<PAGE> 1
[OCEAN STATE LOGO]
REPORT OF THE PRESIDENT
OCTOBER 31, 1996
We are proud to announce that October 31, 1996 marked the Fund's tenth
fiscal year. The Fund started in December of 1986 with $100,000 in assets which
has grown to $42.5 million today. It also is the oldest publicly traded Rhode
Island municipal bond fund. If one had invested $10,000 in the Fund at inception
and reinvested the monthly dividend that investment would be worth over $17,000
today*. During the past twelve months, the Fund's net asset value declined from
$10.59 to $10.53 for a loss of 0.57% on principal value.
In 1996 the bond market took a back seat to the rise in the stock market.
However, one must temper these results since historic returns of the stock
market have been subject to greater volatility than the bond market. If the
current environment of moderate growth and low inflation persists, and the
economy slows enough to significantly effect corporate earnings, then bond funds
may attract renewed interest.
Keep in mind that the focus and goal of your investment in the Fund is to
provide as high a level of current income as is consistent with preservation of
capital. For Rhode Island residents the Fund distributes monthly dividend income
free from state and federal taxes. We're proud of the Fund's return in a highly
competitive environment. Management remains committed to improving the quality
of the portfolio and maintaining the level of dividend income.
The sheltering of one's income from taxes is becoming increasingly
important. Worries over revision of our tax structure and a negative impact on
your municipal investments do not appear to be a threat as Washington's interest
in flat tax proposals and the like have waned. In addition, the focus on
managing the nation's deficit and recognition of this problem on the part of
both major political parties is a positive sign.
Our investment environment has changed tremendously since the Fund began
trading publicly. 1987 witnessed the worst decline in the stock market since the
market crash of 1929. In 1987 the 30 year treasury was yielding 7.48% compared
to today's 6.64% at our fund year end. In this changing environment the Fund has
met the challenge to provide a stabile long term investment vehicle. Though past
performance cannot predict future results, we look forward to the Fund's next
decade with optimism.
Very truly yours,
/s/ ALFRED B. VAN LIEW
-------------------------------
ALFRED B. VAN LIEW
President and Chairman of the
Board of Trustees
* Reflecting a 4% maximum sales charge
<PAGE> 2
OCEAN STATE TAX EXEMPT FUND
INVESTMENT PERFORMANCE REVIEW
AS OF OCTOBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRIOR SINCE INCEPTION
NOVEMBER 1, 1995 FISCAL YEAR NOVEMBER 1, 1991 DECEMBER 8, 1986
THROUGH ENDED THROUGH THROUGH
OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1996 OCTOBER 31, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
TOTAL RATE OF RETURN(B)
Based on:
Net Asset
Value.......... 4.89% 10.89% 7.59% 9.19%
Offering Price... .71% 6.46% 6.50% 8.42%
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
30-DAY CURRENT YIELD
Based on:
Net Asset
Value.......... 5.13% 5.26%
Offering Price... 4.92% 5.05%
30-DAY TAX-EQUIVALENT
YIELD(A)
Based on:
Net Asset
Value.......... 8.25% 8.46%
Offering Price... 7.92% 8.12%
</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 13.70 years as of October 31, 1996.
The average quality rating of the investments, in the following table was
Aa/AA (Moody's and Standard & Poor's bond rating services).
<TABLE>
PORTFOLIO QUALITY ANALYSIS
<CAPTION>
% OF TOTAL PORTFOLIO
-----------------------------------
AS OF AS OF
RATING 10-31-96 10-31-95
------------------------------ -------------- --------------
<S> <C> <C>
Aaa/AAA....................... 57.74% 56.06%
Aa/AA......................... 19.33% 16.90%
A............................. 17.12% 19.19%
Baa/BBB....................... 5.81% 7.85%
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 1996 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
STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost $40,269,930) (Note 1A).................. $ 42,371,095
Cash.......................................................................... 59,555
Interest receivable........................................................... 626,956
Receivable for fund shares sold............................................... 30,106
Prepaid Expenses.............................................................. 12,250
------------
Total Assets........................................................ $ 43,099,962
LIABILITIES
Distribution payable to shareholders.......................................... $ 92,951
Payable for securities purchased.............................................. 502,563
Accrued management fees....................................................... 21,879
Payable for fund shares redeemed.............................................. 15,139
Accrued expenses.............................................................. 11,112
------------
Total Liabilities................................................... $ 643,644
------------
Net Assets.......................................................... $ 42,456,318
============
Net Assets consist of:
Shares of beneficial interest at par ($.01/share)............................. $ 40,334
Additional paid-in capital (Note 4)........................................... 40,326,866
Accumulated net realized loss on investment transactions...................... (12,047)
Net unrealized appreciation of investments.................................... 2,101,165
------------
Total -- Representing Net Assets at Value for 4,033,431 Shares Outstanding.... $ 42,456,318
============
Computation of Net Asset Value & Offering Price:
Net Assets.................................................................... $ 42,456,318
Divided by number of shares outstanding....................................... 4,033,431
Net asset value............................................................... $10.53
======
Offering price................................................................ $10.97
======
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 4
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income (Note 1B)..................................................... $2,727,725
Expenses:
Adviser Fees (Note 2)........................................ $ 151,201
Administrator fees (Note 2).................................. 108,001
Legal fees and expenses...................................... 12,753
Trustees fees and expenses................................... 19,750
Transfer agent fees.......................................... 50,115
Custodian fees............................................... 20,963
Insurance.................................................... 4,970
Auditing..................................................... 27,500
Pricing...................................................... 4,468
Shareholder reports.......................................... 9,255
Distribution Expenses (Note 5)............................... 7,104
Miscellaneous expenses....................................... 5,308
Registration fees............................................ 1,275
----------
$ 422,663
----------
Net Investment Income............................................... 2,305,062
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain on Investments.................................. 16,530
Net Change in Unrealized Appreciation of Investments.............. (307,544)
----------
Net loss on investments....................................................... (291,014)
----------
Net Increase in Net Assets Resulting from Operations.......................... $2,014,048
==========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income................................ $ 2,305,062 $ 2,341,523
Net realized gain on investments..................... 16,530 97,223
Change in unrealized appreciation of net
investments........................................ (307,544) 1,903,481
----------- -----------
Net increase in net assets resulting from
operation.......................................... 2,014,048 4,342,227
Dividends and distributions to shareholders from:
Net investment income ($.56 per share in 1996 and
$.58 per share in 1995)............................ (2,305,645) (2,354,085)
Net Increase from fund share transactions (Note 4)... (340,314) (246,199)
----------- -----------
Total increase (decrease) in net assets......... (631,911) 1,741,943
NET ASSETS:
Beginning of year.................................... 43,088,229 41,346,286
----------- -----------
End of year (including $4,799 of dividends in excess
of net investment income in 1995................... $42,456,318 $43,088,229
=========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
OCEAN STATE TAX EXEMPT FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data includes selected data and other performance information
derived from the financial statements.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR 12/8/86
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
10/31/96 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> <C>
Per Share Operating
Performance
Net Asset Value,
Beginning of Year... $10.59 $10.10 $10.95 $10.32 $10.14 $ 9.73 $9.80 $9.74 $9.13 $10.18
Net Investment
income.............. .56 .58 .59 .56 .63 .64 .67 .62 .66 .62
Net realized and
unrealized gain
(loss) on
securities.......... (.06) .49 (.84) .63 .18 .41 (.09) .07 .62 (1.05)
------ ------ ------ ------ ------ ------ ----- ----- ----- ------
Total from Investment
Operations.......... .50 1.07 (.25) 1.19 .81 1.05 .58 .69 1.28 (.43)
------ ------ ------ ------ ------ ------ ----- ----- ----- ------
Less Distributions:
Dividends from net
investment income... (.56) (.58) (.59) (.56) (.63) (.64) (.65) (.63) (.66) (.62)
Distribution from net
realized gains...... (.00) (.00) (.01) (.00) (.00) (.00) (.00) (.00) (.01) (.00)
------ ------ ------ ------ ------ ------ ----- ----- ----- ------
Total
Distributions....... (.56) (.58) (.60) (.56) (.63) (.64) (.65) (.63) (.67) (.62)
------ ------ ------ ------ ------ ------ ----- ----- ----- ------
Net Asset Value End
of Year............. $10.53 $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............... 4.89% 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)............ $42,456 $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.............. .98% .98% .88% .81% .85% .92% 1.27% 1.36% 1.10% 1.15%(b)
Ratio of net
investment income to
average net
assets.............. 5.31% 5.58% 5.55% 5.70% 6.13% 6.40% 6.45% 6.34% 6.84% 6.95%(b)
Portfolio turnover... 13.30% 11.77% 8.48% 13.27% 36.29% 21.57% 10.16% 37.90% 45.58% 96.39%(b)
Adviser/Administrator
waived fees......... .00 .00 .01 .01 .01 .03 .02 .03 .08 .06
Fund expenses without
waiver.............. .10 .10 .10 .09 .10 .12 .12 .16 .19 .16
Net Investment Income
without waiver...... .56 .58 .58 .55 .62 .61 .65 .59 .58 .56
Ratio of Expenses to
average net assets
without waiver...... .98% .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...... 5.31% 5.58% 5.50% 5.58% 6.02% 6.15% 6.21% 6.02% 6.06% 6.24%(b)
</TABLE>
- ---------------
(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.
See Notes to Financial Statements
6
<PAGE> 7
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
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, 1996 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, 1996, 94.23% 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, 1996, 54.62% 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 24.23% 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 a trade date basis (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, 1996 the Fund had approximately
$12,000 in capital loss carryforwards for federal tax purposes available to
offset future capital gains. These capital loss carryforwards expire on 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
7
<PAGE> 8
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Federal income tax purposes, because the Fund intends to meet certain
requirements of the Internal 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, 1996, 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 of its 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, 1996 was $2,000.
Legal fees and expenses of $12,753 were paid to a firm of which the Fund's
Secretary is a partner.
During the period November 1, 1995 through October 31, 1996 the Distributor
received $6,522 in commissions as a result of Fund share sales.
NOTE 3 INVESTMENT TRANSACTIONS
During the period ending October 31, 1996 purchases and sales of investment
securities other than short-term investments aggregated $5,659,577 and
$5,697,240, 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, 1996, gross unrealized appreciation on investment securities was
$2,142,705 and gross unrealized depreciation on investment securities was
$41,540.
8
<PAGE> 9
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4 SHARES OF BENEFICIAL INTEREST
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:
<TABLE>
<CAPTION>
SHARES AMOUNT
--------- ------------
<S> <C> <C>
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 decrease............................................ (25,256) (246,199)
--------- ------------
Balance 10/31/95........................................ 4,067,853 $ 40,742,050
========= ============
Shares sold............................................. 382,864 $ 4,057,522
Shares issued in reinvestment of dividends.............. 106,236 1,120,409
Shares redeemed......................................... (523,522) (5,518,244)
--------- ------------
Net decreases........................................... (34,422) (340,313)
--------- ------------
Balance 10/31/96........................................ 4,033,431 $ 40,401,737
========= ============
</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 Rule. 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 $7,104 under the plan during fiscal
1996.
NOTE 6 RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended October 31, 1996, the Fund has reclassified the net
investment income in excess of dividends of $18,368 to additional
paid-in-capital. This represents the cumulative amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1996. This reclassification, which has no impact on the net asset value of
the Fund, is primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles.
9
<PAGE> 10
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
AS OF OCTOBER 31, 1995
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (NOTE 1)
- ---------- ----------------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES (99.80%)
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS (44.04%)
$ 100,000 Bristol General Obligation 7.00%, 12/1/08............ Baa1/NR $ 108,750
120,000 Bristol General Obligation MBIA Insured 6.00%,
12/15/10........................................... Aaa/AAA 126,000
250,000 Bristol General Obligation MBIA Insured 5.05%,
8/15/06............................................ Aaa/AAA 249,375
300,000 Burrillville General Obligation MBIA Insured 5.75%,
10/15/17........................................... Aaa/AAA 301,125
200,000 Burrillville General Obligation FGIC Insured 5.70%,
5/1/11............................................. Aaa/AAA 205,500
75,000 Central Falls General Obligation 7.90%, 7/1/02....... Baa/NR 76,687
130,000 Coventry General Obligation FGIC Insured 7.25%,
11/1/10............................................ Aaa/AAA 142,187
460,000 Cranston General Obligation MBIA Insured 5.00%,
6/15/02............................................ Aaa/AAA 468,050
200,000 Cumberland General Obligation 6.80%, 7/15/08......... A-1/NR 210,000
165,000 Cumberland General Obligation MBIA Insured 5.70%,
10/1/11............................................ Aaa/AAA 166,856
175,000 Cumberland General Obligation MBIA Insured 5.70%,
10/1/12............................................ Aaa/AAA 176,969
300,000 East Providence General Obligation MBIA Insured
5.70%, 5/15/10..................................... Aaa/AAA 308,625
1,250,000 Foster/Glocester General Obligation AMBAC Insured
6.90%, 9/1/11...................................... Aaa/AAA 1,351,563
135,000 Jamestown General Obligation CGIC Insured 7.00%,
3/15/07............................................ Aaa/AAA 138,544
250,000 Kent County Water Auth. MBIA Insured 6.35%, 7/15/14.. Aaa/AAA 267,187
100,000 Lincoln General Obligation MBIA Insured 7.55%,
7/15/08............................................ Aaa/AAA 108,000
355,000 Lincoln General Obligation MBIA Insured 5.50%,
8/15/10............................................ Aaa/AAA 359,881
300,000 Lincoln General Obligation FGIC Insured 5.60%,
8/1/12............................................. Aaa/AAA 301,500
110,000 Little Compton General Obligation 7.00%,1/15/09...... A-1/NR 117,975
100,000 Little Compton General Obligation 6.90%,1/15/08...... A-1/NR 106,750
120,000 Middletown General Obligation 7.00%, 2/15/08......... A-1/A 127,200
100,000 Narragansett General Obligation MBIA Insured 5.30%,
9/15/09............................................ Aaa/AAA 99,750
200,000 Narragansett General Obligation Pre-refunded U.S.
Treasury AMBAC Insured 7.10%, 6/15/10.............. Aaa/NR 217,000
</TABLE>
10
<PAGE> 11
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<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
$ 210,000 Newport General Obligation MBIA Insured 6.50%,
8/15/06............................................ Aaa/AAA $ 229,950
100,000 Newport General Obligation 6.80%, 4/15/09............ A-1/NR 110,375
100,000 Newport General Obligation Pre-refunded U.S. Treasury
6.80%, 4/15/10..................................... A-1/NR 110,375
80,000 New Shoreham General Obligation MBIA Insured 7.60%,
1/1/07............................................. Aaa/AAA 81,973
100,000 New Shoreham General Obligation MBIA Insured 7.00%,
1/15/10............................................ Aaa/AAA 107,625
75,000 North Kingstown General Obligation 6.70%, 12/15/05... A/NR 82,594
80,000 North Kingstown General Obligation 6.80%, 12/15/06... A/NR 89,700
80,000 North Kingstown General Obligation 6.30%, 7/15/07.... A/NR 84,500
120,000 North Providence General Obligation MBIA Insured
6.00%, 10/01/09.................................... Aaa/AAA 125,250
100,000 Pawtucket General Obligation MBIA Insured 6.75%,
9/15/08............................................ Aaa/AAA 109,625
500,000 Pawtucket General Obligation CGIC Insured 6.0%,
3/15/15............................................ Aaa/AAA 515,625
500,000 Pawtucket General Obligation CGIC Insured Insured,
6.0%, 3/15/11...................................... Aaa/AAA 520,625
500,000 Pawtucket General Obligation CGIC Insured 6.0%,
3/15/13............................................ Aaa/AAA 515,625
500,000 Pawtucket General Obligation CGIC Insured, 6.0%,
3/15/12............................................ Aaa/AAA 518,125
300,000 Providence Public Bldg. Auth. FSA Insured 5.10%,
12/15/08........................................... Aaa/AAA 292,500
200,000 Providence Public Bldg. Auth. 7.30%, 12/1/08......... Baa1/NR 226,750
300,000 Providence Public Bldg. Auth. 7.30%, 12/1/09......... Baa1/NR 340,125
500,000 Providence Public Bldg. Auth. CGIC Insured 7.25%,
12/15/10........................................... Aaa/AAA 549,375
750,000 Providence General Obligation MBIA Insured 6.75%,
1/15/11............................................ Aaa/AAA 801,563
200,000 Smithfield General Obligation MBIA Insured 6.50%,
4/15/02............................................ Aaa/AAA 209,500
275,000 Smithfield General Obligation MBIA Insured 6.80%,
4/15/06............................................ Aaa/AAA 287,375
100,000 South Kingston General Obligation AMBAC Insured
5.00%, 11/15/08.................................... Aaa/AAA 98,250
</TABLE>
11
<PAGE> 12
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<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
$ 700,000 Warwick General Obligation MBIA Insured 6.60%,
11/15/06........................................... Aaa/AAA $ 761,250
155,000 Warwick General Obligation FGIC Insured 7.20%,
11/15/08........................................... Aaa/AAA 168,175
225,000 Westerly General Obligation 7.00%, 1/15/06........... A-1/NR 239,344
100,000 Westerly General Obligation 7.00%, 1/15/09........... A-1/NR 106,250
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.80%, 6/1/03........................... A-1/NR 38,587
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.85%, 6/1/04........................... A-1/NR 38,937
800,000 Rhode Island Clean Water MBIA Insured 6.50%,
10/1/06............................................ Aaa/AAA 870,000
150,000 Rhode Island Clean Water MBIA Insured 5.30%,
10/1/07............................................ Aaa/AAA 153,375
600,000 Rhode Island Correctional Facility MBIA Insured
7.00%, 8/1/09...................................... Aaa/AAA 637,500
650,000 Rhode Island Depositors Economic Protection Corp.
MBIA Insured 6.55%, 8/1/10......................... Aaa/AAA 721,500
165,000... Rhode Island Depositors Economic Protection Corp.
CAPMAC Guaranteed 6.375%, 8/1/22................... Aaa/AAA 179,644
500,000... Rhode Island Depositors Economic Protection Corp.
Escrowed to Maturity 5.75%, 8/1/21................. NR/A- 506,875
200,000 Rhode Island Public Building Auth. 8.20%, 2/1/08..... A/A 213,500
645,000 Rhode Island Public Building Auth. 7.60%, 2/1/09..... A/A 700,631
125,000 Rhode Island Public Building Auth. AMBAC Insured
5.20%, 2/1/06...................................... Aaa/AAA 125,625
150,000 Rhode Island Public Building Auth. AMBAC Insured
5.25%, 2/1/10...................................... Aaa/AAA 146,813
150,000 Rhode Island Port Authority AMBAC Insured 6.5%,
6/1/08............................................. Aaa/AAA 163,688
250,000 Rhode Island Student Loan Auth. 6.20%, 12/1/09....... Aaa/NR 251,875
250,000 Rhode Island General Obligation FGIC Insured 7.00%,
7/15/04............................................ Aaa/AAA 284,375
5,000 Rhode Island General Obligation 7.50%, 6/15/05....... A-1/AA- 5,100
500,000 Rhode Island General Obligation MBIA Insured 5.75%,
8/1/15............................................. Aaa/AAA 505,625
125,000 Rhode Island Water Resources Fruit Hill Reservoir
MBIA Insured 7.05%, 9/15/07........................ Aaa/AAA 134,688
-----------
$18,696,236
</TABLE>
12
<PAGE> 13
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<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 (30.35%)
$ 150,000 Board of Governors CGIC Insured 6.125%, 9/15/10...... Aaa/AAA $ 163,500
195,000 Board of Governors CGIC Insured 6.15%, 9/15/11....... Aaa/AAA 212,794
120,000 Brown University 6.75%, 9/1/16....................... Aa-1/AA 125,550
200,000 Brown University 5.40%, 9/1/18....................... Aa-1/AA 195,250
375,000 Brown University 6.00%, 9/1/10....................... Aa-1/AA 389,062
200,000 Brown University 5.90%, 9/1/14....................... Aa-1/AA 205,000
400,000 Bryant College MBIA Insured 6.50%, 6/1/05............ Aaa/AAA 433,500
100,000 Bryant College MBIA Insured 5.95%, 6/1/07............ Aaa/AAA 104,250
100,000 Bryant College MBIA Insured 6.20%, 6/1/13............ Aaa/AAA 103,750
100,000 Higher Education Authority CGIC Insured 7.375%,
9/15/09............................................ Aaa/AAA 110,000
150,000 Providence College 7.45%, 11/1/03.................... Aaa/NR 165,563
125,000 Providence College 7.50%, 11/1/04.................... Aaa/NR 138,125
120,000 Providence College 7.75%, 11/1/09.................... Aaa/NR 133,500
550,000 Roger Williams College Connie Lee Insured 6.50%,
11/15/08........................................... NR/AAA 583,688
550,000 Roger Williams College Connie Lee Insured 6.625%,
11/15/11........................................... NR/AAA 584,375
320,000 Roger Williams College LOC-Fleet National 7.75%,
10/1/18............................................ A-1/NR 346,800
1,290,000 South County Hospital 7.25%, 11/1/11................. NR/BBB+ 1,352,888
345,000 Roger Williams Realty Corp. Collateral U.S. Treasury,
7.50%, 8/1/29...................................... NR/AA- 361,819
500,000 Salve Regina College Connie Lee Insured 6.25%,
3/15/13............................................ NR/AAA 518,750
400,000 Salve Regina College LOC Fleet National Bank 7.70%,
1/1/20............................................. NR/A 444,000
300,000 Salve Regina College Pre-refunded U.S. Treasury
Connie Lee Insured 6.30%, 3/15/20.................. NR/AAA 310,125
1,025,000 Johnson & Wales College Connie Lee Insured 5.75%,
4/1/12............................................. NR/AAA 1,030,125
500,000 St. Antoine Residence LOC Allied Irish 6.75%,
11/15/18........................................... A-1/NR 528,125
220,000 Landmark Medical Center 7.625%, 7/1/99............... NR/BBB+ 232,100
500,000 Landmark Medical Center 8.375%, 7/1/09............... NR/AAA 558,750
575,000 Kent County Hospital MBIA Insured 7.00%, 7/1/10...... Aaa/AAA 623,156
200,000 Memorial Hospital MBIA Insured 6.50%, 7/1/04......... Aaa/AAA 217,500
140,000 Miriam Hospital 7.00%, 4/1/06........................ NR/A 147,000
400,000 Miriam Hospital 6.35%, 4/1/08........................ NR/A 416,000
</TABLE>
13
<PAGE> 14
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<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
$ 900,000 Miriam Hospital 7.25%, 4/1/11........................ NR/A $ 939,375
300,000 Rhode Island Hospital FGIC Insured 6.70%, 8/15/04.... Aaa/AAA 325,875
600,000 Women & Infants Hospital CGIC Insured 6.55%, 9/1/13.. Aaa/AAA 647,250
100,000 United Methodist Elder Care 7.50%, 11/1/14........... NR/A 109,375
125,000 New England Tech Inst. Connie Lee Insured 6.00%,
3/1/15............................................. NR/AAA 127,031
-----------
$12,883,951
RHODE ISLAND HOUSING & MORTGAGE FINANCE CORPORATION (18.76%)
$ 5,000 9.30%, 7/1/04 FGIC Insured........................... Aaa/AAA $ 5,012
45,000 7.625%, 10/1/04...................................... AA/A+ 46,575
100,000 8.25%, 10/1/07....................................... A-1/A+ 103,044
200,000 8.10%, 10/1/07....................................... A-1/A+ 205,830
200,000 5.65%, 10/1/07....................................... NR/A 200,250
300,000 8.00%, 10/1/08....................................... Aa/AA+ 311,250
500,000 7.80%, 10/1/10, Series A............................. Aa/AA+ 524,375
50,000 7.50%, 7/1/10........................................ A-1/A+ 50,375
300,000 7.60%, 10/1/20....................................... NR/A 313,875
160,000 8.30%, 10/1/11....................................... Aa/A+ 168,000
100,000 7.80%, 10/1/11....................................... Aa/A+ 103,500
395,000 7.50%, 10/1/11....................................... Aa/AA+ 419,194
210,000 7.80%, 10/1/11....................................... Aa/AA+ 219,975
200,000 5.70%, 4/1/15........................................ Aa/AA+ 199,000
35,000 7.75%, 10/1/16....................................... A-1/A+ 35,700
500,000 5.75%, 4/1/17........................................ Aa/AA+ 498,125
200,000 6.25%, 4/1/17........................................ Aa/AA+ 202,750
110,000 7.95%, 10/1/20....................................... NR/A 115,087
140,000 7.25%, 10/1/21....................................... Aa/Aa+ 147,350
375,000 7.875%, 10/1/21, MBIA Insured........................ Aaa/AAA 384,844
640,000 7.875%, 10/1/22...................................... Aa/AA+ 669,600
50,000 7.75%, 4/1/22........................................ Aa/AA+ 52,437
345,000 7.55%, 10/1/22....................................... Aa/AA+ 366,994
300,000 6.50%, 10/1/22....................................... Aa/AA+ 310,125
1,250,000 6.70%, 10/1/15....................................... Aa/AA+ 1,304,687
500,000 6.15%, 4/1/17........................................ Aa/AA+ 500,625
85,000 5.875%, 4/1/25....................................... Aa/AA+ 85,000
300,000 6.50%, 4/1/27........................................ Aa/AA+ 310,125
</TABLE>
14
<PAGE> 15
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<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
$ 105,000 6.85%, 4/1/27........................................ Aa/AA+ $ 109,987
-----------
$ 7,963,691
RHODE ISLAND INDUSTRIAL FACILITIES CORPORATION (1.09%)
$ 80,000 Inge Corporation SBA GTD 9.125%, 10/1/00............. Aaa/NR $ 81,714
250,000 Mobil Oil 6.00%, 11/1/14............................. Aa-2/AA 257,500
60,000 Blazing Graphics LOC-Fleet National 8.20%, 5/1/13.... Baa/NR 61,662
60,000 Blazing Graphics LOC-Fleet National 8.25%, 5/1/14.... Baa/NR 61,662
-----------
$ 462,538
-----------
TOTAL RHODE ISLAND BONDS (94.23%).................... $40,006,416
-----------
PUERTO RICO BONDS (5.57%)
$ 30,000 Puerto Rico Commonwealth MBIA Insured 7.125%,
7/1/02............................................. Aaa/AAA $ 31,303
500,000 Puerto Rico Commonwealth 7.75%, 7/1/06............... NR/AAA 540,000
200,000 Puerto Rico Commonwealth 7.75%, 7/1/13............... NR/AAA 216,000
300,000 Puerto Rico Electric Power Auth. 8.00%, 7/1/08....... NR/AAA 324,750
100,000 Puerto Rico Highway 8.00%, 7/1/03.................... NR/AAA 108,250
200,000 Puerto Rico Highway 8.00%, 7/1/05.................... NR/AAA 216,500
225,000 Puerto Rico Highway 7.70%, 7/1/03.................... Baa1/AAA 254,531
285,000 Puerto Rico HFA LOC-Fugi Dev. Bk 7.50%, 10/1/15...... NR/AA 299,606
110,000 Puerto Rico Public Bldg. Auth. 7.875%, 7/1/07........ Aaa/AAA 115,309
200,000 Puerto Rico Public Improvement 8.00%, 7/1/07......... Baa1/A 216,500
40,000 Puerto Rico Public Building Auth. 7.875%, 7/1/07..... Aaa/AAA 41,930
-----------
TOTAL PUERTO RICO BONDS (5.57%)...................... $ 2,364,679
-----------
TOTAL INVESTMENTS (Cost $40,269,930)
(94.85%)(a)........................................ $42,371,095
===========
</TABLE>
(a) Percentages indicated are based on net assets of $42,456,318 at October 31,
1996 (total investments plus cash and receivables less liabilities) which
corresponds to a net asset value per share of $10.53.
(b) The ratings indicated 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
15
<PAGE> 16
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
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:
<TABLE>
<C> <C> <S>
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 (a portfolio of VLC Trust), including the schedule
of investments, as of October 31, 1996, 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
eight 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, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Ocean State Tax Exempt Fund (a portfolio of VLC Trust) at October
31, 1996, 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 financial
highlights for each of the eight years in the period then ended in conformity
with generally accepted accounting principles.
[Ernst & Young LLP SIG]
Boston, Massachusetts
December 3, 1996
17
<PAGE> 18
INVESTMENT ADVISER &
ADMINISTRATOR
Van Liew Capital Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903 [OCEAN STATE LOGO]
DISTRIBUTOR
Van Liew Securities, Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
ANNUAL REPORT
CUSTODIAN OCTOBER 31, 1996
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 INTEREST INCOME EXEMPT
Ernst & Young LLP FROM FEDERAL AND RHODE
200 Clarendon Street ISLAND INCOME TAXES
Boston, MA 02116-5072 FROM QUALITY MUNICIPAL
BONDS.
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
Alfred B. Van Liew, President
Samuel H. Hallowell, Vice
President
Joseph J. Healy, Vice President
Kevin M. Oates, Treasurer
Margaret D. Farrell, Secretary
