 .56 .63 .64 .67 .62 .66 .62
Net realized and
unrealized gain (loss)
on securities.......... .49 (84) .63 .18 .41 (.09) .07 .62 (1.05)
------- ------- ------- ------- ------- ------- ------- ------ ------
Total from Investment
Operations............. 1.07 (.25) 1.19 .81 1.05 .58 .69 1.28 (.43)
------- ------- ------- ------- ------- ------- ------- ------ ------
Less Distributions:
Dividends from net
investment income...... (.58) (.59) (.56) (.63) (.64) (.65) (.63) (.66) (.62)
Distribution from net
realized
gains.................. (.00) (.01) (.00) (.00) (.00) (.00) (.00) (.01) (.00)
------- ------- ------- ------- ------- ------- ------- ------ ------
Total Distributions...... (.58) (.60) (.56) (.63) (.64) (.65) (.63) (.67) (.62)
------- ------- ------- ------- ------- ------- ------- ------ ------
Net Asset Value End of
Year................... $ 10.59 $ 10.10 $ 10.95 $ 10.32 $ 10.14 $ 9.73 $ 9.80 $ 9.74 $ 9.13
======= ======= ======= ======= ======= ======= ======= ====== ======
Total investment return
at Net Asset Value..... 10.89% (2.04)% 12.35% 8.00% 10.96% 5.89% 7.10% 14.30% (4.99)%(b)
Ratios and Supplemental
Data Net Assets, End of
Year (000's omitted)
....................... $43,088 $41,346 $45,043 $36,854 $29,750 $20,675 $12,159 $9,745 $6,149
Ratio of Expenses to
average net assets(a).. .98% .88% .81% .85% .92% 1.27% 1.36% 1.10% 1.15%(b)
Ratio of net investment
income to average net
assets(a).............. 5.58% 5.55% 5.70% 6.13% 6.40% 6.45% 6.34% 6.84% 6.95%(b)
Portfolio turnover....... 11.77% 8.48% 13.27% 36.29% 21.57% 10.16% 37.90% 45.58% 96.39%(b)
Adviser/Administrator
waived fees............ .00 .01 .01 .01 .03 .02 .03 .08 .06
Fund expenses without
waiver................. .10 .10 .09 .10 .12 .12 .16 .19 .16
Net Investment Income
without waiver......... .58 .58 .55 .62 .61 .65 .59 .58 .56
Ratio of Expenses to
average net assets
without waiver......... .98% .93% .81% .95% 1.17% 1.51% 1.69% 1.88% 1.86%(b)
Ratio of net investment
income to average net
assets without waiver.. 5.58% 5.50% 5.58% 6.02% 6.15% 6.21% 6.02% 6.06% 6.24%(b)
<FN>
- ---------------
(a) Annualized for 1987.
(b) Commencing in fiscal year 1990, data included the combined operations of the Fund and the Rhode Island Tax-Free Bond
Fund (the "RI Fund") for the period from the date of the acquisition of the assets of the RI Fund by the Fund (November
1, 1989). The data shown above for the periods prior thereto are the historical results of the Fund.
(c) Total investment return does not reflect sales load.
</TABLE>
See Notes to Financial Statements
6
<PAGE> 71
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
VLC Trust (the Trust) is a Massachusetts business trust organized on August
1, 1986 and registered under the Investment Company Act of 1940, as amended, as
a non-diversified, open-end management investment company. There is authorized
an unlimited number of shares with a par value of one cent per share.
Declaration of the Trust permits the Trustees to create additional portfolios
(funds). As of October 31, 1995 there is only one fund, Ocean State Tax Exempt
Fund (the Fund). The objective of the Fund is to seek to provide as high level
of current income, exempt from Rhode Island and Federal income taxes, as is
consistent with preservation of capital. The Fund invests primarily in
obligations which pay interest exempt from Rhode Island and Federal income
taxes. The Fund commenced operations on December 8, 1986.
At October 31, 1995, 92.50% of the Fund's net assets are invested in Rhode
Island municipal securities. Economic changes effecting the state in certain of
its public bodies and municipalities may affect the ability of the issuer to pay
the required principal and interest payments of the municipal securities. In
order to reduce risk associated with such factors on October 31, 1995, 54.98% of
the portfolio of investments have credit enhancements backing them which the
Fund relies on, such as: letters of credit, insurance, or guarantees. MBIA
provides the largest total enhancements for the Fund, representing 24.44% of the
portfolio.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
(A) SECURITY VALUATION: Debt securities are valued on the basis of
valuations furnished by a pricing service since such valuations are believed to
reflect the fair value of such securities. Valuations used by the Fund may be
determined without exclusive reliance on quoted prices and take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue and other local
market conditions. Securities having an original maturity of less than sixty
days are valued at cost adjusted for amortization of premiums and accretion of
discounts. Other securities are appraised in good faith at fair value using
methods determined by the Trustees and applied on a consistent basis. The
Trustees monitor the valuation of the Fund's municipal bonds through receipt of
periodic reports from the Adviser.
(B) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security
transactions are accounted for on the trade date (date the order to buy or sell
is executed). Interest income is recorded on the accrual basis. The specific
identification method is used for determining net realized gains and losses for
both financial statement and Federal income tax purposes.
(C) FEDERAL INCOME TAXES: The Fund's policy is to comply with the
provisions of the Internal Revenue Code available to regulated investment
companies and distribute to shareholders all of its net income, including any
net realized gain on investments. Accordingly, no provision for Federal income
tax or excise tax is necessary. At October 31, 1995 the Fund had approximately
$28,000 in capital loss carryforwards for federal tax purposes available to
offset future capital gains. These capital loss carryforwards will expire
October 31, 2002. Dividends received by the Fund from net interest on tax-exempt
municipal bonds are not includable by shareholders as gross income for Federal
income tax purposes, because the Fund intends to meet certain requirements of
the Internal
7
<PAGE> 72
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Code applicable to regulated investment companies which will enable the
Fund to pay exempt-interest dividends. The portion of such interest, if any,
earned on private activity bonds issued after August 7, 1986 may be considered a
tax preference item to shareholders.
(D) DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income
are declared daily and distributed monthly. Capital gains distributions, if any,
are declared and distributed annually. For the year ended October 31, 1995, the
Fund paid no distributions from capital.
NOTE 2 ADVISORY AND ADMINISTRATIVE SERVICES AND OTHER AFFILIATED TRANSACTIONS
Van Liew Capital Inc. is the Adviser and the Administrator to the Fund. The
Fund will pay Van Liew Capital Inc. at the following annual rates for the
adviser and administrator services, respectively:
.35 and .25 of 1% of the first $200 million of average daily net assets.
.30 and .20 of 1% of average daily net assets over $200 million.
The Fund does not pay fees to Trustees affiliated with the Adviser or to
any ofits officers. The Fund pays Trustees who are not interested persons of the
Fund an annual retainer plus $250 per meeting attended. The annual retainer at
October 31, 1995 was $2,000.
Legal fees and expenses of $15,739 were paid to a firm of which the Fund's
Secretary is a partner.
During the period November 1, 1994 through October 31, 1995 the Distributor
paid $37 in underwriter fees and received $5,389 in commissions for a total of
$5,352 as a result of Fund share sales.
NOTE 3 INVESTMENT TRANSACTIONS
During the period ending October 31, 1995 purchases and sales of investment
securities other than short-term investments aggregated $5,008,483 and
$4,868,842, respectively.
The aggregate cost of investments for Federal income tax purposes is
substantially the same as aggregate cost for financial statement purposes. At
October 31, 1995, gross unrealized appreciation on investment securities was
$2,490,689 and gross unrealized depreciation on investment securities was
$81,980.
8
<PAGE> 73
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4 SHARES OF BENEFICIAL INTEREST
<TABLE>
The authorized capital of the Fund consists of unlimited number of shares
of beneficial interest with par value of one cent per share. Transactions in
shares of beneficial interest were as follows:
<CAPTION>
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Balance 10/31/93........................................ 4,113,100 $41,177,315
Shares sold............................................. 571,065 6,074,624
Shares issued in reinvestment of dividends.............. 113,862 1,200,014
Shares redeemed......................................... (704,918) (7,463,704)
--------- -----------
Net decrease............................................ (19,991) (189,066)
--------- -----------
Balance 10/31/94........................................ 4,093,109 $40,988,249
========= ===========
Shares sold............................................. 259,900 $ 2,697,652
Shares issued in reinvestment of dividends.............. 108,243 1,119,237
Shares redeemed......................................... (393,399) (4,063,088)
--------- -----------
Net decreases........................................... (25,256) (246,199)
--------- -----------
Balance 10/31/95........................................ 4,067,853 $40,742,050
========= ===========
</TABLE>
NOTE 5 DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the Plan) pursuant to Rule 12b-1
(the "Rule") of the Investment Company Act of 1940 (the Act). The Rule provides
in substance that the Fund may not engage directly or indirectly in financing
any activity which is primarily intended to result in the sale of its shares
except pursuant to a plan adopted under the Under the Plan, the Fund is
authorized to pay for the printing of all prospectuses, statements of additional
information and reports and notices to shareholders, even those which are not
sent to existing shareholders. The Fund paid $5,719 under the plan during fiscal
1995.
9
<PAGE> 74
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS
AS OF OCTOBER 31, 1995
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES (99.10%)
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS (41.15%)
$ 595,000 Bristol County Water Authority MBIA Insured 7.125%,
11/1/16 Aaa/AAA $621,156
300,000 Bristol General Obligation MBIA Insured 5.80%,
10/1/06............................................ Aaa/AAA 316,125
100,000 Bristol General Obligation 7.00%, 12/1/08............ Baa1/NR 110,250
120,000 Bristol General Obligation MBIA Insured 6.00%,
12/15/10........................................... Aaa/AAA 125,550
250,000 Bristol General Obligation MBIA Insured 5.05%,
8/15/06............................................ Aaa/AAA 250,000
170,000 Burrillville General Obligation 7.40%, 1/15/04....... A/NR 184,450
185,000 Burrillville General Obligation 7.40%, 1/15/05....... A/NR 200,725
125,000 Burrillville General Obligation 7.60%, 1/15/08....... A/NR 136,094
300,000 Burrillville General Obligation MBIA Insured 5.75%,
10/15/17........................................... Aaa/AAA 301,125
75,000 Central Falls General Obligation 7.90%, 7/1/02....... Baa/NR 77,250
130,000 Coventry General Obligation FGIC Insured 7.25%,
11/1/10............................................ Aaa/AAA 144,300
40,000 Coventry General Obligation FGIC Insured 7.00%,
11/1/04............................................ Aaa/AAA 44,600
200,000 Cumberland General Obligation 6.80%, 7/15/08......... A-1/NR 213,250
165,000 Cumberland General Obligation MBIA Insured 5.70%,
10/1/11............................................ Aaa/AAA 167,063
175,000 Cumberland General Obligation MBIA Insured 5.70%,
10/1/12............................................ Aaa/AAA 176,968
300,000 East Providence General Obligation MBIA Insured
5.70%, 5/15/10..................................... Aaa/AAA 310,125
750,000 Foster/Glocester General Obligation AMBAC Insured
6.90%, 9/1/11...................................... Aaa/AAA 812,812
135,000 Jamestown General Obligation CGIC Insured 7.00%,
3/15/07............................................ Aaa/AAA 141,075
250,000 Kent County Water Auth. MBIA Insured 6.35%,
7/15/14............................................ Aaa/AAA 263,750
100,000 Lincoln General Obligation MBIA Insured 7.55%,
7/15/08............................................ Aaa/AAA 110,750
355,000 Lincoln General Obligation MBIA Insured 5.50%,
8/15/10............................................ Aaa/AAA 361,213
110,000 Little Compton General Obligation 7.00%, 1/15/09..... A-1/NR 119,625
100,000 Little Compton General Obligation 6.90%,1/15/08...... A-1/NR 108,125
120,000 Middletown General Obligation 7.00%, 2/15/08......... A-1/A 129,900
</TABLE>
10
<PAGE> 75
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS--CONTINUED
$ 100,000 Narragansett General Obligation MBIA Insured 5.30%,
9/15/09............................................ Aaa/AAA $100,125
200,000 Narragansett General Obligation Pre-refunded U.S.
Treasury 7.10%, 6/15/10............................ Baa/NR 221,250
210,000 Newport General Obligation MBIA Insured 6.50%,
8/15/06............................................ Aaa/AAA 232,837
100,000 Newport General Obligation 6.80%, 4/15/09............ A-1/NR 112,000
100,000 Newport General Obligation Pre-refunded U.S. Treasury
6.80%, 4/15/10..................................... A-1/NR 112,000
150,000 Newport General Obligation FGIC Insured 5.125%,
11/15/10........................................... Aaa/AAA 145,312
80,000 New Shoreham General Obligation MBIA Insured 7.60%,
1/1/07............................................. Aaa/AAA 84,400
100,000 New Shoreham General Obligation MBIA Insured 7.00%,
1/15/10............................................ Aaa/AAA 109,250
75,000 North Kingstown General Obligation 6.70%, 12/15/05... A/NR 83,812
80,000 North Kingstown General Obligation 6.80%, 12/15/06... A/NR 90,800
80,000 North Kingstown General Obligation 6.30%, 7/15/07.... A/NR 85,000
120,000 North Providence General Obligation MBIA Insured
6.00%, 10/01/09.................................... Aaa/AAA 125,700
75,000 North Smithfield General Obligation 7.00%, 9/1/08.... A-1/NR 80,531
100,000 Pawtucket General Obligation MBIA Insured 6.75%,
9/15/08............................................ Aaa/AAA 110,875
500,000 Pawtucket General Obligation CGIC Insured 6.0%,
3/15/15............................................ Aaa/AAA 508,125
500,000 Pawtucket General Obligation CGIC Insured Insured,
6.0%, 3/15/11...................................... Aaa/AAA 513,750
500,000 Pawtucket General Obligation CGIC Insured 6.0%,
3/15/13............................................ Aaa/AAA 510,625
500,000 Pawtucket General Obligation CGIC Insured, 6.0%,
3/15/12............................................ Aaa/AAA 513,125
30,000 Pawtucket General Obligation 7.90%, 7/1/0............ A/NR 35,362
300,000 Providence Public Bldg. Auth. CGIC Insured 7.75%,
6/15/08............................................ Aaa/AAA 325,500
200,000 Providence Public Bldg. Auth. 7.30%, 12/1/08......... Baa1/NR 219,250
300,000 Providence Public Bldg. Auth. 7.30%, 12/1/09......... Baa1/NR 326,250
500,000 Providence Public Bldg. Auth. CGIC Insured 7.25%,
12/15/10........................................... Aaa/AAA 554,375
750,000 Providence General Obligation MBIA Insured 6.75%,
1/15/11............................................ Aaa/AAA 811,875
</TABLE>
11
<PAGE> 76
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS--CONTINUED
$ 275,000 Smithfield General Obligation MBIA Insured 6.80%,
4/15/06............................................ Aaa/AAA $ 291,844
100,000 South Kingston General Obligation AMBAC Insured
5.00%, 11/15/08.................................... Aaa/AAA 99,625
700,000 Warwick General Obligation MBIA Insured 6.60%,
11/15/06........................................... Aaa/AAA 767,375
155,000 Warwick General Obligation FGIC Insured 7.20%,
11/15/08........................................... Aaa/AAA 171,081
225,000 Westerly General Obligation 7.00%, 1/15/06........... A-1/NR 243,281
100,000 Westerly General Obligation 7.00%, 1/15/09........... A-1/NR 106,875
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.80%, 6/1/03........................... A-1/NR 39,244
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.85%, 6/1/04........................... A-1/NR 39,638
800,000 Rhode Island Clean Water MBIA Insured 6.50%,
10/1/06............................................ Aaa/AAA 879,000
150,000 Rhode Island Clean Water MBIA Insured 5.30%,
10/1/07............................................ Aaa/AAA 154,500
600,000 Rhode Island Correctional Facility MBIA Insured
7.00%, 8/1/09...................................... Aaa/AAA 644,250
650,000 Rhode Island Depositors Economic Protection Corp.
MBIA Insured 6.55%, 8/1/10......................... Aaa/AAA 715,812
165,000 Rhode Island Depositors Economic Protection Corp.
CAPMAC Guaranteed 6.375%, 8/1/22................... Aaa/AAA 175,725
300,000 Rhode Island Depositors Economic Protection Corp.
5.75%, 8/1/12...................................... Baa1/A- 300,375
200,000 Rhode Island Public Building Auth. 8.20%, 2/1/08..... A/A 220,500
645,000 Rhode Island Public Building Auth. 7.60%, 2/1/09..... A/A 719,175
120,000 Rhode Island Public Building Auth. AMBAC Insured
5.25%, 2/1/10...................................... Aaa/AAA 116,400
150,000 Rhode Island Port Authority AMBAC Insured 6.5%,
6/1/08............................................. Aaa/AAA 164,438
250,000 Rhode Island Student Loan Auth. 6.20%, 12/1/09....... Aaa/NR 252,500
50,000 Rhode Island General Obligation 7.50%, 6/15/05....... A-1/AA- 52,060
125,000 Rhode Island Water Resources Fruit Hill Reservoir
MBIA Insured 7.05%, 9/15/07........................ Aaa/AAA 137,031
-----------
$17,729,139
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION (32.60%)
$ 55,000 Board of Governors CGIC Insured 6.00%, 9/15/08....... Aaa/AAA $ 60,088
150,000 Board of Governors CGIC Insured 6.125%, 9/15/10...... Aaa/AAA 165,000
</TABLE>
12
<PAGE> 77
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION--CONTINUED
$ 195,000 Board of Governors CGIC Insured 6.15%, 9/15/11....... Aaa/AAA $ 214,744
120,000 Brown University 6.75%, 9/1/16....................... Aa1/AA 127,050
200,000 Brown University 5.40%, 9/1/18....................... Aa/AA 194,250
125,000 Brown University 6.00%, 9/1/10....................... Aa/AA 129,688
200,000 Brown University 5.90%, 9/1/14....................... Aa1/AA 205,750
400,000 Bryant College MBIA Insured 6.50%, 6/1/05............ Aaa/AAA 439,500
100,000 Bryant College MBIA Insured 5.95%, 6/1/07............ Aaa/AAA 105,250
100,000 Bryant College MBIA Insured 6.20%, 6/1/13............ Aaa/AAA 103,000
100,000 Higher Education Authority CGIC Insured 7.375%,
9/15/09............................................ Aaa/AAA 112,375
25,000 Providence College Pre-refunded US Treasury 9.00%,
11/1/97............................................ NR/A- 25,500
150,000 Providence College 7.45%, 11/1/03.................... Aaa/NR 169,500
125,000 Providence College 7.50%, 11/1/04.................... Aaa/NR 141,405
120,000 Providence College 7.75%, 11/1/09.................... Aaa/NR 136,800
250,000 Providence College MBIA Insured 5.60%, 11/1/22....... Aaa/AAA 242,812
550,000 Rogers Williams College Connie Lee Insured 6.50%,
11/15/08........................................... NR/AAA 587,812
550,000 Roger Williams College Connie Lee Insured 6.625%,
11/15/11........................................... NR/AAA 581,625
320,000 Roger Williams College LOC-Fleet National 7.75%,
10/1/18............................................ A-1/NR 355,600
45,000 Roger Williams Hospital 9.375%, 7/1/04............... NR/BBB 46,250
1,290,000 South County Hospital 7.25%, 11/1/11................. NR/BBB+ 1,360,950
40,000 Roger Williams Hospital 7.75%, 7/1/16................ NR/BBB 42,000
350,000 Roger Williams Realty Corp. Collateral U.S. Treasury,
7.50%, 8/1/29...................................... NR/A+ 370,562
500,000 Salve Regina College Connie Lee Insured 6.25%,
3/15/13............................................ NR/AAA 514,375
400,000 Salve Regina College LOC Fleet National Bank 7.70%,
1/1/20............................................. NR/A 454,500
300,000 Salve Regina College Pre-refunded U.S. Treasury
Connie Lee Insured 6.30%, 3/15/20.................. NR/AAA 306,375
1,025,000 Johnson & Wales College Connie Lee Insured 5.75%,
4/1/12............................................. NR/AAA 1,025,000
600,000 Johnson & Wales College Connie Lee Insured 5.875%,
4/1/20............................................. NR/AAA 590,250
500,000 St. Antoine Residence LOC Allied Irish 6.75%,
11/15/18........................................... A-1/NR 514,375
285,000 Landmark Medical Center 7.625%, 7/1/99............... NR/BBB+ 309,581
</TABLE>
13
<PAGE> 78
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION--CONTINUED
$ 500,000 Landmark Medical Center 8.375%, 7/1/09............... NR/AAA $ 575,625
575,000 Kent County Hospital MBIA Insured 7.00%, 7/1/10...... Aaa/AAA 624,594
50,000 Kent County Hospital MBIA Insured 6.10%, 7/1/09...... Aaa/AAA 52,188
200,000 Memorial Hospital MBIA Insured 6.50%, 7/1/04......... Aaa/AAA 220,500
140,000 Miriam Hospital 7.00%, 4/1/06........................ NR/A 148,575
400,000 Miriam Hospital 6.35%, 4/1/08........................ NR/A 417,500
900,000 Miriam Hospital 7.25%, 4/1/11........................ NR/A 948,375
300,000 Rhode Island Hospital FGIC Insured 6.70%, 8/15/04.... Aaa/AAA 330,750
600,000 Women & Infants Hospital CGIC Insured 6.55%, 9/1/13.. Aaa/AAA 638,250
100,000 United Methodist Elder Care 7.50%, 11/1/14........... NR/A 110,000
250,000 Westerly Hospital 6.00%, 7/1/19...................... Baa/BBB+ 223,438
125,000 New England Tech Inst. Connie Lee Insured 6.00%,
3/1/15............................................. NR/AAA 125,469
-----------
$14,047,231
RHODE ISLAND HOUSING & MORTGAGE FINANCE CORPORATION (17.20%)
$ 10,000 8.90%, 1/1/97 FGIC Insured........................... Aaa/AAA $ 10,228
20,000 9.30%, 7/1/04 FGIC Insured........................... Aaa/AAA 20,400
50,000 7.625%, 10/1/04...................................... AA/A+ 52,188
100,000 8.25%, 10/1/07....................................... A-1/A+ 104,250
200,000 8.10%, 10/1/07....................................... A-1/A+ 208,000
200,000 5.65%, 10/1/07....................................... NR/A 199,250
300,000 8.00%, 10/1/08....................................... Aa/A+ 313,875
500,000 7.80%, 10/1/10, Series A............................. Aa/AA+ 529,375
50,000 7.50%, 7/1/10........................................ A-1/A+ 50,875
300,000 7.60%, 10/1/20....................................... NR/A 316,500
500,000 8.30%, 10/1/11....................................... AA/A+ 520,000
100,000 7.80%, 10/1/11....................................... AA/A+ 104,500
405,000 7.50%, 10/1/11....................................... Aa/AA+ 433,856
215,000 7.80%, 10/1/11....................................... AA/AA+ 224,675
35,000 7.75%, 10/1/16....................................... A-1/A+ 36,138
335,000 5.45%, 4/1/17........................................ Aa/AA 309,456
200,000 6.25%, 4/1/17........................................ Aa/AA+ 202,500
110,000 7.95%, 10/1/20....................................... NR/A 116,188
140,000 7.25%, 10/1/21....................................... Aa/Aa+ 147,525
385,000 7.875%, 10/1/21, MBIA Insured........................ Aaa/AAA 397,994
640,000 7.875%, 10/1/22...................................... Aa/AA+ 670,400
50,000 7.75%, 4/1/22........................................ Aa/AA+ 52,938
345,000 7.55%, 10/1/22....................................... Aa/AA+ 370,444
300,000 6.50%, 10/1/22....................................... Aa/AA+ 305,625
1,250,000 6.70%, 10/1/15....................................... Aa/AA+ 1,301,562
</TABLE>
14
<PAGE> 79
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND HOUSING & MORTGAGE FINANCE CORPORATION--CONTINUED
$ 300,000 6.50%, 4/1/27........................................ Aa/AA+ $ 304,500
105,000 6.85%, 4/1/27........................................ Aa/AA+ 109,725
-----------
$ 7,412,967
RHODE ISLAND INDUSTRIAL FACILITIES CORPORATION (1.55%)
$ 75,000 Smith Trucking Corp. LOC-Fleet National 9.00%,
8/1/96............................................. Baa/NR $ 76,797
100,000 Inge Corporation SBA GTD 9.125%, 10/1/00............. Aaa/NR 102,109
110,000 Meridian Printing LOC-Fleet National, 7.90%,
8/1/02............................................. Baa/NR 112,894
250,000 Mobil Oil 6.00%, 11/1/14............................. Aa2/AA 252,812
60,000 Blazing Graphics LOC-Fleet National 8.20%, 5/1/13.... Baa/NR 61,978
60,000 Blazing Graphics LOC-Fleet National 8.25%, 5/1/14.... Baa/NR 61,978
-----------
$ 668,568
-----------
TOTAL RHODE ISLAND BONDS (92.50%).................... $39,857,905
PUERTO RICO BONDS (6.37%)
$ 30,000 Puerto Rico Commonwealth MBIA Insured 7.125%,
7/1/02............................................. Aaa/AAA $ 32,138
500,000 Puerto Rico Commonwealth 7.75%, 7/1/06............... NR/AAA 555,625
200,000 Puerto Rico Commonwealth 7.75%, 7/1/13............... NR/AAA 222,250
40,000 Puerto Rico Aquaduct & Sewer MBIA Insured Escrowed to
Maturity 8.75%, 7/1/00............................. Aaa/AAA 47,500
50,000 Puerto Rico Electric BIG Insured 8.50%, 7/1/99....... Aaa/AAA 54,750
300,000 Puerto Rico Electric Power Auth. 8.00%, 7/1/08....... NR/AAA 335,250
100,000 Puerto Rico Highway 8.00%, 7/1/03.................... NR/AAA 111,750
200,000 Puerto Rico Highway 8.00%, 7/1/05.................... Aaa/AAA 223,500
225,000 Puerto Rico Highway 7.70%, 7/1/03.................... Baa1/A 261,281
285,000 Puerto Rico HFA LOC-Fugi Dev. Bk 7.50%, 10/1/15...... NR/AA 302,813
110,000 Puerto Rico Public Bldg. Auth. 7.875%, 7/1/07........ Aaa/AAA 119,075
200,000 Puerto Rico Public Improvement 7.90%, 7/1/04......... NR/AAA 211,344
200,000 Puerto Rico Public Improvement 8.00%, 7/1/07......... Baa1/A 223,250
40,000 Puerto Rico Public Building Auth. 7.875%, 7/1/07..... Aaa/AAA 43,300
-----------
TOTAL PUERTO RICO BONDS (6.37%)...................... $ 2,743,826
</TABLE>
15
<PAGE> 80
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
UNITED STATES VIRGIN ISLAND BONDS (.23%)
$ 50,000 Virgin Islands PFA LOC-Marine Midland 7.70%,
10/1/04............................................ NR/BBB $ 55,625
40,000 Virgin Islands Port Authority LOC-Marine Midland
8.10%, 10/1/05..................................... Baa/BBB 43,250
-----------
TOTAL U.S. VIRGIN ISLAND BONDS (.23%)................ $ 98,875
-----------
TOTAL INVESTMENTS (Cost $40,291,897) (93.51%)(a)..... $42,700,606
===========
<FN>
(a) Percentages indicated are based on net assets of $43,088,229 at October 31,
1995 (total investments plus cash and receivables less liabilities) which
corresponds to a net asset value per share of $10.59.
(b) The ratings indicates are the most current available. When bonds are rated
differently by Moody's and S&P, the higher rating has been reported. The
rating NR means it is not rated by Moody's or S&P.
(c) These municipal securities meet the four highest ratings assigned by Moody's
Investors Service, Inc. or Standard & Poor's Corp. or where not rated, are
determined by the Fund to be of comparable quality within the guidelines
approved by directors. Certain securities have credit enhancement features
backing them. Without these enhancement features the securities may or may
not meet the quality standards of other securities purchased by the Fund.
(See Note 1)
(d) Abbreviations used:
AMBAC -- American Municipal Bond Assurance Corp.
CGIC -- Capital Guaranty Insurance Co.
FGIC -- Financial Guaranty Insurance Co.
MBIA -- Municipal Bond Investors Assurance
LOC -- Letter of Credit
BIG -- Bond Investors Guaranty (subsidiary of MBIA)
SBA -- Small Business Administration
CAPMAC -- Capital Markets Assurance Corp.
</TABLE>
See Notes to Financial Statements.
16
<PAGE> 81
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Trustees
of Ocean State Tax Exempt Fund
We have audited the accompanying statement of assets and liabilities of
Ocean State Tax Exempt Fund (the portfolio of VLC Trust), including the schedule
of investments, as of October 31, 1995, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
seven years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of Ocean State Tax Exempt Fund for
the two fiscal periods ended October 31, 1988 and October 31, 1987 were audited
by other auditors whose report dated January 6, 1989 expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. 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 the financial highlights
referred to above present fairly, in all material respects, the financial
position of Ocean State Tax Exempt Fund (the portfolio of VLC Trust) at October
31, 1995, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the seven years in the period then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 1, 1995
17
<PAGE> 82
INVESTMENT ADVISER & [Ocean State Tax Exempt Fund Logo]
ADMINISTRATOR
Van Liew Capital Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
DISTRIBUTOR
Van Liew Securities, Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
CUSTODIAN
PNC Institutional Custody Services
Airport Business Center
200 Stevens Drive, Suite 440
Lester, Pennsylvania 19113
TRANSFER AGENT
PFPC, Inc.
P.O. Box 8950
Wilmington, Delaware 19899
INDEPENDENT AUDITORS ANNUAL REPORT
Ernst & Young LLP OCTOBER 31, 1995
200 Clarendon Street
Boston, Massachusetts 02116-5072
COUNSEL
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
TRUSTEES
Alfred B. Van Liew, Chairman
Milton C. Bickford, Jr.
Michael E. Hogue
Alice M. Macintosh
Richard A. Plotkin
John H. St. Sauveur
Thomas R. Weschler,
Vice Admiral, US Navy, Retired
OFFICERS INTEREST INCOME EXEMPT
Alfred B. Van Liew, President FROM FEDERAL AND RHODE
Samuel H. Hallowell, Vice President ISLAND INCOME TAXES
Kevin M. Oates, Treasurer FROM QUALITY MUNICIPAL
Margaret D. Farrell, Secretary BONDS.
<PAGE> 83
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements.
Included in Part A:
Financial Highlights
Included in Part B (incorporated by reference to the
Annual Report provided as an attachment to the
Statement of Additional Information):
(a) Report of Independent Auditors
(b) Statement of Assets and Liabilities dated
October 31, 1995
(c) Statement of Operations for the fiscal year
ended October 31, 1995
(d) Statement of Changes in Net Assets for each of
the two fiscal years in the period ended
October 31, 1995
(e) Financial Highlights for each of the periods
indicated therein
(f) Portfolio of Investments as of October 31,
1995
Included in Part C:
None
(b) Exhibits.
(1) Copy of Declaration of Trust of the Registrant is
incorporated herein by reference to Exhibit (1) of
Registrant's Registration Statement filed on August
5, 1986.
(a) Copy of First Amendment to Declaration of
Trust dated December 28, 1987 is incorporated
by reference to Exhibit (1)(a) of Post-Effective Amendment
No. 2 filed on December 31, 1987.
(b) Copy of Second Amendment to Declaration of
Trust dated May 5, 1988 is incorporated by
reference to Exhibit (1)(b) of Post-Effective
Amendment No. 4 filed on February 28, 1989.
C-1
<PAGE> 84
(2) Copy of By-laws of the Registrant is incorporated
herein by reference to Exhibit (2) of Registrant's
Registration Statement filed on August 5, 1986.
(3) Not Applicable.
(4) Specimen copy of share certificate for shares of
beneficial interest of the Registrant is
incorporated herein by reference to Exhibit (4) of
Pre-Effective Amendment No. 2 filed on November 19,
1986.
(5) Investment Advisory Agreement between the
Registrant and Van Liew Capital Inc. incorporated
by reference to Exhibit 5(c) of Registrant's
Registration Statement filed on December 31, 1987.
(6) (a) Form of Sales Agreement incorporated herein by
reference to Exhibit 6(b) of Registrant's
Registration Statement filed on August 5,
1986.
(b) Form of Bank Correspondent Agreement
incorporated herein by reference to Exhibit
6(c) of Post-Effective Amendment No. 3 to
Registrant's Registration Statement filed on
December 30, 1988.
(c) Distribution Agreement between Registrant and
Van Liew Securities Inc. dated as of May 31,
1990 incorporated by reference to Exhibit 6(d)
of Amendment No. 6 to Registrant's
Registration Statement filed on February 28,
1991.
(7) Not Applicable.
(8) Custodian Agreement between the Registrant and
Provident National Bank incorporated herein by
reference to Exhibit (8) of Pre-Effective Amendment
No. 2 filed on November 19, 1986.
(9) Transfer Agency Agreement between the Registrant
and Provident Financial Processing Corporation
incorporated herein by reference to Exhibit (9) of
Pre-Effective Amendment No. 2 filed on November 19,
1986.
C-2
<PAGE> 85
*(10) Opinion of Counsel as to legality of shares and
Consent of Counsel.
*(11) Consent of Ernst & Young LLP, Independent
Auditors.
(12) Not Applicable.
(13) Agreement relating to initial capitalization of the
Registrant incorporated herein by reference to
Exhibit (13) of Pre-Effective Amendment No. 2 filed
on November 19, 1986.
(14) Not Applicable.
(15) Distribution Plan incorporated herein by reference
to Exhibit (15) to Registrant's Registration
Statement filed on August 5, 1986.
*(16) Schedule for Computation of Performance Quotations.
*(25) Power of Attorney.
Item 25. Persons Controlled by or Under Common Control with Registrant.
- ------- -------------------------------------------------------------
None.
Item 26. Number of Holders of Securities.
- ------- -------------------------------
The following information is as of January 31, 1996:
Title of Class Record Holders
-------------- --------------
Shares of Beneficial Interest 1165
Item 27. Indemnification.
- ------- ---------------
Indemnification is incorporated herein by reference to
Item 27 of Registrant's Pre-Effective Amendment No. 2
filed on November 19, 1987.
Item 28. Business and other Connections of Investment Adviser.
- ------- ----------------------------------------------------
Van Liew Capital Inc. is the investment adviser and
administrator of the Registrant. For information as to
the business, profession, vocation or employment of a
substantial nature of Van Liew Capital Inc., its
officers and directors, reference is made to the Form
ADV filed under the Investment Advisers Act of 1940 by
it.
____________________
* Filed herewith
C-3
<PAGE> 86
Item 29. Principal Underwriters.
- ------- ----------------------
(a) Van Liew Securities Inc., the Distributor for the
Registrant's securities, currently does not act as a
principal underwriter, depositor or investment adviser
to any other investment companies.
<TABLE>
(b) The table below sets forth certain information as to the
Distributor's partners and officers:
<CAPTION>
Name and Principal Positions and Positions and
Business Address Offices with Offices with
- ------------------ Distributor Registrant
------------- -------------
<S> <C> <C>
Alfred B. Van Liew Director Trustee
One Regency Plaza, Suite One and President
Providence, Rhode Island 02903
Kevin M. Oates President and Treasurer
One Regency Plaza, Suite One Treasurer
Providence, Rhode Island 02903
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Books.
- ------- ------------------------------
(1) PNC Bank, N.A. (records relating to its functions
as custodian).
(2) PFPC, Inc. (records relating to its functions as
transfer agent and shareholder servicing agent).
(3) Van Liew Capital Inc. (records relating to its
functions as investment adviser and administrator
and Registrant's Declaration of Trust, Bylaws and
Minute Books).
Item 31. Management Services.
- ------- -------------------
Other than as set forth under the captions "Management
Arrangements" in the Prospectus and "Additional
Information as to Management Arrangements" in the
Additional Statement constituting Part A and Part B,
respectively, of this Registration Statement, Registrant
is not a party to any management-related service
contract.
C-4
<PAGE> 87
Item 32. Undertakings.
- ------- ------------
Registrant undertakes to submit the selection of Ernst &
Young, LLP as its auditors for ratification by
Registrant's shareholders at the first annual or special
meeting of shareholders held after the effective date of
this Registration Statement.
C-5
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant had duly caused this
Amendment to the Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of
Providence, and State of Rhode Island, on the 28th day of February,
1996, and in connection therewith, hereby certifies pursuant to
Rule 485(e) under the Securities Act of 1933 that this Amendment
meets all of the requirements for effectiveness pursuant to Rule
485(b) thereunder.
VLC TRUST (Registrant)
ON BEHALF OF
OCEAN STATE TAX-EXEMPT FUND
By: /s/Samuel H. Hallowell, Jr.
----------------------------
Samuel H. Hallowell, Jr.,
Vice President
WITNESS our hands on the date set forth below.
<TABLE>
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the date
indicated.
<CAPTION>
<S> <C> <C>
*ALFRED B. VAN LIEW Trustee and President
- --------------------- Principal Executive
Officer February 28, 1996
Treasurer (Chief
Financial and Accounting
/s/Kevin M. Oates Officer) February 28, 1996
- ---------------------
(Kevin M. Oates)
*MILTON C. BICKFORD, JR. Trustee
*MICHAEL E. HOGUE Trustee
*ALICE M. MACINTOSH Trustee
*RICHARD A. PLOTKIN Trustee
*JOHN H. ST. SAUVEUR Trustee
THOMAS R. WESCHLER Trustee
/s/Samuel H. Hallowell *Attorney-in-fact February 28, 1996
- ---------------------- as to the above
(Samuel H. Hallowell, Jr.)
</TABLE>
C-6
<PAGE> 89
<TABLE>
VLC Trust
Exhibit Index
<CAPTION>
Exhibit No. Document Page
- ----------- -------- ----
No.
- ---
<S> <C>
10 Opinion of Counsel as to Legality
of Shares and Consent of Counsel
11 Consent of Ernst & Young LLP,
Independent Auditors
16 Schedule for Computation of
Performance Calculations
25 Power of Attorney
</TABLE>
C-7
<PAGE> 1
EXHIBIT 10
----------
February 27, 1996
The Board of Trustees
Ocean State Tax-Exempt Fund
(the portfolio of VLC Trust)
One Regency Plaza, Suite One
Providence, Rhode Island 02903
Gentlemen:
We have acted as counsel to Ocean State Tax-Exempt Fund (the "Fund"),
the portfolio of VLC Trust, a Massachusetts business trust (the "Trust"), in
connection with the organization of the Trust and Fund. Acting in such
capacity, we are furnishing this opinion to be filed as Exhibit 10 to
Post-Effective Amendment No. 11 to the Registration Statement on Form N-1A of
the Trust (the "Registration Statement") which was originally filed with the
Securities and Exchange Commission (the "SEC") on August 5, 1986, Registration
No. 33-7788.
We have examined and are familiar with originals or copies, certified
or otherwise identified to our satisfaction, of the Agreement and Declaration
of Trust of the Trust made August 1, 1986, as amended on December 28, 1987 and
May 5, 1988 (the "Declaration of Trust"), the Bylaws of the Trust (the
"Bylaws"), and such other records of the Trust and the Fund as we have deemed
necessary in connection with rendering this opinion.
Based on the foregoing, we are of the opinion that:
1. The Trust is a Massachusetts business trust validly organized and
legally existing under the laws of Massachusetts and is authorized to issue an
unlimited number of shares of beneficial interest, par value $.01 per share
(the "Shares").
2. The Trust's Registration Statement under the Securities Act of 1933
as amended, and the Investment Company Act of 1940 as amended covering an
indefinite number of Shares of the Fund has become effective, and upon the
qualification of the Shares of the Fund for sale in the states where such
Shares are to be sold, the Shares of the Fund will, upon sale and issuance
thereof in the manner contemplated by the Registration Statement as amended, be
validly issued, fully paid and non-assessable.
<PAGE> 2
The Board of Trustees
Ocean State Tax-Exempt Fund
February 27, 1996
Page Two
Under Massachusetts law, shareholders of a business trust may, in
certain circumstances, be held personally liable as partners for the
obligations of the trust. However, in the case of the Trust, the Declaration
of Trust contains an express disclaimer of shareholder liability for acts or
obligations of each portfolio (the "Portfolio") of the Trust and requires that
notice of such disclaimer be given in each instrument entered into or executed
by the Trust. The Declaration of Trust also provides for indemnification out
of a Portfolio's property for any shareholder of such Portfolio held personally
liable for any of the Portfolio's obligations. Thus, the economic risk
resulting from a shareholder being personally liable as a partner for
obligations of a Portfolio is limited to the circumstances in which the
Portfolio itself would be unable to meet its obligations.
We have not reviewed the securities laws of any state or territory in
connection with the proposed offering of Shares, and we express no opinion as
to the legality of any offer or sale of Shares under any such state or
territorial securities laws.
This opinion is intended only for your use in connection with the
offering of Shares, and may not be relied upon by any other person.
We consent to the filing of this opinion as Exhibit 10 to
Post-Effective Amendment No. 11 to the Registration Statement and to the
reference to our firm under the caption "Counsel" in the Prospectus which is
part of the Registration Statement.
Very truly yours,
/s/ HINCKLEY, ALLEN & SNYDER
<PAGE> 1
EXHIBIT 11
----------
Consent of Ernst & Young LLP Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the prospectus and "Custodian and Independent Auditors" and
"Financial Statements" in the Statement of Additional Information and to the
incorporation by reference in Post-Effective Amendment No. 11 to Registration
Statement No. 33-7788 on Form N-1A of our report dated December 1, 1995 on the
financial statements and financial highlights included in the October 31, 1995
Annual Report to Shareholders of Ocean State Tax Exempt Fund (the portfolio of
VLC Trust).
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 27, 1996
<PAGE> 1
EXHIBIT 16
<TABLE>
PERFORMANCE CALCULATIONS AT FYE 1995
<CAPTION>
RATES AND YIELDS BASED ON NET ASSET VALUE:
- ------------------------------------------
<S> <C>
1-Day Rate: (Net Investment Income)/(Record Shares*NAV) 1 Day Rate =
.000144712
1-Day Yield: ((Net Investment Income)/(Record Shares*NAV))*365 1 Day
Yield = 5.28%
7-Day Rate: (Net Investment Income Summed for Previous 7 Days)/(Record
Shares*NAV)
7 Day Rate = .001012791
7-Day Yield: ((Net Investment Income Summed for Previous 7 Days)/(Record
Shares*NAV))*365)/7
7 Day Yield = 5.28%
30-Day Rate: (Net Investment Income Summed for Previous 30 Days)/(Record
Shares*NAV)
30 Day Rate = .004326612
30-Day Yield: (((Net Investment Income Summed for Previous 30 Days)/
(Record Shares*NAV))*365)/30
30 Day Yield = 5.26%
RATES AND YIELDS BASED ON OFFERING PRICE:
- -----------------------------------------
1-Day Rate: (Net Investment Income)/(Record Shares*Offer)
1 Day Rate = .000138940
1-Day Yield: ((Net Investment Income)/(Record Shares*Offer))*365
1 Day Yield = 5.07%
7-Day Rate: (Net Investment Income Summed for Previous 7 Days)/(Record
Shares*Offer)
7 Day Rate = .000972369
7-Day Yield: (((Net Investment Income Summed for Previous 7 Days)/(Record
Shares*Offer))*365)/7
7 Day Yield = 5.07%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
30-Day Rate: (Net Investment Income Summed for Previous 30 Days)/(Record
Shares*Offer)
30 Day Rate = .004153812
30-Day Yield: (((Net Investment Income Summed for Previous 30 Days)/
(Record Shares*Offer))*365)/30
30 Day Yield = 5.05%
30-Day SEC Yield: 2*(((((((((SEC ADJ Income*PAR*1000/12)/30)-Sum of Previous
30 Days)/AVG Div Shares for Previous 30
Days*Offer))+1)[taken to the 6th power])-1)
30 Day SEC Yield = 4.63%
30 DAY TAX EQUIVALENT YIELD
- ---------------------------
BASED ON NAV
------------
(30 Day Yield on NAV)/(1-.3784) = 8.46%
BASED ON OFFER
--------------
(30 Day Yield on Offer)/(1-.3784) = 8.12%
The 37.84% Rate US Based Upon the Combined Federal and
State Tax Rate
TOTAL RATE OF RETURN
- --------------------
BASED ON NAV
------------
(((Net Change in NAV During Period + Dividends and Cap Gains
During Period)/(NAV at Beginning of Period))/((Number of
Months in Period)*12)
1-Year Total Rate of Return = 10.89%
5-Year Total Rate of Return = 9.24%
Since Inception Total Rate of Return = 9.20%
BASED ON OFFER
---------------
((Net Change in Offer During Period + Dividends and Cap Gains
During Period)/(Offer at Beginning of Period))/((Number of
Months in Period)*12)
1-Year Total Rate of Return = 6.46%
5-Year Total Rate of Return = 8.05%
Since Inception Total Rate of Return = 8.39%
</TABLE>
<PAGE> 1
EXHIBIT 25
VLC TRUST
POWER OF ATTORNEY
We, the undersigned officers and trustees of the VLC Trust (the
"Trust"), hereby severally constitute and appoint Alfred B. Van Liew, Samuel H.
Hallowell, Jr. and Kevin M. Oates, and each of them singly, our true and lawful
attorneys, with full power to them and each of them, to sign for us, and in our
hands and in the capacities indicated below, any and all Post-Effective
Amendments to the Trust's Registration Statement on Form N-1A and to file the
same, with all exhibits thereto, and other documents therewith, with the
Securities and Exchange Commission, granting unto said attorneys, and each of
them, acting alone, full authority and power to do and perform each and every
act and thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys or any of them lawfully do or cause to be
done by virtue thereof.
<TABLE>
IN WITNESS WHEREOF, the undersigned have set their hands on the date
written.
<CAPTION>
<S> <C> <C>
Trustee and President
(Principal Executive
/s/Alfred B. Van Liew Officer) February 15, 1996
- ----------------------------------
(Alfred B. Van Liew)
Treasurer (Chief
Financial and Account-
/s/Kevin M. Oates ing Officer) February 15, 1996
- ----------------------------------
(Kevin M. Oates)
/s/Milton C. Bickford Trustee February 15, 1996
- ----------------------------------
(Milton C. Bickford)
/s/Michael E. Hogue Trustee February 15, 1996
- ----------------------------------
(Michael E. Hogue)
/s/Alice M. Macintosh Trustee February 15, 1996
- ----------------------------------
(Alice M. Macintosh)
/s/Richard A. Plotkin Trustee February 15, 1996
- ----------------------------------
(Richard A. Plotkin)
/s/John H. St. Sauveur Trustee February 15, 1996
- ----------------------------------
(John H. St.Sauveur)
_____________________________ Trustee February 15, 1996
(Thomas R. Weschler)
</TABLE>
