<PAGE> 1
Registration No. 33-7788
Registration No. 811-4788
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 16 /X/
And/Or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 18
(check appropriate box or boxes)
---------------------------
VLC TRUST
(Exact Name of Registrant as Specified in Charter)
ONE REGENCY PLAZA
PROVIDENCE, RHODE ISLAND 02903
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (401) 421-1411
----------------------------
Margaret D. Farrell, Esq.
Hinckley, Allen & Snyder LLP
1500 Fleet Center
PROVIDENCE, RHODE ISLAND 02903
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering [ ]
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
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[Ocean State Tax-Exempt Fund LOGO]
OCEAN STATE TAX-EXEMPT FUND
ONE REGENCY PLAZA
PROVIDENCE, RHODE ISLAND 02903
CLASS I SHARES PROSPECTUS
MARCH , 2000
Ocean State Tax-Exempt Fund seeks to provide as high a level of current
income, exempt from Federal income tax and Rhode Island income tax, as is
consistent with preservation of capital.
The Fund is a series of VLC Trust.
This prospectus gives vital information about the Fund. For your own
benefit and protection, please read it before you invest and keep it on hand for
future reference.
For purchase, redemption or account inquiries, contact your financial
intermediary.
For general inquires and yield information, call 800-300-1116 or
401-421-1411.
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
CONTENTS
<TABLE>
<S> <C>
Fund Summary
Principal Investment Objective and Strategy................. 3
Principal Investment Risks................................ 3
Who May Want to Invest.................................... 3
Performance............................................... 4
Your Expenses............................................. 5
Risks of Mutual Funds..................................... 6
Management................................................ 6
How to Purchase and Redeem Shares......................... 6
Financial Highlights........................................ 7
Discussion of Performance................................... 8
The Fund In Detail.......................................... 10
Principal Investment Objective and Strategies............. 10
Principal Investment Risks................................ 10
Net Asset Value........................................... 11
Buying and Selling Shares................................... 12
Opening An Account........................................ 12
Buying Shares............................................. 12
Systematic Investment Plan................................ 13
Distribution Plan......................................... 13
Selling Shares............................................ 13
Automatic Withdrawal Plan................................. 15
Transaction Policies...................................... 15
Management of the Fund...................................... 16
Dividends and Tax Information............................... 16
Application
</TABLE>
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<PAGE> 4
FUND SUMMARY
PRINCIPAL INVESTMENT OBJECTIVE AND STRATEGY
The Fund's investment objective is to seek as high a level of current
income, exempt from Federal and Rhode Island tax, as is consistent with
preservation of capital. The Fund invests at least 80% of assets in municipal
securities rated within the four highest investment grades, whose interest is
exempt from Rhode Island state and Federal income tax. However, a portion of the
Fund's income may be subject to these taxes. The Fund may invest in securities
of any maturity and may adjust the average maturity of the Fund's assets in
response to market conditions.
PRINCIPAL INVESTMENT RISKS
The Fund is subject to a number of risks and, accordingly, you could lose
money on your investment. The principal investment risks are:
- Municipal Market Volatility. Because the Fund invests primarily in Rhode
Island municipal securities, its performance is affected by local, state
and regional factors. Federal and/or Rhode Island tax laws could change
to reduce or eliminate the tax-free nature of the interest on municipal
obligations, which may negatively affect the municipal bond market, the
Fund's value and the availability of investments.
- Interest Rate Changes. When interest rates rise, debt securities
generally fall, which may affect the Fund's value.
- Lack of Diversification. The Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual
issuers than a diversified fund. As a result, if the Fund invests heavily
in a single issuer, its performance could suffer significantly from
adverse events affecting that issuer.
- Bond Ratings Changes. The Fund could lose money if any bonds it owns are
downgraded in credit rating or go into default. If certain investments
don't perform as the Fund expects, it could underperform its peers or
lose money.
WHO MAY WANT TO INVEST
This Fund may be appropriate for you if you:
- want regular monthly income
- are interested in lowering your income tax burden
- pay Rhode Island income tax
- are in a higher income bracket
This Fund may NOT be appropriate for you if you:
- are seeking an investment for a tax-deferred retirement account
- are investing for maximum return over a long time horizon
- require absolute stability of your principal
- are not subject to a high level of state or federal income tax
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<PAGE> 5
PERFORMANCE
The following information shows how the Fund's total return has varied from
year to year and also shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the risks of an investment in the Fund. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
YEAR-BY-YEAR TOTAL RETURNS*
[YEAR BY YEAR TOTAL RETURNS BAR CHART]
During the 10-year period shown in the bar chart, the highest return for a
quarter was 4.77% (quarter ending March 31, 1995) and the lowest return for a
quarter was -2.89% (quarter ending March 31, 1994).
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* The returns shown are for Class A Shares of the Fund which are not offered in
this Prospectus. Class I Shares would have substantially similar annual total
returns as the Class A Shares because both classes are invested in the same
portfolio of securities. The annual returns would differ only to the extent
that the classes do not have the same distribution fees, expenses and sales
charges. (Class I Shares do not have a sales charge but pay a Rule 12b-1
distribution fee.)
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<PAGE> 6
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
CALENDAR YEAR PERIODS
ENDING DECEMBER 31, 1999 PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
- ------------------------ ------------- ------------ -------------
<S> <C> <C> <C>
Ocean State Tax-Exempt Fund+...................... -4.79% 4.69% 5.62%
Lehman Brothers Municipal Bond Index*............. -2.07% 6.91% 6.90%
</TABLE>
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+ The returns shown are for Class A Shares of the Fund which are not offered in
this Prospectus. Class I Shares would have substantially similar average
annual total returns as the Class A Shares because both classes are invested
in the same portfolio of securities. The average annual total returns would
differ to the extent that the classes do not have the same distribution fees,
expenses and sales charges. (Class I Shares do not have a sales charge but pay
a Rule 12b-1 distribution fee.)
* Lehman Brothers Municipal Bond Index is an unmanaged index that includes
approximately 15,000 municipal bonds and is commonly used as a measure of bond
performance. It does not reflect any sales charges.
YOUR EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund. Transaction expenses are charged directly to your
account. Operating expenses are paid from the Fund's assets, and therefore are
paid by shareholders indirectly.
Shareholder Transaction Expenses (fees paid directly from your investments)
<TABLE>
<S> <C>
Maximum sales charge (load) on purchases (as a percentage of
purchase price)............................................. None
</TABLE>
Annual Operating Expenses (expenses that are deducted from Fund assets)*
<TABLE>
<S> <C>
Management fees............................................. 0.60%
Distribution and service (12b-1) fees....................... 0.30%
Other expenses.............................................. 0.29%
Total annual Fund operating expenses........................ 1.19%
</TABLE>
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* Estimated based on amount incurred by the Fund's Class A Shares during its
most recent fiscal year (except for distribution and 12b-1 fees). Class A
Shares are not offered in this Prospectus. It is expected that operating
expenses will not change materially.
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<PAGE> 7
Example of Expenses
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you redeemed your
shares at the end of each time period and that the average annual return was 5%.
The example is for comparison only, and does not represent the Fund's actual
expenses and returns, either past or future.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$125 $394 $690 $1530
</TABLE>
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the
FDIC or any other government agency. Because you could lose money by investing
in these funds, be sure to read all risk disclosure carefully before investing.
MANAGEMENT
The Fund is managed by Van Liew Capital Inc.
HOW TO PURCHASE AND REDEEM SHARES
You may purchase Class I Shares of the Fund only through financial
intermediaries with which Van Liew Securities Inc., the Fund's distributor, has
entered into sales agreements, including selected broker/dealers and other
institutions acting for investors in a fiduciary, advisory, agency or similar
capacity. These shares are not offered directly to retail customers. Class I
Shares are offered at net asset value and have no sales charges or redemption
fees, although the financial intermediary may charge a fee for effecting a
purchase or other transaction. You must initially invest at least $1,000 in the
Fund.
You may redeem Fund shares on any business day. The Fund may close your
account if the balance falls below $500.
The table shown below for Class A Shares is for information purposes only.
Class A Shares are not offered by this Prospectus. Similar information does not
exist for Class I Shares which are offered by this Prospectus.
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<PAGE> 8
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in this
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Ernst & Young LLP,
independent auditors, whose report, along with the Fund's financial statements,
are included in the Annual Report which is available upon request.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
10/31/99 10/31/98 10/31/97 10/31/96 10/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year.................. $ 10.71 $ 10.69 $ 10.53 $ 10.59 $ 10.10
Net Investment income............................... .53 .56 .57 .56 .58
Net realized and unrealized gain (loss) on
securities........................................ (.58) .03 .16 (.06) .49
------- ------- ------- ------- -------
Total from Investment Operations................ (.05) .59 .73 .50 1.07
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income.............. (.53) (.56) (.57) (.56) (.58)
Distribution from net realized gains.............. (.01) (.01) (.00) (.00) (.00)
------- ------- ------- ------- -------
Total Distributions............................. (.54) (.57) (.57) (.56) (.58)
------- ------- ------- ------- -------
Net Asset Value, End of Year........................ $ 10.12 $ 10.71 $ 10.69 $ 10.53 $ 10.59
======= ======= ======= ======= =======
Total investment return at Net Asset Value(a)... (.66)% 5.46% 6.97% 4.89% 10.89%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted)............. $39,954 $43,248 $41,626 $42,456 $43,088
Ratio of expenses to average net assets............. .94% .94% .99% .98% .98%
Ratio of net investment income to average net
assets............................................ 4.91% 5.07% 5.25% 5.31% 5.58%
Portfolio turnover.................................. 13.19% 10.30% 2.27% 13.30% 11.77%
Fund expenses per share............................. .10 .10 .11 .10 .10
Net Investment Income per share..................... .53 .56 .57 .56 .58
Ratio of expenses to average net assets............. .94% .94% .99% .98% .98%
Ratio of net investment income to average net
assets............................................ 4.91% 5.07% 5.25% 5.31% 5.58%
</TABLE>
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(a) Total investment return does not reflect sales load.
This discussion relates to Class A Shares and is for information purposes
only. Class A Shares are not offered by this Prospectus. Similar information
does not exist for Class I Shares which are offered by this Prospectus.
-7-
<PAGE> 9
DISCUSSION OF PERFORMANCE
October 31, 1999, was the end of the Fund's thirteenth fiscal year. During
the prior 12 months, the Fund's net asset value (NAV) declined from $10.71 to
$10.12 per share due to rising interest rates. The Fund's dividend distribution
was relatively steady at $0.53 per share, down from $0.56 per share in 1998. The
Fund's emphasis on high coupon pre-refunded "cushion" bonds helped support the
Fund's calendar year total return of (0.78%) compared to the benchmark Lehman
Brothers Municipal Bond Index total return of (2.07%) during the same period.
Last year witnessed the Federal Reserve attempting to slow the economy down
through three successive rate increases. Though these steps helped to allay
inflation fears, they also resulted in a price decline for outstanding bonds.
Despite this volatility, the Fund still met its stated objective to provide as
high a level of current net income, exempt from Rhode Island and federal taxes,
as is consistent with preservation of capital.
At October 31, 1999, the Fund's weighted average maturity was 12.2 years.
Over 67% of the Fund's holdings are rated Aaa/AAA by Moody's or S&P. The expense
ratio remained unchanged at 0.94%.
The following graph compares the performance of the Fund to the performance
of the Lehman Brothers Municipal Bond Index. The graph assumes a $10,000
hypothetical investment at November 1, 1989 through October 31, 1999 with all
distributions reinvested in shares. The Fund information with respect to Class A
Shares reflects the maximum sales charge of 4% and all Fund expenses. The Index
graph line does not reflect any expenses or sales charges. All performance data
represents past performance and should not be considered indicative of future
performance.
-8-
<PAGE> 10
PERFORMANCE COMPARISON
OCEAN STATE TAX EXEMPT FUND VS. LEHMAN BROTHERS MUNICIPAL BOND INDEX
[YEAR BY YEAR PERFORMANCE COMPARISON]
[LINE GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
31-Oct-89 31-Oct-90 31-Oct-91 31-Oct-92 31-Oct-93 31-Oct-94 31-Oct-95
Ocean State Tax Exempt Fund* $9,598.43 $10,177.00 $11,310.30 $12,241.01 $13,753.13 $13,415.47 $14,876.42
Lehman Municipal Bond Index $10,000.00 $10,742.16 $12,049.23 $13,060.92 $14,890.60 $14,250.70 $16,366.07
<S> <C> <C> <C> <C>
31-Oct-96 31-Oct-97 31-Oct-98 31-Oct-99
Ocean State Tax Exempt Fund* $15,603.96 $16,691.08 $17,602.73 17,485.88
Lehman Municipal Bond Index $17,300.14 $18,770.60 $20,276.76 19,916.78
</TABLE>
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* The performance shown is for Class A Shares of the Fund which are not offered
in this Prospectus. Class I Shares would have substantially similar
performance as the Class A Shares because both classes are invested in the
same portfolio of securities. The performance would differ only to the extent
that the classes do not have the same distribution fees, expenses and sales
charges. (Class I Shares do not have a sales charge but pay a Rule 12b-1
distribution fee).
The following table shows the average annual total returns for Fund's Class
A Shares over the past 1, 5 and 10 fiscal years. The information reflects the
maximum sales charge of 4%. The average annual total returns shown are for Class
A Shares of the Fund which are not offered in this Prospectus. Class I Shares
would have substantially similar average annual total returns as the Class A
Shares because both classes are invested in the same portfolio of securities.
The average annual total returns would differ only to the extent that the
classes do not have the same distribution fees, expenses and sales charges.
(Class I Shares do not have a sales charge but pay a Rule 12b-1 distribution
fee).
-9-
<TABLE>
<CAPTION>
FISCAL YEAR PERIODS ENDING
OCTOBER 31, 1999 PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
- -------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Ocean State Tax-Exempt Fund....................... -4.66% 4.66% 5.79%
</TABLE>
-10-
<PAGE> 11
THE FUND IN DETAIL
PRINCIPAL INVESTMENT OBJECTIVE AND STRATEGIES
The Fund seeks a high level of current income, consistent with preservation
of capital, that is exempt from Federal and Rhode Island income taxes.
In pursuing its goal, the Fund normally invests at least 80% of its assets
in municipal debt obligations of any maturity of Rhode Island, Guam, Puerto Rico
and the Virgin Islands, the interest on which is also exempt from Rhode Island
State and Federal income taxes. This is a fundamental policy of the Fund which
is subject to change only by shareholder approval. All of these securities must
have credit ratings of BBB or higher (as rated by Standard & Poor's) or Baa or
higher (as rated by Moody's Investors Service) when purchased. The Fund may also
invest in unrated bonds that, in the opinion of the Fund's adviser, are
comparable to rated municipal obligations. If a bond's rating drops below BBB or
Baa, the Fund will sell it unless, in the adviser's opinion, the decline is
temporary and such a sale would not be in the Fund's best interests. The Fund is
non-diversified and may invest more than 5% of assets in securities of a single
issuer.
Management achieves its investment goals through investing in a variety of
general obligation and revenue bonds. The portfolio strives to achieve a high
average coupon to support the yield and hedge against interest rate volatility.
As a result of falling interest rates, higher coupons have been difficult to
maintain in the portfolio. The adviser purchases and sells bonds on the basis of
cash flow, yield, average maturity, duration and perceived credit quality. The
adviser also focuses on enhancing diversity and acquiring bonds of improving
credits. Purchases are intended as long-term investments. Management seeks low
turnover to minimize the generation of taxable capital gains.
The Fund may also invest up to 20% of its assets in industrial development
bonds, taxable short-term obligations, issues the interest on which is not
exempt from Rhode Island income tax and cash. Taxable short-term obligations are
obligations maturing in one year or less.
The Fund may make limited use of certain derivatives (investments whose
value is based on indices or other securities), including municipal bond index
futures, when-issued and delayed delivery purchases, repurchase agreements and
illiquid investments, especially in managing its exposure to interest rate risk.
In abnormal market conditions, the Fund, for defensive purposes, may
temporarily invest up to 100% of assets in taxable investment-grade short-term
securities. In these cases, the Fund might not achieve its goal.
PRINCIPAL INVESTMENT RISKS
The Fund is subject to the following principal investment risks:
- Municipal Market Volatility. Because the Fund invests primarily in Rhode
Island municipal securities its performance is affected by local, state
and regional factors. These may include economic or policy changes,
erosion of the tax base, state legislative changes (especially those
affecting taxes) and the possibility of credit problems. Federal and/or
Rhode Island tax laws could change to reduce or eliminate the tax-free
nature of the interest on municipal
-10-
<PAGE> 12
obligations, which may negatively affect the municipal bond market, the
Fund's value and the availability of investments.
- Interest Rate Changes. When interest rates rise, debt securities
generally fall. Bonds with longer terms are likely to experience a
greater price impact than shorter-term bonds. These changes may affect
the Fund's value.
- Lack of Diversification. The Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual
issuers than a diversified fund. As a result, if the Fund invests heavily
in a single issuer, its performance could suffer significantly from
adverse events affecting that issuer.
- Bond Ratings Changes. The Fund could lose money if any bonds it owns are
downgraded in credit rating or go into default. If certain sectors or
investments don't perform as the Fund expects, it could underperform its
peers or lose money.
- Year 2000 Problem. Like most mutual funds, the Fund relies on computers
in conducting daily business and processing information. Although the
Fund and its service providers did not experience any problems on January
1, 2000, problems may still occur throughout the 2000 calendar year.
There is concern that some computer programs may be unable to recognize
the new year and as a consequence will malfunction. The adviser has taken
steps that it believes are reasonably designed to address this potential
problem and has obtained assurances from the Fund's other service
providers that they have addressed the issue. However, the Fund cannot be
certain that these steps will be sufficient to avoid any adverse impact
on the Fund or its shareholders. The Year 2000 concern may also adversely
impact issuers of securities held by the Fund.
To the extent that the Fund invests in securities with additional risks,
those risks could increase volatility or reduce performance:
- Revenue bonds could be downgraded or go into default if revenues from
their underlying facilities decline, causing the Fund to lose money.
- In a down market, certain securities could become harder to value or to
sell at a fair price.
- Certain derivatives could produce disproportionate gains or losses.
NET ASSET VALUE
The net asset value per share (NAV) for the Fund is determined at 4:30
p.m., Eastern Time, on each business day the New York Stock Exchange is open.
The Fund uses market prices in valuing portfolio securities, but may use
fair-value estimates if reliable market prices are unavailable. NAV is
determined by dividing the value of the net assets of the Fund (i.e., assets
less liabilities) by the total number of shares outstanding.
-11-
<PAGE> 13
BUYING AND SELLING SHARES
You may purchase Class I Shares of the Fund only through financial
intermediaries certain (e.g. certain brokers and investment advisers) with which
Van Liew Securities Inc. (the "Distributor") has a sales agreement, or through
institutions acting for investors in a fiduciary, advisory, agency, custodial or
similar capacity. These shares are not offered directly to retail customers.
Your financial intermediary may charge a fee in connection with a purchase of
shares of the Fund.
OPENING AN ACCOUNT
- Read this prospectus carefully.
- Determine how much you want to invest. The minimum initial investment for
the Fund is $1,000.
- Systematic Investment Plan: $250 to open; you must invest at least $100 a
month.
- Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
dealer, investment adviser or other financial intermediary.
- Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an addition application if you want to add privileges
later.
- Your dealer, investment advisor or other financial intermediary must
initiate any purchase, exchange or sale of shares.
BUYING SHARES
The price to buy one share of the Fund's Class I Shares is the Fund's NAV.
Your shares will be bought at the next NAV calculated after your investment is
received in proper form. When you place an order to buy shares, note the
following:
- Order shares through your financial intermediary, if it is a selected
financial intermediary, and include a completed application.
- The minimum initial investment is $1,000. Your financial intermediary may
have its own minimum initial investment requirement.
- All of your purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.
To open or add to an account using the Systematic Investment Plan, see
"Systematic Investment Plan."
SALES CHARGES
There are no sales charges imposed on purchases of Class I Shares of the
Fund. Your financial intermediary may charge a fee in connection with your
purchase of Fund shares.
-12-
<PAGE> 14
SYSTEMATIC INVESTMENT PLAN
The Systematic Investment Plan lets you set up regular investments to the
Fund from your paycheck or bank account. You determine the frequency and amount
of your investments (with a minimum initial investment of $250 and $100 regular
investments) and you can terminate your program at any time. Your financial
intermediary may have its own requirement with respect to a systematic
investment plan. You should check with your financial intermediary about this
investment option.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan under Rule 12b-1 with respect to
the Class I Shares which allows it to:
- Permit the Fund to finance activities primarily intended to result in the
sale of Class I Shares.
- Protect the Fund against any claim that some of the expenses which it
pays or may pay might be considered to be sales-related and therefore
come within the purview of Rule 12b-1.
Under the Plan, the Fund makes payments with respect to Class I Shares
under agreements with financial intermediaries, including selected
broker/dealers, financial planners and other institutions that act on behalf of
investors in an advisory, fiduciary, agency or custodial capacity, who have
assisted with the distribution of the Class I Shares. Payments with respect to
Class I Shares are made at a rate not to exceed 0.25 of 1% of the average annual
net assets represented by the Class I Shares. Said payments may be made only out
of the Fund's assets allocable to the Class I Shares. In addition, the Fund is
permitted to pay certain expenses, such as the costs of printing and
distributing prospectuses, statements of additional information and shareholder
reports which are related to the sale of Fund shares. Because these expenses are
paid out of the Fund's assets on an annual basis, over time these expenses will
reduce the Fund's yield, increase the cost of your investment and may cost you
more than paying other types of sales charges.
SELLING SHARES
The price to sell one share of the Fund is the Fund's NAV. Your shares will
be sold at the next NAV calculated after your order is received in proper form.
Certain requests must include a signature guarantee. It is designed to protect
you and the Fund from fraud. You do not have to hold your shares for any minimum
period of time. You may sell your shares by the following methods:
EXPEDITED REDEMPTION METHODS
The Fund provides an expedited redemption method for shares not represented
by certificates and where payment is to be made directly to a bank account. To
use, you must elect the expedited redemption method on the application and
provide bank account information.
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<PAGE> 15
By Mail:
- write a letter of instruction or complete a stock power indicating your
account number, the name(s) in which the account is registered and the
dollar value or number of shares you wish to sell.
- Include all signatures and any additional documents that may be required.
- Give the materials to your financial intermediary. Redemption requests
cannot be made directly. Your financial intermediary may charge a fee for
effecting redemptions.
- A check will be mailed (or wired if for more than $1,000 and you so
request) to the bank account predesignated by you.
To sell shares through the automatic withdrawal plan, see "Automatic
Withdrawal Plan."
REGULAR REDEMPTION METHOD
For Certificated Shares:
- Complete a stock power and give it to your financial intermediary.
Redemption requests cannot be made directly. Your financial intermediary
may charge a fee for effecting redemptions.
- For your protection, your signature must be guaranteed. YOU WILL NEED TO
OBTAIN YOUR SIGNATURE GUARANTEE FROM A MEMBER OF THE SIGNATURE GUARANTEE
MEDALLION PROGRAM. MOST BROKERS AND SECURITIES DEALERS ARE MEMBERS OF
THIS PROGRAM. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
- For your protection, you should request that your financial intermediary
mail your certificate and stock power separately.
For Non-Certificated Shares:
- Write a letter of instruction indicating your account number, the dollar
value of shares you wish to sell and payment instructions and give it to
your financial intermediary. Redemption requests cannot be made directly.
Your financial intermediary may charge a fee for effecting redemptions.
- For your protection, your signature must be guaranteed. YOU WILL NEED TO
OBTAIN YOUR SIGNATURE GUARANTEE FROM A MEMBER OF THE SIGNATURE GUARANTEE
MEDALLION PROGRAM. MOST BROKERS AND SECURITIES DEALERS ARE MEMBERS OF
THIS PROGRAM. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
You may need to include additional items with your request if:
- the shares are held by a corporation, a partnership, trustee or executor
- the redemption is requested by someone other than the shareholder of
record.
-14-
<PAGE> 16
AUTOMATIC WITHDRAWAL PLAN
This plan may be used for routine bill payments or periodic withdrawals
from your account. To establish:
- Make sure you have at least $5,000 worth of shares in your account.
- Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they
are all on the same payment schedule. Each withdrawal must be in an
amount not less than $50.
- Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
- Fill out the relevant part of the account application and give it to your
financial intermediary. To add an automatic withdrawal plan to an
existing account, contact your dealer or other financial intermediary.
TRANSACTION POLICIES
Buy and sell prices. When you buy shares, you pay the NAV, as described
earlier. When you sell shares, you receive the NAV.
Execution of requests. The Fund is open on those days when the New York
Stock Exchange is open, typically Monday through Friday. Buy and sell requests
are executed at the next NAV to be calculated after your request is received in
proper form by PFPC, Inc.
At the times of unusual activity, it may be difficult to place requests by
phone. During these times, consider sending your request in writing.
In unusual circumstances, the Fund may temporarily suspend the processing
of sell requests, or may postpone payment of proceeds for up to three business
days or longer, as allowed by federal securities laws.
Certificated shares. Most shares are electronically recorded. If you wish
to have certificates for your shares, please request certificates from your
financial intermediary. Certificated shares can only be sold by returning the
certificates to your financial intermediary, along with a letter of instruction
or a stock power and a signature guarantee.
Sales in advance of purchase payments. When you place a request to sell
shares for which the purchase money has not yet been collected, the request will
be executed in a timely fashion, but the Fund will not release the proceeds to
you until your purchase payment clears. This may take up to ten business days
after the purchase.
Automatic Redemption. If the balance in your account falls below $500,
your account may be automatically closed by the Fund if you do not cause the
balance to go above $500 within 60 days.
Redemption In Kind. The Fund may, if it is deemed to be in the best
interests of the Fund's shareholders, pay the redemption price for redeeming
shares of the Fund in whole or in part by the distribution of securities held by
the Fund instead of paying the redemption price in cash.
-15-
<PAGE> 17
MANAGEMENT OF THE FUND
The Fund's board of trustees oversees the Fund's business activities and
retains the services of the various firms that carry out the Fund's operations.
Van Liew Capital Inc., One Regency Plaza, Suite One, Providence, Rhode
Island, serves as the adviser to the Fund and supervises the investment program
and the portfolio. Van Liew has been a registered investment adviser in Rhode
Island since 1984 and advises individuals, charities, financial institutions and
pension plans in New England. Joseph J. Healy and Samuel L. Hallowell, Jr. serve
as co-managers of the Fund. Mr. Healy, Vice President of the Fund, has been
employed by the Fund since 1996 and by the Fund's adviser since 1992. Mr.
Hallowell has been a vice president of the Fund since 1986 and the Fund's
adviser since 1992.
Management Fees. The management fees paid to the investment adviser by the
Fund with respect to the Class A Shares last year are as follows: .60 of 1% for
the first $200 million of average net assets and .50 of 1% of average net assets
above $200 million. For the fiscal year ended October 31, 1999, the Fund paid
the Adviser $253,910, which is 0.60% of the Fund's average net assets with
respect to the Class A Shares. Management fees with respect to the Class A
Shares are provided for information purposes only. While similar information
does not exist for the Class I Shares which are offered by this Prospectus, the
Fund will pay management fees at the same level on assets allocated to the Class
I Shares. Such fees shall be calculated based on the total net assets of the
Fund.
DIVIDENDS AND TAX INFORMATION
Dividends and Distributions. The Fund generally declares dividends daily
and pays them monthly. Capital gains, if any, are distributed annually,
typically after the end of the Fund's fiscal year. Most of the Fund's dividends
are income dividends. Your dividends begin accruing the day after payment is
received by the Fund and continue through the day your shares are actually sold.
Dividend reinvestments. Most investors have their dividends and
distributions reinvested in additional shares of the Fund. If you choose this
option, or if you do not indicate any choice, your dividends will be reinvested
on the dividend record date. Alternatively, you can choose to have a check for
your dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
Taxability of dividends. As long as the Fund meets the requirements for
being a tax-qualified regulated investment company, which the Fund has in the
past and intends to in the future, it pays no federal income tax on the earnings
it distributes to shareholders.
The Fund intends to meet certain federal tax requirements so that
distributions of the tax-exempt interest it earns may be treated as
"exempt-interest dividends." However, any portion of exempt-interest dividends
attributable to interest on private activity bonds may increase certain
shareholders' alternative minimum tax.
-16-
<PAGE> 18
The Fund may invest a portion of its assets in securities the income from
which is not exempt from Federal or Rhode Island income tax. Any distributions
which do not qualify as "exempt-interest dividends" may be subject to Federal or
state income tax, whether received in cash or reinvested in additional shares of
the Fund.
Dividends from a Fund's short-term capital gains are taxable as ordinary
income. Dividends from a Fund's long-term capital gains are taxable at a lower
rate. Whether gains are short-term or long-term depends on the Fund's holding
period.
The Fund intends to comply with certain state tax requirements so that its
income dividends generally will be exempt from Rhode Island state personal
income tax. Dividends paid by the Fund to shareholders who are not Rhode Island
residents may be subject to other state and local taxes.
The tax information that is mailed to you every January details your
dividends and their Federal tax category, although you should verify your tax
liability with your tax professional.
Taxability of transactions. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
-17-
<PAGE> 19
OCEAN STATE TAX EXEMPT FUND ("THE FUND")
C/O PFPC, INC. ("THE AGENT")
P.O. BOX 8871
WILMINGTON, DELAWARE 19899-8871
A. APPLICATION FOR CLASS I SHARES ONLY PLEASE PRINT CLEARLY
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION:
- --------------------------------------------------------------------------------
COMPLETE ONLY THE APPLICABLE SECTIONS WHICH WILL TELL US HOW YOUR ACCOUNT SHOULD
BE REGISTERED.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
(First Name) (Middle Initial) (Last Name)
----------------------------------------------------------------------
(First Name) (Middle Initial) (Last Name)
(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.
Name of Adult Custodian (Only 1 permitted):
---------------------------------------------------------------------------
(First Name) (Middle Initial) (Last Name)
Name of Minor (Only 1 permitted):
--------------------------------------------------------------------------------
(First Name) (Middle Initial) (Last Name)
Uniform Gifts to Minors Act
---------------------------------------------
(Name of State)
---------------------------------------------------------------------------------------------------------------
(Name of Corporation or Partnership. If a Trust, include the name(s) of Trustees in which account will be
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:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--- ----------------------
(Fi Soc. Sec. No.(1)
---
(Fi
(1)
(2)
ten
Nam
as Custodian for
---
(Fi
Nam
under the
---
(Fi
--- ----------------------
(Na Minor's Soc. Sec. No.
------------------------------------------------------------------------------
(Na
reg
may
PLE
----------------------
</TABLE>
[ ] Corporation [ ] Partnership [ ] Trust [ ] Other
----------------------------------- (Taxpayer I.D. No.)
Individual
(and)
Joint
Registrant
(if any)(2)
Gifts to
Minors
Corporations
Partnerships
Trusts &
Others
2. ADDRESS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
(Street Address)
- ----------------------------------------------------------------
(City) (State)
- ---------------------------------------------------------------------------------------------------------------------------------
(Street Address)
- ----------------------------------------------------------------
(City)
- ---------------------------------------------------------------------------------------------------------------------------------
(Street Address)
- -------------------------------------------------
(City)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
(Street Address)
- ---------------------
(City)
- ---------------------------------------------------------------------------------------------------------------------------------
(Street Address)
( )
- --------------------- ----------
(City) (Zip) Area Code
- ---------------------------------------------------------------------------------------------------------------------------------
(Street Address)
- --------------------- --------------
(City) Daytime Tel.
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
(Street Address)
- ---------------------
(City)
- ---------------------------------------------------------------------------------------------------------------------------------
(Street Address)
- ---------------------
(City)
- ---------------------------------------------------------------------------------------------------------------------------------
(Street Address)
- ---------------------
(City)
</TABLE>
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:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
------------------------
MINIMUM INITIAL INVESTMENT $1,000
AMOUNT OF INVESTMENT $ Enclose check payable to: Ocean State Tax Exempt Fund
------------------------
</TABLE>
[ ]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
*For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution Account. Attached is a
pre-printed deposit slip or voided check showing the Financial Institution
Account where I/we would like you to deposit the dividend (A Financial
Institution is a commercial bank, savings bank or credit union.)
___ Mail check to address listed in Step 2.
[ ]
[ ]
[ ]
[ ]
<PAGE> 20
5. SYSTEMATIC INVESTMENT PLAN:
- --------------------------------------------------------------------------------
The Systematic Investment Plan, makes possible regularly scheduled purchases of
Fund shares to allow dollar-cost averaging. The Fund's Transfer Agent can
arrange for an amount of money selected by you ($100 minimum) to be deducted
from your checking account and used to purchase shares of the Fund. A $1,000
minimum initial investment is required.
Please debit $
- --------------- from my checking account (named in Section 6) on or about the
20th of the month.
$100 Minimum
Depending on the Application receipt date, the Plan may take 10 to 30 days to be
in effect.
[ ] Monthly [ ] Every alternate month
[ ] Quarterly [ ] Other
-------------------------------------------------------
- --------------------------- Start Month.
If you are applying for the Systematic Investment Plan, please attach a deposit
slip or voided check. If you are applying for the Systematic Investment Plan,
you must also complete Section 6 of this Application.
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 undersigned authorizes the Fund and its
agents to act upon the instructions for the features that have been selected
above. 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>
<PAGE> 21
9. FINANCIAL INTERMEDIARY: (IMPORTANT--TO BE COMPLETED BY FINANCIAL
INTERMEDIARY):
- --------------------------------------------------------------------------------
- -------------------------------------------------------
Name of Financial Intermediary
- -------------------------------------------------------
Address
( )
- -------------------------------------------------------
Area Code Telephone
- -------------------------------------------------------
Branch #/Rep. #/Name
- -------------------------------------------------------
Financial Intermediary/Branch Office--City & State (if applicable)
IMPORTANT INFORMATION ABOUT TAXPAYER IDENTIFICATION NUMBERS:
- --------------------------------------------------------------------------------
Because of requirements under the Internal Revenue Code, 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, Taxpayer Identification Number
Broker, etc.
Nonresident Alien None Required
</TABLE>
<PAGE> 22
B. SYSTEMATIC INVESTMENT PLAN PROVISIONS/DEPOSITOR'S
AUTHORIZATION TO HONOR DEBITS
- --------------------------------------------------------------------------------
IF YOU SELECTED SYSTEMATIC INVESTMENT YOU MUST ALSO COMPLETE THIS SECTION
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by PFPC, Inc.,
the Agent, and to pay such sums in accordance therewith, provided my/our account
has sufficient funds to cover such drafts or debits. I/We further agree that
your treatment of such orders will be the same as if I/we personally signed or
initiated the drafts or debits.
The undersigned acknowledges that in connection with a Systematic Investment, if
his/her account at the Financial Institution has insufficient funds, the Fund
and its agents may cancel the purchase transaction and are authorized to
liquidate other shares or fractions thereof held in his/her Fund account to make
up any deficiency resulting from any decline in the net asset value of shares so
purchased and any dividends paid on those shares. The undersigned authorizes the
Fund and its agents to correct any transfer error by a debit or credit to
his/her Financial Institution account and/or Fund account and to charge the
account for any related charges.
I/We understand that this authority will remain in effect until you received
my/our written instructions to cancel this service. I/We also agree that if any
such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
Financial Institution Account Number
<TABLE>
<S> <C>
Name and Address Name of Financial Institution
where my/our account Street Address
is maintained City ---------------------------------------------------
State --------- Zip
</TABLE>
<TABLE>
<S> <C> <C>
Name(s) and Signature(s)
of Depositor(s) as they ------------------------------------------------------------
appear where account (Please Print)
is registered
X
------------------------------------------------------------ ------------------
(Signature) (Date)
------------------------------------------------------------
(Please Print)
X
------------------------------------------------------------ ------------------
(Signature) (Date)
</TABLE>
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, the Agent agrees:
1. Electronic Funds Transfer debit and credit items transmitted pursuant to the
above authorization shall be subject to the provisions of the Operating Rules
of the National Automated Clearing House Association.
2. To indemnify and hold you harmless from any loss you may suffer in connection
with the execution and issuance of any electronic debit in the normal course
of business initiated by the Agent (except any loss due to your payment of
any amount drawn against insufficient or uncollected funds), provided that
you promptly notify us in writing of any claim against you with respect to
the same, and further provided that you will not settle or pay or agree to
settle or pay any such claim without the written permission of the
Distributor.
3. To indemnify you for any loss including your reasonable costs and expenses in
the event that you dishonor, with or without cause, any such electronic
debit.
<PAGE> 23
C. 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.
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 then 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.
<PAGE> 24
DISTRIBUTOR
Van Liew Securities Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
TRANSFER AGENT
PFPC, Inc.
P.O. Box 8871
Wilmington, DE 19899-8871
INVESTMENT ADVISER
Van Liew Capital Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
CUSTODIAN
PFPC Trust Company
Airport Business Center
200 Stevens Drive, Suite 440
Lester, PA 19113
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
COUNSEL
Hinckley, Allen & Snyder LLP
1500 Fleet Center
Providence, Rhode Island 02903
[Ocean State Tax-Exempt Fund LOGO]
FOR MORE INFORMATION, PLEASE CONSULT:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the independent auditor's
report (for the annual statement only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the Fund. The current
annual/semiannual report is included in the SAI, has been filed with the
Securities and Exchange Commission and is incorporated by reference (is legally
a part of this prospectus).
To request a free copy of the current annual/ semiannual report or SAI, or
for information on buying or selling shares, please write or call:
Van Liew Securities Inc.
Attn: Ocean State Tax-Exempt Fund
One Regency Plaza, Suite One
Providence, Rhode Island 02903
1-800-300-1116 or 401-421-1411
For purchase, redemption or account inquiries, contact your financial
intermediary.
For shareholder and other inquiries about the Fund, please call:
1-800-300-1116 or 401-421-1411.
You can review and copy information about the Fund (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington, D.
C. Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-942-8090. You may also write the Public
Reference Section of the Commission, Washington, D. C. 20459 and request copies
of the Fund's information for a fee. You may also obtain reports and other
information about the Fund by calling the Commission at 1-800-SEC-0330 or
accessing the Commission's web site at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected].
[811-4788]
<PAGE> 25
STATEMENT OF ADDITIONAL INFORMATION
OCEAN STATE TAX-EXEMPT FUND
ONE REGENCY PLAZA
PROVIDENCE, RHODE ISLAND 02903
401-421-1411
1-800-300-1116
[MARCH __, 2000]
This Statement of Additional Information ("Additional Statement") is not a
Prospectus. There are two Prospectuses for the Fund. The Prospectus that
describes the Front-Payment Class, or Class A, Shares of the Fund ("Class A
Shares") is dated March 1, 2000. The Prospectus that describes the Financial
Intermediary Class, or Class I, Shares of the Fund ("Class I Shares") is dated
_________, 2000. References in the Additional Statement to "The Prospectus"
refer to either one of these Prospectuses. This Additional Statement should be
read in conjunction with the Prospectus for the class of shares in which you are
considering investing. Either or both Prospectuses may be obtained by written
request to the Fund's transfer agent, PFPC, Inc. by writing to the transfer
agent at: P.O. Box 8871, Wilmington, Delaware 19899-8871, 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 OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Description of the Fund and its Investments and Risks.......... 3
Yield Information ............................................. 14
Limitation of Redemptions in Kind.............................. 15
Trustees and Officers.......................................... 16
Investment Advisory and Other Services......................... 21
Distribution Arrangements ..................................... 22
Brokerage Allocation and Other Practices....................... 26
Computation of Net Asset Value................................. 27
Tax Information................................................ 28
Fund History................................................... 31
Financial Statements........................................... 33
Appendix A..................................................... 35
</TABLE>
1
<PAGE> 26
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The principal investment objective, strategies, risks and policies of the
Fund are described in the Prospectus, which refers to the matters described
below.
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 (the "1940 Act")) 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 the Prospectus and this 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 Van Liew Capital Inc. (the "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 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 this 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".
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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"); (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 this 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 value of Rhode Island Obligations. The Fund may also enter into
repurchase agreements as to Taxable Short-Term Obligations; see "Repurchase
Agreements" below.
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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.
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.
See "Tax Information".
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.
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
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Fund would reevaluate its investment policies and restrictions and consider
recommending to its shareholders changes in both.
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 the Adviser is satisfied that the credit risk involved
is minimal.
WHEN-ISSUED AND DELAYED DELIVERY OBLIGATIONS
The Fund may buy Rhode Island and other Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them. 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. 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 P.N.C. Bank, N.A. (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. The Fund may not enter into
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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 incur a short-term
gain or loss due to market fluctuation.
MUNICIPAL BOND INDEX FUTURES
The Fund may use Municipal Bond Index Futures ("Municipal Bond Index
Futures" or "Futures") to protect the value of the Fund during changing interest
rate markets. A Future is a contract to deliver or accept delivery of a cash
settlement based on the movement of a security index.
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. There is no physical delivery of the bonds making up the index on
either long or a short Futures position.
The Fund does not pay or receive money upon the purchase or sale of a
Future, but the Fund is required to deposit with the futures commission merchant
("broker") an amount of cash or Obligations equal to an initial margin (a
varying specified percentage of the contract amount). The broker makes
subsequent payments (variation margin) 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. The Fund records changes in variation margin as
unrealized gains or losses. Margin deposits do not involve borrowing by the Fund
and may not be used to support any other transactions. As a matter of
fundamental policy, the Fund will not buy or sell a Municipal Bond Index Future
if more than 10% of its net assets would be in initial or variation margin on
such Futures.
At any time prior to expiration of the Future, the Fund may 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. The broker pays or releases additional cash to the Fund and it realizes a
gain or a loss. Although Futures 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 offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded.
The Fund intends to buy and sell Futures only on an exchange where there appears
to be an active secondary market.
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The Fund may sell Futures as a strategy to hedge its portfolio against
market decline and 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. 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
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 deposit
with the Custodian in a segregated account 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. The
"underlying commodity value" of the Fund's long positions 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. 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. Under the Code, in order to qualify as a
"regulated investment company", at least 90% of the Fund's gross income must be
derived from interest and gains from the sale or other disposition of
securities. In connection with the 90% test, the Fund treats gains realized from
Futures transactions as qualifying under the "90% test". 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 treated as having been sold at market value. The
resulting net gain or
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<PAGE> 32
loss will be included in Federal taxable income. 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 elect that the mark-to-market and 60/40 rules be
inapplicable.
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 " 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
"Resold Securities"). The Resold Securities will be held by the Custodian. The
resale price is higher than the purchase price, reflecting 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 usually occurs within one to
five days of the purchase.
Repurchase agreements may be considered loans "collateralized" by the
Resold Securities (such agreements being defined as "loans" in the 1940 Act).
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.
LOAN OF PORTFOLIO SECURITIES
The Fund may lend its Obligations on a short or long term basis to
broker-dealers, banks or certain other financial institutions if: (i) the loan
is collateralized in accordance with applicable regulatory requirements (the
"Guidelines"); and (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" such as insurance companies, investment
companies and certain employee benefit plans. Under the present Guidelines, the
loan collateral must 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.
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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 Code and permit the Fund
to terminate the loan and reacquire loaned securities on five days' notice.
RATINGS
The ratings assigned by Moody's or 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. 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 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.
LIMITATION TO 10% AS TO CERTAIN INVESTMENTS
The Fund may not make certain investments if more than 10% of its net
assets would consist of (i) repurchase agreements maturing in more than seven
days; (ii) fixed time deposits subject to withdrawal penalties other than
overnight deposits; (iii) restricted securities, i.e., securities which cannot
freely be sold for legal reasons; 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 INVESTMENT AND YIELD
The value of the Rhode Island Obligations, Non-Rhode Island Obligations
and Short-Term Taxable 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.
ECONOMIC FACTORS AFFECTING RHODE ISLAND AND PUERTO RICO
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, a public
corporation ("DEPCO"), to assist in the resolution of the
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resulting banking crisis. By the end 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 incurred
approximately $456.5 million of special obligation bonds and approximately $130
million of general 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. Sales and use tax revenues and the proceeds from
sales of the assets of the closed institutions have substantially reduced
DEPCO's indebtedness. As of January 2000, DEPCO had outstanding debt of
approximately $66.5 million.
Below the level of state government, Rhode Island is divided into 39
cities and towns which exercise the functions of local general government. As
provided in the state Constitution, municipalities have the right of self
government in all local matters by adopting a "home rule" charter. Every city or
town, however, has the power to levy, assess and collect taxes, or borrow money,
only as specifically authorized by the General Assembly. Legislation enacted in
1985 limits tax levy or rate increases by municipalities to an increase no
greater than 5 1/2% over the previous year. However, tax levy or rate increases
of greater than 5 1/2% are permitted in the event that debt service costs on
present and future general obligation debt increase at a rate greater than
5 1/2%. This inflation may also be exceeded in the event of loss of
non-property tax revenue and the loss is certified by the State Department of
Administration or when an emergency situation arises and is certified by the
state Auditor General. 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.
The largest category of state aid to cities and towns involves assistance
programs for school operations and school buildings. In addition to school aid,
the state provides a general revenue sharing program for local governments which
is intended for direct property tax relief and incorporates a distribution
formula based upon relative population, tax effort and personal income of each
municipality. In addition, the state provides municipal aid programs which
include reimbursement to local governments for their cost of carrying out
certain state mandates.
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, 2000, general obligation bonds
issued by the Commonwealth would qualify to receive a "Baa 1" rating from
Moody's. 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, 2000, general
obligation bonds issued by the Commonwealth would qualify for an "A" rating from
Standard and Poor's Corporation. These ratings have remained constant for over
20 years. In the period since 1950, the Commonwealth has transformed itself from
an essentially agrarian economy to one centered on manufacturing and services.
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The Commonwealth's economic growth has been funded largely through bond
issuance and the use of surplus funds, resulting in a high debt load. Since the
1991 recession, debt policy has sought to keep the growth of public debt at that
of gross domestic product. Over fiscal years 1994 to 1998, public sector debt
increased 46.3% while GNP increased 30.3%. This trend of a higher level of
growth of public sector debt over the growth of GNP was due to the increase
during 1996-1998 in the amount of debt incurred to finance key infrastructure
projects. During the fiscal year ended June 30, 1999, nominal Gross National
Product ("GNP") grew by 9.4% and real GNP grew by 4.2%, due in part to the
impact of Hurricane Georges. Offsetting concerns over the use of bonded debt is
the Commonwealth's constitution, which limits general obligation debt to 15% of
the average internal revenues received over the past two fiscal years. Combined
general obligation and guaranteed debt now account for approximately 12% of this
revenue limit. General fund revenues have posted an aggregate gain of 39% from
1994 through 1997. The Commonwealth has chosen to use these revenues to position
itself for future growth rather than increase fund balances and reduce
outstanding debt. One reason for this aggressive campaign is the scheduled
10-year phase out (ending in 2006) of Section 936 of the Code, which provides
federal tax incentives for U.S. corporations investing in the Commonwealth.
Section 936 has been responsible for considerable manufacturing development in
the Commonwealth over the past two decades and "936 companies" have accounted
for as much as 18% of the Commonwealth's internal sources of revenue in recent
years. The Commonwealth will need to develop alternative means of attracting
business and seek new economic incentives to sustain continued economic growth
during and beyond the 10-year phase out period for Section 936. Investments in
Obligations of Puerto Rico represent less than 5% of the Fund's portfolio.
PORTFOLIO TURNOVER
A portfolio turnover rate is the percentage of purchases or sales of
portfolio securities for a year compared to the monthly average of such
securities during the year, excluding certain debt securities. The Fund's
portfolio turnover rate is not expected to exceed 100%. For the fiscal year
ended October 31, 1999, the portfolio turnover rate of the Fund was 13%.
INVESTMENT RESTRICTIONS
The Fund has a number of fundamental policies that may not be changed
unless the holders of a "majority" (as defined in the 1940 Act) of the Fund's
outstanding shares vote to change them. Under the 1940 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
"Description of the Fund and Its Investments and Risks" in this Additional
Statement, the Fund may not buy any voting securities, any commodities or
commodity contracts other than Municipal Bond Index
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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 or 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.
The Fund may not invest in securities which cannot freely be sold for
legal reasons.
2. The Fund does not buy for control.
The Fund may not invest for the purpose of exercising control over
other companies.
3. The Fund does not sell securities it doesn't own or borrow from brokers to
buy securities.
The Fund may not sell short or buy on margin, but may make margin
deposits in connection with the purchase or sale of Municipal Bond Index
Futures.
4. The Fund is not an underwriter.
The Fund may not engage in the selling of securities to others.
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 1940 Act.
6. The Fund has industry investment requirements.
The Fund may not buy the Obligations of issuers in any one industry 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
non-governmental user of facilities financed by industrial development bonds is
an issuer in an industry.
See "Tax Information" for certain diversification requirements under
the Code which the Fund intends to meet and as to possible risk factors due to
meeting only these diversification requirements.
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<PAGE> 37
7. 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
"Description of the Fund and Its Investments and Risks"); this is investing, not
making a loan. The Fund may 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, and enter into repurchase agreements (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.
8. 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 the Prospectus and/or
this Additional Statement are supplemented to reflect the change and to give
additional information and current shareholders are also notified of the change.
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
13
<PAGE> 38
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 current yield for the Fund's Class A Shares for the 30-day period
ended October 31, 1999 was 4.72%, based on the maximum public offering price
(including sales charge) of $10.54 on October 31, 1999. For shareholders with a
combined Federal and state tax rate of 36.78%, this represents a tax-equivalent
yield of 7.67%. The 30-day yield for the Fund's Class A Shares such period based
on the net asset value of $10.12 on October 31, 1999 was 4.91% (7.99% tax
equivalent). There is no information available with respect to the yield of the
Class I Shares.
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. There is
no information available with respect to the yield of the Class I Shares.
Any advertised yield quotation will be accompanied by average annual
total returns quotations for 1, 5 and 10 year periods. 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 (with
respect to the Class A Shares) is deducted from the hypothetical $1,000
investment and all dividends and distributions by the Fund (with respect to both
the Class A Shares and the Class I Shares) 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 Fund's Class A Shares
based on the maximum public offering price was (4.67)% for the fiscal year ended
October 31, 1999, 4.66% for the five year period ended October 31, 1999 and
5.79% for the ten year period ended October 31, 1999. Both yield and total
return are based on historical earnings and may fluctuate. There is no
information available with respect to the yield of the Class I Shares.
LIMITATIONS OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act
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 " in the
Prospectus and "Completion of Net
14
<PAGE> 39
Asset Value" in this Additional Statement, and
such valuation will be made as of the same time the redemption price is
determined.
TRUSTEES AND OFFICERS
The Trustees of the Fund are responsible for the management and
direction of the business and affairs of the Fund. The Trustees and officers of
the Fund, their affiliations, if any, with the Adviser, and their principal
occupations during at least the past five years are set forth below. Trustees
who are "interested persons" of the Fund as that term is defined in the 1940 Act
are designated with an (*) asterisk. Age of the Trustee is in parentheses ( ).
As of January 31, 2000, the Trustees and officers of the Fund owned [34,600]
shares or approximately [0.86%] of the outstanding shares of the Fund.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION(S) HELD WITH FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------- -------------------------- ----------------------------------------------
<S> <C> <C>
Alfred B. Van Liew *(65) President and Trustee Managing Partner of the Adviser, since 1984; Director of the
One Regency Plaza Distributor since May 1990; Chairman & Chief Executive Officer of
Suite One Van Liew Trust Company, a Rhode Island chartered trust company,
Providence, Rhode Island 02903 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 counseling 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 Trust of Rhode Island 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 Seamen's Institute, Newport, Rhode Island
since 1994.
</TABLE>
15
<PAGE> 40
<TABLE>
<CAPTION>
<S> <C> <C>
Milton C. Bickford, Jr. (68) Trustee Private investor since 1989; CEO, National Bickford Foremost, Inc.
147 Beavertail Road (national color printing firm) 1980-1989; CEO, National Bickford
Jamestown, Rhode Island 02835 Graphics, Inc. 1972-1980; CEO, Bickford Engraving & Electrotype
Company 1959-1972; President Rotary Club of Providence 1970-1971;
Vice President Rhode Island Philharmonic Orchestra 1972-1976; Vice
President Greater Providence Chamber of Commerce 1976-1979; Trustee
Museum of Yachting 1990-1995; currently Chairman AAA of Southern New
England.
Michael E. Hogue (57) Trustee President, VIAcorp. since June 1994; Managing Director, Chairman and
116 Chestnut Street Chief Executive Officer of PW Group Inc. (insurance) and Chairman
Providence, Rhode Island 02906 and Chief Executive Officer of 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; Vice
Chairman of Trinity Repertory Company (1997-), and President of the
Jewelry District Association (1998-); Director, Fleet Bank
(1991-1993); Trustee, Greater Providence Chamber of Commerce
(1987-1993); Director and Chair of the Finance Committee, Insurance
Services Office (1990-1993); Trustee, The Providence Foundation
(1991-1993); Director, American Insurance Association (1986-1993);
Trustee, American Institute of Chartered Property Casualty
Underwriters (1992-1993); Trustee, Rhode Island Public Expenditure
Council (1992-1993); and Trustee, First Night Providence (1993-1997).
</TABLE>
16
<PAGE> 41
<TABLE>
<CAPTION>
<S> <C> <C>
Alice M. Macintosh (78) Trustee Marketing consultant; from 1986 to 1991, Chief Supervisory Clerk of
861 Stratford Lane the State's Superior Court; previously a Marketing Consultant and
Warwick, Rhode Island 02886 Vice-President of Marketing at Hospital Trust National Bank. Mrs.
Macintosh is an honorary director of Narragansett Electric Company,
a former 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 Southern 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 (56) Trustee Managing Partner, Rooney, Plotkin & Willey, LLP (certified public
Flower Cottage accountants) since 1973; Member, American Institute of Certified
2 Leroy Avenue Public Accountants and Rhode Island Society of Certified Public
Newport, Rhode Island 02840 Accountants; Past Chairman and Board Member, United Way of
Southeastern New England; Member, Audit Committee of Bank of
Newport; Director, Advantage Travel, Ltd.; Director and Treasurer
SEA Oats of Boca Grande Condominium Association; and Director,
Providence Chamber of Commerce.
John St. Sauveur (67) Trustee President and CEO, WestBank Realty Corporation; Senior Vice
219 Great Road President (governmental and consumer relations) of Valley
North Smithfield Resources, Inc., (a natural gas distributor) and its subsidiary
Rhode Island 02896 companies from 1956 to 1994. He is a Director of the Community
College of Rhode Island Foundation; Chairman of the Board of
Directors of the Woonsocket Industrial Development Corporation;
Chairman of the Greater Woonsocket Industrial Development
Foundation; 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
</TABLE>
17
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C> <C>
State Job Training Coordinating Council; also Finance
Chairman, Landmark Health System and Trustee, Landmark Medical
Center; Commissioner of the Rhode Island Resource Recovery
Corporation since 1992; Chairman of The Rehabilitation Hospital of
Rhode Island; Director and Corporate Secretary of Gooding Realty
Corporation.
Thomas R. Weschler (82) Trustee Vice Admiral, U.S. Navy, Retired (1975) after 35 years active
111 Harrison Avenue service, ending as Director, Logistics, Joint Chiefs of Staff.
Apartment D2 Past Chairman, Operations Department, U.S. Naval War College,
Newport, Rhode Island 02840 1976-1981; Elective Professor, 1981-1988; Trustee, American Sail
Training Association; Incorporator, Sea Education Association;
Incorporator, Newport Health Care Corporation.
Samuel H. Hallowell, Jr. (52) Vice President Partner of the Adviser and Vice President of Van Liew Trust Company
One Regency Plaza since 1984; formerly Vice President and Senior Portfolio Manager at
Suite One Rhode Island Hospital Trust National Bank, specializing in the
Providence, Rhode Island 02903 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.
Joseph J. Healy (32) Vice President Investment Officer, Fund Controller and primary trader of the
One Regency Plaza Adviser since 1992 and General Securities Principal of the
Suite One Distributor since 1993; previously a Senior Mutual Fund Accountant
Providence, Rhode Island 02903 with The Boston Company Advisers, Inc. (September 1989 to August
1992).
Kevin M. Oates (40) Vice President and
One Regency Plaza Treasurer Partner of the Adviser since 1996 and Vice President-Administration
Suite One and Controller of the Adviser and Vice President of Van Liew Trust
Providence, Rhode Island 02903 Company and the Distributor, affiliated companies of the Adviser
since 1991; Director
</TABLE>
18
<PAGE> 43
<TABLE>
<CAPTION>
<S> <C> <C>
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 (50) Secretary Partner, Hinckley, Allen & Snyder LLP, general legal counsel to the
1500 Fleet Center Fund, since November 1981; Director and Secretary of Bank Rhode
Providence, Rhode Island 02903 Island; Director of Care New England Health System; Director and
Vice Chairman of Women and Infants Corporation; Trustee of Women &
Infants Hospital of Rhode Island; Trustee of Butler Hospital;
Trustee of Hospital Association of Rhode Island; and Secretary of
Astro-Med, Inc. (manufacturer of graphic recording and printing
systems).
</TABLE>
The Fund does not pay fees to Trustees affiliated with the Adviser or
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, 1999, such fees totaled $19,000. See the
Prospectus for information regarding purchases of Class A Shares at net asset
value (without sales charges) for trustees and other affiliated persons of the
Fund.
The Fund and the Adviser have adopted codes of ethics under Rule 17j-1
of the 1940 Act. These codes of ethics permit personnel of the Fund and the
Adviser to invest in securities, including securities that may be purchased or
held by the Fund, subject to certain limitations imposed by such code of ethics.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1999, National Financial Services Corporation
("NFSC"), P.O. Box 3730, Church Street Station, New York, N.Y. 10008-3730, owns
of record for the benefit of its brokerage clients, 13.92% of the Fund's
outstanding shares. The Fund is not aware of any person who beneficially owned
5% or more of the Fund's outstanding shares on such date.
19
<PAGE> 44
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISORY AGREEMENT
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, 1999, the Adviser had
approximately $387 million in assets 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.
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 the
Fund's officers, employees and 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.
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.
20
<PAGE> 45
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 has not waived any fees since the fiscal year ended October
31, 1994.
The Advisory Agreement may be terminated by the Adviser or the Fund at
any time without penalty upon 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 1940 Act) of its voting securities at the time
outstanding entitled to vote. The Advisory Agreement automatically terminates in
the event of its assignment (as so defined).
The management services provided to the Fund by the Adviser depend on
the smooth functioning of their computer systems. Many computer software systems
in use today were not originally designed to distinguish the year 2000 from the
year 1900 because of the way dates were encoded and calculated, necessitating
modifications to these systems. Although none of the Fund, its Adviser,
Distributor, Custodian or Transfer Agent experienced any disruptions during the
year 2000 transition, such disruptions could occur at any time throughout the
2000 calendar year. The Fund has made inquiries of its Adviser, Distributor,
Custodian and Transfer Agent regarding the status of their computer systems and
the year 2000 transition. The Fund has been informed that all these service
providers have experienced no issues and expect that their systems will continue
to be Year 2000 compliant. Although the Fund has obtained assurance from many of
the municipal issuers of bonds held by the Fund that they have addressed the
year 2000 issue, the Year 2000 problem could also adversely impact the ability
of municipal issuers to meet their obligations in a timely manner.
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.
serves as Distributor with respect to the Fund's Class I Shares pursuant to a
Distribution Agreement approved by the Board of Trustees on February 10, 2000.
Van Liew Securities Inc. received $3,318 in commissions as a result of sales of
Fund Shares for the fiscal year ended October 31, 1997, $4,442 in commissions as
a result of sales of Fund Shares for the fiscal year ended October 31, 1998 and
$11,021 in commissions as a result of sales of Fund Shares for the fiscal year
ended October 31, 1999.
21
<PAGE> 46
Each of the Distribution Agreements 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 Plans described below. The Distribution
Agreements will terminate automatically in the event of its assignment (as
defined in the 1940 Act) and may be terminated by either the Fund or the
Distributor on 60 days' written notice without further recourse.
DISTRIBUTION PLAN
Plan Relating to Class A Shares
The Fund has adopted a Distribution Plan (the "Class A Plan") under
Rule 12b-1 under the 1940 Act with respect to the Class A Shares. Rule 12b-1
provides in substance that an investment company such as the Fund may not engage
directly or indirectly in any financing activity which is primarily intended to
result in the sale of its shares except pursuant to a plan adopted under the
Rule. The Class A Plan authorizes the Fund to pay for printing all prospectuses,
statements of additional information and shareholder reports, including those
which were not sent to existing shareholders, which may come within the purview
of the Rule. During the fiscal year ended October 31, 1999, the Fund paid
$20,180 for such printing costs. The Class A 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 Rule 12b-1. If any payment specifically listed in the
Class A Plan is considered to be primarily intended to result in indirect
financing of any activity related to the sale of Fund shares, these payments are
authorized under the Plan.
To the extent that any of the payments listed below are considered to
be "primarily intended to result in the sale of Fund shares" within the meaning
of Rule 12b-1, the Class A Plan authorizes the Fund to pay: (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; (ii) 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 preparation, printing
and mailing of any proxy statements and proxies; (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; (vii) all fees and assessments of the
Investment Company Institute or any successor organization; (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 Class A 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 Class A 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.
22
<PAGE> 47
The Class A 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.
The Class A 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 Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting on such continuance. The Class A Plan
may be terminated at any time by vote of a majority of the Independent Trustees
or by the vote of the holders of a "majority" (as defined in the 1940 Act) of
the outstanding voting securities of the Fund. The Class A Plan may not be
amended to increase materially the amount of payments to be made without
shareholder approval as set forth above, and all amendments must be approved by
the Fund's Trustees and its Independent Trustees by a vote cast in person at a
meeting called for such purpose.
Plan Relating to Class I Shares
The Fund has adopted a Distribution Plan with respect to the Class I
Shares (the "Class I Plan"). Under the Class I Plan, subject to the direction
and control of the Fund's Board of Trustees, the Fund may make payments ("Class
I Permitted Payments") to Qualified Recipients. Class I Permitted Payments may
be made directly or through the Distributor. Class I Permitted Payments may not
exceed, for any fiscal year of the Fund (as adjusted for any part or parts of a
fiscal year during which payments under the Class I Plan are not accruable or
for any fiscal year which is not a full fiscal year), at a rate fixed from time
to time by the Board of Trustees, initially 0.25 of 1% of the average annual net
assets allocable to the Fund's Class I Shares. Class I Permitted Payments shall
be made only out of the Fund's assets allocable to Class I Shares. The
Distributor shall have the sole authority to: (i) select Qualified Recipients;
and (ii) allocate the amount of Class I Permitted Payments, if any, to each
Qualified Recipient, provided that the total Class I Permitted Payments to all
Qualified Recipients do not exceed the amount set forth above. The Distributor
is authorized, but not directed, to take into account, in addition to any other
factors deemed relevant by it, the following factors with respect to the
allocation of Class I Permitted Payments: (a) the amount of the Qualified
Holdings of a Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder servicing area
with respect to holders of Class I Shares, including without limitation any or
all of the following activities: (i) answering customer inquiries regarding
account status and history and the manner in which purchases and redemptions of
shares of the Fund may be effected; (ii) assisting shareholders in designating
and changing dividend options, account designations and addresses; (iii)
providing necessary personnel and facilities to establish and maintain
shareholder accounts and records; (iv) assisting in processing purchase and
redemption transactions; (v) arranging for the wiring of funds; (vi)
transmitting and receiving funds in connection with customer orders to purchase
or redeem shares; (vii) verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in shareholder
designated accounts; (viii) furnishing (either alone or together with other
reports sent to a shareholder by such person) monthly and year-end statements
and confirmations of purchases
23
<PAGE> 48
and redemptions; (ix) transmitting, on behalf of the Fund, proxy statements,
annual reports, updating prospectuses and other communications from the Fund to
its shareholders; (x) receiving, tabulating and transmitting to the Fund proxies
executed by shareholders with respect to meetings of shareholders of the Fund;
and (xi) providing such other related services as the Distributor or a
shareholder may request from time to time; and (c) the possibility that the
Qualified Holdings of the Qualified Recipient would be redeemed in the absence
of its selection or continuance as a Qualified Receipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees (as defined
below) may remove any person as a Qualified Recipient. Amounts within the above
limits accrued to a Qualified Recipient but not paid during a fiscal year may be
paid thereafter, if less than the full amount is accrued to all qualified
Recipients, the difference will not be carried over to subsequent years.
In addition, and to the extent that any of the payments listed below
are considered to be "primarily intended to result in the sale of Class I
Shares" issued by the Fund within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (a) the costs of the preparation and printing of all
reports and notices to shareholders; (b) the costs of the preparation and
printing of all prospectuses; (c) the costs of preparation and printing 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 Class
I Shares; (d) all legal and accounting fees relating to the preparation of any
such reports, prospectuses, proxies and proxy statements; (e) all fees and
expenses relating to the qualification of the Fund and/or its Class I Shares
under the securities or "Blue Sky" laws of any jurisdiction; (f) all fees under
the Securities Act of 1933 (the "1933 Act") and the 1940 Act, including fees in
connection with any sale of the Fund's Class I Shares; (g) 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; and (h) all costs of the preparation and mailing of confirmations of
shares sold or redeemed or share certificates, and reports of share balances.
As used in the Class I Plan, "Qualified Recipients" shall mean
broker-dealers or others selected by Van Liew Securities Inc. (the
"Distributor"), including but not limited to any principal underwriter of the
Fund, with which the Fund or the Distributor has entered into written agreements
("Class I Plan Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of the Fund's
Class I Shares. "Qualified Holdings" shall mean, as to any Qualified Recipient,
all Class I Shares beneficially owned by such Qualified Recipient, or
beneficially owned by its brokerage customers, other customers, other contacts,
investment advisory clients, or other clients, if the Qualified Recipient was,
in the sole judgment of the Distributor, instrumental in the purchase and/or
retention of such shares and/or in providing administrative assistance or other
services in relation thereto.
While the Class I Plan is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing to their review on
the following matters: (i) all Class I Permitted Payments made under Section 3
of the Class I Plan and other permitted payments made under Section 4 of the
Class I Plan, the identity of the Qualified Recipient of each payment, and the
purposes for which the amounts were expended; and (ii) all fees of the Fund to
the Adviser or Distributor paid or accrued during such quarter. In addition, if
any such Qualified Recipient is an
24
<PAGE> 49
affiliated person, as that term is defined in the Act, of the Fund, Adviser or
Distributor such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board of Trustees to
make the determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
The Class I Plan originally went into effect when it was approved by a
vote of the Trustees, including the Independent Trustees, with votes cast in
person at a meeting called for the purpose of voting on the Class I Plan. The
Class I Plan will, unless terminated as thereinafter provided, 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 Independent Trustees
with votes cast in person at a meeting called for the purpose of voting on such
continuance. The Class I Plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting securities of
the Fund to which the Class I Plan applies. The Class I Plan may not be amended
to increase materially the amount of payments to be made without the shareholder
approval of the class or classes of shares affected by the Class I Plan as set
forth above, and all amendments must be approved by a vote of the Trustees,
including the Independent Trustees, and by a vote of the holders of a "majority"
(as defined in the 1940 Act) of the outstanding voting securities of the Fund to
which the Class I Plan applies. In the case of a Qualified Recipient which is a
principal underwriter of the Fund, the Class I Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each such
agreement must be approved in accordance with, and contain the provisions
required by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Fund, the Class I Plan Agreements with them shall
be (i) their agreements with the Distributor with respect to payments under the
Fund's Distribution Plan in effect prior to February 10, 2000 or (ii) Class I
Plan Agreements entered into thereafter.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund did not pay any brokerage commissions during the three year
period ending October 31, 1999. The Fund usually incurs little or no brokerage
costs as it deals directly with the selling or purchasing principal or market
maker without incurring charges for the services of a broker on its behalf.
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 and directs brokerage to
dealers based upon best execution and availability of securities. All principal
transactions are with unaffiliated parties.
Neither the Fund nor the Adviser has any agreements related to the
execution of the Fund's trades. 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.
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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
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, Martin Luther King 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 Class
A Shares at Net Asset Value without a sales charge. These purchasers must meet
certain tests under the 1940 Act 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.
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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 Class A 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 relating to the Class A Shares.) 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 for Class A Shares 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 of
Class A Shares 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.
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, nor
more than 10% of the outstanding voting securities of such issue.
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<PAGE> 52
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 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
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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 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.
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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.
FUND HISTORY
DESCRIPTION OF THE FUND
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.
CAPITAL STOCK
The Fund has two classes of shares.
- Front-Payment Class Shares ("Class A Shares") are offered to
anyone at net asset value plus a sales charge, paid at the time
of purchase, at a maximum rate of 4.0% of the public offering
price, with lower rates for larger purchases. The Fund's Class
A Distribution Plan also authorizes the payment by the Fund of
certain expenses, such as the cost of printing and distributing
prospectuses, statements of additional information and
shareholder reports, which are related to the sale of the Class
A Shares.
- Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Van Liew Securities Inc. has entered into sales
agreements, and are not offered directly to retail customers.
Class I Shares are offered at net asset value with no sales
charge, although a financial intermediary may charge a fee for
effecting a purchase of other transaction on behalf of its
customers. Class I Shares may carry a distribution fee of up to
0.25 of 1%. The Fund's Class I Distribution Plan also
authorizes the payment by the Fund of certain expenses, such as
the cost of printing and distributing prospectuses, statements
of additional information and shareholder reports, which are
related to the sale of the Class I Shares.
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The Fund's two classes of shares differ in their different distribution
fee structures, which are likely to be reflected in differing yields and other
measures of investment performance. The two classes represent interests in the
same portfolio of Rhode Island Obligations and have the same rights, except that
each class bears the separate expenses, if any, of its participation in its
respective Distribution Plan and has exclusive voting rights with respect to
such participation.
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares. Each share represents an equal
proportionate interest in the Fund with each other share of its class; shares of
the respective classes represent proportionate interests in the Fund in
accordance with their respective net asset values. Upon liquidation of the Fund,
shareholders are entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders, in accordance with the respective
net asset value of the shares of each of the Fund's classes at that time.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held. Shares vote by classes on any matter
specifically affecting one or more classes, such as amendment of a Distribution
Plan. The holders of shares have no pre-emptive or conversion rights. Shares are
fully paid and nonassessable. 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 at least 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 such
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.
POSSIBLE ADDITIONAL SERIES
All shares are presently divided into two classes, however, the
Trustees may create additional classes of shares which may differ from each
other as provided in the rules and regulations of the Securities and Exchange
Commission or by exemptive order. The Trustees may also create additional series
of shares, each of which may have separate assets and liabilities, which would
be designated as a separate "series" or "fund".
Under Rule 18f-2 under the 1940 Act, 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.
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LIABILITY AND INDEMNIFICATION OF SHAREHOLDERS AND TRUSTEES
Under Massachusetts law, shareholders of the Trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. The Declaration of Trust contains 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, a shareholder will incur financial loss only when the Trust is
unable to meet its obligations. If 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, such other fund or series would be subject to such obligations,
with a corresponding increase in the risk of shareholder liability.
The Declaration of Trust also provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. The Declaration of
Trust does not protect a Trustee against 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.
CUSTODIAN AND INDEPENDENT AUDITORS
The Fund's Custodian, PFPC Trust Company, 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.
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, 1999
2. Statement of Operations for the fiscal year ended October 31,
1999
3. Statement of Changes in Net Assets for each of the two fiscal
years in the period ended October 31, 1999
4. Financial Highlights for each of the periods indicated therein
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5. Notes to Financial Statements
6. Schedule of Portfolio Investments as of October 31, 1999
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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:
- Likelihood of default - capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in with the terms of the obligation;
- Nature of and provisions of the obligation;
- Protection 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
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.
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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 certain protective elements may be
lacking or may be characteristically over any great length of
time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics well.
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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.
<PAGE> 61
PART C
OTHER INFORMATION
Item 23. Exhibits
Exhibits.
(a) 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.
(1) 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.
(2) 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.
(b) 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.
(c) 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.
(d) 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.
(e) (1) Form of Sales Agreement incorporated herein by reference to
Exhibit 6(b) of Registrant's Registration Statement filed on August 5, 1986.
(2) 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.
*(3) Form of Sales Agreement for use with broker-dealers.
*(4) Form of Sales Agreement for use with financial institutions.
*(5) Form of Sales Agreement for use with investment advisers.
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(f) Not Applicable.
(g) 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.
(h) 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.
*(i) Opinion of Counsel as to legality of shares and Consent of
Counsel.
*(j) (1) Consent of Ernst & Young LLP, Independent Auditors.
*(j)(2) Power of Attorney.
*(k) Financial Data Schedule.
(l) (1) 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.
*(l) (2) Form of Distribution Agreement between Registrant and Van Liew
Securities Inc.
(m) (1) Distribution Plan incorporated herein by reference to Exhibit
(15) to Registrant's Registration Statement filed on August 5, 1986.
*(m) (2) Form of Distribution Plan with respect to Class I Shares.
*(n) Form of Multiclass Plan under Rule 18f-3.
(o) Not Applicable.
*(p) Form of Amended and Restated Code of Ethics.
* Filed herewith
Item 24. Persons Controlled by or Under Common Control with Registrant.
None.
Item 25. Indemnification.
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<PAGE> 63
Indemnification is incorporated herein by reference to Item 27 of
Registrant's Pre-Effective Amendment No. 2 filed on November 19, 1986.
Item 26. 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.
Item 27. 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.
(b) The table below sets forth certain information as to the
Distributor's partners and officers:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address Distributor Registrant
<S> <C> <C>
Alfred B. Van Liew Director Trustee and President
One Regency Plaza, Suite One
Providence, Rhode Island 02903
Kevin M. Oates President and Treasurer Treasurer
One Regency Plaza, Suite One
Providence, Rhode Island 02903
Joseph J. Healy Principal Vice President
One Regency Plaza, Suite One
Providence, Rhode Island 02903
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Books.
3
<PAGE> 64
(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 29. 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.
Item 30. Undertakings.
None.
4
<PAGE> 65
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 31st day of January, 2000.
VLC TRUST
ON BEHALF OF
OCEAN STATE TAX-EXEMPT FUND
By: /s/ Joseph J. Healy
----------------------------------
Joseph J. Healy, Vice President
WITNESS our hands on the date set forth below.
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.
Trustee and President
/s/ Alfred B. Van Liew Principal Executive
- --------------------------- Officer January 31, 2000
Alfred B. Van Liew
Treasurer (Chief
/s/ Kevin M. Oates Financial and Accounting
- --------------------------- Officer January 31, 2000
Kevin M. Oates
/s/ Milton C. Bickford, Jr.
- ---------------------------
Milton C. Bickford, Jr. Trustee January 31, 2000
/s/ Michael E. Hogue
- ---------------------------
Michael E. Hogue Trustee January 31, 2000
/s/ Alice M. MacIntosh
- ---------------------------
Alice M. MacIntosh Trustee January 31, 2000
/s/ Richard A. Plotkin
- ---------------------------
Richard A. Plotkin Trustee
5
<PAGE> 66
- ------------------------
JOHN H. ST. SAUVEUR Trustee
*
- ------------------------
THOMAS R. WESCHLER Trustee January 31, 2000
/s/ Samuel H. Hallowell *Attorney-in-fact
- ------------------------ as to the above January 31, 2000
Samuel H. Hallowell
6
<PAGE> 67
VLC Trust
Exhibit Index
Exhibit Document Page
(e)(3) Form of Sales Agreement for use with
broker-dealers
(e)(4) Form of Sales Agreement for use with
financial institutions
(e)(5) Form of Sales Agreement for use with
investment advisers
(i) Opinion of Counsel as to Legality of
Shares and Consent of Counsel
(j)(1) Consent of Ernst & Young LLP,
Independent Auditors
(j)(2) Power of Attorney
(k) Financial Data Schedule
(l)(2) Form of Distribution Agreement
between Registrant and Van Liew
Securities Inc.
(m)(2) Form of Distribution Plan with
respect to Class I Shares
(n) Form of Multiclass Plan under rule
18f-3
(p) Form of Amended and Restated Code of
Ethics
7
<PAGE> 1
Exhibit (e)(3)
VAN LIEW SECURITIES INC.
SALES AGREEMENT
OCEAN STATE TAX-EXEMPT FUND
(for use with brokerage firms)
From:
To: Van Liew Securities Inc.
One Regency Plaza
Providence, Rhode Island 02903
Gentlemen:
We desire to enter into an agreement with you for sale and distribution
of the Shares (the "Shares") of Ocean State Tax-Exempt Fund. Upon acceptance of
this Agreement by you, we understand that we may offer and sell Shares of the
Fund, subject, however, to all of the terms and conditions hereof and to your
right, without notice, to suspend or terminate the sale of the Shares of the
Fund.
1. We understand that the Shares of the Fund will be offered and sold
at the current offering price in effect as set forth in the Fund's then current
Prospectus (which term as used herein includes any related statement of
additional information). All purchase requests and applications submitted by us
are subject to acceptance or rejection as set forth in the Fund's current
Prospectus.
2. We certify (a) that we are a member of the National Association of
Securities Dealers, Inc. ("NASD") and agree to maintain membership in the NASD
or (b) in the alternative that we are a foreign dealer not eligible for
membership in the NASD. In either case, we agree to abide by all the rules and
regulations of the Securities and Exchange Commission and the NASD which are
binding upon underwriters and dealers in the distribution of the securities of
open-end investment companies, including without limitation, Rule 2830 of the
NASD Conduct Rules, all of which are incorporated herein as if set forth in
full. We further agree to comply with all applicable State and Federal laws and
the rules and regulations of authorized regulatory agencies. We agree that we
will sell or offer for sale Shares of the Fund only in those states or
jurisdictions whose laws permit the offers or sales in question whether or not
such permission is dependent on registration or qualification of the Fund or its
Shares under such laws.
3. We will offer and sell the Shares of the Fund only in accordance
with the terms and conditions of the then current Prospectus for each class of
Shares of the Fund and we will make no representations not included in said
Prospectus or any authorized supplemental material supplied by you. We will use
our best efforts in the development and promotion of sales of Shares of the Fund
and agree to be responsible for the proper instruction and training
<PAGE> 2
of all sales personnel employed by us, in order that such Shares will be offered
in accordance with the terms and conditions of this Agreement and all applicable
laws, rules and regulations. We agree to hold you and/or the Fund harmless and
indemnify you and/or the Fund in the event that we, or any of our sales
representatives, should violate any law, rule or regulation, or any provisions
of this Agreement, which violation may result in liability to you and/or the
Fund; and in the event you and/or the Fund determine to refund any amounts paid
by any investor by reason of any such violation on our part, we shall return to
you and/or the Fund any commissions previously paid or discounts allowed by you
to us with respect to the transaction for which the refund is made. All expenses
which we incur in connection with our activities under this Agreement shall be
borne by us.
4. We understand and agree that the sales charges (with respect to
Class A Shares of the Fund) and dealer commission relative to any sales of
Shares of the Fund made by us will be in an amount set forth in the then current
Prospectus of the Fund or in separate written notice to us.
5. Payment for purchases of Shares of the Fund made by wire order from
us shall be made to you or for your account and received by you within five
business days after the acceptance of our order or such shorter time as may be
required by law. If such payment is not so received, we understand that you
reserve the right, without notice, forthwith to cancel the sale, or, at your
option, to sell the Shares ordered by us back to the Fund, in which latter case
we may be held responsible for any loss, including loss of profit, suffered by
you and/or the Fund resulting from our failure to make the aforesaid payment.
Where sales of the Fund's Shares are contingent upon the Fund's receipt of funds
in payment therefor, we will forward promptly to you any purchase orders and/or
payments received by us from investors.
6. We agree to purchase Shares only from you or from our customers. If
we purchase Shares from you, we agree that all such purchases shall be made only
to cover orders received by us from our customers, or for our own bona fide
investment. If we purchase Shares from our customers, we agree to pay such
customers not less than the applicable redemption price as established by the
then current Prospectus.
7. Unless at the time of transmitting an order we advise you to the
contrary, you may consider the order to be the total holding of the investor and
assume that the investor is not entitled to any reduction in sales price beyond
that accorded to the amount of the purchase as determined by the schedule set
forth in the then current Prospectus for the Class A Shares.
8. We understand and agree that if any Shares of the Fund sold by us
under the terms of this Agreement are redeemed by the Fund (including
redemptions resulting from any exchange for Shares of another investment
company) or any repurchased by you as agent for the Fund or are tendered to the
Fund for redemption within seven (7) business days after the confirmation to us
of our original purchase order for such Shares, we shall pay forthwith to you
the full amount of the commission allowed to us on the original sale, provided
you notify us of such repurchase or redemption within ten (10) days of the date
upon which written redemption requests (and, if applicable, share certificates)
are delivered to you or to the Fund.
9. Your obligations to us under this Agreement are subject to all the
provisions of any agreements entered into between you and the Fund. We
understand and agree that in
2
<PAGE> 3
performing our services covered by this Agreement we are acting as principal,
and you are in no way responsible for the manner of our performance or for any
of our acts or omissions in connection therewith. Nothing in this Agreement
shall be construed to constitute us or any of our agents, employees for
representatives as your agent, partner or employee, or the agent or employee to
the Fund.
10. We may terminate this Agreement by notice in writing to you, which
termination shall become effective thirty (30) days after the date of mailing
such notice to you. We agree that you have and reserve the right, in your sole
discretion without notice, to suspend sales of Shares of the Fund, or to
withdraw entirely the offering of Shares of the Fund, or in your sole
discretion, to modify, amend or cancel this Agreement upon written notice to us
of such modification, amendment or cancellation, which shall be effective on the
date stated in such notice. Without limiting the foregoing, you may terminate
this Agreement for cause of violation by us of any of the provisions of this
Agreement, said termination to become effective on the date of mailing notice to
us of such termination. Without limiting the foregoing, any provisions hereof to
the contrary notwithstanding, our expulsion from the NASD will automatically
terminate this Agreement without notice and our suspension from the NASD or
violation of applicable State or Federal laws or rules and regulations of
authorized regulatory agencies will terminate this Agreement effective upon the
date of your mailing notice to us of such termination. Your failure to terminate
for any cause shall not constitute a waiver of your right to terminate at a
later date for any such cause. All notices hereunder shall be to the respective
parties at the addresses listed hereon, unless changed by notice given in
accordance with this Agreement.
11. This Agreement shall become effective as of the date when it is
executed and dated by you and shall be in substitution of any prior agreement
between you and us covering Shares of the Fund. This Agreement is not assignable
or transferable, except that you may assign or transfer this Agreement to any
successor firm or corporation which becomes a principal underwriter of the Fund.
(Name of Brokerage Firm):
ADDRESS:
BY:
(Name)
(Title)
Accepted:
VAN LIEW SECURITIES INC.
BY:
Date:
3
<PAGE> 1
Exhibit (e)(4)
VAN LIEW SECURITIES INC.
SALES AGREEMENT
OCEAN STATE TAX-EXEMPT FUND
(for use with financial institutions)
From:
To: Van Liew Securities Inc.
One Regency Plaza
Providence, Rhode Island 02903
Gentlemen:
We desire to enter into an agreement with you for sale and distribution
of the Shares (the "Shares") of Ocean State Tax-Exempt Fund (the "Fund"). Upon
acceptance of this Agreement by you, we understand that we may offer and sell
Shares of the Fund, subject, however, to all of the terms and conditions hereof
and to your right, without notice, to suspend or terminate the sale of the
Shares of the Fund.
1. We understand that the Shares of the Fund will be offered and sold
at the current offering price in effect as set forth in the Fund's then current
Prospectus (which term as used herein includes any related statement of
additional information). All purchase requests and applications submitted by us
are subject to acceptance or rejection as set forth in the Fund's current
Prospectus.
2. We certify (a) that we are a member of the National Association of
Securities Dealers, Inc. ("NASD") and agree to maintain membership in the NASD
or (b) in the alternative that we are either (i) a foreign dealer not eligible
for membership in the NASD or (ii) a bank, as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934. In any case, we agree to abide by all the rules
and regulations of the Securities and Exchange Commission and the NASD which are
binding upon underwriters and dealers in the distribution of the securities of
open-end investment companies, including without limitation, Rule 2830 of the
NASD Conduct Rules, all of which are incorporated herein as if set forth in
full. We further agree to comply with all applicable State and Federal laws and
the rules and regulations of authorized regulatory agencies. We agree that we
will sell or offer for sale Shares of the Fund only in those states or
jurisdictions whose laws permit the offers or sales in question whether or not
such permission is dependent on registration or qualification of the Fund or its
Shares under such laws.
3. We will offer and sell the Shares of the Fund only in accordance
with the terms and conditions of the then current Prospectus for each class of
Shares of the Fund and we will make no representations not included in said
Prospectus or any authorized supplemental material supplied by you. In no
transaction where we make Shares of the Fund available to
<PAGE> 2
our customers shall we have any authority to act as agent for the Fund. The
customers in question are for all purposes our customers and not your customers.
However, you will be responsible for mailing the Fund's then current Prospectus
(not including the related Statement of Additional Information) with the
confirmations. You will clear transactions for each of our customers only upon
our authorization, it being understood in all cases that (i) we are acting as
agent for the customer, (ii) the transactions are without recourse against us by
the customer except to the extent that our failure to transmit orders in a
timely fashion results in a loss to our customer, (iii) our customer will have
full beneficial ownership of the Shares, (iv) each transaction is initiated
solely upon the order of the customer, and (v) each transaction is for the
account of the customer and not for our account. We will use our best efforts in
the development and promotion of sales of Shares of the Fund and agree to be
responsible for the proper instruction and training of all sales personnel
employed by us, in order that such Shares will be offered in accordance with the
terms and conditions of this Agreement and all applicable laws, rules and
regulations. We agree to hold you and/or the Fund harmless and indemnify you
and/or the Fund in the event that we, or any of our sales representatives,
should violate any law, rule or regulation, or any provisions of this Agreement,
which violation may result in liability to you and/or the Fund; and in the event
you and/or the Fund determine to refund any amounts paid by any investor by
reason of any such violation on our part, we shall return to you and/or the Fund
any agency commissions previously paid or discounts allowed by you to us with
respect to the transaction for which the refund is made. All expenses which we
incur in connection with our activities under this Agreement shall be borne by
us.
4. We understand and agree that the sales charges to the customer (with
respect to Class A Shares) and agency commission relative to any sales of Shares
of the Fund made by us will be in an amount set forth in the then current
Prospectus of the Fund or in separate written notice to us.
5. Payment for purchases by our customers of Shares of the Fund made by
wire order from us shall be made to you or for your account and received by you
within five business days after the acceptance of our order or such shorter time
as may be required by law. If such payment is not so received, we understand
that you reserve the right, without notice, forthwith to cancel the sale, or, at
your option, to sell the Shares ordered by us back to the Fund, in which latter
case we may be held responsible for any loss, including loss of profit, suffered
by you and/or the Fund resulting from our failure to make the aforesaid payment.
Where sales of the Fund's Shares are contingent upon the Fund's receipt of funds
in payment therefor, we will forward promptly to you any purchase orders and/or
payments received by us from investors.
6. We agree to make Shares available to our customers only (a) at the
public offering price (except as provided in Paragraph 12 hereunder), (b) from
you, and (c) to cover orders already received from our customers. We shall not
withhold placing with you orders received from our customers so as to profit
ourselves as a result of such withholding; e.g., by a change in the net asset
value from that used in determining the public offering price to our customers.
7. Unless at the time of transmitting an order we advise you to the
contrary, you may consider the order to be the total holding of the investor and
assume that the investor is not entitled to any reduction in sales price beyond
that accorded to the amount of the purchase as
2
<PAGE> 3
determined by the schedule set forth in the then current Prospectus for the
Class A Shares. If we make Shares available to our customers as provided in
Paragraph 12 hereunder, we shall so indicate to you at the time of transmitting
such order.
8. We understand and agree that if any Shares of the Fund sold by us
under the terms of this Agreement are redeemed by the Fund (including
redemptions resulting from any exchange for Shares of another investment
company) or any repurchased by you as agent for the Fund or are tendered to the
Fund for redemption within seven (7) business days after the confirmation to us
of our original purchase order for such Shares, we shall pay forthwith to you
the full amount of the commission allowed to us on the original sale, provided
you notify us of such repurchase or redemption within ten (10) days of the date
upon which written redemption requests (and, if applicable, share certificates)
are delivered to you or to the Fund.
9. Your obligations to us under this Agreement are subject to all the
provisions of any agreements entered into between you and the Fund. We
understand and agree that in performing our services covered by this Agreement
we are acting as principal, and you are in no way responsible for the manner of
our performance or for any of our acts or omissions in connection therewith.
Nothing in this Agreement shall be construed to constitute us or any of our
agents, employees for representatives as your agent, partner or employee, or
the agent or employee to the Fund.
10. We may terminate this Agreement by notice in writing to you, which
termination shall become effective thirty (30) days after the date of mailing
such notice to you. However, our termination of this Agreement will not
terminate our responsibilities under sections (iv) and (v) of Paragraph 12
hereunder. We agree that you have and reserve the right, in your sole
discretion without notice, to suspend sales of Shares of the Fund, or to
withdraw entirely the offering of Shares of the Fund, or in your sole
discretion, to modify, amend or cancel this Agreement upon written notice to us
of such modification, amendment or cancellation, which shall be effective on
the date stated in such notice. Without limiting the foregoing, you may
terminate this Agreement for cause of violation by us of any of the provisions
of this Agreement, said termination to become effective on the date of mailing
notice to us of such termination. Without limiting the foregoing, any
provisions hereof to the contrary notwithstanding, our expulsion from the NASD,
if we are a member of the NASD, will automatically terminate this Agreement
without notice; our suspension from the NASD, if we are a member of the NASD,
or violation of applicable State or Federal laws or rules and regulations of
authorized regulatory agencies (whether or not we are a member of the NASC)
will terminate this Agreement effective upon the date of your mailing notice to
us of such termination. Your failure to terminate for any cause shall not
constitute a waiver of your right to terminate at a later date for any such
cause. All notices hereunder shall be to the respective parties at the
addresses listed hereon, unless changed by notice given in accordance with this
Agreement.
11. This Agreement shall become effective as of the date when it is
executed and dated by you and shall be in substitution of any prior agreement
between you and us covering Shares of the Fund. This Agreement is not assignable
or transferable, except that you may assign or transfer this Agreement to any
successor firm or corporation which becomes a principal underwriter of the Fund.
3
<PAGE> 4
12. We may make Shares of the Fund available to our customers at the
next determined net asset value of such Shares under the following
circumstances: (i) each such purchase order is on behalf of a trust, agency, or
custodial client; (ii) we have, as to each such purchase order, discretionary
investment responsibility over the assets in question; (iii) the relationship
between the us and the client was not formed solely for the purpose of
purchasing Shares of the Fund at net asset value; (iv) the Shares purchased
pursuant to such purchase order will not be resold except by redemption; (v)
there is no charge relating to such purchase other than our normal service
charge; and (vi) we may disclose the name of the Fund to the client without your
consent.
(Name of financial institution):
ADDRESS:
BY:
(Name)
(Title)
Accepted:
VAN LIEW SECURITIES INC.
BY:
Date:
4
<PAGE> 1
Exhibit (e)(5)
VAN LIEW SECURITIES INC.
SALES AGREEMENT
OCEAN STATE TAX-EXEMPT FUND
(for use with investment advisers)
From:
To: Van Liew Securities Inc.
One Regency Plaza
Providence, Rhode Island 02903
Gentlemen:
We desire to enter into an agreement with you for sale and distribution
of the Shares (the "Shares") of Ocean State Tax-Exempt Fund (the "Fund"). Upon
acceptance of this Agreement by you, we understand that we may offer and sell
Shares of the Fund, subject, however, to all of the terms and conditions hereof
and to your right, without notice, to suspend or terminate the sale of the
Shares of the Fund.
1. We understand that the Shares of the Fund will be offered and sold
at the current offering price in effect as set forth in the Fund's then current
Prospectus (which term as used herein includes any related statement of
additional information). All purchase requests and applications submitted by us
are subject to acceptance or rejection as set forth in the Fund's current
Prospectus.
2. We certify that we are an investment adviser, registered either (a)
with the Securities and Exchange Commission under the Investment Advisers Act of
1940 or (b) registered under relevant state statutes, as applicable; we
furthermore undertake to maintain such registrations. You certify that you are a
broker-dealer, registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, registered with the National Association of
Securities Dealers, Inc., and registered under relevant state statutes; you
furthermore undertake to maintain such registrations. We further agree to comply
with all applicable State and Federal laws and the rules and regulations of
authorized regulatory agencies. We agree that we will sell or offer for sale
Shares of the Fund only in those states or jurisdictions whose laws permit the
offers or sales in question whether or not such permission is dependent on
registration or qualification of the Fund or its Shares under such laws.
3. We will offer and sell the Shares of the Fund only in accordance
with the terms and conditions of the then current Prospectus for each class of
Shares of the Fund and we will make no representations not included in said
Prospectus or any authorized supplemental material supplied by you. In no
transaction where we make Shares of the Fund available to our clients shall we
have any authority to act as agent for the Fund. The clients in question are for
all purposes our clients and not your clients. However, you will be responsible
for
1
<PAGE> 2
mailing the Fund's then current Prospectus (not including the related Statement
of Additional Information) with the confirmations. You will clear transactions
for each of our clients only upon our authorization, it being understood in all
cases that (i) we are acting as agent for the client, (ii) the transactions are
without recourse against us by the client, (iii) our client will have full
beneficial ownership of the Shares, and (iv) each transaction is for the account
of the client and not for our account. We will use our best efforts in the
development and promotion of sales of Shares of the Fund and agree to be
responsible for the proper instruction and training of all sales personnel
employed by us, in order that such Shares will be offered in accordance with the
terms and conditions of this Agreement and all applicable laws, rules and
regulations. We agree to hold you and/or the Fund harmless and indemnify you
and/or the Fund in the event that we, or any of our sales representatives,
should violate any law, rule or regulation, or any provisions of this Agreement,
which violation may result in liability to you and/or the Fund; and in the event
you and/or the Fund determine to refund any amounts paid by any investor by
reason of any such violation on our part, we shall return to you and/or the Fund
any commissions previously paid or discounts allowed by you to us with respect
to the transaction for which the refund is made. All expenses which we incur in
connection with our activities under this Agreement shall be borne by us.
4. Payment for purchases by our clients of Shares of the Fund made by
wire order from us shall be made to you or for your account and received by you
within five business days after the acceptance of our order or such shorter time
as may be required by law. If such payment is not so received, we understand
that you reserve the right, without notice, forthwith to cancel the sale, or, at
your option, to sell the Shares ordered by us back to the Fund, in which latter
case we may be held responsible for any loss, including loss of profit, suffered
by you and/or the Fund resulting from our failure to make the aforesaid payment.
Where sales of the Fund's Shares are contingent upon the Fund's receipt of funds
in payment therefor, we will forward promptly to you any purchase orders and/or
payments received by us from our clients.
5. We agree to make Shares available to our clients only (a) at the net
asset value, (b) from you, and (c) to cover orders already received from our
clients. We shall not withhold placing with you orders received from our clients
so as to profit ourselves as a result of such withholding; e.g., by a change in
the net asset value from that used in determining the net asset value to our
clients.
6. Your obligations to us under this Agreement are subject to all the
provisions of any agreements entered into between you and the Fund. We
understand and agree that in performing our services covered by this Agreement
we are acting as agent for our clients, and you are in no way responsible for
the manner of our performance or for any of our acts or omissions in connection
therewith. Nothing in this Agreement shall be construed to constitute us or any
of our agents, employees for representatives as your agent, partner or
employee, or the agent or employee to the Fund.
7. We may terminate this Agreement by notice in writing to you, which
termination shall become effective thirty (30) days after the date of mailing
such notice to you. However, our termination of this Agreement will not
terminate our responsibilities under sections (iv) and (v) of Paragraph 9
hereunder. We agree that you have and reserve the right, in your sole
discretion without notice, to suspend sales of Shares of the Fund, or to
withdraw entirely the
2
<PAGE> 3
offering of Shares of the Fund, or in your sole discretion, to modify, amend or
cancel this Agreement upon written notice to us of such modification, amendment
or cancellation, which shall be effective on the date stated in such notice.
Without limiting the foregoing, you may terminate this Agreement for cause of
violation by us of any of the provisions of this Agreement, including but not
limited to our failure to maintain our federal or state investment adviser
registration pursuant to paragraph 2 of this Agreement, said termination to
become effective on the date of mailing notice to us of such termination. Your
failure to terminate for any cause shall not constitute a waiver of your right
to terminate at a later date for any such cause. All notices hereunder shall be
to the respective parties at the addresses listed hereon, unless changed by
notice given in accordance with this Agreement.
8. This Agreement shall become effective as of the date when it is
executed and dated by you and shall be in substitution of any prior agreement
between you and us covering Shares of the Fund. This Agreement is not assignable
or transferable, except that you may assign or transfer this Agreement to any
successor firm or corporation which becomes a principal underwriter of the Fund.
9. We agree that (i) each purchase order is on behalf of an investment
advisory client, (ii) the relationship between us and the client was not formed
solely for the purpose of purchasing Shares of the Fund at net asset value,
(iii) the Shares purchased pursuant to such purchase order will not be resold
except by redemption, (iv) there is no charge relating to such purchase other
than our normal service charge, and (v) we may disclose the name of the Fund to
the client without your consent.
(Name of investment adviser):
ADDRESS:
BY:
(Name)
(Title)
Accepted:
VAN LIEW SECURITIES INC.
BY:
Date:
3
<PAGE> 1
EXHIBIT (i)
January 31, 2000
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 (i) to Post-Effective
Amendment No. 16 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.
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
8
<PAGE> 2
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 (i) to
Post-Effective Amendment No. 16 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 LLP
9
<PAGE> 1
EXHIBIT (j)(l)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Class I Prospectus and "Custodian And Independent Auditors"
and "Financial Statements" in the Combined Class A and Class I Statement of
Additional Information in Post-Effective Amendment Number 16 to the Registration
Statement (Form N-1A, No. 33-7788) of VLC Trust.
We also consent to the incorporation by reference into the Combined Class A and
Class I Statement of Additional Information of our report dated December 10,
1999 on the financial statements included in the Annual Report of the Ocean
State Tax Exempt Fund (a series of VLC Trust) for the year ended October 31,
1999.
/s/
ERNST & YOUNG LLP
Boston, Massachusetts
January 28, 2000
<PAGE> 1
Exhibit (j)(2)
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.
IN WITNESS WHEREOF, the undersigned have set their hands on the date
written.
<TABLE>
<S> <C> <C>
Trustee and President
/s/ Alfred B. Van Liew (Principal Executive Officer) November 22, 1999
- ----------------------
(Alfred B. Van Liew)
Treasurer (Chief Financial
/s/ Kevin M. Oates and Accounting Officer) November 22, 1999
- ------------------
(Kevin M. Oates)
/s/ Milton C. Bickford Trustee November 22, 1999
- ----------------------
(Milton C. Bickford)
/s/ Michael E. Hogue Trustee November 22, 1999
- --------------------
(Michael E. Hogue)
/s/ Alice M. Macintosh Trustee November 22, 1999
- ----------------------
(Alice M. Macintosh)
- ---------------------- Trustee
(Richard A. Plotkin)
- ---------------------- Trustee
(John H. St. Sauveur)
/s/ Thomas R. Weschler Trustee November 22, 1999
- ----------------------
(Thomas R. Weschler)
</TABLE>
<PAGE> 1
Exhibit (l)(2)
OCEAN STATE TAX-EXEMPT FUND
DISTRIBUTION AGREEMENT
AGREEMENT, made as of this 10th day of February, 2000, by and between
OCEAN STATE TAX-EXEMPT FUND (hereinafter called the "Fund"), and VAN LIEW
SECURITIES INC. (hereinafter called the "Distributor").
W I T N E S S E T H:
WHEREAS, the Fund and the Distributor previously entered into a
Distribution Agreement dated as of May 31, 1990;
WHEREAS, on February 10, 2000, the Board of Trustees of the Fund
approved a new Distribution Agreement, to go into effect upon redesignation of
the Shares of the Fund as Class A Shares and Class I Shares; and
WHEREAS, this Agreement is a document substantially similar to and
containing substantially all of the provisions of the old Distribution
Agreement, representing in explicit form the new Distribution Agreement created
thereby;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, it is agreed by and between the parties hereto as follows:
1. The Distributor agrees to act as principal underwriter and
distributor of the Shares of the Fund (the "Shares"). The price at which Shares
of the Fund are issued to the public by the Distributor shall be the public
offering price as computed and effective as set forth in the Prospectus and
Statement of Additional Information of the Fund current as of the time of such
sale (collectively, the "Current Prospectus"). The public offering price for all
orders will be the net asset value per share, determined in accordance with the
Fund's Declaration of Trust and Bylaws, as now in effect or as they may be
amended. The Distributor shall have the right to enter into uniform sales
agreements with broker-dealers, financial institutions and investment advisers
of its choice for the sale of the Fund's Shares provided that the Fund shall
approve the form of the dealer agreement and the dealer concession set forth
therein and shall evidence such approval by filing said form of dealer
agreement, and amendments thereto, as an exhibit to its currently effective
registration statement filed under the Securities Act of 1933. The Distributor
is authorized to determine from time to time (i) any dealer discount paid to
dealers and any agency commissions paid to brokers; and (ii) the terms of any
sales agreement entered into by the Distributor relating to the sale of the
Fund's Shares and the identify of any broker, dealer, financial institution or
investment adviser with which such agreements are entered into. The Fund agrees
that it will promptly amend or supplement the Current Prospectus in connection
with any change in any of the foregoing. The Distributor agrees to administer
the Fund's Distribution Plans, including selecting dealers and making payments
to such selected dealers at a rate not to exceed .25 of 1.0% of the net assets
to cover distribution and sales-related expenses. The Distributor also agrees to
bear (a) the costs of distributing all copies of the Fund's prospectuses and
reports to shareholders which are not sent to the Fund's shareholders, (b) the
costs of preparing, printing and distributing supplemental sales literature and
advertising and (c) all costs in connection with qualification
1
<PAGE> 2
of the Distributor as a distributor or broker or dealer under any applicable
federal or state securities laws.
2. The Fund agrees to issue its Shares, subject to the provisions of
its Declaration of Trust and By-Laws, to the Distributor as directed by the
Distributor, but only to the extent that the Distributor shall have received
purchase orders therefor at the times and subject to the conditions set forth in
the Current Prospectus. Certificates for Shares need not be created or delivered
by the Fund in any case in which the purchase is made under terms not calling
for such certificates. Shares issued by the Fund shall be registered in such
name or names and amounts as the Distributor may request from time to time and
all Shares when so paid for and issued shall be fully paid and non-assessable.
3. The Distributor shall act as principal in all matters relating to
promotion of the growth of the Fund and shall enter into all of its Distributor
engagements, agreements and contracts as principal on its account. The title to
Shares of the Fund issued by it through the Distributor shall pass directly from
the Fund to the investor, or shall, if the Distributor so consents, first pass
to the Distributor, as may from time to time be determined by the Board of
Trustees of the Fund.
4. The Fund hereby consents to any arrangements whereby the
Distributor may act as principal underwriter for other investment companies or
as principal underwriter, sponsor or depositor for unit investment trusts and
periodic payment plan certificates issued thereby, or as investment adviser or
subadviser to other investment companies or persons. The Fund also consents to
the Distributor carrying on a business as a broker, dealer and underwriter in
securities and to carrying on any other lawful business.
5. The Fund covenants and agrees that it will not during the term of
this Agreement, without the consent of the Distributor, offer any of its Shares
for distribution directly or through any person or corporation other than the
Distributor excepting only (a) the reinvestment of dividends and/or
distributions, or their declaration in Shares of the Fund, in optional form or
otherwise; (b) the issuance of additional Shares through stock splits or stock
dividends; (c) sales of Shares to another investment or securities holding
company in the process of purchasing all or a portion of its assets; or (d) in
connection with an exchange of the Fund's Shares for Shares of another
investment or securities holding company.
6. The Fund agrees to use its best efforts to register from time to
time under the Securities Act of 1933 (the "Securities Act") adequate amounts of
its Shares for sales by the Distributor to the public and to qualify or to
permit the Distributor to qualify such Shares for offering in such States or
other jurisdictions as may be designated by the Distributor.
7. The Fund agrees to advise the Distributor of the net asset value of
its Shares as often as computed. The Fund will also furnish to the Distributor,
as soon as practicable, such information as may reasonably be requested by the
Distributor in order that it may know all of the facts necessary to sell Shares
of the Fund.
8. The Distributor is familiar with the Declaration of Trust and
By-Laws of the Fund, each as presently in effect. Insofar as they are applicable
to the Distributor as distributor of the Fund, it will comply with the
provisions of the Declaration of Trust and
2
<PAGE> 3
By-Laws of the Fund and with the provisions of all acts administered by the
Securities and Exchange Commission (the "Commission") and rules thereunder.
9. This amended and restated Agreement shall go into effect on the
date first above written and shall, unless terminated as hereinafter provided,
continue in effect for two years from such effective date and shall continue in
effect from year to year thereafter, but only so long as such continuance is
specifically approved at least annually as provided in the Investment Company
Act of 1940 (the "Act"). This Agreement shall automatically terminate in the
event of its assignment (as defined in the Act) and may be terminated by either
party on sixty (60) days written notice to the other party without further
recourse.
10. The Fund agrees with the Distributor, for the benefit of the
Distributor and each person, if any, who controls the Distributor within the
meaning of Section 15 of the Securities Act and each and all and any of them to
indemnify and hold harmless the Distributor and any such controlling person from
and against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the Securities
Act, under any other statute, at common law or otherwise, and to reimburse the
Distributor and such controlling persons, if any, for any legal or other
expenses (including the cost of any investigation and preparation) reasonably
incurred by them or any of them in connection with any claims or litigation
whether or not resulting in any liability, insofar as such losses, claims,
damages, liabilities or litigation arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or any Prospectus, or any amendment there of or
supplement thereto, or arise out of, or are based upon the mission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading; provided, however, that
this indemnity agreement shall not apply to amounts paid in settlement of any
such claim or litigation if such settlement is effected without the consent of
the Fund or to any such losses, claims, damages, liabilities or litigation
arising out of, or based upon, any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or arising out of, or based upon, the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission was made in reliance upon information furnished in writing
to the Fund by the Distributor for inclusion in any Registration Statement or
any Prospectus or any amendment thereof or supplement thereto. The Distributor
and each such controlling person shall, promptly after the complaint shall have
been served upon the Distributor or such controlling person in any litigation
against the Distributor or such controlling person in respect of which indemnity
may be sought from the Fund on account of its agreement contained in this
paragraph, notify the Fund in writing of the commencement thereof. The omission
of the Distributor or such controlling person so to notify the Fund of any such
litigation shall relieve the Fund from any liability which it may have to the
Distributor or such controlling person on account of the indemnity agreement
contained in this paragraph but shall not relieve the Fund from any liability
which it may have to the Distributor or controlling person otherwise than on
account of the indemnity agreement contained in this paragraph. In case any such
litigation shall be brought against the Distributor or any such controlling
person and notice of the commencement thereof shall have been so given to the
Fund, the Fund shall be entitled to participate in (and, to the extent that it
shall wish, to direct) the defense thereof at its own expense but such defense
shall be conducted by counsel of good standing and satisfactory to
3
<PAGE> 4
the Distributor or such controlling person or persons, defendant or defendants
in the litigation. The indemnity agreement of the Fund contained in this
paragraph shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor or any such controlling
person, and shall survive any delivery of Shares of the Fund. The Fund agrees to
notify the Distributor promptly of the commencement of any litigation or
proceeding against it or any of its officers or directors of which it may be
advised in connection with the issue and sale of Shares of the Fund.
11. Anything herein to the contrary notwithstanding, the agreement in
paragraph 10, insofar as it constitutes a basis for reimbursement by the Fund
for liabilities (other than payment by the Fund of expenses incurred or paid in
the successful defense of any action, suit or proceeding) arising under the
Securities Act, shall not extend to the extent of any interest therein of any
person who is an underwriter or a partner or controlling person of an
underwriter within the meaning of Section 15 of the Securities Act or who, at
the date of this Agreement, is a Trustee of the Fund, except to the extent that
an interest of such character shall have been determined by a court of
appropriate jurisdiction as not against public policy as expressed in the
Securities Act. Unless in the opinion of counsel for the Fund the matter has
been adjudicated by controlling precedent, the Fund will, if a claim for such
reimbursement is asserted, submit to a court of appropriate jurisdiction the
question of whether or not such interest is against the public policy as
expressed in the Securities Act.
12. The Distributor agrees to indemnify and hold harmless the Fund and
its Trustees and such officers as shall have signed any Registration Statement
from and against any and all losses, claims, damages or liabilities, joint or
several, to which the Fund or such Trustees or officers may become subject under
the Securities Act, under any other statute, at common law or otherwise, and
will reimburse the Fund or such Trustee or officers for any legal or other
expenses (including the cost of any investigation and preparation) reasonably
incurred by it or them or any of them in connection with any claim or
litigation, whether or not resulting in any liability, insofar as such losses,
claims, damages, liabilities or litigation arise out of, or are based upon, any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto, or arising out of, or based upon, the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Fund by the Distributor
for inclusion in any Registration Statement or any Prospectus, or any amendment
thereof or supplement thereto. The Distributor shall not be liable for amounts
paid in settlement of any such litigation if such settlement was effected
without its consent. The Fund and its Trustees and such officers, defendant or
defendants, in any such litigation shall, promptly after the complaint shall
have been served upon the Fund or any such Trustee or officer in respect of
which indemnity may be sought from the Distributor on account of its agreement
contained in this paragraph, notify the Distributor in writing of the
commencement thereof. The omission of the Fund or such Trustee or officer so to
notify the Distributor of any such litigation shall relieve the Distributor from
any liability which it may have to the Fund or such Trustee or officer on
account of the indemnity agreement contained in this paragraph, but shall not
relieve the Distributor from any liability which it may have to the Fund or such
Trustee or officer otherwise than on account of the indemnity agreement
contained in this paragraph. In case any such litigation shall be brought
against the Fund or any such Trustee or officer and notice of the commencement
thereof shall
4
<PAGE> 5
have been so given to the Distributor, the Distributor shall be entitled to
participate in (and, to the extent that it shall wish, to direct) the defense
thereof at its own expense, but such defense shall be conducted by counsel of
good standing and satisfactory to the Fund. The indemnity agreement of the
Distributor contained in this paragraph shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of the Fund and
shall survive any delivery of Shares of the Fund. The Distributor agrees to
notify the Fund promptly of the commencement of any litigation or proceeding
against it or any of its officers or directors or against any such controlling
person of which it may be advised, in connection with the issue and sale of the
Fund's Shares.
13. Notwithstanding any provision contained in this Agreement, no party
hereto and no person or persons in control of any party hereto shall be
protected against any liability to the Fund or its shareholders or the
Distributor or its controlling persons to which they would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence, in the
performance of their duties, or by reason of their reckless disregard of their
obligations and duties under this Agreement.
14. The Fund shall immediately advise the Distributor (a) when any
post-effective amendment to its Registration Statement or any further amendment
or supplement thereto or any further Registration Statement or amendment or
supplement thereto becomes effective, (b) of any request by the Commission for
amendments to the Registration Statement or the then effective Prospectus or for
additional information, (c) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, or the initiation of
any proceedings for that purpose, and (d) of the happening of any event which
makes untrue any material statement made in the Registration Statement or the
then current Prospectus or which in the opinion of counsel for the Fund requires
the making of a change in the Registration Statement or the then current
Prospectus in order to make the statements therein not misleading. In case of
the happening at any time of any event which materially affects the Fund or its
securities and which should be set forth in a supplement to or an amendment of
the then current Prospectus in order to make the statements therein not
misleading the Fund shall prepare and furnish to the Distributor such amendments
or amendments to the then effective Prospectus as will correct the Prospectus so
that is corrected it will not contain, or such supplement or supplements to the
then current Prospectus which when read in conjunction with the then current
Prospectus will make the combined information not contain any untrue statement
of a material fact or any omission to state any material fact necessary in order
to make the statements in the then current Prospectus not misleading. The Fund
shall, if at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, make every reasonable effort to
obtain the prompt lifting of such order.
15. Except as expressly provided in paragraphs 10 and 12 hereof, the
agreements herein set forth have been made and are made solely for the benefit
of the Fund, the Distributor, and the persons expressly provided for in
paragraphs 10 and 12, their respective heirs, successors, personal
representatives and assigns, and except as so provided, nothing expressed or
mentioned herein is intended or shall be construed to give any person, firm or
corporation, other than the Fund, the Distributor, and the persons expressly
provided for in paragraphs 10 and 12, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any representation, warranty or
agreement herein contained. Except as so
5
<PAGE> 6
provided, the term "heirs, successors, personal representatives and assigns"
shall not include any purchaser of Shares merely because of such purchase.
16. The Distributor certifies that it is a member of the National
Association of Securities Dealers, Inc., and agrees to abide by and cause its
representatives to abide by all of its rules and regulations including its
Conduct Rules.
17. This agreement shall be governed by and construed in accordance with
the laws of the State of Rhode Island.
18. The Distributor understands that the obligations of this Agreement
are not binding upon any shareholder of the Fund personally, but bind only the
Fund's property; the Distributor represents that it has notice of the
provisions of the Fund's Declaration of Trust disclaiming shareholder
liability for acts or obligations of the Fund.
19. All notices and other communications required or permitted hereunder
shall be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, addressed (a) if to the Fund, to
One Regency Plaza, Suite One, Providence, Rhode Island 02903; with a copy to
Margaret D. Farrell, Esq., Hinckley, Allen & Snyder LLP, 1500 Fleet Center,
Providence, Rhode Island 02903, or (b) if to the Distributor, to One Regency
Plaza, Suite One, Providence, Rhode Island 02903.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers and their seals to be
affixed as of the day and year first above written.
ATTEST: OCEAN STATE TAX-EXEMPT FUND
By:
ATTEST: VAN LIEW SECURITIES INC.
By:
6
<PAGE> 1
Exhibit (m)(2)
OCEAN STATE TAX-EXEMPT FUND
CLASS I DISTRIBUTION PLAN
1. The Plan. This Plan dated as of February 10, 2000 (the "Plan") is the written
plan contemplated by Rule 12b-1 (the "Rule") under the Investment Company Act of
1940 (the "1940 Act") of OCEAN STATE TAX- EXEMPT FUND (the "Fund). This Plan
applies solely to the Financial Intermediary Class, or ("Class I Shares"), of
the Fund.
2. Definitions. As used in this Plan, "Qualified Recipients" shall mean
broker-dealers or others selected by Van Liew Securities Inc. (the
"Distributor"), including but not limited to any principal underwriter of the
Fund, with which the Fund or the Distributor has entered into written agreements
in connection with this Plan ("Class I Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the distribution and/or
retention of the Fund's Financial Intermediary Shares. "Qualified Holdings"
shall mean, as to any Qualified Recipient, all Financial Intermediary Shares
beneficially owned by such Qualified Recipient, or beneficially owned by its
brokerage customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the sole judgment
of the Distributor, instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services in relation
thereto.
3. Certain Payments Permitted. Subject to the direction and control of the Board
of Trustees of the Fund, the Fund may make payments ("Class I Permitted
Payments") to Qualified Recipients. Class I Permitted Payments may be made
directly, or through the Distributor. Class I Permitted Payments may not exceed,
for any fiscal year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under this Plan are not accruable or for any fiscal
year which is not a full fiscal year) a rate fixed from time to time by the
Board of Trustees, but in any event not in excess of 0.25 of 1% of the average
annual net assets of the Fund represented by the Class I Shares. Such payments
shall be made only out of the Fund assets allocable to the Financial
Intermediary Shares. The Distributor shall have sole authority to: (i) select or
reject Qualified Recipients; and (ii) allocate the amount of Class I Permitted
Payments, if any, to each Qualified Recipient, provided that the total Class I
Permitted Payments to all Qualified Recipients do not exceed the amount set
forth above or such lesser amount as the Board of Trustees may determine.
The Distributor is authorized, but not directed, to take into account,
in addition to any other factors deemed relevant by it, the following factors
with respect to the allocation of Class I Permitted Payments: (a) the amount of
the Qualified Holdings held by a Qualified Recipient; (b) the extent to which
the Qualified Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary Shares,
including without limitation any or all of the following activities: (i)
answering customer inquiries regarding account status and history and the manner
in which purchases and redemptions of Class I Shares of the Fund may be
effected; (ii) assisting shareholders in designating and changing dividend
options, account designations and addresses; (iii) providing necessary personnel
and facilities to establish and maintain shareholder accounts and records; (iv)
assisting in processing purchase and redemption transactions; (v) arranging for
the wiring of funds; (vi) transmitting and
<PAGE> 2
receiving funds in connection with customer orders to purchase or redeem shares;
(vii) verifying and guaranteeing shareholder signatures in connection with
redemption orders and transfers and changes in shareholder designated accounts;
(viii) furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year end statements and confirmations of
purchases and redemptions; (ix) transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other communications from
the Fund to its shareholders; (x) receiving, tabulating and transmitting to the
Fund proxies executed by shareholders with respect to meetings of shareholders
of the Fund; and (xi) providing such other related services as the Distributor
or a shareholder may request from time to time; and (c) the possibility that the
Qualified Holdings of the Qualified Recipient would be redeemed in the absence
of its selection or continuance as a Qualified Recipient. Notwithstanding the
foregoing, a majority of the Independent Trustees (as defined below) may remove
any person as a Qualified Recipient. Amounts within the above limits accrued to
a Qualified Recipient but not paid during a fiscal year may be paid thereafter;
if less than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years.
4. Other Payments Authorized. In addition, 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: (a) the costs of the preparation and printing of
all reports and notices to shareholders; (b) the costs of the preparation and
printing of all prospectuses; (c) the costs of preparation and printing 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 Class
I Shares; (d) all legal and accounting fees relating to the preparation of any
such reports, prospectuses, proxies and proxy statements; (e) 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; (f) all fees under the
Securities Act of 1933 (the "1933 Act") and the 1940 Act, including fees in
connection with any sale of the Fund's Class I Shares; (g) 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; and (h) all costs of the preparation and mailing of confirmations of
shares sold or redeemed or share certificates, and reports of share balances.
5. Reports. While this Plan is in effect, the Fund's Distributor shall report at
least quarterly to the Fund's Trustees in writing for their review on the
following matters: (i) all Class I Permitted Payments made under Section 3 of
the Plan, the identity of the Qualified Recipient of each payment, and the
purposes for which the amounts were expended; and (ii) all fees of the Fund to
the Distributor paid or accrued during such quarter. In addition, if any such
Qualified Recipient is an affiliated person, as that term is defined in the 1940
Act, of the Fund, the Adviser, or the Distributor, such person shall agree to
furnish to the Distributor for transmission to the Board of Trustees of the Fund
an accounting, in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than annually.
6. Class I Plan Agreements. In the case of a Qualified Recipient which is a
principal underwriter of the Fund, the Class I Plan Agreement shall be the
agreement contemplated by
2
<PAGE> 3
Section 15(b) of the 1940 Act since each such agreement must be approved in
accordance with, and contain the provisions required by, the Rule. In the case
of Qualified Recipients which are not principal underwriters of the Fund, the
Class I Plan Agreements with them shall be their agreements with the Distributor
with respect to payments under this Plan, provided, however, that "Related
Agreements" entered into under the distribution plan of the Fund in effect prior
to the effective date of this Plan and not terminated at or prior to such
effective date may, at the Distributor's discretion, be deemed to be "Class I
Plan Agreements" for purposes of this Plan and that, as and to the extent
necessary to give effect to this proviso, defined terms used in such agreements
shall be deemed to have the meanings assigned to their appropriate counterparts
in this Plan and the provisions of such agreements, which shall otherwise remain
in full force and effect, are deemed to be appropriately modified.
7. Disinterested Trustees. While this Plan 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.
Nothing herein shall prevent the involvement of other Trustees in such selection
and nomination if the final decision on any such selection and nomination is
approved by a majority of such disinterested Trustees.
8. Effectiveness, Continuation, Termination and Amendment. To the extent
required under the 1940 Act, this Plan has been approved by a vote of the
Trustees of the Fund and of those Trustees (the "Independent Trustees") who are
not "interested persons" as defined in the 1940 Act of the Fund and have no
direct or indirect financial interest in the operation of this Plan or in any
agreements related to this Plan, cast in person at a meeting called for the
purpose of voting on this Plan. This Plan is effective as of the date first
above written and shall, unless terminated as hereinafter provided, continue in
effect from year to year after such approval only so long as such continuance is
specifically approved at least annually by the Fund's Trustees and its
Independent Trustees cast in person at a meeting called for the purpose of
voting on such continuance. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting shares of the
Fund. This Plan may not be amended to increase materially the amount of payments
to be made without the approval of at least a "majority" (as defined in the 1940
Act) of the outstanding voting securities of the Financial Intermediary Class
and all amendments must be approved by a vote of the Trustees, including the
Independent Trustees, cast in person at a meeting called for such purpose.
3
<PAGE> 1
Exhibit (n)
Dated: January 31, 2000
OCEAN STATE TAX-EXEMPT FUND
Form of
Rule 18f-3
Multiple Class Plan
OCEAN STATE TAX-EXEMPT FUND (the "Fund") has elected to rely on Rule
18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), in
offering multiple classes of shares with differing distribution arrangements,
voting rights and expense allocations.
Pursuant to Rule 18f-3, the Board of Trustees of the Fund has approved
and adopted this written plan (the "Plan") specifying all of the differences
among the classes of shares to be offered by the Fund. Prior to such offering,
the Plan will be filed as an exhibit to the Fund's registration statement. The
Plan sets forth the differences among the classes, including sales charges,
distribution fees and arrangements and expense allocations.
I. Attributes of Share Classes
This section discusses the attributes of the various classes of shares.
Each share of the Fund represents an equal pro rata interest in the Fund and has
identical voting rights, powers, qualifications, terms and conditions and, in
proportion to each share's net asset value, liquidation rights and preferences.
Each class differs in that: (a) each class has a different class designation;
(b) only the Front-Payment Shares are subject to a front end sales charged
("FESC"); (c) only Financial Intermediary Shares (as described below) are
subject to fees under a plan adopted pursuant to Rule 12b-1 under the 1940 Act
(a "Rule 12b-1 Plan"); (d) to the extent that one class alone is affected by a
matter submitted to a vote of the shareholders, then only that class has voting
power on the matter, provided, however, that any class whose shares convert
automatically to shares of another class also votes separately with respect to
class-specific Rule 12b-1 matters applying to the latter class; (e) the expenses
attributable to a specific class ("Class Expenses")(1) are borne only by shares
of that class on a pro rata basis; and (f) exchange privileges may vary among
the classes.
- --------
(1) Class Expenses are limited to (i) transfer agency fees; (ii) preparation and
mailing expenses for shareholder communications required by law, sent to current
shareholders of a class; (iii) state Blue Sky registration fees; (iv) Securities
and Exchange Commission ("SEC") registration fees; (v) trustees' fees; (vi)
expenses incurred for periodic meetings of trustees or shareholders; and (vii)
legal and accounting fees, other than fees for income tax return preparation or
income tax advice.
1
<PAGE> 2
A. Front-Payment Shares
Front-Payment Shares, or Class A Shares, are sold to (i) retail
customers and (ii) persons entitled to exchange into Front-Payment
Shares under the exchange privileges of the Fund. Shares of the Fund
outstanding on the date that the Financial Intermediary Shares are
first made available will be redesignated Front-Payment Shares.
1. Sales Loads. Front-Payment Shares are sold subject to a FESC
of up to the current maximum FESC (with scheduled variations or
eliminations of the FESC, as permitted by the 1940 Act).
2. Distribution and Service Fees. Front-Payment Shares are not
subject to any distribution fee or shareholder serving fee. The
Fund's Rule 12b-1 Plan for the Class A Shares is a defensive plan
which protects the Fund against any claim that certain expenses
that it pays or may pay, such as expenses of printing and
distributing prospectuses, statements of additional information
and shareholder reports, might be considered to be sales related
and therefore come within the purview of the Rule 12b-1.
3. Class Expenses. Class Expenses that are attributable to the
Front-Payment Class are allocated to that particular class.
4. Exchange Privileges and Conversion Features. Front-Payment
Shares have no conversion features. Shares of another mutual fund
held for at least six months with a minimum value of $5,000 may
be exchanged for Front-Payment Shares with a reduction in the
sales charge with respect to the Front-Payment Shares.
B. Financial Intermediary Shares
Financial Intermediary Shares, or Class I Shares, are sold only
through financial intermediaries with which Van Liew Securities Inc.
has entered into sales agreements, and are not offered directly to
retail customers.
1. Sales Loads. Financial Intermediary Shares are sold without
imposition of any FESC or any other sales charge.
2. Distribution and Service Fees. Financial Intermediary Shares
are subject to a distribution fee pursuant to the Fund's Rule
12b-1 Plan for the Class I Shares not to exceed 0.25 of 1.0% of
the average daily net assets of the Financial Intermediary Class.
The Fund's Rule 12b-1 Plan for the Class I Shares contains
defensive provisions, identical to those contained in the Fund's
Rule 12b-1 Plan for Class A Shares, intended to protect the Fund
against any claim that certain expenses that it pays or may pay
might
2
<PAGE> 3
be considered to be sales related and therefore come within the
purview of Rule 12b-1.
3. Class Expenses. Class Expenses that are attributable to the
Financial Intermediary Class are allocated to that particular
class.
4. Exchange Privileges. Financial Intermediary Shares have no
exchange or conversion features.
C. Additional Classes
In the future, the Fund may offer additional classes of shares
which differ from the classes discussed above. However, any additional
classes of shares must be approved by the Board, and the Plan must be
amended to describe those classes.
II. APPROVAL OF MULTIPLE CLASS PLAN
The Board of the Fund, including a majority of the independent
Trustees, must approve the Plan initially. In addition, the Board must approve
any material changes to the classes and the Plan prior to their implementation.
The Board must find that the Plan is in the best interests of each class
individually and the Fund as a whole. In making its findings, the Board should
focus on, among other things, the relationships among the classes and examine
potential conflicts of interest among classes regarding the allocation of fees,
services, waiver and reimbursements of expenses, and voting rights. Most
significantly, the Board should evaluate the level of services provided to each
class and the cost of those services to ensure that the services are appropriate
and that the allocation of expenses is reasonable. In accordance with the
foregoing provisions of this Section II, the Board of the Fund has approved and
adopted this Plan as of the date written above.
III. DIVIDENDS AND DISTRIBUTIONS
Because of the differences in fees paid under the Rule 12b-1 Plans and
the special allocation of Class Expenses among the classes of shares of the
Fund, the dividends payable to shareholders of a class will differ from the
dividends payable to shareholders of one or more of the other classes. Dividends
paid to each class of shares in the Fund will, however, be declared and paid at
the same time and, except for the differences in expenses listed above, will be
determined in the same manner and paid in the same amounts per outstanding
shares.
IV. EXPENSE ALLOCATIONS
The methodology and procedures for calculating the net asset value and
dividends and distributions of the various classes of shares and the proper
allocation of income and expenses among the various classes of shares are set
forth in the Statement of Additional Information of the Fund.
3
<PAGE> 1
Exhibit (p)
OCEAN STATE TAX-EXEMPT FUND
AMENDED AND RESTATED CODE OF ETHICS
INTRODUCTION
- ------------
(1) General
This Amended and Restated Code of Ethics is dated as of February 10,
2000. Rule 17j-1 under the Investment Company Act of 1940 (the "1940 Act") makes
it unlawful for certain persons to engage in "fraudulent" practices in
connection with purchases or sales by those persons of securities when those
securities are held or to be acquired by an investment company. The rule also
requires every investment company's investment adviser and principal underwriter
to adopt a Code of Ethics containing provisions "reasonably necessary to
prevent" such fraudulent practices by so called "access persons."
The Fund is an investment company covered by the rule. Van Liew Capital
Inc. ("VLC") is its investment adviser and administrator and Van Liew Securities
Inc. ("VLS") is its Distributor. This document constitutes the Code of Ethics
required by Rule l7j-1.
(2) Fraudulent Practices: Covered Persons
Rule 17j-1 makes it unlawful for every officer, director, or employee of
the Fund, VLC and VLS ("Covered Persons") to:
a. employ any device, scheme or artifice to defraud the Fund;
b. to make to the Fund any untrue statement of a material fact or
omit to state to the Fund a material fact necessary in order to
make the statements made, in light of the circumstances under
which they are made, not misleading;
c. to engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon the Fund; or
d. to engage in any manipulative practice with respect to the Fund.
(3) Access Persons
Although all Covered Persons are subject to the prohibitions of Rule
17j-1 against fraudulent practices, the Code of Ethics and the reporting
requirements contained therein apply to a narrower class of "access persons".
For purposes of this Code, "access person" means:
a. every director and officer of the Fund and VLC;
<PAGE> 2
b. every "advisory person" of the Fund and VLC. An advisory person
is an employee who, in connection with his regular functions or
duties, makes, participates in, or obtains information regarding
the purchase or sale of a security by the Fund, or whose
functions relate to the making of any recommendations with
respect to such purchases or sales; and any natural person in a
control relationship with the Fund or VLC who obtains
information concerning recommendations made to the Fund with
regard to the purchase and sale of a security; and
c. any director, officer or general partner of VLS who in the
ordinary course of his business makes, participates in or
obtains information regarding the purchase or sale of securities
for the Fund or whose functions or duties as part of the
ordinary course of his business relate to the making of any
recommendation to the Fund regarding the purchase or sale of
securities.
(4) Reporting Obligations
Access persons shall, within 10 days of becoming an access person, file the
Holdings Report attached hereto as Appendix B. Access persons shall file the
Quarterly Transactions Report attached hereto as Appendix A not later than 10
days after the end of each quarter. Access persons shall file the Holdings
Report annually not later than 30 days after the end of each year. The Secretary
of the Fund shall notify all access persons of their obligations under Rule
17j-1 and the Code. The President of the Fund shall review all initial and
annual holdings and quarterly transaction reports, and promptly consider all
requests pursuant to the provisions of the Code. If problems arise, the
President may attempt to resolve those problems informally, but he has the
authority to recommend sanctions to the Board of Trustees where appropriate. The
President will make an annual written report to the Board of Trustees that (i)
describes any issues related to compliance with this code of ethics and (ii)
certifies that procedures have been adopted reasonably necessary to prevent
violations of this code of ethics. Subject to the authority of the Board of
Trustees, the President and Chairman of the Board of the Fund shall have broad
discretion to administer the Code so as to achieve its purposes and prevent the
problems that Rule 17j-1 was designed to resolve.
ETHICAL RESPONSIBILITIES
(1) All Employees
As stated above, the substantive anti-fraud provisions of Rule 17j-1
apply to every employee of the Fund, VLC and VLS. Accordingly, everyone in the
VLC and VLS organizations should appreciate the need to behave in an ethical
manner with respect to the Fund. In particular, all employees who are involved
in any way with the activities of the Fund should be wary of any potential
conflicts between their duty of loyalty to the Fund and their own financial
interests, particularly with respect to their own securities
2
<PAGE> 3
trading activities. Employees should take care to preserve the confidentiality
of the Fund's business affairs. Employees who are not "access persons" but who
become aware of proposed Fund securities transactions should not engage in
transactions in those same securities without the permission of the President of
the Fund. Otherwise, employees who are not access persons are not limited in
their personal securities transactions by this Code, but such employees are
encouraged to consult with the Secretary or the President of the Fund if they
have any doubts about the applicability of the Code to any proposed transaction.
(2) Advisory Persons
Advisory persons must obtain prior written approval from the President
of the Fund before acquiring, directly or indirectly, beneficial ownership of
any securities through:
(a) an initial public offering; or
(b) a limited offering.
For purposes of this code of ethics, an "initial public offering" means
an offering of securities registered under the Securities Act of 1933 (the "1933
Act"), the issuer of which, immediately before the registration, was not subject
to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934. A "limited offering" means an offering that is exempt from
registration under the 1933 Act pursuant to Section 4(2) or 4(6) or pursuant to
Rule 504, Rule 505, or Rule 506 under the 1933 Act.
(3) Access Persons
Access Persons have additional responsibilities under this Code and
under Rule 17j-1.
a. General
Access persons who have supervisory responsibility should take
reasonable steps to protect against violations of Rule 17j-1 by employees for
whom they are responsible. Supervisors are not expected to guarantee the conduct
of their employees but they should be alert to possible problems. In addition,
access persons who become aware of violations of Rule 17j-1 or actions
inconsistent with this Code are expected to take steps to correct such problems.
Depending on the gravity of the situation, it may be appropriate for an access
person to bring a problem to the attention of the President of the Fund. The
President may agree to handle such matters in confidence, subject to the right
of the Board of Trustees to obtain information about any activities of the
President.
b. Personal Transactions
3
<PAGE> 4
Access Persons will be guided by the following rules in connection with
transactions in securities held or to be acquired by the Fund(1):
(i) Disinterested trustees of the Fund shall not purchase or sell a
security that the trustee knows is to be sold or acquired by the Fund, without
first obtaining written authorization of the Fund's President or Chairman of the
Board;
(ii) access persons who, in connection with their regular functions or
duties do not make or participate in decisions regarding the purchase or sale of
securities for the Fund, obtain information (other than publicly available
information) regarding such purchases or sales, or make or participate in the
making of recommendations in connection with such purchases or sales, shall not
purchase or sell a security that the access person as described in this
paragraph knows is to be sold or acquired by the Fund, without first obtaining
written authorization of the Fund's President or Chairman of the Board;
(iii) other access persons shall not purchase or sell a security held or
to be acquired by the Fund (other than on behalf of the Fund) without first
obtaining written authorization of the Fund's President or Chairman of the
Board; and
(iv) in the event the Chairman of the Board or the President of the Fund
approves a transaction under the preceding three subparagraphs of this Code, a
written record of this approval shall be made and transmitted to the President
of the Fund.
For purposes of the foregoing, a person purchases or sells a security
when he obtains or disposes of "beneficial ownership" of that security. Under
Rule 17j-1, beneficial ownership is defined very broadly(2). An access person
who has any questions about beneficial ownership should consult the Secretary
or the President of the Fund.
- --------
(1) "held or to be acquired" means (i) is or has been held by the investment
company, or (ii) is being or has been considered by such company or its
investment adviser for purchase, within the most recent 15 days.
(2) A person is a "beneficial owner of a security" if that person owns the
security, or if the security is held by a spouse, minor children or relatives
who share the same house, or other persons if by reason of any contract,
understanding, relationship or agreement a person obtains benefits from the
security that are substantially equivalent to ownership, or if the person has
the right to acquire beneficial ownership of the security within 60 days.
Any such report may contain a statement that the report shall not be
construed as an admission by the person making the report that he has any direct
or indirect beneficial ownership in the security to which the report relates.
No report is required if such person is not an "interested person" of
the Fund within the meaning of Section 2(a)(19) of the Act, any such person
would be required to make such report solely by reason of being a trustee,
except where such trustee knew or, in the ordinary course of fulfilling his
official duties as a trustee of the Fund, should have known that during the
15-day period immediately preceding or after the date of the transaction in a
security by the trustee, such security is or was purchased or sold, or
considered for purchase or sale by the Fund.
4
<PAGE> 5
APPENDIX A
OCEAN STATE TAX-EXEMPT FUND
QUARTERLY TRANSACTION REPORT
To: The President and the Secretary, Ocean State Tax-Exempt Fund
From:
This Transaction Report (the "Report") is submitted pursuant to the
Code of Ethics of the Ocean State Tax-Exempt Fund (the "Fund") and supplies, on
the table on the reverse side, information with respect to a transaction in any
security in which I may be deemed to have, or by reason of such transaction
acquire, any direct or indirect beneficial ownership interest, whether or not
such security is a security held or to be acquired by the Fund for the calendar
quarter ended , 20__.* I understand that I may have beneficial ownership
of securities of which certain other persons are the record owners as well as
securities of which I am the record owner, and I have included transactions in
such securities in this Report where applicable. I also understand that:
(i) If I am a "disinterested" trustee of the Fund, I am required
to report transactions in securities only in such cases as I
knew or, in the ordinary course of fulfilling my official
duties as a trustee of the Fund, should have known that,
during the 15-day period immediately preceding or after the
date of any such purchase or sale, is or was considered for
purchase or sale by the Fund or its investment adviser; and
(ii) I am not required to include in this Report transactions
effected for any account over which I do not have any direct
or indirect influence or control.
I hereby certify that:
1. I am fully familiar with the Code of Ethics of the Fund;
2. To the best of my knowledge, the information furnished in this
Report is complete, true and correct; and
- ----------
* If you have no reportable transactions during the quarter, please enter "None"
in the table on the reverse side.
5
<PAGE> 6
3. If, during the month indicated, I have obtained, through the
acquisition of securities or otherwise, ownership of 1/2% or more of the
outstanding voting securities of any issuer, I have reported such fact to the
Fund.
Date:
Signature
6
<PAGE> 7
APPENDIX B
OCEAN STATE TAX-EXEMPT FUND
INITIAL/ANNUAL HOLDINGS REPORT
To: The President and the Secretary, Ocean State Tax-Exempt Fund
From:
This Holdings Report (the "Report") is submitted pursuant to the Code
of Ethics of the Ocean State Tax-Exempt Fund (the "Fund") and supplies, on the
table on the reverse side, information (title of security, number of shares
held, principal amount of the security and brokerage or bank accounts) with
respect to all securities in which I may be deemed to have any direct or
indirect beneficial ownership interest.* I understand that I may have beneficial
ownership of securities of which certain other persons are the record owners as
well as securities of which I am the record owner, and I have included such
securities in this Report where applicable.
I hereby certify that:
1. I am fully familiar with the Code of Ethics of the Fund;
2. To the best of my knowledge, the information furnished in this
Report is complete, true and correct.
Date:
Signature
* If you have no reportable transactions during the quarter, please enter "None"
in the table on the reverse side.
7
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> OCEAN STATE TAX-EXEMPT FUND
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 38,873,555
<INVESTMENTS-AT-VALUE> 39,333,853
<RECEIVABLES> 621,380
<ASSETS-OTHER> 103,679
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,058,912
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 104,947
<TOTAL-LIABILITIES> 104,947
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,535,108
<SHARES-COMMON-STOCK> 3,949,710
<SHARES-COMMON-PRIOR> 4,037,808
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (41,442)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 460,299
<NET-ASSETS> 39,953,965
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,474,383
<OTHER-INCOME> 0
<EXPENSES-NET> 398,686
<NET-INVESTMENT-INCOME> 2,075,697
<REALIZED-GAINS-CURRENT> (41,442)
<APPREC-INCREASE-CURRENT> (2,307,737)
<NET-CHANGE-FROM-OPS> (273,482)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,075,697
<DISTRIBUTIONS-OF-GAINS> 41,828
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 391,381
<NUMBER-OF-SHARES-REDEEMED> 566,825
<SHARES-REINVESTED> 87,346
<NET-CHANGE-IN-ASSETS> (3,293,694)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 148,114
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 398,686
<AVERAGE-NET-ASSETS> 42,302,287
<PER-SHARE-NAV-BEGIN> 10.71
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> (0.58)
<PER-SHARE-DIVIDEND> 0.53
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.12
<EXPENSE-RATIO> 0.94
</TABLE>
