<PAGE> 1
[Ocean State Tax Exempt Fund Logo]
REPORT OF THE PRESIDENT
OCTOBER 31, 1995
October 31, 1995, was the end of the Fund's ninth fiscal year. During the
prior 12 months, the Fund's net asset value rose from $10.10 to $10.59 per share
for a gain of 4.85% on principal value. Net assets rose from $41.3 million to
$43.1 million while dividends per share declined from $0.59 to $0.58.
After 1994, fiscal 1995 was a breath of fresh air. Thirty-year Treasury
rates declined 164 basis points from 7.97% to 6.33%. Ten-year rates performed
even better, dropping from 7.81% to 6.02% as the yield curve flattened
dramatically during the year. (Remember, bond prices rise as bond yields fall.)
Unusual in this cycle was that the drop in yields was accompanied by low
inflation, a worldwide economic slowdown, and optimism that a federal
deficit-reduction plan would be reached. Under Alan Greenspan, the Fed has
tended to change policy very slowly which will probably continue.
The Municipal market underperformed other fixed income investments largely
because of a decline in demand. Clearly, a record-breaking performance by the
stock market has held the attention of most investors.
Keep in mind that part of our stated objective is to provide shareholders
with a high level of income consistent with safety of principal. The high
coupon, pre-refunded portion of the portfolio not only keeps up our dividend but
also hedges against a sudden, sharp rise in rates. Although we believe the
future trend of interest rates is lower and that the inventory of new Municipal
issues will continue to be tight, slow economic growth, combined with efforts of
Congress to pass more fiscal responsibilities to the states, could mean that
most of the decrease in Municipal yields has occurred.
We are pleased that Morningstar Mutual Funds continues to look favorably on
your Fund giving it a five-star rating as of the fiscal year-end.
Very truly yours,
/s/ Alfred B. Van Liew
ALFRED B. VAN LIEW
President and Chairman of the
Board of Trustees
<PAGE> 2
<TABLE>
OCEAN STATE TAX EXEMPT FUND
INVESTMENT PERFORMANCE REVIEW
AS OF OCTOBER 31, 1995
(UNAUDITED)
<CAPTION>
PRIOR SINCE INCEPTION
NOVEMBER 1, 1994 FISCAL YEAR NOVEMBER 1, 1990 DECEMBER 8, 1986
THROUGH ENDED THROUGH THROUGH
OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1995 OCTOBER 31, 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
TOTAL RATE OF RETURN(B)
Based on:
Net Asset
Value........ 10.89% (2.04)% 9.24% 9.20%
Offering
Price........ 6.46% (5.99)% 8.05% 8.39%
AS OF AS OF
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------
30-DAY CURRENT YIELD
Based on:
Net Asset
Value........ 5.26% 5.55%
Offering
Price........ 5.05% 5.33%
30-DAY TAX-EQUIVALENT
YIELD(A)
Based on:
Net Asset
Value........ 8.46% 8.93%
Offering
Price........ 8.12% 8.57%
</TABLE>
The Ocean State Tax Exempt Fund has placed a high priority on capital
preservation while at the same time striving for competitive after-tax
investment returns. The Fund has maintained the weighted average maturity of the
portfolio at 14.49 years as of October 31, 1995.
<TABLE>
The average quality rating of the investments, in the following table was
Aa/AA (Moody's and Standard & Poor's bond rating services).
PORTFOLIO QUALITY ANALYSIS
<CAPTION>
% OF TOTAL PORTFOLIO
-----------------------------------
AS OF AS OF
RATING 10/31/95 10/31/94
------ -------------- --------------
<S> <C> <C>
Aaa/AAA....................... 56.06% 55.78%
Aa/AA......................... 16.90% 15.48%
A............................. 19.19% 20.59%
Baa/BBB....................... 7.85% 8.15%
Not Rated..................... 0% 0%
</TABLE>
The Fund will continue its policy of seeking the highest tax advantaged
yields available, consistent with maintaining quality and diversification
objectives.
(a) For 1995 shareholders are subject to a maximum combined federal and state
tax rate of 37.84%.
(b) Past performance is no guarantee of future results.
2
<PAGE> 3
OCEAN STATE TAX EXEMPT FUND
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1995
ASSETS
<S> <C>
Investments at value (identified cost $40,291,897) (Note 1A).................. $42,700,606
Cash.......................................................................... 20,093
Interest receivable........................................................... 651,719
-----------
Total Assets........................................................ $43,372,418
LIABILITIES
Distribution payable to shareholders.......................................... $ 102,407
Payable for fund shares redeemed.............................................. 148,738
Accrued expenses.............................................................. 10,906
Accrued management fees....................................................... 22,138
-----------
Total Liabilities................................................... $ 284,189
-----------
Net Assets.......................................................... $43,088,229
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share)............................. $ 40,679
Additional paid-in capital (Note 4)........................................... 40,701,371
Dividends in excess of net investment income.................................. (4,799)
Accumulated net realized loss on investment transactions...................... (57,731)
Net unrealized appreciation of investments.................................... 2,408,709
-----------
Total -- Representing Net Assets at Value for 4,067,853 Shares Outstanding.... $43,088,229
===========
Computation of Net Asset Value & Offering Price:
Net Assets.................................................................... $43,088,229
Divided by number of shares outstanding....................................... 4,067,853
Net asset value............................................................... $ 10.59
===========
Offering price................................................................ $ 11.03
===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 4
OCEAN STATE TAX EXEMPT FUND
<TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<S> <C> <C>
INVESTMENT INCOME
Interest income (Note 1B)..................................................... $2,753,639
Expenses:
Adviser Fees (Note 2)....................................... $ 146,855
Administrator fees (Note 2)................................. 104,897
Legal fees and expenses..................................... 15,739
Trustees fees and expenses.................................. 19,750
Transfer agent fees......................................... 53,616
Custodian fees.............................................. 19,507
Insurance................................................... 3,500
Auditing.................................................... 26,200
Pricing..................................................... 4,685
Shareholder reports......................................... 7,988
Distribution Expenses (Note 5).............................. 5,719
Miscellaneous expenses...................................... 2,710
Registration fees........................................... 950
----------
$ 412,116
----------
Net Investment Income............................................... $2,341,523
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investments................................. 97,223
Net Change in Unrealized Appreciation of Investments............. 1,903,481
----------
Net gain on investments....................................................... 2,000,704
----------
Net Increase in Net Assets Resulting from Operations.......................... $4,342,227
==========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
OCEAN STATE TAX EXEMPT FUND
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income..................................... $ 2,341,523 $ 2,420,122
Net realized gain (loss) on investments................... 97,223 (125,800)
Change in unrealized appreciation of net investments...... 1,903,481 (3,370,233)
----------- -----------
Net increase (decrease) in net assets resulting from
operation............................................... 4,342,227 (1,075,911)
Dividends and distributions to shareholders from:
Net investment income ($.58 per share in 1995 and $.59 per
share in 1994).......................................... (2,354,085) (2,409,987)
Capital gain.............................................. (21,553)
Net Decrease from fund share transactions (Note 4)........ (246,199) (189,066)
----------- -----------
Total increase (decrease) in net assets.............. 1,741,943 (3,696,517)
NET ASSETS:
Beginning of year......................................... 41,346,286 45,042,803
----------- -----------
End of year (including $4,799 of dividends in excess of
net investment income in 1995 and $7,763 of
undistributed net investment income in 1994............. $43,088,229 $41,346,286
=========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
OCEAN STATE TAX EXEMPT FUND
<TABLE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
For a share outstanding throughout each period the following data includes
selected data and other performance information derived from the financial
statements.
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR 12/08/86
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
10/31/95 10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 10/31/88 10/31/87
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
Beginning
of Year................ $ 10.10 $ 10.95 $ 10.32 $ 10.14 $ 9.73 $ 9.80 $ 9.74 $ 9.13 $10.18
Net Investment income.... .58 .59 .56 .63 .64 .67 .62 .66 .62
Net realized and
unrealized gain (loss)
on securities.......... .49 (84) .63 .18 .41 (.09) .07 .62 (1.05)
------- ------- ------- ------- ------- ------- ------- ------ ------
Total from Investment
Operations............. 1.07 (.25) 1.19 .81 1.05 .58 .69 1.28 (.43)
------- ------- ------- ------- ------- ------- ------- ------ ------
Less Distributions:
Dividends from net
investment income...... (.58) (.59) (.56) (.63) (.64) (.65) (.63) (.66) (.62)
Distribution from net
realized
gains.................. (.00) (.01) (.00) (.00) (.00) (.00) (.00) (.01) (.00)
------- ------- ------- ------- ------- ------- ------- ------ ------
Total Distributions...... (.58) (.60) (.56) (.63) (.64) (.65) (.63) (.67) (.62)
------- ------- ------- ------- ------- ------- ------- ------ ------
Net Asset Value End of
Year................... $ 10.59 $ 10.10 $ 10.95 $ 10.32 $ 10.14 $ 9.73 $ 9.80 $ 9.74 $ 9.13
======= ======= ======= ======= ======= ======= ======= ====== ======
Total investment return
at Net Asset Value..... 10.89% (2.04)% 12.35% 8.00% 10.96% 5.89% 7.10% 14.30% (4.99)%(b)
Ratios and Supplemental
Data Net Assets, End of
Year (000's omitted)
....................... $43,088 $41,346 $45,043 $36,854 $29,750 $20,675 $12,159 $9,745 $6,149
Ratio of Expenses to
average net assets(a).. .98% .88% .81% .85% .92% 1.27% 1.36% 1.10% 1.15%(b)
Ratio of net investment
income to average net
assets(a).............. 5.58% 5.55% 5.70% 6.13% 6.40% 6.45% 6.34% 6.84% 6.95%(b)
Portfolio turnover....... 11.77% 8.48% 13.27% 36.29% 21.57% 10.16% 37.90% 45.58% 96.39%(b)
Adviser/Administrator
waived fees............ .00 .01 .01 .01 .03 .02 .03 .08 .06
Fund expenses without
waiver................. .10 .10 .09 .10 .12 .12 .16 .19 .16
Net Investment Income
without waiver......... .58 .58 .55 .62 .61 .65 .59 .58 .56
Ratio of Expenses to
average net assets
without waiver......... .98% .93% .81% .95% 1.17% 1.51% 1.69% 1.88% 1.86%(b)
Ratio of net investment
income to average net
assets without waiver.. 5.58% 5.50% 5.58% 6.02% 6.15% 6.21% 6.02% 6.06% 6.24%(b)
<FN>
- ---------------
(a) Annualized for 1987.
(b) Commencing in fiscal year 1990, data included the combined operations of the Fund and the Rhode Island Tax-Free Bond
Fund (the "RI Fund") for the period from the date of the acquisition of the assets of the RI Fund by the Fund (November
1, 1989). The data shown above for the periods prior thereto are the historical results of the Fund.
(c) Total investment return does not reflect sales load.
</TABLE>
See Notes to Financial Statements
6
<PAGE> 7
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
VLC Trust (the Trust) is a Massachusetts business trust organized on August
1, 1986 and registered under the Investment Company Act of 1940, as amended, as
a non-diversified, open-end management investment company. There is authorized
an unlimited number of shares with a par value of one cent per share.
Declaration of the Trust permits the Trustees to create additional portfolios
(funds). As of October 31, 1995 there is only one fund, Ocean State Tax Exempt
Fund (the Fund). The objective of the Fund is to seek to provide as high level
of current income, exempt from Rhode Island and Federal income taxes, as is
consistent with preservation of capital. The Fund invests primarily in
obligations which pay interest exempt from Rhode Island and Federal income
taxes. The Fund commenced operations on December 8, 1986.
At October 31, 1995, 92.50% of the Fund's net assets are invested in Rhode
Island municipal securities. Economic changes effecting the state in certain of
its public bodies and municipalities may affect the ability of the issuer to pay
the required principal and interest payments of the municipal securities. In
order to reduce risk associated with such factors on October 31, 1995, 54.98% of
the portfolio of investments have credit enhancements backing them which the
Fund relies on, such as: letters of credit, insurance, or guarantees. MBIA
provides the largest total enhancements for the Fund, representing 24.44% of the
portfolio.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
(A) SECURITY VALUATION: Debt securities are valued on the basis of
valuations furnished by a pricing service since such valuations are believed to
reflect the fair value of such securities. Valuations used by the Fund may be
determined without exclusive reliance on quoted prices and take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue and other local
market conditions. Securities having an original maturity of less than sixty
days are valued at cost adjusted for amortization of premiums and accretion of
discounts. Other securities are appraised in good faith at fair value using
methods determined by the Trustees and applied on a consistent basis. The
Trustees monitor the valuation of the Fund's municipal bonds through receipt of
periodic reports from the Adviser.
(B) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security
transactions are accounted for on the trade date (date the order to buy or sell
is executed). Interest income is recorded on the accrual basis. The specific
identification method is used for determining net realized gains and losses for
both financial statement and Federal income tax purposes.
(C) FEDERAL INCOME TAXES: The Fund's policy is to comply with the
provisions of the Internal Revenue Code available to regulated investment
companies and distribute to shareholders all of its net income, including any
net realized gain on investments. Accordingly, no provision for Federal income
tax or excise tax is necessary. At October 31, 1995 the Fund had approximately
$28,000 in capital loss carryforwards for federal tax purposes available to
offset future capital gains. These capital loss carryforwards will expire
October 31, 2002. Dividends received by the Fund from net interest on tax-exempt
municipal bonds are not includable by shareholders as gross income for Federal
income tax purposes, because the Fund intends to meet certain requirements of
the Internal
7
<PAGE> 8
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Code applicable to regulated investment companies which will enable the
Fund to pay exempt-interest dividends. The portion of such interest, if any,
earned on private activity bonds issued after August 7, 1986 may be considered a
tax preference item to shareholders.
(D) DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income
are declared daily and distributed monthly. Capital gains distributions, if any,
are declared and distributed annually. For the year ended October 31, 1995, the
Fund paid no distributions from capital.
NOTE 2 ADVISORY AND ADMINISTRATIVE SERVICES AND OTHER AFFILIATED TRANSACTIONS
Van Liew Capital Inc. is the Adviser and the Administrator to the Fund. The
Fund will pay Van Liew Capital Inc. at the following annual rates for the
adviser and administrator services, respectively:
.35 and .25 of 1% of the first $200 million of average daily net assets.
.30 and .20 of 1% of average daily net assets over $200 million.
The Fund does not pay fees to Trustees affiliated with the Adviser or to
any ofits officers. The Fund pays Trustees who are not interested persons of the
Fund an annual retainer plus $250 per meeting attended. The annual retainer at
October 31, 1995 was $2,000.
Legal fees and expenses of $15,739 were paid to a firm of which the Fund's
Secretary is a partner.
During the period November 1, 1994 through October 31, 1995 the Distributor
paid $37 in underwriter fees and received $5,389 in commissions for a total of
$5,352 as a result of Fund share sales.
NOTE 3 INVESTMENT TRANSACTIONS
During the period ending October 31, 1995 purchases and sales of investment
securities other than short-term investments aggregated $5,008,483 and
$4,868,842, respectively.
The aggregate cost of investments for Federal income tax purposes is
substantially the same as aggregate cost for financial statement purposes. At
October 31, 1995, gross unrealized appreciation on investment securities was
$2,490,689 and gross unrealized depreciation on investment securities was
$81,980.
8
<PAGE> 9
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4 SHARES OF BENEFICIAL INTEREST
<TABLE>
The authorized capital of the Fund consists of unlimited number of shares
of beneficial interest with par value of one cent per share. Transactions in
shares of beneficial interest were as follows:
<CAPTION>
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Balance 10/31/93........................................ 4,113,100 $41,177,315
Shares sold............................................. 571,065 6,074,624
Shares issued in reinvestment of dividends.............. 113,862 1,200,014
Shares redeemed......................................... (704,918) (7,463,704)
--------- -----------
Net decrease............................................ (19,991) (189,066)
--------- -----------
Balance 10/31/94........................................ 4,093,109 $40,988,249
========= ===========
Shares sold............................................. 259,900 $ 2,697,652
Shares issued in reinvestment of dividends.............. 108,243 1,119,237
Shares redeemed......................................... (393,399) (4,063,088)
--------- -----------
Net decreases........................................... (25,256) (246,199)
--------- -----------
Balance 10/31/95........................................ 4,067,853 $40,742,050
========= ===========
</TABLE>
NOTE 5 DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the Plan) pursuant to Rule 12b-1
(the "Rule") of the Investment Company Act of 1940 (the Act). The Rule provides
in substance that the Fund may not engage directly or indirectly in financing
any activity which is primarily intended to result in the sale of its shares
except pursuant to a plan adopted under the Under the Plan, the Fund is
authorized to pay for the printing of all prospectuses, statements of additional
information and reports and notices to shareholders, even those which are not
sent to existing shareholders. The Fund paid $5,719 under the plan during fiscal
1995.
9
<PAGE> 10
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS
AS OF OCTOBER 31, 1995
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES (99.10%)
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS (41.15%)
$ 595,000 Bristol County Water Authority MBIA Insured 7.125%,
11/1/16 Aaa/AAA $621,156
300,000 Bristol General Obligation MBIA Insured 5.80%,
10/1/06............................................ Aaa/AAA 316,125
100,000 Bristol General Obligation 7.00%, 12/1/08............ Baa1/NR 110,250
120,000 Bristol General Obligation MBIA Insured 6.00%,
12/15/10........................................... Aaa/AAA 125,550
250,000 Bristol General Obligation MBIA Insured 5.05%,
8/15/06............................................ Aaa/AAA 250,000
170,000 Burrillville General Obligation 7.40%, 1/15/04....... A/NR 184,450
185,000 Burrillville General Obligation 7.40%, 1/15/05....... A/NR 200,725
125,000 Burrillville General Obligation 7.60%, 1/15/08....... A/NR 136,094
300,000 Burrillville General Obligation MBIA Insured 5.75%,
10/15/17........................................... Aaa/AAA 301,125
75,000 Central Falls General Obligation 7.90%, 7/1/02....... Baa/NR 77,250
130,000 Coventry General Obligation FGIC Insured 7.25%,
11/1/10............................................ Aaa/AAA 144,300
40,000 Coventry General Obligation FGIC Insured 7.00%,
11/1/04............................................ Aaa/AAA 44,600
200,000 Cumberland General Obligation 6.80%, 7/15/08......... A-1/NR 213,250
165,000 Cumberland General Obligation MBIA Insured 5.70%,
10/1/11............................................ Aaa/AAA 167,063
175,000 Cumberland General Obligation MBIA Insured 5.70%,
10/1/12............................................ Aaa/AAA 176,968
300,000 East Providence General Obligation MBIA Insured
5.70%, 5/15/10..................................... Aaa/AAA 310,125
750,000 Foster/Glocester General Obligation AMBAC Insured
6.90%, 9/1/11...................................... Aaa/AAA 812,812
135,000 Jamestown General Obligation CGIC Insured 7.00%,
3/15/07............................................ Aaa/AAA 141,075
250,000 Kent County Water Auth. MBIA Insured 6.35%,
7/15/14............................................ Aaa/AAA 263,750
100,000 Lincoln General Obligation MBIA Insured 7.55%,
7/15/08............................................ Aaa/AAA 110,750
355,000 Lincoln General Obligation MBIA Insured 5.50%,
8/15/10............................................ Aaa/AAA 361,213
110,000 Little Compton General Obligation 7.00%, 1/15/09..... A-1/NR 119,625
100,000 Little Compton General Obligation 6.90%,1/15/08...... A-1/NR 108,125
120,000 Middletown General Obligation 7.00%, 2/15/08......... A-1/A 129,900
</TABLE>
10
<PAGE> 11
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS--CONTINUED
$ 100,000 Narragansett General Obligation MBIA Insured 5.30%,
9/15/09............................................ Aaa/AAA $100,125
200,000 Narragansett General Obligation Pre-refunded U.S.
Treasury 7.10%, 6/15/10............................ Baa/NR 221,250
210,000 Newport General Obligation MBIA Insured 6.50%,
8/15/06............................................ Aaa/AAA 232,837
100,000 Newport General Obligation 6.80%, 4/15/09............ A-1/NR 112,000
100,000 Newport General Obligation Pre-refunded U.S. Treasury
6.80%, 4/15/10..................................... A-1/NR 112,000
150,000 Newport General Obligation FGIC Insured 5.125%,
11/15/10........................................... Aaa/AAA 145,312
80,000 New Shoreham General Obligation MBIA Insured 7.60%,
1/1/07............................................. Aaa/AAA 84,400
100,000 New Shoreham General Obligation MBIA Insured 7.00%,
1/15/10............................................ Aaa/AAA 109,250
75,000 North Kingstown General Obligation 6.70%, 12/15/05... A/NR 83,812
80,000 North Kingstown General Obligation 6.80%, 12/15/06... A/NR 90,800
80,000 North Kingstown General Obligation 6.30%, 7/15/07.... A/NR 85,000
120,000 North Providence General Obligation MBIA Insured
6.00%, 10/01/09.................................... Aaa/AAA 125,700
75,000 North Smithfield General Obligation 7.00%, 9/1/08.... A-1/NR 80,531
100,000 Pawtucket General Obligation MBIA Insured 6.75%,
9/15/08............................................ Aaa/AAA 110,875
500,000 Pawtucket General Obligation CGIC Insured 6.0%,
3/15/15............................................ Aaa/AAA 508,125
500,000 Pawtucket General Obligation CGIC Insured Insured,
6.0%, 3/15/11...................................... Aaa/AAA 513,750
500,000 Pawtucket General Obligation CGIC Insured 6.0%,
3/15/13............................................ Aaa/AAA 510,625
500,000 Pawtucket General Obligation CGIC Insured, 6.0%,
3/15/12............................................ Aaa/AAA 513,125
30,000 Pawtucket General Obligation 7.90%, 7/1/0............ A/NR 35,362
300,000 Providence Public Bldg. Auth. CGIC Insured 7.75%,
6/15/08............................................ Aaa/AAA 325,500
200,000 Providence Public Bldg. Auth. 7.30%, 12/1/08......... Baa1/NR 219,250
300,000 Providence Public Bldg. Auth. 7.30%, 12/1/09......... Baa1/NR 326,250
500,000 Providence Public Bldg. Auth. CGIC Insured 7.25%,
12/15/10........................................... Aaa/AAA 554,375
750,000 Providence General Obligation MBIA Insured 6.75%,
1/15/11............................................ Aaa/AAA 811,875
</TABLE>
11
<PAGE> 12
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS--CONTINUED
$ 275,000 Smithfield General Obligation MBIA Insured 6.80%,
4/15/06............................................ Aaa/AAA $ 291,844
100,000 South Kingston General Obligation AMBAC Insured
5.00%, 11/15/08.................................... Aaa/AAA 99,625
700,000 Warwick General Obligation MBIA Insured 6.60%,
11/15/06........................................... Aaa/AAA 767,375
155,000 Warwick General Obligation FGIC Insured 7.20%,
11/15/08........................................... Aaa/AAA 171,081
225,000 Westerly General Obligation 7.00%, 1/15/06........... A-1/NR 243,281
100,000 Westerly General Obligation 7.00%, 1/15/09........... A-1/NR 106,875
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.80%, 6/1/03........................... A-1/NR 39,244
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.85%, 6/1/04........................... A-1/NR 39,638
800,000 Rhode Island Clean Water MBIA Insured 6.50%,
10/1/06............................................ Aaa/AAA 879,000
150,000 Rhode Island Clean Water MBIA Insured 5.30%,
10/1/07............................................ Aaa/AAA 154,500
600,000 Rhode Island Correctional Facility MBIA Insured
7.00%, 8/1/09...................................... Aaa/AAA 644,250
650,000 Rhode Island Depositors Economic Protection Corp.
MBIA Insured 6.55%, 8/1/10......................... Aaa/AAA 715,812
165,000 Rhode Island Depositors Economic Protection Corp.
CAPMAC Guaranteed 6.375%, 8/1/22................... Aaa/AAA 175,725
300,000 Rhode Island Depositors Economic Protection Corp.
5.75%, 8/1/12...................................... Baa1/A- 300,375
200,000 Rhode Island Public Building Auth. 8.20%, 2/1/08..... A/A 220,500
645,000 Rhode Island Public Building Auth. 7.60%, 2/1/09..... A/A 719,175
120,000 Rhode Island Public Building Auth. AMBAC Insured
5.25%, 2/1/10...................................... Aaa/AAA 116,400
150,000 Rhode Island Port Authority AMBAC Insured 6.5%,
6/1/08............................................. Aaa/AAA 164,438
250,000 Rhode Island Student Loan Auth. 6.20%, 12/1/09....... Aaa/NR 252,500
50,000 Rhode Island General Obligation 7.50%, 6/15/05....... A-1/AA- 52,060
125,000 Rhode Island Water Resources Fruit Hill Reservoir
MBIA Insured 7.05%, 9/15/07........................ Aaa/AAA 137,031
-----------
$17,729,139
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION (32.60%)
$ 55,000 Board of Governors CGIC Insured 6.00%, 9/15/08....... Aaa/AAA $ 60,088
150,000 Board of Governors CGIC Insured 6.125%, 9/15/10...... Aaa/AAA 165,000
</TABLE>
12
<PAGE> 13
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION--CONTINUED
$ 195,000 Board of Governors CGIC Insured 6.15%, 9/15/11....... Aaa/AAA $ 214,744
120,000 Brown University 6.75%, 9/1/16....................... Aa1/AA 127,050
200,000 Brown University 5.40%, 9/1/18....................... Aa/AA 194,250
125,000 Brown University 6.00%, 9/1/10....................... Aa/AA 129,688
200,000 Brown University 5.90%, 9/1/14....................... Aa1/AA 205,750
400,000 Bryant College MBIA Insured 6.50%, 6/1/05............ Aaa/AAA 439,500
100,000 Bryant College MBIA Insured 5.95%, 6/1/07............ Aaa/AAA 105,250
100,000 Bryant College MBIA Insured 6.20%, 6/1/13............ Aaa/AAA 103,000
100,000 Higher Education Authority CGIC Insured 7.375%,
9/15/09............................................ Aaa/AAA 112,375
25,000 Providence College Pre-refunded US Treasury 9.00%,
11/1/97............................................ NR/A- 25,500
150,000 Providence College 7.45%, 11/1/03.................... Aaa/NR 169,500
125,000 Providence College 7.50%, 11/1/04.................... Aaa/NR 141,405
120,000 Providence College 7.75%, 11/1/09.................... Aaa/NR 136,800
250,000 Providence College MBIA Insured 5.60%, 11/1/22....... Aaa/AAA 242,812
550,000 Rogers Williams College Connie Lee Insured 6.50%,
11/15/08........................................... NR/AAA 587,812
550,000 Roger Williams College Connie Lee Insured 6.625%,
11/15/11........................................... NR/AAA 581,625
320,000 Roger Williams College LOC-Fleet National 7.75%,
10/1/18............................................ A-1/NR 355,600
45,000 Roger Williams Hospital 9.375%, 7/1/04............... NR/BBB 46,250
1,290,000 South County Hospital 7.25%, 11/1/11................. NR/BBB+ 1,360,950
40,000 Roger Williams Hospital 7.75%, 7/1/16................ NR/BBB 42,000
350,000 Roger Williams Realty Corp. Collateral U.S. Treasury,
7.50%, 8/1/29...................................... NR/A+ 370,562
500,000 Salve Regina College Connie Lee Insured 6.25%,
3/15/13............................................ NR/AAA 514,375
400,000 Salve Regina College LOC Fleet National Bank 7.70%,
1/1/20............................................. NR/A 454,500
300,000 Salve Regina College Pre-refunded U.S. Treasury
Connie Lee Insured 6.30%, 3/15/20.................. NR/AAA 306,375
1,025,000 Johnson & Wales College Connie Lee Insured 5.75%,
4/1/12............................................. NR/AAA 1,025,000
600,000 Johnson & Wales College Connie Lee Insured 5.875%,
4/1/20............................................. NR/AAA 590,250
500,000 St. Antoine Residence LOC Allied Irish 6.75%,
11/15/18........................................... A-1/NR 514,375
285,000 Landmark Medical Center 7.625%, 7/1/99............... NR/BBB+ 309,581
</TABLE>
13
<PAGE> 14
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION--CONTINUED
$ 500,000 Landmark Medical Center 8.375%, 7/1/09............... NR/AAA $ 575,625
575,000 Kent County Hospital MBIA Insured 7.00%, 7/1/10...... Aaa/AAA 624,594
50,000 Kent County Hospital MBIA Insured 6.10%, 7/1/09...... Aaa/AAA 52,188
200,000 Memorial Hospital MBIA Insured 6.50%, 7/1/04......... Aaa/AAA 220,500
140,000 Miriam Hospital 7.00%, 4/1/06........................ NR/A 148,575
400,000 Miriam Hospital 6.35%, 4/1/08........................ NR/A 417,500
900,000 Miriam Hospital 7.25%, 4/1/11........................ NR/A 948,375
300,000 Rhode Island Hospital FGIC Insured 6.70%, 8/15/04.... Aaa/AAA 330,750
600,000 Women & Infants Hospital CGIC Insured 6.55%, 9/1/13.. Aaa/AAA 638,250
100,000 United Methodist Elder Care 7.50%, 11/1/14........... NR/A 110,000
250,000 Westerly Hospital 6.00%, 7/1/19...................... Baa/BBB+ 223,438
125,000 New England Tech Inst. Connie Lee Insured 6.00%,
3/1/15............................................. NR/AAA 125,469
-----------
$14,047,231
RHODE ISLAND HOUSING & MORTGAGE FINANCE CORPORATION (17.20%)
$ 10,000 8.90%, 1/1/97 FGIC Insured........................... Aaa/AAA $ 10,228
20,000 9.30%, 7/1/04 FGIC Insured........................... Aaa/AAA 20,400
50,000 7.625%, 10/1/04...................................... AA/A+ 52,188
100,000 8.25%, 10/1/07....................................... A-1/A+ 104,250
200,000 8.10%, 10/1/07....................................... A-1/A+ 208,000
200,000 5.65%, 10/1/07....................................... NR/A 199,250
300,000 8.00%, 10/1/08....................................... Aa/A+ 313,875
500,000 7.80%, 10/1/10, Series A............................. Aa/AA+ 529,375
50,000 7.50%, 7/1/10........................................ A-1/A+ 50,875
300,000 7.60%, 10/1/20....................................... NR/A 316,500
500,000 8.30%, 10/1/11....................................... AA/A+ 520,000
100,000 7.80%, 10/1/11....................................... AA/A+ 104,500
405,000 7.50%, 10/1/11....................................... Aa/AA+ 433,856
215,000 7.80%, 10/1/11....................................... AA/AA+ 224,675
35,000 7.75%, 10/1/16....................................... A-1/A+ 36,138
335,000 5.45%, 4/1/17........................................ Aa/AA 309,456
200,000 6.25%, 4/1/17........................................ Aa/AA+ 202,500
110,000 7.95%, 10/1/20....................................... NR/A 116,188
140,000 7.25%, 10/1/21....................................... Aa/Aa+ 147,525
385,000 7.875%, 10/1/21, MBIA Insured........................ Aaa/AAA 397,994
640,000 7.875%, 10/1/22...................................... Aa/AA+ 670,400
50,000 7.75%, 4/1/22........................................ Aa/AA+ 52,938
345,000 7.55%, 10/1/22....................................... Aa/AA+ 370,444
300,000 6.50%, 10/1/22....................................... Aa/AA+ 305,625
1,250,000 6.70%, 10/1/15....................................... Aa/AA+ 1,301,562
</TABLE>
14
<PAGE> 15
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND HOUSING & MORTGAGE FINANCE CORPORATION--CONTINUED
$ 300,000 6.50%, 4/1/27........................................ Aa/AA+ $ 304,500
105,000 6.85%, 4/1/27........................................ Aa/AA+ 109,725
-----------
$ 7,412,967
RHODE ISLAND INDUSTRIAL FACILITIES CORPORATION (1.55%)
$ 75,000 Smith Trucking Corp. LOC-Fleet National 9.00%,
8/1/96............................................. Baa/NR $ 76,797
100,000 Inge Corporation SBA GTD 9.125%, 10/1/00............. Aaa/NR 102,109
110,000 Meridian Printing LOC-Fleet National, 7.90%,
8/1/02............................................. Baa/NR 112,894
250,000 Mobil Oil 6.00%, 11/1/14............................. Aa2/AA 252,812
60,000 Blazing Graphics LOC-Fleet National 8.20%, 5/1/13.... Baa/NR 61,978
60,000 Blazing Graphics LOC-Fleet National 8.25%, 5/1/14.... Baa/NR 61,978
-----------
$ 668,568
-----------
TOTAL RHODE ISLAND BONDS (92.50%).................... $39,857,905
PUERTO RICO BONDS (6.37%)
$ 30,000 Puerto Rico Commonwealth MBIA Insured 7.125%,
7/1/02............................................. Aaa/AAA $ 32,138
500,000 Puerto Rico Commonwealth 7.75%, 7/1/06............... NR/AAA 555,625
200,000 Puerto Rico Commonwealth 7.75%, 7/1/13............... NR/AAA 222,250
40,000 Puerto Rico Aquaduct & Sewer MBIA Insured Escrowed to
Maturity 8.75%, 7/1/00............................. Aaa/AAA 47,500
50,000 Puerto Rico Electric BIG Insured 8.50%, 7/1/99....... Aaa/AAA 54,750
300,000 Puerto Rico Electric Power Auth. 8.00%, 7/1/08....... NR/AAA 335,250
100,000 Puerto Rico Highway 8.00%, 7/1/03.................... NR/AAA 111,750
200,000 Puerto Rico Highway 8.00%, 7/1/05.................... Aaa/AAA 223,500
225,000 Puerto Rico Highway 7.70%, 7/1/03.................... Baa1/A 261,281
285,000 Puerto Rico HFA LOC-Fugi Dev. Bk 7.50%, 10/1/15...... NR/AA 302,813
110,000 Puerto Rico Public Bldg. Auth. 7.875%, 7/1/07........ Aaa/AAA 119,075
200,000 Puerto Rico Public Improvement 7.90%, 7/1/04......... NR/AAA 211,344
200,000 Puerto Rico Public Improvement 8.00%, 7/1/07......... Baa1/A 223,250
40,000 Puerto Rico Public Building Auth. 7.875%, 7/1/07..... Aaa/AAA 43,300
-----------
TOTAL PUERTO RICO BONDS (6.37%)...................... $ 2,743,826
</TABLE>
15
<PAGE> 16
OCEAN STATE TAX EXEMPT FUND
<TABLE>
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- --------- ----------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
UNITED STATES VIRGIN ISLAND BONDS (.23%)
$ 50,000 Virgin Islands PFA LOC-Marine Midland 7.70%,
10/1/04............................................ NR/BBB $ 55,625
40,000 Virgin Islands Port Authority LOC-Marine Midland
8.10%, 10/1/05..................................... Baa/BBB 43,250
-----------
TOTAL U.S. VIRGIN ISLAND BONDS (.23%)................ $ 98,875
-----------
TOTAL INVESTMENTS (Cost $40,291,897) (93.51%)(a)..... $42,700,606
===========
<FN>
(a) Percentages indicated are based on net assets of $43,088,229 at October 31,
1995 (total investments plus cash and receivables less liabilities) which
corresponds to a net asset value per share of $10.59.
(b) The ratings indicates are the most current available. When bonds are rated
differently by Moody's and S&P, the higher rating has been reported. The
rating NR means it is not rated by Moody's or S&P.
(c) These municipal securities meet the four highest ratings assigned by Moody's
Investors Service, Inc. or Standard & Poor's Corp. or where not rated, are
determined by the Fund to be of comparable quality within the guidelines
approved by directors. Certain securities have credit enhancement features
backing them. Without these enhancement features the securities may or may
not meet the quality standards of other securities purchased by the Fund.
(See Note 1)
(d) Abbreviations used:
AMBAC -- American Municipal Bond Assurance Corp.
CGIC -- Capital Guaranty Insurance Co.
FGIC -- Financial Guaranty Insurance Co.
MBIA -- Municipal Bond Investors Assurance
LOC -- Letter of Credit
BIG -- Bond Investors Guaranty (subsidiary of MBIA)
SBA -- Small Business Administration
CAPMAC -- Capital Markets Assurance Corp.
</TABLE>
See Notes to Financial Statements.
16
<PAGE> 17
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Trustees
of Ocean State Tax Exempt Fund
We have audited the accompanying statement of assets and liabilities of
Ocean State Tax Exempt Fund (the portfolio of VLC Trust), including the schedule
of investments, as of October 31, 1995, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
seven years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of Ocean State Tax Exempt Fund for
the two fiscal periods ended October 31, 1988 and October 31, 1987 were audited
by other auditors whose report dated January 6, 1989 expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Ocean State Tax Exempt Fund (the portfolio of VLC Trust) at October
31, 1995, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the seven years in the period then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 1, 1995
17
<PAGE> 18
INVESTMENT ADVISER & [Ocean State Tax Exempt Fund Logo]
ADMINISTRATOR
Van Liew Capital Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
DISTRIBUTOR
Van Liew Securities, Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
CUSTODIAN
PNC Institutional Custody Services
Airport Business Center
200 Stevens Drive, Suite 440
Lester, Pennsylvania 19113
TRANSFER AGENT
PFPC, Inc.
P.O. Box 8950
Wilmington, Delaware 19899
INDEPENDENT AUDITORS ANNUAL REPORT
Ernst & Young LLP OCTOBER 31, 1995
200 Clarendon Street
Boston, Massachusetts 02116-5072
COUNSEL
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
TRUSTEES
Alfred B. Van Liew, Chairman
Milton C. Bickford, Jr.
Michael E. Hogue
Alice M. Macintosh
Richard A. Plotkin
John H. St. Sauveur
Thomas R. Weschler,
Vice Admiral, US Navy, Retired
OFFICERS INTEREST INCOME EXEMPT
Alfred B. Van Liew, President FROM FEDERAL AND RHODE
Samuel H. Hallowell, Vice President ISLAND INCOME TAXES
Kevin M. Oates, Treasurer FROM QUALITY MUNICIPAL
Margaret D. Farrell, Secretary BONDS.
