Securities Act of 1933 No. 33-41043
Investment Company Act of 1940 No. 811-6328
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
Post-Effective Amendment No. 8
[X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT CO ACT OF 1940
[X]
Amendment No. 10
[X]
THE TAX FREE FUND OF VERMONT, INC.
87 North Main Street, Rutland, Vermont 05701
(802) 773-0674
AGENT FOR SERVICE:
John T. Pearson
87 North Main Street, Rutland, Vermont 05701
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on __________ pursuant to paragraph (b)
[ X ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on __________ pursuant to paragraph (a)(ii) 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.
PAGE i
Prospectus
June 22, 1999
THE TAX FREE FUND OF VERMONT
THE TAX FREE FUND OF VERMONT
The Fund seeks to achieve the highest level of current income free from federal
and Vermont income taxes that is obtainable consistent with the prudent
investment management of the shareholders' principal.
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the Securities and Exchange Commission has not approved or
disapproved them or determined if this prospectus is accurate or complete.
Anyone who informs you otherwise is committing a crime.
PAGE i
Table of Contents
Fundamental Goals and Principal Strategies.............................1
Principal Risks........................................................2
Past Performance ......................................................3
Fees and Expenses......................................................4
How to Buy Shares......................................................5
How to Sell Shares.....................................................7
Dividends, Distributions and Tax Consequences..........................9
Management and Capital................................................10
Other Strategies and Related Risks....................................11
Financial Highlights..................................................12
PAGE i
Fundamental Goals and
Principal Strategies
The Tax Free Fund of Vermont
Fundamental Goal The Fund seeks to achieve the highest level of current income
free from federal and Vermont income taxes that is obtainable consistent with
the prudent investment management of the shareholders' principal.
- -> The Tax Free Fund of Vermont is Designed for you:
- - if you are seeking a conservative long-term investment;
- - if you want high income free of federal and Vermont income taxes and are
willing to forego growth of capital to get it; and
- - if you can accept the risk of a non-diversified portfolio of fixed income
securities issued primarily by tax-exempt issuers in Vermont.
Don't invest if you are:
- - seeking growth of capital;
- - making short-term investments;
- - investing your emergency
reserve money; or
- - Aren't subject to Vermont tax
Principal Strategies The Fund invests at least eighty percent (80%) of its
assets in long term bonds the income of which is exempt from federal and Vermont
income taxes, with its primary focus on individual security selection rather
than attempting to anticipate major interest rate moves. The Fund's
value-oriented buy discipline requires a given security to offer a yield
advantage over others of similar quality or to exhibit stable or improving
credit quality characteristics relative to other securities. Individual issues
must compliment the portfolio's yield objectives, long-term maturity structure
and seek to achieve as much diversification as is prudently achievable given the
single state nature of the Fund. Portfolio securities are sold when price
appreciation causes a security to lose its yield advantage, when credit quality
begins to deteriorate or when opportunity for added portfolio diversification
occurs.
The Fund invests most of its assets on an ongoing basis in investment grade
tax-exempt debt securities of qualified issuers in Vermont, including the State
of Vermont itself, agencies of the State and Vermont municipalities. An
investment grade security is one which is rated by Moody's or Standard & Poor's
in one of their four highest quality ratings or is unrated but of comparable
quality. To maximize the income potential of this portfolio, the portfolio
manager adjusts the portfolio quality mix based upon current yield differentials
and his perception of the overall market risk.
In order to boost portfolio income, the Fund may invest a portion of its assets
in similar debt securities which are not rated but which would, in the judgement
of the portfolio manager, have carried an investment grade rating had they been
rated. The Fund only makes these investments when an unrated security is
supported by a bank letter of credit.
The Fund may respond to changing market and other conditions by adjusting the
type of securities held and the average portfolio maturity and duration. The
Fund also uses other investment strategies and securities. See "Other Strategies
and Related Risks."
PAGE 1
Principal Risks
Risk of Income Investing
The Fund invests only in debt obligations and other income-oriented securities.
Income-oriented securities are exposed to three major risks; interest rate risk,
credit risk and call risk. Shareholders of the Fund will be exposed to these
principal risks. Shareholders of the Fund have an increased risk to credit
exposure because the Fund is non-diversified and because the Fund invests
primarily in debt securities that are affected by the economy of Vermont. Any of
these can make the value of the Fund's portfolio rise or fall, which means you
could lose money.
- --------------------------------
- -> Interest Rate Risk
Percent Increase (Decrease) In
The Price of a Par Bond
Yielding 5%:
1% 1%
Interest Interest
Bond Rate Rate
Maturity Increase Decrease
Short
2.5 years -2.29% +2.35%
Intermediate
10 years -7.43% +8.17%
Long
20 years -11.55% +13.67%
Interest rate risk When interest rates rise, bond prices fall and when interest
rates fall, bond prices rise. Interest rate risk increases as average maturity
increases. Thus, since the Fund emphasizes longer maturing securities, you are
exposed to greater interest rate risk. The table at left illustrates the effect
of a 1% change in interest rates on three investment grade bonds of varying
maturity. Any income-oriented security is similarly subject to some degree of
interest rate risk.
Credit Risk Credit risk is associated with a borrower's failure to pay interest
and principal when due. Credit risk increases as overall portfolio quality
decreases. Thus, when the Fund invests in lower-quality securities, you are
exposed to increased credit risk. Credit Risk also increases as diversification
is reduced. Thus, when the Fund invests in more securities of the same or
similar qualified issuers in Vermont, you are also exposed to increased credit
risk.
Call Risk Call risk for qualified tax-exempt bonds (prepayment risk for
qualified tax-exempt mortgage-backed securities) is the possibility that
borrowers will prepay their debt prior to the scheduled maturity date, resulting
in the necessity to reinvest the proceeds at lower interest rates. If interest
rates decline when the Fund is emphasizing longer maturing securities, you are
exposed to greater call risk.
PAGE 2
Past Performance
The degree to which performance varies from year to year is one measure of risk.
The bar chart below shows this year-to-year performance for the Fund since its
inception in 1991. The table below the bar chart compares the Fund's performance
over time to a broad-based securities market index. Both the bar chart and the
table below assume reinvestment of dividends and distributions. Remember that
past performance is not necessarily an indication of how the Fund will perform
in the future.
Tax Free Fund of Vermont
Year-by-Year Total Return (%) as of 12/31 each year:
1998 1997 1996 1995 1994 1993 1992 1991*
3.82% 7.74 4.56 12.65 (0.27) 5.26 5.35 3.90*
Best Quarter: Q1 '95 +6.23% WorstQuarter: Q1 '94 -2.11%
* Annualized for the period. The Fund commenced investment operations on
September 18, 1991.
Average Annual Total Return as of 12/31/98:
1 Year 5 Years since
inception*
Tax Free Fund of Vermont 3.82% 5.60% 5.44%
Lehman Brothers Municipal Bond Index 6.48% 5.19% 7.52%
Fees and Expenses
Shareholder Fees (fees paid directly from your investment) Many mutual funds
charge shareholder fees such as sales loads, redemption fees or exchange fees.
The Tax Free Fund of Vermont is a no-load investment, which means that you will
not pay any shareholder fees when you buy or redeem shares of the Fund.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Operating expenses include fees for portfolio management, maintenance of
shareholder accounts, shareholder servicing, accounting and other services.
While the Fund pays these expenses, you bear them indirectly, as the table below
demonstrates.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Management Fee 0.70%*
Other Expenses 0.81%
Total Fund Operating Expenses 1.51%
PAGE 3
*The Management Fee is reduced to 0.60% on Fund total net assets in excess
of $10 million.
Example This example is intended to help you compare the cost of investing in
the Tax Free Fund of Vermont with cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based upon these assumptions your costs would be as follows:
1 Year 3 Years 5 Years 10 Years
$ 159 $500 $875 $1,994
PAGE 4
How to Buy Shares
- -> No Load Fund
Unlike many mutual funds, the Tax Free Fund of Vermont is a true NO LOAD fund.
This means that when you buy shares directly from the Fund, no sales commissions
or other distribution charges will deducted from your investment and 100% of
your money will be used to buy Fund shares.The Fund distributes its shares
directly, so you may not buy shares through any broker-dealer and you must make
your application directly to the Fund.
- -> Pricing of Shares
The value of Fund shares rises and falls constantly. The price you pay when you
buy Fund shares is determined at the next calculation of net asset value after
your purchase order is received by the Transfer Agent in proper order. Net asset
value is determined on each day that the New York Stock Exchange is open for
trading, 30 minutes after the close of the Exchange (currently 4:30 p.m., New
York time).
Getting Help You may buy shares by mail or telephone and may use the Automatic
Investment Plan, discussed below, to make periodic share purchases. Obtain an
application form or get assistance opening accounts by calling toll-free,
1-800-675-3333, or writing to the Tax Free Fund of Vermont, Inc., 87 North Main
Street, Rutland, Vermont 05701.
Account Minimums The minimum initial investment in the Fund is $500. You may add
to your account with as little as $100. Please bear in mind that the Fund may
close your account if it falls below the minimum initial investment (but not if
the decline in value is due solely to market action). You would first be given
60 days written notice. If, during the notice period, you restore your account
to the required minimum, your account will not be redeemed.
Purchase by Mail To open an account, complete and sign the Account Application
form accompanying the Prospectus. Make your check payable to The Tax Free Fund
of Vermont. Mail the application and your check to the Tax Free Fund of Vermont,
87 North Main Street, Rutland, Vermont 05701.
To add to your account ($100 minimum), mail your purchase check to the same
address. Be sure to include the additional investment stub which is attached to
your Fund confirmation statement or include a letter identifying your account
number. If you use overnight or express delivery services, be sure to use the
following address to insure prompt delivery:
Tax Free Fund of Vermont,
87 North Main Street, Rutland, Vermont 05701.
Purchase by Bank Wire To open an account or add to an existing account, please
call the Fund, Tax Free Fund of Vermont, toll-free at 1-800-675-3333, before
wiring funds, to advise us of your forthcoming investment, the dollar amount and
the account registration. We will provide you with and account number for your
account. This will insure prompt and accurate handling of your investment.
Following your call to the Fund, instruct your bank to use the following wiring
instructions: Wire to:
Chittenden Bank, ABA Number 011600062
Attn: Tax Free Fund of Vermont,
Account No. 21-60-0281-4
For the Account of: (Shareholder(s) Name)
Account No. (Your Account No.)
PAGE 5
It is important that the bank wire contain all the information and that the
Transfer Agent receive prior telephone notification to ensure proper credit. The
Fund and its Transfer Agent are not responsible for the consequences of delays
resulting from the banking or Federal Reserve wire system, or from incomplete
wiring instructions.
Automatic Investment Plan The Automatic Investment Plan allows you to purchase
additional shares by an electronic transfer of funds monthly from your bank
checking account, money market account, NOW account or savings account. You
choose the amount (minimum $100) to be automatically deducted from your bank
account each month, and that amount will be used to purchase additional shares
in the Tax Free Fund of Vermont. You may join the Automatic Investment Plan by
completing an Automatic Investment Plan designation on your account application
form. At any time you may cancel your participation in the Plan, change the
amount of purchase or change the day each month on which the shares are
purchased by calling 1-800-675-3333 or by writing to the Tax Free Fund of
Vermont, 87 North Main Street, Rutland, Vermont 05701. The change or
cancellation will be effective not later than five business days following
receipt.
For you to participate in the Plan, your bank or other financial institution
must be an Automated Clearing House member. It will take about 15 days for the
Transfer Agent to process your Automatic Investment Plan enrollment. The Fund
may modify or terminate the Automatic Investment Plan at any time or charge a
service fee, although no such fee is currently contemplated.
Account Conditions The Fund may reject your application for any reason..
Your purchase request will not be effective until it is actually received in
proper order by the Transfer Agent. The U. S. Postal Service and other
independent delivery services are not agents of the Fund. Therefore, deposit in
the mail or with such services, or receipt at the Transfer Agent's post office
box, does not constitute receipt by the Transfer Agent.
A Social Security or Taxpayer Identification Number (TIN) must be supplied on
the Account Application Form before an account can be established (unless you
have applied for a TIN and the application so indicates). If you fail to furnish
the Fund with a correct TIN, the Fund is required to withhold taxes at the rate
of 31% on all distributions and redemption proceeds.
Payment for purchases must be made in U.S. dollars. Checks must be drawn on U.S.
Banks. Third party checks will not be accepted. If your payment is not received
or you pay with a check or bank wire transfer that does not clear, your purchase
will be canceled and you will be responsible for any losses or expenses incurred
by a Fund including, if applicable, a returned check fee of $20. If you are a
shareholder, the Fund shall act as your Agent to redeem shares from your account
at their then-current net asset value per share to reimburse the Fund for such
losses or expenses.
Certificates will not be issued for your shares unless you request them. In
order to facilitate redemptions and transfers, most shareholders elect not to
receive certificates. If you lose a certificate, you may incur delay and expense
in replacing it.
PAGE 6
How to Sell Shares
Getting Help You may sell (redeem) Fund shares by mail or telephone. You also
may use the Systematic Withdrawal Plan to receive regular monthly or quarterly
checks out of your Fund account. There is no charge for redeeming shares; you
receive the full net asset value per share. Get assistance redeeming shares by
calling toll-free, 1-800-675-3333, or by writing to The Tax Free Fund of
Vermont, 87 North Main Street, Rutland, Vermont 05701.
- -> Price and timing
The value of Fund shares changes constantly. Whether you sell your shares by
mail or telephone, the price you receive is determined at the next calculation
of net asset value per share after your sale order is received by the Transfer
Agent in proper order. To understand how and when shares are priced, see the
sidebar, "Pricing of Shares," on page 5.
The proceeds of your sale will ordinarily be sent to you within one or two days,
but no later than three (3) days, after receipt of your request.
Selling Shares by Mail Send a written redemption request letter to the Tax Free
Fund of Vermont, 87 North Main Street, Rutland, Vermont 05701. Your request must
include:
(a) your share certificates, if issued;
(b) your letter of instruction or a stock assignment specifying the account
number, and the number of shares or dollar amount to be redeemed. This
request must be signed by all registered shareholders in the exact names in
which they are registered; (c) signature guarantees and other documents
(see "Signature Guarantees" page 9). Please note that if you paid for the
shares you are redeeming by check, payment will not be made until the
Transfer Agent can verify that the payment for the purchase has been, or
will be, collected. It may take up to twelve (12) days for your check to
clear.
Selling Shares By Telephone Make a toll-free telephone call to the Transfer
Agent at 1-800-675-3333. When you call to redeem shares, you will be asked how
many shares, or dollars worth of shares, you wish to redeem, to whom you wish
the proceeds to be sent, and whether the proceeds are to be mailed or wired. To
protect you and the Fund, your redemption proceeds will only be sent to you at
your address of record or to the bank account or person(s) specified in your
Account Application or Telephone Authorization Form currently on file with the
Transfer Agent. Also, the Transfer Agent will use procedures it has established
to confirm your identity and will send a written confirmation of the transaction
to your address of record. Among other things, the Transfer Agent will require
you to provide identifying information, which is unique to you. This may include
a password or other form of personal identification. In addition your call may
be recorded.
The Telephone Redemption Privilege must be authorized in advance. You must
activate this privilege in advance, in writing, in order to use it. By
activating this privilege, you authorize the Fund and the Transfer Agent to act
upon any telephone instructions they believe to be genuine, to (1) redeem shares
from your account and (2) mail or wire the redemption proceeds. Your written
activation request will specify the person(s), bank, account number and/or
address to receive your redemption proceeds. You may activate this privilege
when completing your initial Account Application. But once your account has been
opened you must use a separate Telephone Redemption Authorization Form
(available from the Fund or the Transfer Agent) to activate the privilege or to
change the person(s), bank, account number and/or address designated to receive
your redemption proceeds. Each shareholder must signthe Form and provide a
signature guarantee and other required documents (see "Signature Guarantees,"
page 9). You may cancel the privilege at any time by telephone or letter.
PAGE 7
Risks associated with Telephone Redemption. Redeeming by Telephone is a
convenient service enjoyed by many shareholders. There are important factors you
should consider before activating the privilege. The Fund and the Transfer Agent
believe that the procedures reasonably protect shareholders from fraudulent
transactions. You should be aware of the Fund's policy that, provided the Fund
follows such procedures, neither the Fund nor any of its service contractors
will be liable for any loss or expense in acting upon any telephone instructions
that are reasonably believed to be genuine. The Fund may restrict or cancel
telephone redemption privileges, or modify the telephone redemption procedures,
for any shareholder or all shareholders, without notice, if the Directors
believe it to be in the best interest of the shareholders.
You cannot redeem shares by telephone if you hold the stock certificates
representing the shares you are redeeming or if you paid for the shares with a
personal, corporate, or government check and your payment has been on the
Transfer Agent's books for less than 12 days earlier. During drastic economic
and market changes, telephone redemption services may be difficult to implement.
If you are unable to contact the Transfer Agent by telephone, you may redeem
shares by mail.
Systematic Withdrawal Plan You may have regular monthly checks sent to you or
someone you designate by authorizing the Transfer Agent to redeem the necessary
number of shares from your Fund account on the 25th of each month to make the
payments requested. Payments must be at least $10 and your Fund account must
have a value of at least $500 to begin a Systematic Withdrawal Plan. If the 25th
day falls on a Saturday, Sunday or holiday, the redemption will take place the
next business day. Your check will usually be mailed within one or two business
days of the redemption date, but in no case later than seven days. Checks will
be made out to you exactly as your account is registered with the Transfer
Agent. If you designate someone other than yourself to receive the checks, your
signature must be guaranteed on the plan application (see "Signature
Guarantees," page 9). Shares you hold certificates for may not be included in,
or redeemed under, this plan. Costs of administering the plan are borne by the
Fund. You should be aware that, like all sales of Fund shares, systematic
withdrawals reduce the value of your account with the Fund and result in
realized capital gains or losses. You may stop your participation in the Plan at
any time upon written notice to the Fund or Transfer Agent. The Fund or Transfer
Agent may terminate the Plan upon thirty day's written notice. Applications and
further details may be obtained by writing or calling The Tax Free Fund of
Vermont.
Redemptions in Kind You will generally receive cash (or a check) when you
redeem your Fund shares. It is possible, however, that conditions may arise
which would, in the opinion of the Directors, make it undesirable for the Fund
to pay for all redemptions in cash. In such case, the Board of Directors may
authorize payment to be made in portfolio securities or other property of the
Fund. Securities delivered in payment of redemptions would be valued at the
same value assigned to them in computing the net asset value per share.
Shareholders receiving them would incur brokerage costs when these securities
are sold. The Fund has made an irrevocable commitment to pay, in cash, to any
shareholder of record during any ninety-day
PAGE 8
period the lesser of (a) $100,000 or (b) one percent (1%) of the Fund's net
asset value at the beginning of such period.
Signature Guarantees A signature guarantee is a widely accepted way to protect
you, the Fund, and the Transfer Agent from fraud, and to be certain that you are
the person who has authorized a redemption from, or change to, your account.
Signature guarantees may be required for all (1) change of registration
requests, and (2) requests to establish or change telephone redemption,
exchange, or systematic withdrawal privileges other than through your initial
account application. The Fund may require a signature guarantee under other
circumstances. The Fund will honor signature guarantees from acceptable
financial institutions such as banks, savings and loan associations, trust
companies, credit unions, brokers and dealers, registered securities
associations and clearing agencies. A signature guarantee may not be provided by
a notary public.
The signature guarantee must appear on:
- - your written request;
- - a separate instrument of assignment ("power of attorney") which should
specify the total number of shares to be redeemed; or
- - all stock certificates tendered for redemption.
In addition to requiring signature guarantees for redemptions and certain
shareholder services, other supporting legal documents may be required in the
case of estates, trusts, guardianships, custodianships, corporations,
partnerships, pension or profit sharing plans, and other organizations. For
example, a corporation (or partnership) may be required to submit a "Corporate
Resolution" (or "Certification of Partnership") indicating the names, titles and
required number of signatures authorized to act on its behalf. The application
or letter of instruction must be signed by such duly authorized officer(s) and
the corporate seal affixed. You may avoid time delays by calling the Transfer
Agent for assistance before sending your service request.
Dividends, Distributions and Tax Consequences
Dividends and Distributions You will receive dividends from net investment
income, if any, monthly. You will also receive net realized capital gains
distributions, including short-term gains, if any, during September and/or
December. All dividends and distributions will automatically be paid to you,
depending on your designation on the Account Application Form, either by check
or in additional shares of the Fund at the then current net asset value on
"ex-date," which is normally the day following the record date. You may choose
to receive dividend distributions and/or capital gain distributions in cash by
checking the appropriate box on the Account Application Form when you open your
account. You may change how you receive dividends and distributions by sending a
letter of instruction to the Transfer Agent. If you elect payment of
distributions in cash, you may designate a person or entity other than yourself
to receive such distributions. The name and address of the desired recipient
should be indicated in the Account Application Form or in a separate, signed
statement accompanying the Account Application Form.
Income dividends are declared on a per share basis daily and are paid monthly;
therefore the
PAGE 9
value of each share is not affected by either the declaration or payment of
income dividends.
Capital gain distributions are, however, paid on a per-share basis once per
year. At the time of such a payment, therefore, the value of each share will be
reduced by the amount of the capital gain distribution payment. Keep in mind
that if you purchase shares shortly before the distribution and payment of
capital gains, you will pay the full price for the shares and then receive some
portion of the price back as a taxable dividend or distribution.
Tax Consequences During the time you hold the Fund's shares, you may be subject
to Federal tax on the Fund's distributions, whether you receive them in
additional shares or cash. The monthly dividends that the Fund intends to make
are normally exempt from both federal and Vermont income tax liability, but may
be subject to taxation under the federal Alternative Minimum Tax computation.
Annual capital gain distributions that the Fund intends to make will be taxed as
capital gains. Capital gains may be taxable at different rates, depending upon
the length of time the Fund holds its assets. The Fund's distributions will
primarily be ordinary income exempt from federal and Vermont income tax
liability.
When you sell your shares in the Fund, any gain on the transaction may be
subject to federal and Vermont tax.
Management and Capital
Investment Manager Vermont Fund Advisors, Inc. has been investment manager of
the Fund since the Fund was first offered to the public in 1991. Its duties
include on-going management of the Fund's investment portfolio and business
affairs. In addition, the investment manager provides an executive officer to
the Fund and supplies office space, equipment and services not otherwise
provided by the Fund. The investment adviser's compensation during the last
fiscal year was 0.70% from the Fund, based on the Fund's total net assets. When
and if the Fund's total net assets exceed $10 million, the investment adviser's
compensation decreases to 0.60% of the Fund's total net assets in excess of $10
million.
Portfolio Managers John T. Pearson, founder of the Tax Free Fund of Vermont and
its investment adviser, Vermont Fund Advisors, Inc., has served as portfolio
manager of the Fund since its inception in 1991. Mr. Pearson is the President
and Chief Executive Officer of the Fund and its investment adviser. His
investment management experience dates back to 1983, and includes management of
a large corporate fund for the decommissioning of a nuclear power plant. He
graduated from Dartmouth College with an economics degree and from the Amos Tuck
School of Business Administration with an M.B.A. degree in finance.
PAGE 10
Other Strategies and Related Risks
Debt Securities The Fund invests in tax-exempt investment grade debt securities
of qualified issuers in Vermont. The Fund may also invest a portion of its
assets in similar securities of qualified issuers in the Commonwealth of Puerto
Rico, the United States Virgin Islands and the Territory of Guam. Tax-exempt
investment grade debt securities of qualified issuers, for the Fund's purposes,
include:
- - those backed by the full faith and credit of the State of Vermont or any of
its political subdivisions (such as municipalities within Vermont and
agencies of the State of Vermont); and
- - those backed by revenues to be derived by the issuer from its operations
and/or the investment of the proceeds of the debt securities, (such as
securities issued by the Vermont Municipal Bond Bank, the Vermont Housing
Finance Agency, the Vermont Student Assistance Corporation and the Vermont
Educational and Health Buildings finance Agency).
The investment manager relies, in part, on the quality ratings assigned by
Moody's, Standard & Poor's and other rating services. But there is risk
associated with such reliance. Rating agencies evaluate the credit risk - the
safety of principal and interest payments - but not market value, which is
affected by interest rate trends, economic conditions and other factors,
including those unique to an issuer or industry. Rating agencies may fail to
move quickly enough to change ratings in response to changing circumstances and
may not reflect the fine shadings of risks within a given quality grade. For
example, two bonds rated the same are not likely to be precisely the same in
quality. The investment manager performs independent analyses in attempting to
identify issuers within a given quality grade that, because of improving
fundamental or other factors, are likely to result in improving quality, greater
market value and lower risk.
Defensive Strategy The Fund may hold short-term cash reserves and short-term
securities to satisfy the liquidity needs of the Fund as determined by the
investment manager. In addition, the Fund may take temporary defensive positions
inconsistent with the Fund's principal investment strategies, by holding
short-term securities and cash without percentage limitations, if the portfolio
manager believes that it is advisable in responding to adverse market, economic,
political or other conditions. During periods when, and to the extent that, a
Fund holds short-term securities and cash, the fundamental goal of the Fund may
not be realized and the income realized may be subject to federal and Vermont
income tax.
PAGE 11
Financial Highlights
The financial highlights table for the Fund 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 the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker, whose
report, along with the Fund's financial statements, are included in the Annual
Report, which is available upon request.
<TABLE>
<CAPTION>
Period
9/18/91
For the years ended December 31,
through
Dec 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992 1991
---- ---- ----- ---- ---- ----- ---- ----
Net Asset Value, beginning of year $10.29 $9.97 $9.96 $9.30 $9.86 $9.88 $9.93 $10.00
------ ----- ----- ----- ----- ----- ----- ------
Income From Investment Operations:
Net investment income 0.43 0.43 0.43 0.49 0.53 0.53 0.56 0.18
Net gains or losses on securities,
(both realized and unrealized) (0.04) 0.32 0.01 0.66 0.56 (0.02) (0.05) (0.07)
------ ---- ----- ---- ----- ------ ------ ------
Total from investment operations 0.39 0.75 0.44 1.15 (0.03) 0.51 0.51 0.11
---- ----- ---- ---- ------ ----- ---- -----
Less Distributions:
Distributions (from capital gains) (0.02) -- -- -- -- -- -- --
Dividends
(from net investment income) (0.43) (0.43) (0.43) (0.49) (0.53) (0.53) (0.56) (0.18)
Returns of capital
total distributions -- -- -- -- -- -- -- --
Net asset value, end of year $10.23 $10.29 $9.97 $ 9.96 $ 9.30 $9.86 $9.88 $9.93
Total return (%) 3.82% 7.74 4.56 12.65 (0.27) 5.26 5.35 3.90*
Net assets, end of year
(in thousands): $9,539 7,879 7,219 6,961 5,786 5,875 2,885 249
Ratio of expenses to
average net assets(%) 1.51% 1.72 1.55 1.49 1.66 2.48 1.25 0.50*
Ratio of net investment income
to average net assets(%) 4.16% 4.26 4.41 5.06 5.61 5.34 5.77 6.00*
Portfolio turnover rate (%) 41% 60 98 182 44 61 172 49
* Annualized
</TABLE>
PAGE 12
================================================================================
THE TAX FREE FUND OF VERMONT, INC.
STATEMENT OF ADDITIONAL INFORMATION
Additional Information
The Tax Free Fund of Vermont provides additional information about the Fund in
its Annual Report to Shareholders and its Statement of Additional Information
(SAI), both of which are incorporated by reference in their entirety into this
Prospectus.
Call or Write The Tax Free Fund of Vermont toll-free 1-800-675-3333 if you want
more information, like the SAI and the Fund's Annual Report. During business
hours, friendly, experienced personnel will answer your questions, provide
investment forms and applications, assist with shareholder needs and provide
current share prices. After hours, current prices are provided on a recorded
phone line and you may leave messages for our service personnel to be addressed
the next business day. You may also write to the Tax Free Fund of Vermont, Inc.
87 North Main Street, Rutland, Vermont 05701.
Contact the Securities and Exchange Commission to obtain information about the
Tax Free Fund of Vermont, Inc., including the Fund's SAI. The Tax Free Fund of
Vermont's file can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information on the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330. Reports and other information about the Fund are also
available on the Commission's Internet site, and copies of this information may
be obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the Commission, Washington, DC 20549-6009.
Investment Company Act File No. 811-6328
Statement of Additional Information
June 22, 1999
================================================================================
TAX FREE FUND
OF VERMONT
87 North Main Street
Rutland, Vermont 05701
1-800-675-3333 Toll-Free
1-206-773-0674 Local Rutland, Vermont Area
This Statement of Additional Information (SAI) is not a prospectus. A copy of
the Fund's prospectus is available upon written or telephone request to the Tax
Free Fund of Vermont, at the address and phone numbers shown above, at no
charge. The SAI should be read in conjunction with the prospectus for an
understanding of the Fund. The Annual Report of the Tax Free Fund of Vermont is
incorporated by reference into the SAI, and is also available free of charge by
calling this toll-free number.
================================================================================
Statement of Additional Information
Table of Contents
History of the Fund....................................................1
Investment Strategies and Risks........................................2
Investment Limitations.................................................6
Purchase and Redemption of Shares......................................8
Brokerage..............................................................9
Management of the Fund................................................10
Principal Holders of Securities.......................................10
Capital Stock and Voting..............................................13
Taxation of the Fund..................................................13
Performance Data......................................................15
Financial Statements..................................................17
Debt Securities Ratings...............................................17
PAGE i
History of the Fund
The Tax Free Fund of Vermont (the "Fund") is an open-end management investment
company, commonly known as a "mutual fund". Organized in 1991 as a Vermont
corporation, it currently offers its shares to residents of Vermont who are
seeking income free of Vermont and federal taxes. The Fund is not diversified.
PAGE 1
Investment Strategies and Risks
The fundamental goal of the Fund as described in the prospectus, and the
investment limitations, described beginning on page 6 in this Statement of
Additional Information ("SAI"), may be changed only by an affirmative vote of a
majority of the outstanding securities of the Fund for which a change is
proposed(3). All other strategies and limitations adopted by the Fund may be
changed by a majority vote of the Board of Directors. However, should the
Directors adopt a material change, shareholders would be provided a 60-day prior
notice, in writing, and the prospectus would be amended.
The Fund employs a few investment strategies in addition to those discussed in
the prospectus. These strategies, and the risks they bring to the Fund, are as
follows.
Non-Diversified Portfolio Under normal market conditions, except for a
small cash position which usually would not exceed 3% of the Fund's assets, it
is the investment policy of the Fund to invest at least 65% of its assets in
Vermont Municipal Bonds (see "Vermont Municipal Bonds" below). Further, the
Fund anticipates that under normal market conditions it will as a matter of
fundamental investment policy invest a minimum of 80% of its assets in a
combination of tax exempt Vermont Municipal Bonds and tax exempt Other
Municipal Bonds (see "Other Municipal Bonds" below).
The Fund incurs greater risk because of the Fund's portfolio concentration in
securities of qualified Vermont issuers versus the safety that comes with a
less concentrated investment portfolio. The permitted concentration of
investments in municipal securities of Vermont issuers may present greater
risks than in the case of an investment company with a more geographically
dispersed portfolio. Further, because Vermont is a small rural state, the
ability to diversify the Fund's portfolio even within the universe of
qualified tax-exempt Vermont issuers is more limited than would be the case if
the Fund invested in other, larger states.
Vermont Municipal Bonds
The primary purpose of investing in a portfolio of municipal securities the
majority of which are Vermont Municipal Bonds is the special tax treatment
accorded to Vermont resident investors. However, payment of interest and
preservation of principal is dependent upon the continuing ability of the
Vermont issuers and/or obligors of state, municipal and public authority debt
obligations to meet their obligations thereunder. The Fund will therefore have
a significant proportion of its assets invested in a concentrated geographic,
political and economic region. Therefore, economic or political changes within
or affecting Vermont or the issuers of securities held by the Fund could have
a significant effect on the market value and credit quality of securities held
by the Fund and on the net asset value of the Fund's shares. Investors should
consider the greater risk of the Fund's concentration of its assets in Vermont
Municipal Bonds versus the safety that comes with a less concentrated
investment portfolio and should compare yields available on the Fund's
portfolio with those of more diversified portfolios before making an
investment decision.
(3) Under the Investment Company Act of 1940, as amended, a "vote of the
majority of the outstanding securities" means the vote, at the annual or
special meeting of security holders duly called, of (I) 67% or more of the
voting securities present at the meeting, if the holders of more than 50%
of the outstanding securities are present or represented by proxy or (ii)
more than 50% of the outstanding voting securities, whichever is less.
PAGE 2
Vermont Municipal Bonds include general obligation bonds of the State of
Vermont, its political subdivisions, agencies and authorities. Vermont
Municipal Bonds also include debt obligations of those issuers which provide
funds for various public purposes, including the construction or improvement
of a wide range of public facilities such as airports, bridges, highways,
hospitals, housing, jails, mass transportation, nursing homes, parks, public
buildings, recreational facilities, school facilities, streets and water and
sewer works. Other public purposes for which Vermont Municipal Bonds may be
issued include the refunding of outstanding obligations, the anticipation of
taxes, the funding of student loans and student housing, community
development, the purchase of street maintenance and fire fighting equipment,
or any authorized corporate purpose of the issuer.
The two principal classifications of Vermont Municipal Bonds are general
obligation bonds and limited obligation (or revenue) bonds. General obligation
bonds are obligations involving credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues and not from
any particular fund or revenue source. Limited obligation bonds, including
industrial 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 specific revenue source, such as the user of the facility. The
credit quality of limited obligation bonds is usually directly related to the
owner or user of the facilities, or to a third-party guarantor or insurer, if
any. Certain agencies of the State of Vermont created by the Vermont
legislature issue limited obligation bonds, which are not general obligations
of the State of Vermont. The Fund may invest in both general and limited
obligations which are Vermont Municipal Bonds, but the Fund will not invest in
limited obligation Vermont Municipal Bonds in such a manner that more than 25%
of the Fund's assets would be concentrated in any particular industry or group
of industries. The interest on Vermont Municipal Bonds may bear a fixed rate
or be payable at a variable or floating rate.
Other Municipal Bonds
The Fund may purchase investment grade obligations issued by territories and
possessions of the United States and their respective agencies and
instrumentalities (collectively "Other Municipal Bonds"), whose interest income
is exempt, in the opinion of bond counsel for the issuer, from federal and
state income taxes. Presently, the principal issuers of Other Municipal Bonds
are Puerto Rico, the United States Virgin Islands, and the trusteeships of
Guam and the Marianas Islands and their agencies, instrumentalities and
political subdivisions. Interest income on Other Municipal Bonds will also
be exempt from Vermont income taxes. Except for the identity of the issuer,
investments by the Fund in Other Municipal Bonds must meet all of the
fundamental investment policy requirements of the Fund, are subject to all of
the investment restrictions of the Fund and in
PAGE 3
all other respects may have any of the investment terms, conditions and
characteristics as regards Vermont Municipal Bonds.
Credit Quality Vermont and Other Municipal Bonds purchased by the Fund will
be what are commonly referred to as "investment grade" securities, which must
be rated, at the time of purchase, within the four highest quality ratings as
determined by either Moody's Investors Service ("Moody's") or Standard &
Poor's Corporation ("S & P"). Currently, these quality ratings are Baa and
higher for Moody's and BBB and higher for S & P. Bonds rated Baa by Moody's
may have some speculative characteristics.
Generally, the higher the credit rating of a security the less subject the
security is to a change in market value. Accordingly, higher rated securities
carry relatively lower rates of interest, which makes it more difficult for
the Fund to achieve that portion of the investment objective related to
providing the highest level of current income. Lower rated securities,
including securities rated Baa/BBB, may achieve higher current income, but are
subject to relatively greater fluctuation in market value than are higher
rated securities.
The Fund may also invest up to 20% of its assets in Vermont Municipal Bonds or
Other Municipal Bonds that are unrated, if such bonds are comparable, in the
opinion of the Fund's manager, in creditworthiness to other obligations in
which the Fund may invest.
Average Maturity The weighted average maturity of the securities in the
Fund's portfolio will vary with market conditions, interest rate trends and
the availability of qualifying securities. Under normal market conditions the
weighted average maturity of the Fund's portfolio is expected to range between
ten and twenty five years.
Securities with longer maturities are more volatile with regard to changes in
market value resulting from changes in interest rates than are securities with
shorter maturities. Therefore, the Fund's portfolio with a weighted average
maturity greater than ten years will, with the same change in interest rates
or other market conditions, have a larger change in market value than a
portfolio of securities with a shorter weighted average maturity. These
changes in market value will generally be in the opposite direction to changes
in interest rates. Therefore, an increase in interest rates can generally be
expected to cause a decline in the value of the Fund's portfolio of securities
and a corresponding decline in the Fund's net asset value. Also, over time,
the credit quality of any security in the portfolio may change and the risk of
such change increases with increases in the average weighted maturity of the
portfolio. Credit quality changes can affect the market value of the Fund's
portfolio and the net asset value per share of the Fund.
Defensive Strategy and Short Term Securities The Fund may hold cash or short
term securities to satisfy liquidity needs of the Fund or because of conditions
in the securities markets or economic, political or other conditions have
created a significant potential for or have begun to cause significant
disruption of the underlying value of or the market for any security in which
the Fund has invested. When the Fund's advisor implements a defensive strategy,
the Fund will seek to invest in very high quality fixed income securities with
strong liquidity and relatively short maturities. The income derived from
investment in such securities may be taxable. To the extent the Fund implements
a defensive strategy, the Fund is not pursuing its investment objectives.
PAGE 4
When-Issued Securities Municipal securities are frequently offered on a
"when issued" basis. When offered the price, generally expressed in yield
terms, is fixed at the time the commitment to purchase is made (the "trade
date"), but delivery and payment for the when-issued securities take place at a
later date. Normally, the settlement date occurs within one month after the
trade date of municipal bonds and notes. During the period between the trade
date and settlement, no payment is made by the Fund to the issuer and no
interest accrues to the Fund. When-issued securities may be sold prior to the
settlement date, but the Fund makes when-issued commitments only with the
intention of actually acquiring the securities. To facilitate such
acquisitions at the time of settlement, the Fund will maintain, for short
periods of time, cash or short term liquid investments having a value equal to
or greater than such commitments. When the Fund makes a commitment to purchase
a security on a when-issued basis, the Fund doesn't record the transaction and
reflect the value of the security in determining the net asset value until the
trade date. The Fund, as long as it is obligated to purchase the security, is
subject to changes in the market value of the security and the Fund could
sustain unrealized gains or losses resulting from such market changes. If the
Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition, the Fund can incur a realized gain or loss.
Standby Commitments The portfolio may purchase municipal securities
together with the right to resell them to the seller at an agreed-upon price or
yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a "standby commitment" and the total price which
the Fund pays for securities with a standby commitment may be higher than the
price which otherwise would be paid. The primary purpose of this practice is
to permit the Fund to be as fully invested as practical in municipal
securities while maintaining the necessary flexibility and liquidity to meet
unanticipated redemptions. In this regard, the Fund acquires standby
commitments solely to improve the Fund's liquidity and doesn't exercise its
rights thereunder for trading purposes. Since the value of a standby
commitment is dependent on the ability of the standby commitment writer to
meet its obligation to repurchase, the Fund's policy is to enter into standby
commitment transactions only with municipal securities dealers which are
determined by the Fund management to present minimal credit risks.
The acquisition of a standby commitment does not affect the valuation or
maturity of the underlying municipal securities. Standby commitments acquired
by the portfolio are valued at zero in determining net asset value. Where the
Fund pays directly or indirectly for a standby commitment, its cost is
reflected as unrealized depreciation for the period during which the
commitment is held. Standby commitments do not affect the average weighted
maturity of the Fund's assets.
Short-Term Trading and Portfolio Turnover Generally, the Fund intends to
invest for long-term purposes. However, the Fund may engage in short-term
trading of securities and reserves full freedom with respect to portfolio
turnover. During periods of rapid changes in economic conditions and security
price levels, portfolio turnover may be higher than when conditions are more
stable. If the Fund's portfolio turnover rate is increased it may result in
greater transaction costs relative to other mutual funds and may have tax and
other consequences.
PAGE 5
Computer-Related Risks Mutual funds and companies that issue securities,
as well as government entities and other organizations upon which mutual funds
depend, may be adversely affected by computer systems that do not properly
process dates beginning January 1, 2000 ("the year 2000 problem"). The
investment manager is in the process of reviewing its internal computer
systems, as they relate to the Fund's operations, to obtain reasonable
assurances that the Fund will not experience a material adverse impact related
to the Year 2000 problem. In addition, the Fund's service providers have been
requested to provide such assurances to the Fund. The Fund does not currently
anticipate that the Year 2000 problem will have a material adverse impact on
its portfolio investments, taken as a whole. There can be no assurances,
however, that the problem will not negatively affect the investment markets or
the economy generally.
Restricted Securities It is the Fund's policy not to invest in restricted
and other illiquid securities (including repurchase agreements maturing in
more than seven days) if, as a result, more than 10% of the Fund's total
assets are invested in such securities. It may be difficult to sell restricted
securities at prices representing their fair market value. If registration of
restricted securities is necessary, a considerable period of time may elapse
between the decision to sell and the effective date of the registration
statement. During that time, the price of the securities to be sold may be
affected by adverse market conditions.
Borrowing The Fund's fundamental investment policies permit it to borrow
money from banks in an amount up to 5% on a secured or unsecured basis as a
temporary measure for purposes of meeting redemption requests and/or to
purchase bonds and to pay interest on such loans. The Fund has not employed
borrowing in the past and has no current intention of employing it in the
future. The Fund does reserve the right, however, to borrow for these purposes
in the event of unsettled market conditions at any time in the future.
Investment Limitations
The following are the Fund's fundamental investment limitations set forth in
their entirety. The Fund may not:
- - with respect to at least 50% of the Fund's total assets, purchase the
securities of any single issuer (except the United States government, its
agencies or its instrumentalities), if it would cause, beginning with the
end of any calendar quarter and ending thirty days thereafter, (a) more
than 5% of the Fund's total assets to be invested in the securities of such
issuer (including repurchase agreements with any one bank), or (b) more
than 10% of any class of securities of such issuer would be owned by the
Fund. For this purpose, the State of Vermont, each political subdivision of
the State, and each district, authority, agency or instrumentality of the
State or any of its political subdivisions will be deemed to be a separate
issuer and all indebtedness of any issuer will be deemed to be a single
class of securities;
- - issue senior securities;
- - make short sales of securities;
PAGE 6
- - purchase any securities on margin, except for such short term credits as
are necessary for the clearance of transactions;
- - borrow money, except from banks as a temporary measure for purposes of
meeting redemption requests and/or bond purchase commitments and then only
in an amount not exceeding 5% of the Fund's total asset value;
- - underwrite any issue of securities, except to the extent that our purchase
of municipal securities directly from the issuer (either alone or as one of
a group of bidders) may be deemed to be an underwriting of such securities;
- - purchase or otherwise acquire any securities which are illiquid if, as a
result, more than 10% of the Fund's total assets would be invested in such
securities;
- - purchase equity securities or securities convertible into equity
securities;
- - purchase or sell real estate, but this shall not prevent the Fund from
investing in municipal bonds or other obligations secured by real estate
or interests therein;
- - purchase or sell commodities or commodity contracts;
- - make loans, except through the purchase of debt securities in accordance
with the Fund's investment objective, policies and restrictions;
- - invest in oil, gas or other mineral exploration or development programs;
- - invest in companies for the purpose of exercising management or control;
- - purchase securities of other investment companies, except the Fund may
purchase securities of other open-end diversified investment companies
which hold tax-exempt portfolios, but only in the open market where no
commissions are payable for the purchase of such securities, only to the
extent that the Fund at all times owns less than 3% of the voting shares of
each such investment company in which the Fund has purchased such shares,
only to the extent the Fund has not acquired shares of any such investment
company having a value in excess of 5% of the Fund's total asset value,
only to the extent the Fund has not acquired shares of all such investment
company having a value in excess of 10% of the Fund's total asset value,
and, within these limitations, only in amounts and for purposes of
providing sufficient liquidity to allow the Fund to transact its day-to-day
business operations including shareholder redemptions and settlement of
securities transactions;
- - purchase the securities of any issuer if, as a result, more than 5% of the
Fund's total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation;
- - pledge or hypothecate any Fund assets, except that the purchase of
securities on a "when issued" basis is not deemed to be a pledge of assets;
- - purchase any security, other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities, if, as a
result, more than 25% of the Fund's total asset value (50% in the case of
securities which are general obligations of the State of Vermont) would be
invested in the securities of issuers having their principal business
activities in the same industry;
- - write or invest in put or call options, or any combination thereof.
PAGE 7
Purchase and Redemption of Shares
In addition to the following services and procedures, the prospectus describes
basic information you should know about purchasing and redeeming shares of the
Fund.
Regular Account The regular account allows you to make voluntary investments
at any time. Available to individuals, custodians, corporations, trusts,
estates and others, investors are free to make additions and withdrawals to or
from their account as often as they wish. When you make an initial investment
in the Fund, a shareholder account is opened in accordance with your
registration instructions. Each time there is a transaction in your account,
such as an additional investment or the reinvestment of a dividend or
distribution, you will receive, from the Transfer Agent, a confirmation
statement. It will show the current transaction and all prior transactions in
your account during the calendar year to date, along with a summary of the
status of the account as of the transaction date. Shareholder certificates are
issued only for full shares and only upon the specific request of the
shareholder. You may request that the Transfer Agent issue share certificates
representing all or part of the full shares in your account.
Transfer of Registration If you wish to transfer shares to another owner, send a
written request to the Tax Free Fund of Vermont, 87 North Main Street, Rutland,
Vermont 05701. Your request should include:
- - the Fund name and existing account registration;
- - signature(s) of the registered owner(s) exactly as the signature(s)
appear(s) on the account registration;
- - the new account registration, address, social security or taxpayer
identification number and how dividends and capital gains are to be
distributed;
- - stock certificates, if issued, for the shares being transferred;
- - signature guarantees and other documents, if other documents are required
for transfer by corporations, administrators, executors, trustees,
guardians and other entities (See "Signature Guarantees" in the
Prospectus). If you have any questions about transferring shares, call the
Transfer Agent, toll-free at (800) 675-3333.
PAGE 8
Purchase, Redemption and Pricing of Shares The purchase price of shares of
the Fund is the net asset value next determined after a purchase or redemption
order is received. An order received prior to the close of the New York Stock
Exchange ("Exchange") will be executed at the price computed on the date of
receipt; and an order received after the close of the Exchange will be
executed at the price computed on the next business day. An order to purchase
shares is not binding on the Fund until it has been confirmed in writing by
our Transfer Agent, or other arrangements made with the Fund, in the case of
orders utilizing wire transfer of funds, and payment has been received. The
Fund reserves the right, in its sole discretion, to:
- - suspend the offering of its shares;
- - reject purchase orders; and
- - to reduce or waive the minimum for initial and subsequent investments for
certain fiduciary accounts or under circumstances where certain economies
can be achieved in sales of the Fund's shares.
The Fund may suspend redemption privileges or postpone the date of payment:
(i) during any period that the New York Stock Exchange is closed, or trading
on the Exchange is restricted, as determined by the Securities and Exchange
Commission (the "Commission"); (ii) during any period when an emergency
exists, as defined by the rules of the Commission, as a result of which it is
not reasonably practicable for the Fund to dispose of securities owned by it
or fairly to determine the value of its assets; and (iii) for such other
periods as the Commission may permit.
When Shares are Priced The net asset value of the Fund is determined
approximately 30 minutes after the close of trading of the New York Stock
Exchange, currently 4:30 p.m., New York City time. The net asset value is
computed every day the Exchange is open for business, except the Fund may not
compute net asset value on:
- - days during which no Fund shares are tendered for redemption and no order
to purchase or sell Fund shares is received by the Fund.
At this writing, the Exchange is open for business every Monday through
Friday, except for the following holidays:, Fourth of July, Labor Day,
Election Day, Thanksgiving Day, Christmas, New Year's Day, Presidents Day,
Good Friday, and Memorial Day.
How Shares are Priced Net asset value per share is determined by dividing
the total value of all Fund securities and other assets, less liabilities, by
the total number of shares then outstanding. Net asset value does not include
interest on fixed income securities which is distributed daily to shareholder
accounts. Bonds and other fixed income securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to
reflect the fair market value of such securities. The prices provided by a
pricing service are determined without regard to bid or last sale prices but
take into account institutional size trading in similar groups of securities
and any developments related to specific securities. Short-term instruments
are valued at
PAGE 9
cost, which approximates market. Other assets and securities, for which no
quotations are readily available, will be valued in good faith at fair value
using methods determined by the Board of Directors.
Involuntary Redemptions The Board of Directors has the right to involuntarily
redeem any shareholder account which falls below a minimum account value of
$500 as discussed in the Prospectus under "How to Sell Shares."
Brokerage
It is the Fund's intention to seek the best possible price and execution for
securities bought and sold. The investment manager directs the execution of
portfolio transactions. Neither the Fund nor the investment manager is
affiliated with any securities broker-dealer. The Fund does not normally pay
commissions on the purchases and sales of tax-exempt bonds and has not paid any
such commissions since the inception of the Fund. The Fund does not direct
trades to brokers who provide the Fund or the investment manager with services
useful to the Fund's daily operations ("directed brokerage arrangements").
Management of the Fund
Directors and Officers The Fund is a corporation organized under Vermont law.
The business of the Fund is managed by the Board of Directors. The Directors
elect officers who are responsible for the day-to-day operations of the Fund and
who execute policies formulated by the Directors. One officer and Director of
the Fund is also an officer and control persons of the Fund's investment
adviser, as shown below.
<TABLE>
Directors and Officers
<S> <C> <C>
Name and Address Office(s) Held Principal Occupation Last Five Years
STEPHEN A. CARBINE Director Vice President, Kinney, Pike, Bell
212 Grove Street and Conner (insurance brokers) since
Rutland, Vermont 05701 1982.
JOHN T. PEARSON* Director, President, Director, President and sole
13 Victoria Drive Chief Executive Officer shareholder of Vermont Fund
Rutland, Vermont 05701 and Treasurer Advisors, Inc. since May, 1991.
Previously, Vice President Finance
and Administration and Treasurer,
Vermont Yankee Nuclear Power
Corp., August, 1982 to May, 1991.
WINFRED A. THOMAS Director Vice President, Clinton F. Thomas
Countryside Estates Agency (insurance brokers), since
Rutland, Vermont 05701 1982.
</TABLE>
* Director is deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
Principal Shareholders As of April 30, 1999, Mr. Justin J. Mueller, P. O.
Box 646, Manchester, Vermont, owned beneficially 7.2% of the Fund's shares
outstanding. There were no other shareholders of the
PAGE 10
Fund known by the Fund to own of record or beneficially 5 percent (5%) or more
of the Fund's outstanding equity securities. All shares are owned both of
record and beneficially. All Officers and Directors of the Fund as a group own
0.8% of the Fund's shares.
The Director and officer of the Fund who is an "interested person" receives no
salary or fees from the Fund. Directors of the Fund who are not interested
persons of the Fund currently receive $500 per meeting of the Board of
Directors attended by them ($350 per meeting in 1998), plus related expenses,
if any. The Fund does not provide pension or retirement benefits to the
Directors and officers.
The compensation of Fund's Directors for the fiscal year ended December 31,
1998, was as follows:
John T. Stephen A. Win
Name of Person, Position Pearson* Carbine Thomas
Aggregate Compensation from Fund $0 $1,400 $1,400
Pension or Retirement Benefits Accrued
As Part of Fund Expenses None None None
Estimated Annual Benefits Upon Retirement None None None
Total Compensation From Fund
and Fund Complex Paid to Directors $0 $1,400 $1,400
* Mr. Pearson is compensated by the investment adviser.
Investment Adviser The Fund has employed Vermont Fund Advisors, Inc. as
investment adviser for the Fund. The duties of the investment adviser include
the following:
- - exclusive responsibility for the provision of continuous supervision of the
Fund's investment portfolio;
- - overall management of the Fund's business affairs (subject to the
supervision of the Directors); and
- - provision of office facilities, equipment and personnel for servicing the
investments of the Fund.
In connection with the Advisory Agreement between the Fund and Vermont Fund
Advisors, Vermont Fund Advisors is obligated to absorb all of the costs
associated with distributing shares of the Fund. Effective March 1, 1995,
Vermont Fund Advisers entered into an agreement with Windham Financial Services,
Inc.("Windham") whereby Vermont Fund Advisors agreed to compensate Windham and
Windham has accordingly agreed to provide additional distribution services for
the Fund.
John T. Pearson is the sole stockholder of the investment adviser. Mr. Pearson
is the President and Chief Executive Officer of the investment adviser and
serves as President and Chairman of the Board of Directors of the Fund.
Compensation of the investment adviser, based upon the Fund's daily total net
assets, is at the following annual rates:
- - 0.70% on the first $10 million; and
- - 0.60% on total net assets in excess of $10 million.
Investment Management fees are accrued daily on the books of the Fund and are
paid on an accrued basis not less frequently than monthly.
PAGE 11
Management fees for the Fund were $60,852, $52,115 and $47,757, respectively,
for the fiscal years ended December 31, 1998, 1997 and 1996. Although not
obligated to do so, the investment manager may reimburse a portion of the
operating expenses of a Fund for any fiscal year. No such reimbursements were
made to the Fund for the fiscal years ended December 31, 1998, 1997 and 1996.
The Fund's Advisory Agreement with Vermont Fund Advisors was last approved by
the Directors of the Fund on May 11, 1999 and continues in effect until May 30,
2000.
Transfer Agent and Administrative Services Vermont Fund Advisors also acts as
the Fund's dividend disbursing, transfer, administrative and accounting services
agent pursuant to a Dividend Disbursing, Administrative and Accounting Services
Agreement (Services Agreement) between the Fund and Vermont Fund Advisors. Under
the Services Agreement, Vermont Fund Advisors provides to the Fund, without
limitation, the following services:
- - the calculation of the net asset value per share, including the pricing of
the Fund's portfolio of securities, at such times and in such manner as is
specified in the Fund's current prospectus and statement of additional
information,
- - upon receipt of monies for the purchase of the Fund's shares or the receipt
of redemption requests with respect to the Fund's shares outstanding, the
calculation of the number of shares to be purchased or redeemed,
respectively;
- - upon the Fund's distribution of dividends, the calculation of the number of
additional shares of the Fund to be received by each shareholder of the
Fund who has elected to reinvest dividends and the mailing or transfer of
funds to each shareholder who has elected to receive dividends in cash;
- - the provision of transfer agency services;
- - the creation and maintenance of all records relating to the business of the
Fund as the Fund may from time to time reasonably request;
- - the preparation of tax forms, reports, notices, proxy statements, proxies
and other shareholder communications and the mailing of such documents to
shareholders of the Fund; and
- - the provision of such other dividend disbursing, transfer agency,
shareholder, administrative and accounting services as the Fund and Vermont
Advisors may from time to time agree upon.
As compensation for such services, the Fund pays Vermont Fund Advisors a
monthly fee based upon the Fund's total daily net assets. The fee is .08% of
the Fund's total daily net assets on an annual basis. The Fund also reimburses
Vermont Fund Advisors for its out-of-pocket expenses in connection with
Vermont Fund Advisors's provision of services, supplies and equipment under
the Services Agreement. Under the Services Agreement, a total of $7,039,
$6,109 and $5,707 was paid in fees to Vermont Fund Advisors by the Fund in
1998, 1997 and 1996, respectively. These fees are in addition to fees paid by
the Fund to Vermont Fund Advisors under the Advisory Agreement.
PAGE 12
A majority of the disinterested Directors of the Fund specifically found, in
the course of their review of the Services Agreement, that such agreement is
in the best interests of the Fund and its shareholders, the services to be
performed pursuant to such agreement are services required for the operation
of the Fund, Vermont Fund Advisors can provide services the nature and quality
of which are at least equal to those provided by others offering the same or
similar services and the fees for such services are fair and reasonable in
light of the usual and customary charges made by others for services of the
same nature and quality. The Fund's Services Agreement with Vermont Fund
Advisors continues from year to year only if approved annually in the same
manner as is required for the approval of the Advisory Agreement. The Fund's
Services Agreement may be terminated by the Fund on 60 days' notice to Vermont
Fund Advisors, and terminates automatically upon its assignment.
Independent Auditors The firm of Tait, Weller & Baker of Philadelphia, PA has
been retained by the Board of Directors to perform an independent audit of the
books and records of the Fund. Tait, Weller & Baker will also prepare the Fund's
federal and state tax returns for the fiscal year ending December 31, 1999, and
will consult with the Fund as to matters of accounting and federal and state
income taxation for the fiscal year ending December 31, 1999.
Custodian Vermont National Bank, 47 West Street, Rutland, Vermont, 05701, serves
as custodian for the securities held by the Fund and insures that such
securities of the Fund are held in a safe and secure manner (either in its
possession or in its favor through "book entry systems" authorized by the Fund
in accordance with the Investment Company Act of 1940), collects all income and
effects all securities transactions on behalf of the Fund.
Capital Stock and Voting
The capital of the Fund consists of ten million shares of common stock, par
value $0.01 per share ("shares"). The Fund is a Vermont corporation and is
governed by the Investment Company Act of 1940 and rules thereunder (the "Act").
Shares are issued fully paid and non-assessable and each share represents an
equal proportionate interest in the Fund with every other outstanding share of
the Fund. In the event of liquidation, shareholders of the Fund are entitled to
share pro rate in the net assets of the Fund available for distribution to
shareholders. Shares of the Fund, when issued, are fully paid and non-assessable
and have no preemptive, subscription or conversion rights. Shareholders are
entitled to one vote for each full share and a fractional vote for each
fractional share held. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors and, in this event, the holders of the
remaining shares voting will not be able to elect any Directors. The Bylaws of
the Fund provide that, if elected, the Directors will hold office for a term of
one year until the next annual meeting of the Fund, except that: (1) any
Director may resign; (2) any Director may be removed only with cause and by a
vote of a majority of shareholders entitled to vote in person or by proxy at a
meeting called for that purpose. In case a vacancy shall for any reason exist,
the vacancy shall be filled by a majority of the remaining Directors, subject to
the provisions of Section 16(a) of the 1940 Act. There will be an annual meeting
of shareholders for the purpose of electing Directors.
PAGE 13
Taxation of the Fund
Federal Taxes The Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code).
As a regulated investment company, the Fund will not be subject to federal
income tax to the extent it distributes its net taxable income and its net
capital gains to its shareholders. In order to qualify for tax treatment as a
regulated investment company under the code, the fund will be required, among
other things, to distribute annually at least 90% of its taxable income other
than its net capital gains to shareholders.
The Code also contains a provision imposing a 4% non-deductible federal excise
tax levied on undistributed Fund income unless the Fund distributes at least
(a) 98% of calendar year ordinary income during the calendar year; (b) 98% of
capital gain net income earned in the year ending October 31 by December 31;
and (c) 100% of any undistributed capital gain net income from the prior
October 31 measurement period and 100% of any undistributed ordinary income
from the prior December 31 measurement period. The Fund intends to make
dividend and capital gain distributions in such a manner as to avoid the
payment of any excise tax
A capital gains distribution paid shortly after shares have been purchased,
although in effect a return of investment, is subject to federal income
taxation. Dividends from taxable net investment income, if any, along with
capital gains, will be taxable to shareholders whether received in cash or
shares and no matter how long the shares have been held, even if they reduce the
net asset value of shares below your cost and thus, in effect, result in a
return of a part of your investment. Any loss realized upon the redemption or
exchange of shares within six months from their date of purchase will be treated
as a long-term capital loss to the extent of distributions received of net
long-term capital gains during such six-month period.
Under current law, interest on obligations of the territories and possessions
of the United States, including Puerto Rico, the United States Virgin Islands
and the Trusteeships of Guam and the Marianas Islands and the political
subdivisions, agencies and instrumentalities of these governmental entities is
generally tax exempt. Interest on non-governmental purpose bonds, such as
industrial revenue bonds, issued by qualified government entities is taxable
unless the bonds are issued to finance certain specified exempt activities,
are used for development of industrial park sites or are exempt small issues.
Furthermore, bonds issued for activities of non-governmental persons are
referred to collectively as "non-essential" bonds. The Fund does not intend to
purchase "non-essential" purpose bonds.
As a regulated investment company, the Fund is qualified to pay "exempt
interest dividends", provided that at least 50% of the Fund's total assets are
invested in municipal securities at the close of each quarter of the calendar
year. Ordinarily, dividends paid from net income earned by the Fund on
investments in Vermont and Other Municipal Bonds will be exempt interest
dividends. Shareholders receiving exempt interest dividends may exclude them
from gross income for Federal income tax purposes. However, dividends the Fund
may earn from investments in nonmunicipal securities will be fully taxable as
interest income.
Vermont Taxes By qualifying as a "regulated investment company" for Federal
income tax purposes, the Fund is not subject to Vermont income taxes on net
income and net capital gains, if any, that are distributed to the Fund's
shareholders. Dividends paid by the Fund to shareholders which qualify as
"exempt interest dividends" for Federal income tax purposes are also excludable
from shareholders' gross income for
Vermont state income tax purposes so long as the total assets of the Fund are
invested in Vermont Municipal Bonds and Other Municipal Bonds as defined in
the prospectus. All other dividends and distributions, as well as any earnings
we receive from taxable investments and any capital gains we realize from any
investments, will have the same general consequences to shareholders for
Vermont state income tax purposes as they have for Federal income tax
purposes. This means that dividends paid by the Fund will ordinarily be
excludable from gross income for Vermont income tax purposes.
PAGE 14
Under current Vermont tax law, the Fund is subject to a corporate tax, which
shall not exceed the corporate minimum tax of $250 annually.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and related Treasury Regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
Treasury Regulations. The Code and Regulations are subject to change by
legislative or administrative action at any time. Investors should consult with
their own advisors for the effect of any state or local taxation and for more
complete information of federal taxation.
Performance Data
The Fund may quote performance in various ways. All performance information
supplied by the Fund in advertising is historical and is not intended to
indicate future returns. The Fund's share price, yield and total return
fluctuates in response to market conditions and other factors, and the value
of the Fund's shares when redeemed may be more or less than their original
cost.
Total Return The Fund may, from time to time, advertise certain total return
information. Such total return data is calculated assuming that all dividends
and distributions by a Fund are reinvested in Fund shares. The average annual
total return for the Fund for the indicated period ended on March 31, 1999, is
set forth below:
One Year Five Year Since
Period Period Inception*
Tax Free Fund of Vermont +3.49% +6.18% +5.34%
* The Fund commenced investment operations September 18, 1991.
Yield Calculations The Fund's yield for the thirty day period ended April 30,
1999 is 4.67%. The yield was computed by dividing the net income per share
earned during the period by the net asset value per share on May 31, 1999.
PAGE 15
Yields used in advertising the Fund are computed by dividing the Fund's
interest income for a given 30 day or one month period, net of expenses, by
the average number of shares entitled to receive distributions during the
period, dividing this figure by the Fund's net asset value per share at the
end of the period and analyzing the result (assuming compounding of income) in
order to arrive at an annual percentage rate. Income is calculated for
purposes of yield quotations in accordance with standardized methods
applicable to all stock and bond funds. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by subtracting
a portion of the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses generally are excluded from the
calculation.
The Fund's tax equivalent yield for the thirty day period ended April 30, 1999
is 8.03%. The tax equivalent yield was computed by dividing the yield of 4.67%
earned during the period by a one minus a combined Federal and Vermont income
tax rate of 41.76%.
The tax equivalent yield of the Fund is the rate an investor would have to
earn from a fully taxable investment in order to equal the Fund's yield after
taxes. Tax equivalent yields are calculated by dividing the Fund's yield by
the result of one minus a stated combined federal and Vermont state tax rate.
If only a portion of the Fund's yield is tax exempt, only that portion is
adjusted in the calculation.
The following table, based on current federal and Vermont state 1998 tax tables,
may be used to indicate a shareholder's approximate effective combined federal
and Vermont state tax bracket and taxable-equivalent yields. It gives the
approximate yield a taxable security must provide at various income brackets to
produce after-tax yields equivalent to those of tax exempt obligations yielding
from 5.0% to 6.5%. Of course, no assurance can be given that the Fund will
achieve any specific tax-exempt yield. While the Fund invests principally in
obligations the interest from which is exempt from federal and Vermont state
income taxes, other income received by the Fund may be taxable by either or both
federal and Vermont state governments.
PAGE 16
<TABLE>
<CAPTION>
Tax Equivalent Yields for Vermont Residents
Taxable Federal Vermont Combined If the tax-exempt yield is:
Income(5) Tax Tax Federal
Bracket(6) Bracket and
as a % of Vermont 5.0% 5.5% 6.0% 6.5%
single joint Federal Tax Tax Bracket* Then taxable equivalent yield is:
return return Due
$25,350 to $42,350 to
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$61,400 $102,300 28% 25% 33.0% 7.47% 8.21% 8.96% 9.71%
$61,401 to $102,301 to
$128,100 $155,950 31% 25% 36.3% 7.86% 8.64% 9.43% 10.21%
$128,101 to $155,951 to
$278,450 $278,450 36% 25% 41.8% 8.58% 9.44% 10.30% 11.16%
$278,451 & $268,451 &
above above 39.6% 25% 45.6% 9.19% 10.11% 11.03% 11.94%
</TABLE>
(5) Net amount subject to federal and Vermont state income taxes after
deductions and exemptions. Assumes ordinary income only.
(6) Excludes the impact of the phaseout of personal exemptions, limitation on
itemized deductions and other credits, exclusions and adjustments which may
raise a taxpayer's marginal combined federal and Vermont state tax rate. An
increase in a shareholder's marginal tax rate would increase that
shareholder's tax-equivalent yield. Vermont tax rates are based on Federal
tax paid which is estimated for each bracket shown.
PAGE 17
Financial Statements
The books of the Fund will be audited at least once each year by independent
public accountants. Financial Statements of the Fund, as of December 31, 1998,
together with the Report of the Fund's independent accountants thereon, are
reflected in the Fund's Annual Report to Shareholders, incorporated herein by
reference. A copy of the Annual Report will accompany the Prospectus or
Statement of Additional Information at no charge whenever requested by a
shareholder or prospective shareholder. Shareholders will receive annual audited
and semi-annual unaudited reports when published and will receive written
confirmation of all confirmable transactions in their account.
Debt Securities Ratings
Description of Commercial Paper Ratings
Moody's Investors Service, Inc., in rating commercial paper, considers various
factors including the following: (1) evaluation of the management of the issuer;
(2) evaluation of the issuer's industry or industries and an appraisal of the
risks which may be inherent in certain areas; (3) evaluation of the issuer's
products in relation to competition and customer acceptance; (4) liquidity; (5)
amount, type and maturity of schedules of long-term debt; (6) trend of earnings
over a period of years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparation to meet such obligations. Based on the foregoing,
"P-1", "P-2" and "P-3" represent relative rankings (P-1 being the highest) of
companies that receive a Moody's rating.
Standard & Poor's Corporation describes its highest ("A") rating for commercial
paper, with the numbers 1, 2 and 3 being used to denote relative strength within
the "A" classification as follows: liquidity ratios are adequate to meet cash
requirements; long-term senior debt rating should be "A" or better; in some
instances "BBB" credit ratings may be allowed if other factors outweigh the "BBB
rating. The issuer should have access to at least two additional channels of
borrowing. Basic earnings and cash flow should have an upward trend, with
allowances made for unusual circumstances. Typically, the issuer' s industry
should be well established and the issuer should have a strong position within
its industry. The reliability and quality of management should be unquestioned.
Description of Bond Ratings
Description of Moody's Investors Service, Inc.'s Corporate Bond Ratings:
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds 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 in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements that make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interested payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.
PAGE 18
Caa: Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to payment of
principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
Description of Standard & Poor's Corporation's Bond Ratings:
AAA: This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC an CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures or adverse conditions.
PAGE 19
================================================================================
PART C
THE TAX FREE FUND OF VERMONT
FORM N-1A
Post-Effective Amendment No. 8
OTHER INFORMATION
ITEM 23. Exhibits
(a) Articles of Association - enclosed.
(b) By Laws - enclosed.
(c) Instruments Defining Rights of Security Holders - See Articles of
Association, paragraphs 1, 2 and 3, enclosed as Exhibit (a) of this
filing; see also By-Laws, Articles II and V, enclosed as Exhibit (b) of
this filing.
(d) Investment Management Agreement, as Amended - Enclosed.
(e) Not Applicable
(f) Not Applicable
(g) Custody Agreement, Green Mountain Bank - enclosed.
(h) Transfer Agent and Dividend Disbursing Agent Service Agreement -
enclosed.
(i) Opinion and Consent of Counsel - enclosed
(j) Consent of Auditors - enclosed.
(k) Annual Audited Report to Shareholders, December 31, 1998 - Incorporated
by reference, filed March 3, 1999,
accession number 80000930356-99-000020
(l) Not Applicable
(m) Not Applicable
(n) Financial Data Schedule - Enclosed
(o) Not Applicable
ITEM 24. Persons Controlled By or Under Common Control with Registrant
To the knowledge of Registrant, the Registrant is not controlled by or under
common control with any other person.
ITEM 25. Indemnification
Article VIII, Sections 8.1 through 8.6 of the Bylaws of the Fund, attached as
Exhibit (b) of Item 23, provides for indemnification of certain persons acting
on behalf of the Fund. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons by the Fund's Articles of Association and By-Laws, or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in said Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund
of expenses incurred or paid by a director, officer or controlling person of
the Fund in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered the Fund will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Fund reserves the right to purchase Professional Indemnity insurance
coverage, the terms and conditions of which would conform generally to the
standard coverage available to the investment company industry. Such coverage
for the Fund would generally include losses incurred on account of any alleged
negligent act, error or omission committed in connection with operation of the
Fund, but excluding losses incurred arising out of any dishonest, fraudulent,
criminal or malicious act committed or alleged to have been committed by the
Fund. Such coverage for trustees and officers would generally include losses
incurred by reason of any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement or other act of omission committed by such
person in such a capacity, but would generally exclude losses incurred on
account of personal dishonesty, fraudulent breach of trust, lack of good faith
or intention to deceive or defraud, or willful failure to act prudently.
Similar coverage by separate policies may be afforded the investment manager
and its directors, officers and employees.
ITEM 26. Business and Other Connections of Investment Adviser
See Part B, "Trustees and Officers," for the activities and affiliations of
the officers and directors of the Investment Adviser. Currently, in addition
to serving as Investment Adviser to the Fund, the investment adviser provides
financial advisory and consulting services to municipalities other qualified
tax-exempt issuers in Vermont and New Hampshire and serves as the Fund's
Transfer Agent and Dividend Disbursing Agent.
ITEM 27. Principal Underwriters
Inapplicable.
ITEM 28. Location of Accounts and Records
All account books and records not normally held by the Custodian are held by
the Fund in the care of John T. Pearson, 87 North Main Street, Rutland,
Vermont 05701.
ITEM 29. Management Services
Inapplicable.
ITEM 30. Undertakings
Registrant, if requested to do so by the holders of at least 10% of the
Registrant's outstanding shares, undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of a Director or
Directors and further undertakes to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940.
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant certifies that it meets all of the requirements for
effectiveness of this registration statement under rule 485(a) under the
Securities Act and has duly caused this registration statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Rutland, and
State of Vermont on the 22nd day of June , 1999.
TAX FREE FUND OF VERMONT, INC.
- --------------------------------------------------------------
John T. Pearson,
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 9
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
______________________________________________ Director June 22, 1999
STEPHEN A. CARBINE
______________________________________________ Director June 22, 1999
JOHN T. PEARSON
______________________________________________ Director June 22, 1999
WINFRED A. THOMAS
EXHIBITS
TAX FREE FUND OF VERMONT
FORM N-1A
INDEX OF EXHIBITS
(Numbers coincide with Item 23 of Form N-1A)
(a) Articles of Association - enclosed.
(b) By Laws - enclosed.
(d) Investment Advisory Agreement - Enclosed.
(g) Custody Account Agreement, Green Mountain Bank - enclosed.
(h) Transfer Agent and Dividend Disbursing Agent Service Agreement -
enclosed.
(i) Opinion and Consent of Counsel - enclosed.
(j) Consent of Auditors - enclosed.
(n) Financial Data Schedule - Enclosed
EXHIBIT (a)
Articles of Association
EXIIIBIT A
STATE OF VERMONT
Office of Secretary of State
CERTIFICATE OF INCORPORATION
I certify that the attached is a true copy of the Articles of Incorporation of:
TAX FREE FUND OF VERMONT, INC.
All conditions required to be performed by the incorporators have been complied
with and the corporation is incorporated under the Vermont Business Corporation
Act. (11 V.S.A. Chapter 17)
May 20, 1991
Date
/s/James H. Douglas
Secretary of State
NO.............
ARTICLES OF ASSOCIATION
OF THE
TAX FREE FUND OF VERMONT, INC.
STATE OF VERMONT
Secretary of State's Office
Filed May 20, 1991
/s/ James H. Douglas
Secretary of State
ARTICLES OF ASSOCIATION
The name of the corporation shall be:
Tax Free Fund of Vermont, Inc.
The initial registered agent shall be: Thomas M. Dowling
(NOTE: A Corporation CANNOT be its own registered agent)
with registered office at P.O. Box 310, Rutland, VT 05702-0310
The corporation shall be located at
Station A, Woodstock Avenue,
P.O. Box 1038,
Rutland, VT 05702
The operating year shall be? Calendar
December 31 Fiscal
. (Dec. 31) (Month-Day)
If a fiscal year ending is not specified, the calendar year ending December 31st
shall be designated as your fiscal year ending.
The period of duration shall be (if perpetual so state) Perpetual
Please check appropriate box:
X Vermont General Corporation (T.11, Ch.17)
- - Vermont Professional Corporation (T.11, Ch.3)
- - Vermont Non-Profit Corporation (T.11, Ch.19)
This corporation is organized for the purpose of:
1. Operating as an investment company, offering shareholders one or more
investment programs primarily in securities and debt instruments and
transacting any or all other lawful business.
2. Investing and reinvesting the Corporation's funds in purchasing or
otherwise acquiring, holding for investment or otherwise, lending and
selling or otherwise disposing of securities (including but not limited to
bonds, debentures, notes and other obligations and evidences of
indebtedness, repurchase agree-tents, options, stocks, shares and any
certificates, receipts, warrants or other instruments representing rights
to subscribe to, purchase, receive or otherwise acquire the same or
evidencing any other rights or interests therein) created or issued by any
country, state, county, possession, municipality or other political
subdivision, or by any other governmental or quasi-governmental district,
authority, agency or instrumentality, or by any corporation, association,
firm or other business organization.
3. Exercising all rights, powers and privileges of ownership or interest in
all securities held or owned by the Corporation including but not limited
to the exercise of any voting rig]-its pertaining thereto, and to do all
acts and things for the preservation, protection, improvement and
enhancement in value thereof.
EACH VERMONT CORPORATION MUST FILE AN ANNUAL REPORT (WITHIN TWO AND ONE-HALF
MONTHS OF THE EXPIRATION OF ITS FISCAL YEAR.
The following information regarding shares must be completed by business
corporations. Non-profit corD6rations cannot have shares.
The aggregate number of shares the corporation shall have authority to issue is:
shares, preferred, with a par value of (if no par value, so state)
10,000,000 shares, common, with a par value of (if no par value, so state) $.Ol
(one cent) per share
If preferred shares are provided for, state here briefly the terms of
preference. If shares are to be divided into classes or series, state here the
designation, preferences, limitations, and relative rights of each. class or
series.
Directors: Business corporations with three or more shareholders must have at
least three directors. If there are fewer than three shareholders, the
number of directors may be equal to, but not less than the number of
shareholders.
Non-profit corporations must have at least three directors.
The initial board of directors shall have 4 members with the following serving
as directors until their successors be elected and qualify:
Having named fewer than three directors I hereby state that the number of
shareholders does not exceed the number of directors.
Directors: Post Office Address
Stephen A. Carbine 214 Grove Street, Rutland, VT 05701
Thomas M. Dowling RR2 - Box_8536, Rutland, VT 05701
John T. Pearson 13 Victoria Lane, Rutland, VT 05701
Winfred N. Thomas Countryside Estates. Rutland, VT 05701
Dated at Rutland, Vermont in the County of Rutland this 2nd day of ,1991.
Incorporators Post Office Address
/s/ Thomas M. Dowling RR2, Box 8536,
Rutland, VT 05701
Names must be Printed or Typed under all signatures, No. 101 Acts of 1965.
IN ADDITION TO ALL THE PRECEDINC, INFORMATION VERMONT PROFESSIONAL CORPORATIONS
MUST COMPLETE THE CERTIFICATE ON THE LAST PAGE OF THIS APPLICATION.
EXHIBIT (b)
By-Laws
BY-LAWS
OF
TAX FREE FUND OF VERMONT, INC.
A Vermont Corporation
Article I
Offices
Section 1.1. Registered Office The registered office of the Corporation shall be
in the city of Rutland, County of Rutland, State of Vermont.
Section 1.2. Offices. The principal office and place of business of the
Corporation shall be in the City of Rutland, County of Rutland and State of
Vermont. The Corporation may also have offices at such other places both
within and without the State of Vermont as the Board of Directors may from
time to time determine or the business of the Corporation may require.
Article II
Shareholders
Section 2.1. Place of Meetings All meetings of the shareholders shall be held at
the principal office of the Corporation, except such meetings as the Board
of Directors expressly determine shall be held elsewhere, in.-which case
meetings may be held upon notice as hereinafter provided at such other
place or places as the Board of Directors shall have determined and as
shall be stated in such notice.
Section 2.2. Annual Meeting. The annual meeting of the shareholders shall be
held during the month of May in each year on such date and at such time as
shall be designated from time to time by the Board of Directors and stated
in the Notice of the Meeting
In the event the annual meeting is omitted by oversight or otherwise on the
date herein provided, then a substituted annual meeting may be held on any
subsequent date prior to the close of the corporate fiscal year, and any
business transacted or elections held at such meeting shall be as valid and
effective as if transacted or held at the regular annual meeting. A written
and signed application for such substituted annual meeting may be made by
any shareholder, and notice shall be given therefor as hereinafter provided
by these By-laws.
At each annual meeting, the shareholders entitled to vote shall elect those
directors whose terms expire at such annual meeting, by majority vote by
ballot, and they may transact such other corporate business as may properly
be brought before the meeting. At the annual meeting any business may be
transacted, irrespective of whether the notice calling such meeting shall
have contained a reference thereto, except where notice is required by law,
the Certificate of Incorporation, or these By-laws.
Section 2-3. Quorum. At all meetings of the shareholders the holders of a
majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy,, shall constitute a quorum
requisite for the transaction of business's except as otherwise provided by
law, by the Certificate of Incorporation or by these By-laws. if, however,
such majority shall not be present or represented at any meeting of the
shareholders, the shareholders entitled to vote thereat, present in person
or by proxy, by a majority vote, shall have power to adjourn the meeting
from time to time without notice other than announcement at the meeting
until the requisite amount of voting stock shall be present. If the
adjournment is for more than thirty (30) days, or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting. At such adjourned meeting, at which the requisite
amount of voting stock shall be represented, any business may be transacted
which might have been transacted if the meeting had been held as originally
called.
The vote of a majority of the quorum shall decide any question or matter,,
except as otherwise required by law, the Certificate of Incorporation, or
these By-laws.
Section 2.4. Adjourned Meeting Any meeting of shareholders., either annual or
special, and whether a quorum is present or not, may be adjourned from time
to time by vote of a majority of the shares, the holders of which are
either present in person or represented by proxy, but in the absence of a
quorum, no other business shall be transacted.
When any such meeting is adjourned for more than thirty (30) days, notice
of such adjourned meeting shall be given as provided in thes6--By-laws, but
except as aforesaid, it shall not be necessary to give any notice of an
adjournment of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken. If,,
however, after the adjournment, a new record date is fixed for the meeting,
a notice of the adjourned meeting shall be given to each shareholder of
record on the new record date entitled to vote at such meeting.
Section 2.5- Right to Vote; Proxies. Each shareholder having the right to vote
at any meeting shall be entitled to one vote for each share of stock held
by said shareholder. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person or by proxy, but no proxy which is
dated more than eleven (11) months prior to the meeting at which it is
offered shall confer the right to vote thereat. Every proxy shall be in
writing, subscribed by a shareholder or said shareholder's duly authorized
attorney in fact, and dated, but need not be sealed, witnessed, or
acknowledged. Every proxy shall be revocable by the shareholder prior to
the vote being taken, except as otherwise provided by Vermont Law.
Section 2.6. Voting. At all meetings of shareholders all questions, except as
otherwise expressly provided for by statute, the Certificate of
Incorporation or these By-laws, shall be determined by a majority vote of
the shareholders present in person or represented by proxy. Except as
otherwise expressly provided by law, the Certificate of Incorporation,
these By-laws or the Board of Directors, at all meetings of shareholders,
the voting shall be taken by ballot, each of which shall state the name of
the shareholder voting and the number of shares voted by said shareholder,
and, if such ballot be cast by a proxy, it shall also state the name of the
proxy. Except as otherwise provided in the Certificate of Incorporation or
by the By-laws, all elections shall be decided by majority vote.
Section 2.7. Notice of Annual_Meeting. Written notice of the annual meeting of
the shareholders shall be mailed, postage prepaid, to each shareholder
entitled to vote thereat at such address as appears on the stock books of
the Corporation at least ten (10) days and not more than fifty (50) days
prior to the meeting. It shall be the duty of every shareholder to furnish
to the Secretary of the Corporation or to the transfer agent, the
shareholder's post-office address and to notify said Secretary or transfer
agent of any change therein.
Section 2.8. Shareholders' List. The secretary or agent having charge of the
stock transfer books for shares of a corporation shall make, at least 10
days before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in Alphabetical order, with the address of and the number of
shares held by each, which list, for a period of 10 days prior to such
meeting, shall be kept on file at the registered office of the corporation
and shall be subject to inspection by any shareholder at any t7i-me during
usual business hours. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting
of shareholders.
Section 2.9. Special Meetings. Special meetings of the shareholders for any
purpose or purposes, unless otherwise provided by statute, may be called by
the Board of Directors or by the President of the Corporation and shall be
called by the President or Secretary upon the request in writing of a
majorityof The Board of Directors or not less than one-tenth (1/10th) of
the entire outstanding shares.
The business transacted at such special meeting shall be confined to the
purpose or purposes stated in the notice therefor.
Written notice of a special meeting of shareholders, stating the time and
place and object thereof, shall be mailed, postage prepaid, not less than
ten (10) nor more than fifty (50) days before such meeting, to each
stockholder entitled to vote thereat, at such address as appears on the
books of the Corporation. No business may be transacted at such meeting
except that referred to in said notice, or in a supplemental notice given
also in compliance with the provisions hereof, or such other business as
may be germane or supplementary to that stated in said notice or notices.
Section 2.10. Inspectors One or more inspectors may be appointed by the Board of
Directors before or at any meeting of stockholders, or, if no such
appointment shall have been made, the presiding officer may make such
appointment, if deemed necessary, at the meeting. At the meeting for which
the inspector or inspectors are appointed, the inspectors shall open and
close the polls, receive and take charge of the proxies and the acceptance
and rejection of votes. If any inspector previously appointed shall fail to
attend or refuse or be unable to serve, the presiding officer shall appoint
a substitute inspector.
Section 2-11. Shareholders' Action by Unanimous Consent. Whenever the vote of
shareholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provisions of law, the
Certificate of Incorporation, or these By-laws, the meeting and vote of
stockholders may be dispensed with if all the shareholders consent to any
action to be taken by the Corporation, and such action shall be as valid as
a corporate action as though it had been unanimously authorized at a
meeting of the shareholders; provided that the written consent of all the
shareholders shall be attached to and made a part of the minutes of the
corporation and filed with the secretary.
Section 2.12. Waiver of Notice. Any meeting at which all of the shareholders
entitled to vote are present, either in person or by proxy, or at which
those not present have waived notice in writing, either prior or subsequent
to such meeting, shall be a legal meeting for the transaction of any
business, notwithstanding that notice has not been given, provided a quorum
be present in person or by proxy. Such waivers shall not be recognized
unless filed with the Secretary, or someone acting in such capacity.
Article III
Directors
Section 3.1. Number of Directors. The business, property and affairs of the
Corporation shall be managed by or under the direction of a board of three
(3) Directors. Except as herein provided with respect to vacancies, and
except with respect to the initial Directors, as set out in the Certificate
of Incorporation, each Director shall hold office for one year and until
his/her successor is elected and qualified.
Section 3.2. Change in Number of Directors; Vacancies. Any vacancy occurring in
the Board of Directors may be filled by the affirmative vote of a majority
of the remaining Directors though less than a quorum of the board of
directors. A Director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors shall be filled by
election at an annual meeting or at a special of shareholders called for
that purpose.
Section 3.3. Chairman of the Board. The Directors may elect a Chairman of the
Board. The Chairman of the Board of Directors shall preside at all meetings
of the Shareholders and Directors, and shall have such other duties as may
be assigned to him/her from time to time by the Board of Directors.
Section 3.4. Resignation Any Director of the Corporation may resign at any time
by giving written notice to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified
therein, at the time of receipt if no time is specified therein and at the
time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.5. Removal Any Director or the entire Board of Directors may be
removed only for cause and by vote of the majority of shareholders than
entitled to vote at a shareholders' meeting called for such purpose.
Section 3.6. Place of Meeting and Books. The Board of Directors may hold their
meetings and keep the books of the Corporation at such places as they may
from time to time determine.
Section 3.7. General Powers. In addition to the powers and authority expressly
conferred upon them by these By-laws, the Board of Directors may exercise
all such powers of the Corporation and do all such lawful acts and things
as are not by statute or by the Certificate of Incorporation or by these
By-laws directed or required to be exercised or done by the
shareholders. The Board of Directors shall have and exercise full power and
authority to do all things necessary and expedient in the governance,
management and control of the business and affairs of the Corporation.
Section 3.8. Executive Committee. There may be an executive committee of one or
more Directors designated by resolution passed by a majority of the whole
Board. The act of a majority of the members of such committee shall be the
act of the committee. Said committee may meet at stated times or on notice
to all by any of their own number, and shall have and may exercise those
powers of the Board of Directors in the management of the business affairs
of the Corporation as are provided by law and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Vacancies in
the membership of the committee shall be filled by the Board of Directors
at a regular meeting or at a special meeting called for that purpose.
Section 3.9. Other Committees. The Board of Directors may also designate one or
more committees in addition to the executive committee, by resolution or
resolutions passed by a majority of the whole Board of Directors; such
committee or committees shall consist of one or more Directors of the
Corporation, and to the extent provided in the resolution or resolutions
designating them, shall have and may exercise specific powers of the Board
of Directors in the management of the business and affairs of the
Corporation to the extent permitted by statute and shall have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors.
Section 3.10. Powers Denied to Committees. Committees of the Board of Directors
shall not, in any event, have any power or authority to amend the
Certificate of Incorporation, adopt an agreement of merger or
consolidation, recommend to the shareholders the sale, lease, exchange,
mortgage, pledge or other disposition of all or substantially all of the
Corporation's property and assets, recommend to the shareholders a
voluntary dissolution of the Corporation or a revocation thereof or to
amend the By-laws of the Corporation. Further, committees of the Board of
Directors shall not have any power or authority to declare a dividend or to
authorize the issuance of stock.
Section 3.11. Substitute Committee Member. In the absence of or on the
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
he,, she or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of such
absent or disqualified member. Any committee shall keep regular minutes of
its proceedings and report the same to the Board as may be required by the
Board.
Section 3.12. Compensation of Directors. The Board of Directors shall have the
power to fix The compensation of Directors and members of committees of the
Board. The Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors and/or a stated
retainer as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for being members of those committees and/or attending
committee meetings.
Section 3.13. Annual Meeting. The Board may meet at such place and time as shall
be fixed and announced by the presiding officer at the annual meeting of
shareholders, for the purpose of organization or otherwise, and no further
notice of such meeting shall be necessary to the Directors (including the
newly elected Directors) in order legally to constitute the meeting,
provided a quorum shall be present, or they may meet at such place and time
as shall be stated in a notice given to such Directors two (2) days prior
to such meeting, or as shall be fixed by the consent in writing of all the
Directors.
Section 3.14. Regular Meetings. The annual meeting of the Board of Directors
shall be held as soon as practical following the adjournment of the annual
meeting of shareholders upon notice from the Chairman of the Board, if any,
or the President. Other regular meetings of the Board of Directors may be
held at such times and at such places within or without the State of
Vermont as the Board may by vote determine from time to time, and, if so
determined., no notice thereof need be given.
Section 3.15. Special Meetings Special meetings of the Board may be called by
the Chairman of the Board, if any, or the President; on two (2) days'
notice to each Director, or such shorter period of time before the meeting
as will nonetheless be sufficient for the convenient assembly of the
Directors so notified special meetings shall be called by the Secretary in
like manner and on like notice, on the written request of two or more
Directors.
Section 3.16. Waiver of Notice Attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting to the transaction
of any business because the meeting is not lawfully called or convened.
Section 3.17. Quorum. At all meetings of the Board of Directors, a majority of
the total number of Directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a
majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically permitted or provided by statute, or by the Certificate of
Incorporation, or by these By-laws. If at any meeting of the Board there
shall be less than a quorum present, a majority of those present may
adjourn the meeting to a definite date and place from time to time until a
quorum is obtained, and no further notice thereof need be given other than
by announcement at said meeting which shall be so adjourned.
Section 3.18. Telephonic Participation in Meetings. Members of the Board of
Directors or any committee designated by such Board may participate in a
meeting of the Board or committee by means of conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this section shall constitute presence in person at
such meeting.
Section 3.19. Action by Consent. Unless otherwise restricted by the Certificate
of incorporation or these By-laws, any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if written consent thereto is signed by all
members of the Board or of such committee as the case may be and such
written consent is filed with the minutes of proceedings of the Board or
Committee.
Section 3.20. Minutes and Records. Minutes of all meetings of Directors shall be
taken by the Secretary, or in his/her absence, by someone appointed by the
presiding officer to take and authenticate the record of the meeting.
Article IV
Officers
Section 4.1. Selection; Statutory Officers. The officers of the Corporation
shall be chosen by the Board of Directors. There shall be a President and
Chief Executive Officer, a Treasurer and a Secretary. The same person may
hold more than one office except that the same person shall not be both
President and Secretary. The Board may also appoint one or more Vice
Presidents.
Section 4.2. Time of Election. The officers above named, shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
shareholders. Nothing herein shall be deemed to restrict the power of the
Board to discharge or remove any officer, and to fill the vacancy created
thereby, at any time. None of said officers need be a Director.
Section 4.3. Additional Officers. The Board may appoint such other officers and
agents as it shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 4.4. Subordinate Officers. The Board of Directors may appoint such
subordinate officers as the business of the Corporation may require, each
of such officers to hold office at the pleasure of the Board, and to have
such authority, and perform such duties as the Board of Directors may from
time to time determine.
Section 4.5. Terms of Office. Each officer of the Corporation shall hold office
until his/her successor is chosen and qualified, or until his/her earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors.
Section 4.6. Resignations. Any officer may resign at any time by giving written
notice to the Board of Directors, the President or Secretary. Any such
resignation shall be effective at the date of receipt of such notice or at
any later date specified therein. Unless otherwise specified in said
resignation, acceptance shall not be necessary to make it effective.
Section 4.7. Compensation of Officers. The Board of Directors shall have power
to fix the compensation of all officers of the Corporation. It may
authorize any officer, upon whom the power of appointing subordinate
officers may have been conferred, to fix the compensation of such
subordinate officers.
Section 4.6- President. The President 'shall be the Chief Executive Officer and
head of the Corporation. In the absence of the Chairman of the Board, the
President shall preside at all meetings of Directors and shareholders.
Under the supervision of the Board of Directors and of the executive
committee, if any, the President shall have the general control and
management of the Corporation's business and affairs, subject, however, to
the right of the Board of Directors and of the executive committee to
confer any specific power, except such as may kg by statute exclusively
conferred on the President, upon any other officer or officers of the
Corporation. The President shall perform and do all acts and things
incident to the position of President and such other duties as may be
lawfully assigned to him/her from time to time by the Board of Directors or
the executive committee.
Section 4.9. Vice Presidents. The Vice Presidents, if any, in order of their
rank as fixed by the Board of Directors, or, if not ranked, as designated
by the Board of Directors shall perform such of the duties of the President
on behalf of the Corporation as may be respectively assigned to them from
time to time by the Board of Directors or by the executive committee or by
the President.
Section 4.10- Treasurer. The Treasurer shall have the care and custody of all
the funds and securities of the Corporation which may come into his/her
hands as Treasurer, and the power and authority to endorse checks, drafts
and other instruments for the payment of money for deposit or collection
when necessary or proper and to deposit the same to the credit of the
Corporation in such bank or banks or depository as the Board of Directors
or the executive committee, or the officers or agents to whom the Board of
Directors or the executive committee may delegate such authority, may
designate, and he/she may endorse all commercial documents requiring
endorsements for or on behalf of the Corporation. The Treasurer may sign
all receipts and vouchers for the payments made to the Corporation. The
Treasurer shall render an account of his transactions to the Board of
Directors or to the executive committee as often as the Board or the
committee shall require the same. The Treasurer shall enter regularly in
the books to be kept by him/her for that purpose full and adequate account
of all moneys received and paid by him/her on account of the Corporation.
The Treasurer shall perform all acts incident to the position of Treasurer,
subject to the control of the Board of Directors or the executive
committee-., give a bond to the Corporation conditioned for the faithful
performance of his duties, the expense of which bond shall be borne by the
Corporation.
Section 4.11. The Secretary shall maintain the office of the Secretary at the
place where the principal office of the Corporation is located. The
Secretary shall have and keep in his/her custody at the office of the
Secretary, the corporate Seal and corporate documents and records,
including the minutes of all meetings of the Shareholders and Board of
Directors. The Secretary shall keep full and accurate minutes of all
meetings of the Board of Directors and of the shareholders and shall attend
to the giving and serving of all notices of the Corporation. Except as
otherwise ordered by the Board of Directors or the executive committee, the
Secretary shall attest the seal of the Corporation upon all contracts and
instruments executed under such seal and shall affix the seal of the
Corporation thereto and to all certificates of shares of the Capital
Stock., The Secretary shall have charge of the stock certificate book,
transfer book and stock ledger, and such other books and papers as the
Board of Directors or the executive committee may direct. The Secretary
shall, in general, perform all the duties of the Secretary, subject to the
control of the Board of Directors and of the executive committee.
Section 4.12. Assistant Secretary The Board of Directors may appoint or remove
one or more Assistant Secretaries of the Corporation. Any Assistant
Secretary upon appointment shall perform such duties of the Secretary, and
have any and all such other duties as the Board of Directors may designate.
Article V
Stock
Section 5.1. Amount. The amount of the capital stock of the Corporation shall be
defined by the Certificate of Incorporation and amendments thereto.
Section 5.2. Stock. Each stockholder shall be entitled to a certificate or
certificates of stock of the Corporation in such form as the Board of
Directors may from time to time prescribe. The certificates of stock of the
Corporation shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall certify the holder's name and
number and class of shares and shall be signed by both of (a) either the
President or a Vice President, and (b) the Treasurer or the Secretary,, and
shall be sealed with the corporate seal of the Corporation. If such
certificate is countersigned (a) by a transfer agent other than the
Corporation or its employee, or, (2) by a registrar other than the
Corporation or its employee, the signature of the officers of the
Corporation and the registrar may be facsimiles. In case any officer or
officers who shall have signed, or whose facsimile signature or signatures
shall have been used on, any such certificate or certificates shall cease
to be such officer or officers of the Corporation, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued
and delivered as though the person or persons who signed such certificate
or certificates or whose facsimile signature shall have been used thereon
had not ceased to be such officer or officers of the Corporation.
Section 5.3. Share Interests. The Corporation shall not issue certificates to
represent fractional share interests, but shall register or cause its
transfer agent to register ownership of such interests in the names of the
persons entitled thereto on the books of the Corporation. Ownership of any
fractional share interest shall entitle the holder thereof to exercise
voting rights, receive any dividends and participate in any liquidation of
the Corporation on a proportionate basis.
Section 5.4. Transfer of Stock. Subject to any transfer restrictions then in
force, the shares of stock of the Corporation shall be transferable only
upon its books by the holders thereof in person or by their duly authorized
attorneys or legal representatives and upon such transfer the old
certificates shall be surrendered to the Corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers
or to such other person as the directors may designate by whom they shall
be cancelled and new certificates shall thereupon be issued. The
Corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof and accordingly shall not be
bound to recognize any equitable or other claim to or interest in such
share on the part of any other person whether or not it shall have express
or other notice thereof save as expressly provided by the laws of Delaware.
Section 5.5. Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion, or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than fifty (50) days nor
less than ten (10) days before the date of such meeting, nor more than
fifty (50) days prior to any other action. If no such record date is fixed
by the Board of Directors, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at
the close of business on the date next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for
determining shareholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors
is necessary, shall be the day on which the first written consent is
expressed; and the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of or to vote at any meeting of
shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 5.6. Transfer Agent and Registrar. The Board of Directors may appoint
one or more transfer agents or transfer clerks and one or more registrars
and may require all certificates of stock to bear the signature or
signatures of any of them.
Section 5.7. Dividends.
1. Power to Declare. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may
be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares
of the capital stock, subject to the provisions of the Certificate of
Incorporation and the laws of Vermont.
2. Reserves. Before payment of any dividend, there may be set aside out of
the funds of the Corporation available for dividends such sum or sums as
the Directors from time to time in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation,
or for such other purpose as the Directors shall think conducive to the
interest of the Corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
Section 5.8. Lost, Stolen or Destroyed Certificates. No certificates for shares
of stock of the Corporation shall be issued in place of any certificate
alleged to have been lost, stolen or destroyed except upon production of
such evidence of the loss, theft or destruction and upon indemnification of
the Corporation and its agents to such extent and in such manner as the
Board of Directors may from time to time prescribe.
Article VI
Miscellaneous Management Provisions
Section 6.1. Checks, Drafts and Notes. All checks, drafts or orders for the
payment of money, and all notes and acceptances of the Corporation shall be
signed by such officer or officers, agent or agents as the Board of
Directors may designate.
Section 6.2. Notices.
1. Notices to Directors may, and notices to shareholders shall be in
writing and delivered personally or mailed to the Directors or shareholders
at their addresses appearing on the books of the Corporation. Notice by
mail shall be deemed to be given at the time when the same shall be mailed.
Notice to Directors may also be given by telegram or orally, by telephone
or in person.
2. Whenever any notice is required to be given under tli4'-provisions of
the statutes or of the Certificate of Incorporation or of these By-laws, a
written waiver of notice, signed by the person or persons entitled to said
notice, whether before or after the time stated herein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute
a waiver of notice of such meeting except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called
or convened.
Section 6.3. Authorization and Execution of Contracts. The Board of Directors,
except as otherwise provided in the By-laws, may authorize any officer or
officers, agent or agents to enter into any contract or execute any
instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined in specific instances.
Section 6.4. Conflict of Interest. A contract or transaction between the
Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its Directors or officers are
directors or officers, or have a financial interest, may be made and shall
not be void or voidable, provided that the material facts as to his or her
relationship or interest as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested Directors, even though
the disinterested Directors be less than a quorum or provided that the
contract or transaction is otherwise authorized in accordance with the laws
of Vermont and further provided that the contracting Director or officer is
not present at the time that such contract or transaction is voted on.
Common or interested Directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
Section 6.5. Voting of Securities Owned by this Corporation. Subject always to
the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by the
Corporation may be voted in person at any meeting of security holders of
such other corporation by the President of the Corporation if he is present
at such meeting, or in his absence by the Treasurer of the Corporation if
he is present at such meeting, and (b) whenever, in the judgment of the
President, it is desirable for the Corporation to execute a proxy or
written consent in respect to any shares or other securities issued by any
other corporation and owned by the Corporation, such proxy or consent shall
be executed in the name of the Corporation by the President, without
necessity of any authorization by the Board of Directors, affixation of
corporate seal or countersignature or attestation by anotli6r officer,
provided that if the President is unable to execute such proxy or consent
by reason of sickness, absence from the United States or other similar
cause, the Treasurer may execute such proxy or consent. Any person or
persons designated in the manner above stated as the proxy or proxies of
the Corporation shall have full right, power and authority to vote the
shares or other securities issued by such other corporation and owned by
the Corporation the same as such shares or other securities might-be voted
by the Corporation.
Article VII
Amendments
Section 7.1. Amendments. Except as otherwise provided in these By-laws, the
By-laws of the Corporation may be altered, amended or repealed at any
regular or special meeting of the Board of Directors by a vote of at least
a majority of the Directors or by or at any meeting of the shareholders by
the vote of the holders of at least a majority of the stock issued and
outstanding and entitled to vote at such meeting, in accordance with the
provisions of the Certificate of Incorporation and of the laws of Vermont,
provided notice of the proposed amendment, alteration or repeal is mailed
to each such holder at least ten (10) days prior to such meeting.
ARTICLE VIII
Indemnification of Officers, Directors and Employees
Section 8.1. This Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer or employee of
the corporation, or is or was serving at the request of the corporation as
a director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contenders or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 8.2. This Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer of employee of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and unreasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper.
Section 8.3. To the extent that a director, officer or employee of this
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 8.1 or 8.2, or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith. Any indemnification under Sections
8.1 or 8.2 shall be made by the Corporation unless the Directors who are
not parties to such action or the shareholders obtain a court order stating
that the indemnification of the director, officer or employee is improper
in the circumstances because he has not met the applicable standards of the
conduct set forth in Sections 8.1 or 8.2.
Section 8.4- Expenses (including attorneys' fees) incurred in defending a civil
or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided in Section 8.3 upon receipt of an
undertaking by or on behalf of the director, officer or employee to repay
such amount unless it shall ultimately be determined that he is entitled to
be indemnified by the Corporation as authorized in this section.
Section 8.5. The indemnification provided by this section shall night be deemed
exclusive of any other rights to which those indemnified may be entitled
under any other by-law,, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director ' officer or employee and
shall inure to the benefit of the heirs, executors and administrators of
such a person.
Section 8.6. This Corporation may purchase and maintain, Directors and Officers'
liability insurance on behalf of any person who is or was a director,
officer or employee of the corporation, or is or was serving at the request
of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions
of this section in an amount sufficient to cover any and all costs borne
directly or indirectly by any director, officer or employee from a tortious
act however groundless.
Article IX
Fiscal Year
Section 9.1. The fiscal year of the Corporation shall begin on the lst day of
January and end on the 31st day of December in each year.
Article X
Corporate Seal
Section 10.1. The Corporation shall have a special seal for its own use which
shall be circular in form and shall have inscribed thereon the name of the
Corporation and the state of incorporation and the words "Corporate Seal."
Article XI
Applicability of Investment Company Act of 1940
Section 11.1. Investment Company Act to Be Controlling. If at a time when the
Corporation is registered as an investment company under the federal
Investment Company Act of 1940, any provision of these By-Laws shall
conflict or be inconsistent with any applicable provision of said Act or of
any rule, regulation or order thereunder, such applicable provision of said
Act or rule, regulation or order thereunder shall be controlling and the
operation of the conflicting or inconsistent provision of these By-Laws
shall be suspended.
Article XII
Investment Restrictions
Section 12.1. Investment Restrictions. The corporation's investment limitations
are that it may not:
(a) with respect to at least 507. of the Corporation's total assets,
purchase the securities of any single issuer (except the United States
government, its agencies or its instrumentalities), if it would cause (i)
more than 5% of the Corporation's total assets to be invested in the
securities of such issuer (including repurchase agreements with any one
bank), or (ii) more than 10% of any class of securities of such issuer
would be owned by the Corporation. For this purpose, the State of Vermont,
each political subdivision of the State, and each district, authority,
agency or instrumentality of the State or any of its political subdivisions
will be deemed to be a separate issuer and all indebtedness of any issuer
will be deemed to be a single class of securities;
(b) issue senior securities;
(c) make short sales of securities;
(d) purchase any securities on margin, except for such short term credits
as are necessary for the clearance of transactions;
(e) borrow money, except from banks as a temporary measure for purposes of
meeting redemption requests and/or bond purchase commitments and then only
in an amount not exceeding 5% of the Corporation's total asset value. Any
borrowings that come to exceed 5% of the Corporation's total assets by
reason of a decline in net assets will be reduced within three business
days exclusive of sundays and holidays to the extent necessary to comply
with the 5% limitation;
(f) underwrite any issue of securities, except to the extent that the
Corporation's purchase of municipal securities directly from the issuer
(either alone or as one of a group of bidders) may-be deemed to be an
underwriting of such securities;
(g) knowingly purchase or otherwise acquire any securities which are
subject to legal or contractual restrictions on resale if, as a result,
more than 10% of the Corporation's total assets would be invested in such
securities;
(h) purchase equity securities or securities convertible into equity
securities;
(i) purchase or sell real estate, but this shall not prevent the
Corporation from investing in municipal bonds or other obligations secured
by real estate or interests therein;
(j) purchase or sell commodities or commodity contracts;
(k) make loans, except through the purchase of debt securities in
accordance with the Corporation's investment objective, policies and
restrictions;
(1) invest in oil, gas or other mineral exploration or development
programs;
(m) invest in companies for the purpose of exercising management or
control;
(n) purchase securities of other investment companies, except the
Corporation may purchase securities of other open-end diversified
investment companies which hold tax-exempt portfolios, but only in the open
market where no commissions are payable for the purchase of such
securities, only to the extent that the Corporation at all times owns less
than 3% of the voting shares of each such investment company in which the
Corporation has purchased such shares, only to the extent the Corporation
has not acquired shares of any such investment company having a value in
excess of 5% of the Corporation's total asset value, only to the extent the
Corporation has not acquired shares of all such investment companies having
a value in excess of 10% of the Corporation's total asset value, and,
within these limitations, only in amounts and for purposes of providing
sufficient liquidity to allow the Corporation to transact its day-to-day
business operations including shareholder redemptions and settlement of
securities transactions;
(o) purchase the securities of any issuer if, as a result, more than 5% of
the Corporation's total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation;
(p) pledge or hypothecate any Corporate assets, except that the purchase of
securities on a "when issued" basis is not deemed to be a pledge of assets;
(q) purchase any security, other than securities issued or guaranteed by
the U.S. government or any of its ag4-ncies or instrumentalities, if, as a
. result,, more than 25% of the Corporation's total asset value would be
invested in the securities of issuers having their principal business
activities in the same industry;
(r) write or invest input or call options, or any combination thereof.
Unless otherwise stated, all references to the corporation's assets are in
terms of the then current market value of the assets.
Section 12.2. Changes in Investment Restrictions The Investment Restrictions set
forth in Section 12.1 shall, at any of 1940 or any rule, regulation or
order thereunder, without any action by the-Corporation, be considered to
be amended to conform to the applicable change as of the effective date of
such changes. otherwise, a change in the Investment Restrictions set forth
in Section 12.1 shall require the affirmative vote of the shareholders as
set forth in Section 2.6 at any annual or special meeting called pursuant
to these By-Laws.
378.9
EXHIBIT (d)
Investment Advisory Agreement
INVESTMENT ADVISORY AGREEMENT, made this 31st day of May, 1991, by and between
TAX FREE FUND OF VERMONT, INC., a corporation organized and existing under
the laws of the State of Vermont (hereinafter called the "Fund"), and
Vermont Fund Advisors, Inc., a corporation organized and existing under the
laws of the State of Vermont (hereinafter called the "Advisor").
WITNESSETH:
WHEREAS, the Fund is engaged in the business as an open-end management
investment company and is registered as such under the federal Investment
Company Act of 1940; and
WHEREAS, the Advisor is engaged in the business of rendering investment
supervisory services with respect to municipal securities and is registered
as an investment advisor under the federal Investment Advisers Act of 1940;
and
WHEREAS, the Fund desires to retain the Advisor to render investment supervisory
services and provide office space and facilities and corporate
administration to the Fund, in the manner and on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the
parties hereto agree
as follows:
I. The Advisor shall act as investment advisor and render investment
supervisory services to the Fund and shall provide the Fund with office
space and facilities and corporate administration, subject to and upon the
terms and conditions set forth in this agreement.
2. The Advisor shall obtain and evaluate such information relating to the
economy, industries, businesses, municipal issuers, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder; shall formulate a continuing program for the
management of the assets and resources of the Fund in a manner consistent
with its investment objectives; shall determine the securities to be
purchased and sold by the Fund, and the portion of its assets to be held in
cash or cash equivalents, in order to carry out such program; and generally
shall take such other steps, including the placing of orders for the
purchase or sale of securities on behalf of the Fund, as the Advisor may
deem necessary or appropriate for the implementation of such program. The
Advisor shall also furnish to or place at the disposal of the
1
Fund such of the information, reports, evaluations, analyses, and opinions
formulated or obtained by the Advisor in the discharge of its duties
hereunder as the Fund may, at any time or from time to time, reasonably
request or as the Advisor may deem helpful to the Fund. In discharging this
responsibility, the Advisor shall adhere specifically to the fundamental
investment objectives and to the investment restrictions contained in the
Bylaws of the Fund and the Registration Statement dated May 31, 1991, as
amended from time to time, which the Fund has filed with the Securities and
Exchange Commission. Such Bylaws and Registration Statement are attached to
this Agreement as Appendices A and B, respectively, and are hereby made a
part of this Agreement.
3.(a) The Advisor shall:
(i) Pay or provide for and furnish to the Fund such office space equipment,
facilities, personnel and services (exclusive of and in addition to those
provided by any custodian, transfer agent or other institutional agent
retained by the Fund) as the Fund may reasonably require in the conduct of
its business;
(ii) Maintain and preserve on behalf of the Fund, for such periods and in
such forms as are prescribed by rules and regulations of the Securities and
Exchange Commission (the "Commission"), all of the accounts, books and
other documents the Fund is required to maintain and preserve pursuant to
Section 31(a) of the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder which are not maintained and
preserved on the Fund's behalf by any custodian, transfer agent or other
institutional agent retained by the Fund;
(iii) Furnish the services and pay or provide for the compensation and
expenses of individuals competent (A) to perform for the Fund all executive
and administrative functions that are not assigned to any custodian,
transfer agent or other institutional agent retained by the Fund, and (B)
to supervise and coordinate the activities of such institutional agents and
the other agents (e.g., independent accountants and legal counsel) retained
by the Fund; and
(iv) Permit officers or employees of the Advisor who are duly elected or
appointed as officers, directors or members of any advisory board or
committee of the Fund to serve as such without remuneration from or other
cost to the Fund.
(b) The advisor shall pay all sales and promotional expenses incurred
in the distribution of shares of the Fund. The expenses to be assumed
and paid by the Advisor include the costs of:
2
(i) Media and direct mail advertising;
(ii) Printing copies of the Fund's prospectus and shareholder reports which
are used in its sales or promotional efforts; it being understood that the
Fund will bear printing costs related to copies of its prospectus and
reports which are distributed to its shareholders;
(iii)Printing share purchase order forms to accompany the Fund's
prospectus, and
(iv) Corresponding and dealing with prospective investors, up to and
including receipt of their orders for the purchase of Fund shares.
(c) The Fund shall bear all expenses of its operation not specifically
assumed by the Advisor as hereinabove set forth or as provided
elsewhere in this Agreement. The Advisor, in its sole discretion, may
at any time or from time to time pay or assume any expense that the
Fund would or might otherwise be required to bear. However, the
Advisor's payment or assumption of any such expenses on one or more
occasions shall neither relieve the Advisor of any obligation to the
Fund pursuant to paragraph 6(b) hereof nor obligate the Advisor to pay
or assume the same or any similar expense of the Fund on any
subsequent occasion.
4. The Advisor may employ, retain or otherwise avail itself of the services or
facilities of other persons or organizations for the purpose of providing
the Advisor or the Fund with such statistical and other factual
information, such advice regarding economic factors and trends, such advice
as to occasional transactions in specific securities or such other
information, advice or assistance as the Advisor may deem necessary,
appropriate or convenient for the discharge of its obligations hereunder or
for the discharge of Advisor's overall responsibilities with respect to the
other accounts which it serves as investment advisor. The Advisor and any
individual performing executive or administrative functions for the Fund
whose services were made available to it by the Advisor are specifically
authorized to allocate brokerage and principal business to firms that
provide such services or facilities and to cause the Fund to pay a member
of a securities exchange, or any other securities broker or dealer, an
amount of commission for effecting a securities transaction in excess of
the amount of commission another member of an exchange or another broker or
dealer would have charged for effecting that transaction, if the Advisor or
the individual allocating such brokerage determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are defined in Section
28(e) of the Securities Exchange Act of 1934) provided by such member,
broker or dealer, viewed in terms of either that particular transaction or
the overall responsibilities of the Advisor with respect to the accounts as
to which the Advisor exercises investment discretion (as such term is
defined in Section 3(a)(35) of the Securities Exchange Act of 1934).
5. All accounts, books and other documents maintained and preserved by the
Advisor on behalf of the Fund pursuant to paragraph 3(a)(i) hereof are the
property of the Fund and shall be surrendered by the Advisor promptly on
request by the Fund. The Fund shall furnish or otherwise make available to
the Advisor such financial reports, proxy statements and other information
relating to the business and affairs of the Fund as the Advisor may, at any
time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
6. As full compensation for all services rendered, facilities furnished and
expenses paid or assumed hereunder by Advisor, the Fund shall pay the
Advisor a fee at the annual rate of seven-tenths of one percent (7/10 of
1%) of the average daily net asset value of the Fund for average daily nest
assets of up to $10 million and at the annual rate of six-tenths of one
percent (6/10 of 1%) of the average daily net asset value of the Fund for
average daily nest assets in excess of $10 million, as determined in
accordance with its Bylaws. The amounts due the Advisor in payment of such
fees shall be accrued daily by the Fund on the basis of the net asset value
of the Fund applicable to the close of each business day, and, in the case
of any day which is not a business day, the net asset value of the Fund
applicable to the close of the last preceding business day; and the total
amount thus accrued with respect to each calendar month or portion thereof
during which this agreement remains in effect shall become due and payable
to the Advisor as accrued during such calendar month. The term "business
day" means a day for all or part of which the New York Stock Exchange is
open for unrestricted trading.
7. The Advisor agrees that neither it nor any of its officers or directors
shall take any long or short position in the shares of the Fund; but this
prohibition shall not prevent the purchase by or for the Advisor or any of
its officers or directors of shares of the Fund at the price at which such
shares are available to the public at the moment of purchase.
8. Nothing herein contained shall be deemed to require the Fund to take any
action to its Articles of Association or Bylaws, or any applicable
statutory or regulatory requirement to which it is subject or by which it
is bound, or to relieve or deprive the Board of Directors of the Fund of
its responsibility for and control of the conduct of the Fund.
9. The term of this Agreement shall begin on May 1, 1991, and, unless sooner
terminated as provided in paragraph 10 hereof, this Agreement shall remain
in effect through the close of business on April 30, 1993, and thereafter
subject to the termination provisions and other terms and conditions
hereof; if:
4
(a) such continuation shall be specifically approved at least annually by
the Board of Directors, or by vote of a majority of the outstanding voting
securities of each class and series within each class of the Fund, and
concurrently with such approval by the Board of Directors or prior to such
approval by the holders of the outstanding voting securities of the Fund,
as the case may be, by the vote, cast in person at a meeting called for the
purpose of voting on such approval , of a majority of the Directors of the
Fund who are not parties to this Agreement or interested persons of any
such party; and (b) the Advisor shall have not notified the Fund, in
writing, at least sixty (60) days prior to April 30 of each year after 1993
that it does not desire such continuation. The Advisor shall furnish to the
Fund, promptly upon its request such information in the possession of or
readily available to the Advisor as the Directors of the Fund may at any
time or from time to time deem reasonably necessary to evaluate the terms
of this Agreement or any extension, renewal or amendment hereof.
10. This Agreement may not be amended, transferred, assigned, sold or in any
manner hypothecated or pledged, without the affirmative vote of a majority
of the outstanding voting securities of each class and series within each
class of the Fund, and this Agreement shall automatically and immediately
terminate in the event of its assignment.
11. This Agreement may be terminated by either party hereto, without the
payment of any penalty, upon sixty (60) days notice in writing to the other
party; provided, that in the case of termination by the Fund, such action
shall have been authorized by resolution of the Board of Directors or by
vote of a majority of the outstanding voting securities of each class and
series within each class of the Fund and further Provided, that in the case
of termination by the Advisor, a majority of the Board of Directors -of the
Fund who are not also Directors, Officers or employees of the Advisor shall
have voted to waive the right of the Fund, granted hereby, to require the
Advisor to provide six months, notice of intent to terminate. In the
absence of such a vote by the Fund, the Advisor shall be required to give
six months' written notice of intent to terminate.
12.Neither the Advisor, any affiliated person of the Advisor, nor any other
person performing executive or administrative functions for the Fund whose
services were made available to the Fund by the Advisor shall be liable to
the Fund for any error of judgement or mistake of law or for any loss
suffered by the Fund by reason of any action taken or omission to act
committed in connection with the matters to which this Agreement relates,
except that nothing herein contained shall be construed (i) to protect the
Advisor or any affiliated person of the Advisor (whether or not such
affiliated person is or was an officer, director or member of any advisory
board of the Fund)
5
against any liability to the Fund or its security holders for any breach of
fiduciary duty with respect to the Advisor's receipt of compensation for
services to the Fund, (ii) to protect the Advisor or any affiliated person
of the Advisor who is or was an officer, director or member of any advisory
board of the Fund against any liability to the Fund or its security holders
for any act or practice (other than the Advisor's receipt of compensation
for services to the Fund) constituting a breach of fiduciary duty involving
personal misconduct in respect of the Fund, (iii) to protect the Advisor
against any liability to the Fund or its security holders to which the
Advisor 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 with the Fund. In the event that any affiliated
person of the Advisor shall become a director, officer or employee of the
Fund, then all actions taken or omissions to act made by such person in
connection with the discharge of his duties to the Fund shall be deemed to
have been taken or made by such person solely in his capacity as director,
officer or employee of the Fund, notwithstanding the fact that the services
of such person are being or have been furnished by the Advisor to the Fund
as provided in this Agreement or that the compensation and expenses of such
person are being or have been paid by the Advisor or any other affiliated
person of the Advisor.
13. Nothing herein contained shall limit the freedom of the Advisor or any
affiliated person of the Advisor to render investment supervisory services
and provide corporate administration to other investment companies, to act
as investment advisor or investment counsellor to other persons,, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in
effect and until the Advisor shall otherwise consent, the Advisor shall be
the only investment advisor to the Fund.
14. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act of 1940 shall be resolved by
reference to such term or provision of that Act and to interpretations
thereof, if any, by the United States courts, or in the absence of any
controlling decision of any such court, by rules, regulations or orders of
the Commission validly issued pursuant to said Act. Specifically, the terms
"vote of a majority of the outstanding voting securities", "interested
person", "assignment", and "affiliated person", as used in paragraphs
9,10,11,12 and 13 hereof, shall have the meanings assigned to them by
Section 2(a) of the Investment Company Act of 1940, as amended. In
addition, where the effect of a requirement of the Investment Company Act
of 1940, as amended, reflected in any provision of this Agreement is
relaxed by a rule, regulation or order of the Commission, whether of
special or of general application,, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
TAX FREE FUND OF VERMONT, INC.
By /s/John T. Pearson
President
Attest /s/Jacqueline Abbey
VERMONT FUND ADVISORS, INC.
/s/John T. Pearson
President
Attest /s/Jacqueline Abbey
EXHIBIT (g)
Custody Account Agreement, Green Mountain Bank
CORPORATION/ASSOCIATION/PARTNERSHIP/TRUST
CUSTODY ACCOUNT AGREEMENT
Made this 22 day of February , 1993 by and between Tax Free Fund of Vermont,
Inc. (hereinafter termed the frowner"), and GREEN MOUNTAIN BANK, a Vermont
banking corporation with its principal office in Rutland, Vermont (hereinafter
termed the 'Custodian*).
The owner hereby requests the Custodian, and the Custodian hereby agrees, to
open and maintain a Custody Account (hereinafter termed the "Account") on its
books in the name of the Owner on the following terms and conditions:
1. The Custodian shall:
a. Hold in safekeeping all funds, stocks, bonds or other securities from
time to time delivered to it for this Account.
b. Receive income cash items and credit the Owner's cash account in the
Trust Department or distribute them in accordance with Owner's
instructions;
c. Receive principal items and hold them in accordance with the
provisions hereinafter set forth;
d. Surrender for payment maturing obligations and those called for
redemption, exchange securities in temporary form for like securities
in definitive form, exchange stock certificates if the stated or par
value of any shares are changed, &rA exchange securities of companies
to conform with changes in their corporate titles or to conform with
stock splits or other corporate changes-, and
e. Furnish regular asset statements of the assets of the Account to the
Owner.
2. The Custodian is hereby authorized by the owner:
a. To register and hold stocks. bonds or other securities in the name of
a nominee. but no such registration or holding shall relieve the
Custodian of responsibility for the safe custody of said stocks .
bonds or other securities. and at all times they shall be shown on the
books of the Custodian as the property of the Owne, b. To vote proxies
with respect to any stocks, bonds or other securities held in the
Account; c. To open all mail directed to the owner which appears to
relate to the Account; and
d. To sign in the owner's name any declarations, affidavits or
certificates of ownership which may be required from time to time in
collecting income or principal funds for the account.
3. with respect to the owner's giving of instructions to Cho Custodian-
a. unless countermanded in writing, the o6mer's instructions in Schedule
"A" shall take precedence Over anY Provision Of this Agreement
(including. without limitations the following provisions of this
Section 3);
b. For the distribution of income from the Account to or upon the order
of the owner the Custodian shall be entitled to rely upon written or
oral instructions; and a deposit of income to the Owner's checking
account or the Owner's endorsement on a check shall constitute on
adequate receipt for such income;
c. For the sale or purchase of property held or to be. hold In the
Account the Custodian shall be likewise entitled to rely upon written
or oral instructions, and the, owner agrees that if requested any such
oral instructions shall be promptly confirmed in writing,. and
d. For the distribution of principal from the Account- for the
termination of the game, or for any other purpose not specified above,
instructions shall be given in writing.
4. The owner agrees to pay an annual fee for this Account based upon the
custodian's published Scbedule of foes from time to time in effect. lyk
addition. the custodian shall be entitled to reimbursement for reasonable
expenses incurred by it in the performance of its duties hereunder. The
Custodian shall be entitled to charge and pay said fee and expenses against
and out of the property held hereunder.
5. This Agreement shall not be deemed to constitute Custodian as a trustee.
and the Custodian shall not be liable for any act or fallur6 to act except
In the case of gross negligence or willful misconduct.
6. Either party to this Agreement may terminate it at any time by sending a
written notice to the other. Without terminating the Agreement, the Owner
may withdraw soy portion of the property held hereunder. upon the
termination of the Agreement or receipt of the Owner's notice to withdraw a
portion of the Owner's property, the Custodian shall deliver to the Owner.
or to anyone whom the Owner directs the property which is to be returned.
7. This Agreement is to be governed and construed in accordance with the law
of the State of Vermont.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement in duplicate.
OWNER GREEN MOUNTAIN BANK
Tax Free Fund of Vermont
/s/ John T. Pearson /s/ John Field
John T. Pearson, President By: It's Duly Authorized Agent
EIN, 03-0329847
Address: 110 Merchants Row, Rutland,
VT 05701
Telephone-. 773-0674
CUSTODY ACCOUNT AGREEMENT
SCHEDULE "A"
The owner's Instructions governing the operation of the Account are as follows:
A. ANOTHER PERSON AUTHORIZED TO CONTROL SALE AND PURCMSE OF PROPERTY;
The Custodian shall follow any written instruction and any verbal
instruction confirmed in writing which it receives from John T. Pearson,
President regarding the sale, purchase. or other dealing in the property in the
Account.
B. INCOME PAI'MENTS: Accumulate; wait for instructions
(Date and Interval)
By: 1. Check. or
2._ Deposit to A/C at (Bank name) In name of
3. Special Instructions;
C. STATEMENT OF TRANSACTIONS: 3/end/93 and every I_month (Date and Interval)
D. LIST OF SECURITIES: same (Date and Interval)
E. Banking regulations require Green Mountain Bank to provide a customer with
a copy of the broker's confirmation of each purchase and sale of a security
effected by the Custodian for the customer's account and to mail this copy
to the customer within five (5) business days after receiving it. unless
the customer agrees to a different arrangement. Having in mind that the
Owner will continue to receive periodic statements reporting substantially
all of the information contained in such confirmations. the Owner may waive
the right to recoive the confirmations by marking the first box below,
understanding that even if the owner elects not to receive these
confirmations the Owner may at any time retract such waiver by written
advice. whereupon the Custodian will furnish the owner with copies of
future confirmations without charge.
Copies of brokerage confirmations:
X Need not be mailed Should be mailed
F. FRACTIONAL SHARES RECEIVED SHALL BE:
1. Automatically sold - p-rocceds
credited to principal. or
2. Rounded up to the next full share in the event
principal cash is available . Otherwise Sell: Consult: or
3 Sold or completed in the Custodian's discretion. or
4 Handled as directed in each case
G. SUBSCRIPTION RIGHTS FOR PURCHASE OF SECURITIES SHALL BE:
Not applicable
H. INCOME TAX INFORMATION
1. ____________is to be furnished annually based upon the Custodian's records.
2. ___X________not required
3. I. OTHER SPECIAL INSTRUCTIONS:
Date: February 22, 1993 Name /s/John T. Pearson
EXHIBIT (h)
Transfer Agent and Dividend Disbursing Agent Service Agreement
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
SERVICE AGREEMENT
This Agreement made on May 31, 1991 between Tax Free Fund of Vermont, Inc.,
a Vermont corporation (hereinafter called "Fund") and Vermont Fund Advisors,
Inc., a Vermont corporation (hereinafter called "Agent").
WHEREAS the Fund desires to appoint Advisor as Transfer Agent and Dividend
Disbursing Agent for the Fund and Advisor desires to accept such
appointment
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
SECTION 1. TERMS OF--APPOINTMENT
1.01 Subject to the conditions set forth in this Agreement, the Fund hereby
employs and appoints Agent as Transfer Agent and Dividend Disbursing Agent
effective June 1, 1991.
1.02 Agent hereby accepts such employment and appointment and agrees that on and
after the effective date of its appointment it will act as the Fund's
Transfer Agent and Dividend Disbursing Agent. Agent agrees that it will
also act as agent in connection with any periodic investment plan, periodic
withdrawal program or other accumulation, open-account or similar plans for
the Fund's shareholders.
1.03 Agent agrees to provide the necessary facilities, equipment and personnel
to perform its duties and obligations hereunder in accordance with industry
practice.
1.04 Agent agrees that it will perform all of the usual and ordinary services as
Transfer Agent and Dividend Disbursing Agent and as agent for the various
shareholder accounts including but not limited to: maintaining all
shareholder accounts, preparing annual shareholder meeting lists,
withholding taxes as required by law, disbursing income dividends and
capital gains distributions, preparing and filing United States Treasury
Department Form 1099 documents for all shareholders, preparing and mailing
confirmation forms to shareholders for all purchases and redemptions of
Fund shares and other confirmable transactions in shareholder accounts,
recording reinvestment of dividends and distributions in Fund shares in
shareholder accounts, causing redemption of shares and disbursements to be
made to withdrawal planholders and (if and to the extent not performed by
the Fund) mailing proxies, receiving and tabulating proxies and mailing
shareholder reports and prospectuses,, all in accordance with the rules,
regulations and procedures of the Fund as put forth in the Bylaws of the
Fund, the Registration Statement dated May 31, 1991 and filed by the Fund
with the Securities and Exchange Commission, any amendments made from time
to time in such Registration Statement and any other procedures adopted by
the Fund for performing such tasks. The Bylaws and Registration Statement
dated May 31, 1991 are attached hereto as Appendices A and B, respectively,
and 'made a part hereof. Any amendments to the documents comprising
Appendices B and C will be promptly provided to Agent by Fund and when
received by Agent shall be incorporated in this Agreement.
SECTION 2. RECEIPT OF FUNDS: SHARE PURCHASE ORDERS
2.01 Upon receipt at the United States Post Office station designated by Agent
or at the business office of the Agent of any check or other order for the
payment of money drawn or endorsed to Agent as Transfer Agent for the Fund,
as plan agent for any shareholder of the Fund or otherwise identified as
being for the account of the Fund, Agent shall be responsible for
transporting such check or other order from such Post Office station to the
business office of the Agent and shall stamp the check or other order with
the date of receipt, shall forthwith process such check or other order for
collection and, no later than the opening of business on the second
business day following receipt of such check or such other order, shall
credit federal funds to the Fund in the face amount of the check or other
order and shall deposit the amount due the Fund in the bank account
maintained for the Fund. Upon receipt of funds through the Federal Reserve
Wire System or conversion into federal funds of funds transmitted by any
other bank wire transfer system, Agent shall notify the Fund of such
deposits and shall, on a daily basis, notify the Fund of the total amount
so deposited.
2.02 Upon receipt of a check or other order in payment for shares of the Fund
purchased by an investor accompanied, in the case of a new account, by a
completed account application, Agent shall process such order in accordance
with the procedures set forth in the Fund's current prospectus and credit
the investor's share account with the number of shares so purchased, and
shall promptly mail the investor a confirmation notice of such credit and
shall provide a copy of such notice to the Fund all such actions are
subject to any further instructions which the Fund may give to Agent with
respect to acceptance of orders for shares so received by Agent.
2.03 Within thirty (30) calendar days after the receipt of any check in the
amount of more than $50,000, Agent will call the paying bank to confirm
that the check has been paid. Fund will be notified immediately if Agent
receives information that payment for any such check has been refused.
Further, if Agent is unable to confirm that any such check has been paid
within thirty (30) calendar days of receipt by Agent of such check, Fund
will promptly be so notified. Proceeds of a redemption of any shares
purchased by such check will not be disbursed and mailed to shareholder
until payment of the check has been confirmed.
2.04 The Fund expects that situations may develop whereby it would be beneficial
to determine if an investor who has placed an order for shares has
sufficient funds in such investors drawing account(s) to provide funds
sufficient to pay for the shares purchased. Upon receipt of a request from
the Fund, Agent will contact the investor's bank and request confirmation
that funds sufficient to pay in full the purchase cost of shares ordered
are currently credited to the shareholder's account. The results of any
such calls will be provided to the Fund.
2.05 Agent will maintain written documentation of each telephone call which is
placed in accordance with subsections 2.03 and 2.04 above.
2.06 Notwithstanding any statement herein to the contrary, Agent shall have
unqualified ability to inquire as to the status of any check or other order
received in payment for shares of the Fund as Agent may deem appropriate or
necessary to protect both the Fund and the Agent.
SECTION 3. RETURNEQ CHECKS
In the event that any check or other order for the payment of money is
returned unpaid for any reason, Agent shall;
3.01 Give prompt notification to the Fund of the non-payment of said check;
3.02 Take such other steps, including re-depositing such check or other order
for collection or redelivering such check or other order to the investor as
Agent may, in its discretion, deem appropriate or as the Fund may instruct.
3.03 If the check or other order remains unpaid after such additional step(s)
have been taken and, in the absence of instructions from the Fund, Agent
shall implement such further procedures as may be necessary to enable Fund
to redeem any shares purchased with such returned check or other order.
Upon redemption, Agent shall credit the proceeds of such redemption plus
any dividends declared with respect to such shares up to the amount paid
for such shares to the Fund's account. Agent shall forward such returned
check or other order to the investor who originally submitted same. In the
eventthat the amount paid for such shares exceeds the proceeds of the
redemption of such shares plus the amount of any dividends declared with
respect to such shares, Agent shall receive reimbursement of such excess
from Fund.
SECTION 4. REDEMPTIONS
Agent shall receive and shall stamp with the date of receipt all written
requests for the redemption of shares of Fund and shall record on a proper
document all telephonic requests for redemption of shares of the Fund and shall
process such redemption requests as follows:
4.01 Upon receipt of a request for redemption, Agent will determine if any of
the shares to be redeemed have been purchased within the previous thirty
(30) calendar days. If it is determined that any portion of the shares to
be redeemed have been purchased within the previous thirty (30) calendar
days, Agent will promptly obtain the necessary information relative to the
check(s) used to purchase such shares and will contact the paying bank
requesting positive confirmation that the check(s) in question has been
paid.
4.02 If such redemption request complies with the standards for redemption as
approved by the Fund and if it is determined that none of the shares to be
redeemed have been purchased within the previous thirty (30) calendar days
or if Agent has not received information that the check(s) in question were
returned to Agent as unpaid by the close of Agent's business on the date of
receipt of the redemption request, Agent shall notify Fund of the total
number of shares presented and covered by such requests received by Agent
on said date. on or prior to the seventh calendar day succeeding any such
request for redemption, Agent shall, from cash available in the bank
account maintained by the Fund, pay the applicable redemption price per
share times the number of shares to be redeemed to the investor all as set
forth in the Bylaws and the then current prospectus of the Fund.
4.03 If by the end of the seventh calendar day after receipt of a redemption
request Agent has been unable to determine the status of any check(s) in
question, Agent will calculate the amount due to the shareholder for shares
which were purchased and credited to the shareholder's account over thirty
(30) calendar days prior to receipt of the redemption request and will send
a check representing the proceeds of the redemption of these shares to the
shareholder, together with a letter of explanation. Funds representing
redemption of shares purchased within the prior thirty (30) calendar days
will be held until the paying bank can confirm payment of the check(s) used
for purchase of such shares.
4.04 If any request for redemption does not comply with any standards for
redemption approved by the Fund, Agent shall promptly notify the
shareholder of such fact(s) together with the reason(s) therefor, and shall
effect such redemption at the price applicable to the date and time of
receipt of documents complying with such standards.
SECTION 5. INFORMATIDN.TO BE FURNISHED TO SHAREHOLDERS
5.01 Agent shall answer such correspondence from shareholders relating to their
accounts and such other correspondence as may from time to time be mutually
agreed upon by Agent and Fund.
5.02 Agent shall mail such proxy cards and other material supplied to Agent by
Fund in connection with shareholder meetings and reports to shareholders
and shall receive, examine and tabulate returned proxies and certify the
resulting shareholder vote to the Fund.
SECTION 6. FEES AND EXPENSES
6.01 For the services to be rendered by Agent pursuant to paragraph 1.04, the
Fund agrees to pay Agent a fee, equal to 0.08 annually, computed daily on
the net asset value of the Fund.
6.02 The Fund agrees to promptly reimburse Agent for all reasonable
out-of-pocket expenses or advances incurred by Agent in connection with the
performance of services performed by Agent under this Agreement including,
but not limited to, expenditures for reasonable counsel fees, postage,
envelopes, checks, continuous forms, reports and statements, telephone,
telegraph, facsimile, stationery, supplies, record storage costs and
storage media so long as supplies purchased are expected to last for a
reasonable period of time. In addition, any other expenses incurred by
Agent at the request or with the consent of Fund will be promptly
reimbursed by Fund.
SECTION 7. REPRESENTATIONS AND WARRANTIES
Agent represents and warranties to the Fund that:
7.01 It is a corporation duly organized and existing in good standing under the
laws of the State of Vermont.
7.02 It is empowered under applicable laws and by its Articles of Association
and Bylaws to enter into and perform the services contemplated by this
Agreement;
7.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement; and
7.04 It has and will continue to have and maintain the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
7.05 It has registered with the Securities and Exchange commission as a Transfer
Agent pursuant to section 17A of the securities Exchange Act of 1934.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warranties to the Agent that:
8.01 It is a corporation duly organized and existing under the laws of the State
of Vermont;
8.02 It is an open-end diversified management investment company registered
under the Investment Company Act of 1940;
8.03 A registration statement under the Securities Act of 1933 is currently
effective with respect to all shares of the Fund being offered for sale;
8.04 The Fund is empowered under the applicable laws and regulations and by its
Articles of Association and Bylaws to enter into and perform this
Agreement.
SECTION 9. INDEMNIFICATION
9.01 Agent shall not be responsible for and the Fund shall indemnify and hold
Agent harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of Agent required to be taken by Agent pursuant to this
Agreement provided that Agent has acted in good faith and with due
diligence.
(b) The reliance on or use by Agent of information furnished or records
and documents received by Agent which have been prepared and/or
maintained by the Fund or any other person on behalf of the Fund.
(c) Defaults by dealers with respect to share orders previously entered.
(d) The reliance on or the carrying out of any instructions or requests of
the Fund.
(e) The reliance on procedures developed or approved by or interpretations
of the prospectus of the Fund relative to performing the tasks herein
assigned to Agent.
((f) The offer of sale of the Fund's shares in violation of any requirement
under the securities laws or regulations of any state that such shares
be registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale
of such shares in such ( unless such violation results from Agent's
failure to comply with written instructions of the Fund that no offers
or sales be made in or to residents of such state).
9.02 It is hereby understood that if the Fund is asked to indemnify or save
Agent harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question and it is further
understood that Agent will use all reasonable care to identify and notify
the Fund promptly concerning any situation which presents or appears likely
to present the probability of such a claim for indemnification against the
Fund. The Fund shall have the option to defend Agent against any claim
which may be the subject of this indemnification and in the event that the
Fund so elects it will so notify Agent and thereupon the Fund shall take
over complete defense of the claim and Agent shall, in such an event,
initiate no further legal or other expenses for which it shall seek
indemnification. Agent shall in no case confess any claim or make any
compromise in any case in which the Fund will be asked to indemnify Agent
except with the Fund's prior written consent. In the event of any advance
of funds for any purpose made by Agent resulting from authorizations or
instructions of the Fund or in the event that Agent shall incur any claims,
liabilities or related expenses in connection with the performance of this
Agreement, except such as may arise from its own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the Fund shall be security therefor.
9.03 Agent shall indemnify and hold the Fund harmless from and against any and
all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of Agent's failure to comply with the terms of this
Agreement or which arise out of Agent's negligence or misconduct.
9.04 At any time Agent may apply to any officer of the Fund for instructions and
may consult with legalcounsel for the Fund at the expense of the Fund with
respect to any matter arising in connection with the services to be
performed by Agent under this Agreement and Agent shall be indemnified by
the Fund for any action taken or omitted by Agent in good faith in reliance
upon such instructions or upon the opinion of counsel for the Fund. Agent
shall be protected and indemnified in acting upon any paper or document
believed by it to be genuine and to have been signed by the proper person
or persons and shall not be held to have notice of any change of authority
of any person until written receipt thereof is provided to Agent by the
Fund.
SECTION 10. COVENANTS OF THE AGENTS AND THE FUND
10.01 The Fund shall promptly furnish to Agent the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the Appointment of Agent and the execution and
delivery of this Agreement.
(b) A certified copy of the Articles of Association and Bylaws of the Fund
and all amendments thereto.
10.02Agent hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of check forms and
facsimile signature imprinting devices, if any; and for the preparation or
use and accounting for such forms and devices.
10.03To the extent required by Section 31 of the Investment Company Act of 1940
and rules and regulations thereunder, Agent agrees that all records
maintained by Agent relating to the services to be performed by Agent under
this Agreement are the property of the Fund and will be preserved and
surrendered promptly to the Fund on request.
10.04Agent and Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential and shall not be voluntarily disclosed to any
other person.
SECTION 11. TERMINATION AND AGREEMENT
11.01This Agreement shall terminate on the same date that the Investment
Advisory Agreement between the Agent and the Fund, Appendix B attached
hereto and made a part hereof, shall terminate.
SECTION 12 ASSIGNMENT
12.01Neither this Agreement nor any rights or obligations hereunder may be
assigned by Agent without the written consent of the Fund.
12.02This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their corporate seals by and
through their duly authorized officers as of the day and year first above
written.
TAX FREE FUND OF VERMONT, INC.
By: /s/ John T. Pearson President
Attest: /s/ Jaqueline Abbey
VERMONT FUND ADVISORS, INC.
By: /s/ John T. Pearson
President
Attest: /s/ Jaqueline Abbey
EXHIBIT (i)
Opinion and Consent of Counsel
RYAN SMITH & CARBINE, LTD.
" ATTORNEYS AT LAW
MEAD BUILDING
98 MERCHANTS IIOW
P.0.. BOX 310
RUYLAND, VERMONT 05702-0310
TELEPHONE C802) 773-3344
FAX (802!) 773-1343
September 18, 1991
Tax Free Fund of Vermont, Inc.
110 Merchants Row
Rutland, Vermont 05701
Gentlemen:
We have acted as counsel to Tax Free Fund of Vermont, Inc., a Vermont
corporation (the "Fund") in connection with its incorporation in the State of
Vermont.
You have asked us for our opinion with respect to the legality of shares of the
fund, $.01 (one cent) per share par value, to be issued as described In detail
in the Registration Statement on form N-IA filed with the Securities and
Exchange Commission (SEC Registration No. 33-41043) on or about June 6, 1991,
Amendment No. I filed on or about August 12, 1991 and Amendment No. 2 filed on
September 18, 1991 (the "Registration Statement").
We are of the opinion based upon a review of the corporate minutes and records
that the 10,000 shares issued on September 6, 1991 are duly issued, validly
outstanding, fully paid and non-assessable.
Further, we are of the opinion that upon (i) the effectiveness of the
Registration Statement; (ii) the receipt of approval from the Vermont Department
of Banking and insurance; and (iii) the issuance of the Fund's shares as
described in the Registration Statement upon the terms and conditions set forth
therein, the Fund's Common Stock thereafter issued will be duly issued, validly
outstanding, fully paid and non-assessable.
We hereby consent to the inclusion of this opinion as an exhibit to and as a
part of the Registration Statement.
Very truly yours,
RYAN SMITH & CARBINE, LTD.
By: /s/ Thomas M. Dowling
Thomas M. Dowling
TMD:T
EXHIBIT (j)
Consent of Auditors
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment to the
Registration Statement on Form N-1A of the Tax Free Fund of Vermont, Inc. and to
the use of our report dated February 10, 1999 on the financial statements and
financial highlights of the Fund. Such financial statements and financial
highlights appear in the 1998 Annual Report to Shareholders which is included in
the Statement of Additional Information.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 10, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT (n)
Financial Data Schedule
<ARTICLE> 6
<LEGEND>
</LEGEND>
<CIK> 0000875730
<NAME> TAX FREE FUND OF VERMONT, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 11,088,372
<INVESTMENTS-AT-VALUE> 11,342,742
<RECEIVABLES> 196,803
<ASSETS-OTHER> 564,030
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,103,575
<PAYABLE-FOR-SECURITIES> 100,733
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,958
<TOTAL-LIABILITIES> 123,691
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,411,157
<SHARES-COMMON-STOCK> 1,083,896
<SHARES-COMMON-PRIOR> 851,801
<ACCUMULATED-NII-CURRENT> 554,985
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (240,628)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 254,370
<NET-ASSETS> 11,979,884
<DIVIDEND-INCOME> 92,693
<INTEREST-INCOME> 663,737
<OTHER-INCOME> 0
<EXPENSES-NET> 144,899
<NET-INVESTMENT-INCOME> 611,531
<REALIZED-GAINS-CURRENT> 14,114
<APPREC-INCREASE-CURRENT> 123,347
<NET-CHANGE-FROM-OPS> 748,992
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 569,758
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 287,143
<NUMBER-OF-SHARES-REDEEMED> 109,884
<SHARES-REINVESTED> 54,837
<NET-CHANGE-IN-ASSETS> 2,427,296
<ACCUMULATED-NII-PRIOR> 513,212
<ACCUMULATED-GAINS-PRIOR> (254,742)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 64
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 145
<AVERAGE-NET-ASSETS> 10,733
<PER-SHARE-NAV-BEGIN> 11.00
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> (0.68)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.05
<EXPENSE-RATIO> 1.35
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
