<PAGE> 1
Ocean State LOGO
REPORT OF THE PRESIDENT
APRIL 30, 1998
Maybe this time around things are different! We have argued for a long time
that the general trend in interest rates is to lower levels based primarily on
our beliefs that U.S. economic growth is slowing, inflation will remain
moderate, and monetary policy will remain on hold. We are approaching the eighth
year of economic expansion, a level of prosperity that has not been achieved in
decades, and it appears that the stage is set for a continuance of the current
trend. The ballooning of the Asian crisis should pre-empt any dramatic shift by
the Federal Reserve to tighten monetary policy, and it may force them to lower
rates if attempts to staunch the bleeding abroad lead to widespread discounting
of foreign goods and services. The slowdown in quarter-to-quarter profit growth
in American industry, not surprising given the maturity of the economic cycle,
has sent jitters through the stock markets and served to highlight the relative
attractiveness of municipal bond investments. A 4-5% tax exempt current yield
with low volatility compares vary favorably with a 2 1/2% inflation rate on its
surface alone.
Prevailing wisdom at the beginning of the year predicted that a stock
investor would earn roughly 10% over the next twelve months. Unless there is a
sharp rise in rates, a municipal investor's after tax total return could be
close to that with significantly less principal risk. For example, someone with
a 31% combined Federal and State tax bracket earning a 5.13% double tax-free
return, which the fund's shareholders were earning at April 30, 1998, is
achieving the equivalent of a 8.25% taxable return.
We are also heartened by the continued improvement in the economic climate
in Rhode Island. We closely monitor the health of our State and its cities and
towns because their fiscal well-being has a direct impact on the value of the
Fund's investment in their debt. Although many of the issuers of bonds held in
the Ocean State portfolio and elsewhere obtain insurance to guarantee the timely
payment of interest and principal there has never been a large scale test of an
insurer's ability to cover their obligations in a widespread economic slowdown.
Ultimately it is the issuer's fiscal stability that counts. In addition to
monitoring the fiscal health of our State, we also strive to enhance the safety
of our portfolio through a wide diversification amongst different issues. For
example, your portfolio currently owns 136 different issues representing 36
cities, towns, and government entities in addition to bonds issued through the
RI Health and Education Building Corporation, RI Housing & Mortgage Finance
Corporation, RI Industrial Facilities Corporation and Puerto Rico. From these
groups only two issuers represent more than 5% of the total market value of the
portfolio. We do our homework so you can sleep well at night.
Very truly yours,
/s/ Alfred B. Van Liew
Alfred B. Van Liew
President and Chairman of the
Board of Trustees
<PAGE> 2
OCEAN STATE TAX EXEMPT FUND
INVESTMENT PERFORMANCE REVIEW
AS OF APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRIOR
NOVEMBER 1, 1997 FISCAL YEAR MAY 1, 1993 MAY 1, 1988
THROUGH ENDED THROUGH THROUGH
APRIL 30, 1998 OCTOBER 31, 1997 APRIL 30, 1998 APRIL 30, 1998
---------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
TOTAL RATE OF RETURN(B)
Based on:
Net Asset Value........... 1.78% 6.97% 5.66% 6.35%
Offering Price............ (2.33%) 2.68% 4.79% 5.97%
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
APRIL 30, 1998 OCTOBER 31, 1997
-------------- -----------------
<S> <C> <C> <C> <C>
30-DAY CURRENT YIELD
Based on:
Net Asset Value........... 5.13% 5.03%
Offering Price............ 4.92% 4.83%
30-DAY TAX-EQUIVALENT YIELD(A)
Based on:
Net Asset Value........... 8.25% 8.09%
Offering Price............ 7.92% 7.77%
</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 12.56 years as of April 30, 1998.
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
<TABLE>
<CAPTION>
% OF TOTAL PORTFOLIO
-----------------------
AS OF AS OF
RATING 4-30-98 10-31-97
------ ------- --------
<S> <C> <C>
Aaa/AAA.............................. 60.92% 62.05%
Aa/AA................................ 22.16% 20.83%
A.................................... 15.08% 14.98%
Baa/BBB.............................. 1.84% 2.14%
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 1998 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 APRIL 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost $38,080,552) (Note
1A)....................................................... $40,426,188
Cash........................................................ 117,925
Interest receivable......................................... 595,146
Receivable for fund shares sold............................. 41,827
-----------
Total Assets...................................... $41,181,086
LIABILITIES
Distribution payable to shareholders........................ $ 81,860
Accrued management fees..................................... 20,202
Accrued expenses............................................ 13,790
Payable for fund shares redeemed............................ 10,570
-----------
Total Liabilities................................. $ 126,422
-----------
Net Assets........................................ $41,054,664
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share)........... $ 38,748
Additional paid-in capital (Note 4)......................... 38,644,476
Undistributed net investment income......................... 14,397
Accumulated net realized gain on investment transactions.... 11,407
Net unrealized appreciation of investments.................. 2,345,636
-----------
Total -- Representing Net Assets at Value for 3,874,773
Shares Outstanding........................................ $41,054,664
===========
Computation of Net Asset Value & Offering Price:
Net Assets.................................................. $41,054,664
Divided by number of shares outstanding..................... 3,874,773
Net asset value............................................. $ 10.60
===========
Offering price.............................................. $ 11.04
===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 4
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income (Note 1B).............................................. $1,271,265
Expenses:
Adviser Fees (Note 2).................................. $ 72,766
Administrator fees (Note 2)............................ 51,976
Transfer agent fees.................................... 19,018
Auditing fees.......................................... 14,200
Trustees fees and expenses............................. 10,250
Custodian fees......................................... 6,593
Legal fees and expenses................................ 14,892
Shareholder reports.................................... 8,631
Distribution expenses (Note 5)......................... 4,119
Insurance.............................................. 592
Pricing fees........................................... 1,850
Miscellaneous expenses................................. 1,500
Registration fees...................................... 825
---------
$ 207,212
----------
Net Investment Income........................................ $1,064,053
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investments............................ $ 11,404
Net Change in Unrealized Depreciation of Investments........ (366,342)
---------
Net Realized and Unrealized Loss on Investments........................ (354,938)
----------
Net Increase in Net Assets Resulting from Operations................... $ 709,115
==========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
OCEAN STATE TAX EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR
ENDED ENDED
APRIL 30, 1998 OCTOBER 31, 1997
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income.................................. $ 1,064,053 $ 2,205,786
Net realized gain on investments....................... 11,404 42,174
Change in unrealized appreciation (depreciation) of
investments.......................................... (366,342) 610,813
----------- -----------
Net increase in net assets resulting from operations... 709,115 2,858,773
Dividends and distributions to shareholders from:
Net investment income ($.27 per share in 1998 and $.57
per share in 1997)................................... (1,064,053) (2,205,786)
Capital Gain ($.01 per share in 1998).................. (30,119) 0
Net decrease from fund share transactions (Note 4)..... (185,968) (1,483,616)
----------- -----------
Total decrease in net assets...................... (571,025) (830,629)
NET ASSETS:
Beginning of year...................................... 41,625,689 42,456,318
----------- -----------
End of year(1)......................................... 41,054,664 41,625,689
----------- -----------
(1)Including undistributed net investment income....... $ 14,397 $ 14,397
=========== ===========
</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>
SIX FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
MONTHS YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
4/30/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 10/31/92 10/31/91
------- -------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Year... $10.69 $10.53 $10.59 $10.10 $10.95 $10.32 $10.14 $ 9.73
Net Investment income................ .27 .57 .56 .58 .59 .56 .63 .64
Net realized and unrealized gain
(loss) on securities............... (.08) .16 (.06) .49 (.84) .63 .18 .41
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations..... .19 .73 .50 1.07 (.25) 1.19 .81 1.05
------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment
income............................. (.27) (.57) (.56) (.58) (.59) (.56) (.63) (.64)
Distribution from net realized
gains.............................. (.01) (.00) (.00) (.00) (.01) (.00) (.00) (.00)
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.................. (.28) (.57) (.56) (.58) (.60) (.56) (.63) (.64)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value End of Year.......... $10.60 $10.69 $10.53 $10.59 $10.10 $10.95 $10.32 $10.14
====== ====== ====== ====== ====== ====== ====== ======
Total investment return at
Net Asset Value(b)................. 1.78% 6.97% 4.89% 10.89% (2.04)% 12.35% 8.00% 10.96%
Ratios and Supplemental Data: Net
Assets, End of Year
(000's omitted).................... $41,055 $41,626 $42,456 $43,088 $41,346 $45,043 $36,854 $29,750
Ratio of expenses to average net
assets............................. .49% .99% .98% .98% .88% .81% .85% .92%
Ratio of net investment income to
average net assets................. 2.54% 5.25% 5.31% 5.58% 5.55% 5.70% 6.13% 6.40%
Portfolio turnover................... 4.55% 2.27% 13.30% 11.77% 8.48% 13.27% 36.29% 21.57%
Adviser/Administrator waived fees per
share.............................. .00 .00 .00 .00 .01 .01 .01 .03
Fund expenses without waiver per
share.............................. .05 .11 .10 .10 .10 .09 .10 .12
Net investment income without waiver
per share.......................... .27 .57 .56 .58 .58 .55 .62 .61
Ratio of Expenses to average net
assets without waiver.............. .49% .99% .98% .98% .93% .81% .95% 1.17%
Ratio of net investment income to
average net assets without
waiver............................. 2.54% 5.25% 5.31% 5.58% 5.50% 5.58% 6.02% 6.15%
<CAPTION>
FISCAL FISCAL FISCAL
YEAR YEAR YEAR
ENDED ENDED ENDED
10/31/90(A) 10/31/89 10/31/88
----------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Year... $ 9.80 $ 9.74 $ 9.13
Net Investment income................ .67 .62 .66
Net realized and unrealized gain
(loss) on securities............... (.09) .07 .62
------ ------ ------
Total from Investment Operations..... .58 .69 1.28
------ ------ ------
Less Distributions:
Dividends from net investment
income............................. (.65) (.63) (.66)
Distribution from net realized
gains.............................. (.00) (.00) (.01)
------ ------ ------
Total Distributions.................. (.65) (.63) (.67)
------ ------ ------
Net Asset Value End of Year.......... $ 9.73 $ 9.80 $ 9.74
====== ====== ======
Total investment return at
Net Asset Value(b)................. 5.89% 7.10% 14.30%
Ratios and Supplemental Data: Net
Assets, End of Year
(000's omitted).................... $20,675 $12,159 $9,745
Ratio of expenses to average net
assets............................. 1.27% 1.36% 1.10%
Ratio of net investment income to
average net assets................. 6.45% 6.34% 6.84%
Portfolio turnover................... 10.16% 37.90% 45.58%
Adviser/Administrator waived fees per
share.............................. .02 .03 .08
Fund expenses without waiver per
share.............................. .12 .16 .19
Net investment income without waiver
per share.......................... .65 .59 .58
Ratio of Expenses to average net
assets without waiver.............. 1.51% 1.69% 1.88%
Ratio of net investment income to
average net assets without
waiver............................. 6.21% 6.02% 6.06%
</TABLE>
(a) 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.
(b) 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
APRIL 30, 1998
(UNAUDITED)
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 nondiversified, 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
April 30, 1998 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 April 30, 1998, 96.62% 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 April 30, 1998, 55.64% 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 25.45% of the
portfolio.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(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 subchapter M 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. Dividends paid by the Fund from
net
7
<PAGE> 8
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 Revenue Code applicable to regulated
investment companies which will enable the Fund to pay tax-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 period ended April 30, 1998, the
Fund paid $30,119 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 April 30, 1998 was $2,000.
Legal fees and expenses of $14,892 were paid to a firm of which the Fund's
Secretary is a partner.
During the period November 1, 1997 through April 30, 1998 the Distributor
received $1,256 in commissions as a result of Fund share sales.
NOTE 3 INVESTMENT TRANSACTIONS
During the period ended April 30, 1998 purchases and sales of investment
securities other than short-term investments aggregated $1,874,047 and
$2,155,417, respectively. The aggregate cost of investments for Federal income
tax purposes is substantially the same as the aggregate cost for financial
statement purposes. At April 30, 1998, gross unrealized appreciation on
investment securities was $2,374,500 and gross unrealized depreciation on
investment securities was $28,864.
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 and in dollars were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------ ------
<S> <C> <C>
Balance at 10/31/96..................................... 4,033,431 $40,401,737
Shares sold............................................. 240,416 2,549,515
Shares issued in reinvestment of dividends.............. 102,029 1,081,012
Shares redeemed......................................... (483,087) (5,114,146)
--------- -----------
Net decrease............................................ (140,642) (1,483,619)
--------- -----------
Balance at 10/31/97..................................... 3,892,789 $38,918,118
========= ===========
Shares sold............................................. 218,515 $ 2,336,258
Shares issued in reinvestment of dividends.............. 53,907 576,513
Shares redeemed......................................... 290,438 3,098,735
--------- -----------
Net decrease............................................ (18,016) (185,964)
--------- -----------
Balance at 4/30/98...................................... 3,874,773 $38,732,154
========= ===========
</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 $4,119 under the Plan during fiscal
1998.
9
<PAGE> 10
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
AS OF APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S(B) (NOTE 1)
- --------- -------------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES (98.47%)(A)
RHODE ISLAND GENERAL OBLIGATION AND REVENUE (46.27%)(A)
$ 100,000 Bristol General Obligation 7.00%, 12/1/08......... Baa1/NR $ 107,676
120,000 Bristol General Obligation MBIA Insured 6.00%,
12/15/10........................................ Aaa/AAA 127,416
250,000 Bristol General Obligation MBIA Insured 5.05%,
8/15/06......................................... Aaa/AAA 255,170
300,000 Burrillville General Obligation MBIA Insured
5.75%, 10/15/17................................. Aaa/AAA 309,568
200,000 Burrillville General Obligation FGIC Insured
5.70%, 5/1/11................................... Aaa/AAA 212,361
75,000 Central Falls General Obligation 7.90%, 7/1/02.... Baa3/NR 77,133
130,000 Coventry General Obligation FGIC Insured 7.25%,
11/1/10......................................... Aaa/AAA 140,789
460,000 Cranston General Obligation MBIA Insured 5.00%,
6/15/02......................................... Aaa/AAA 472,952
50,000 Cumberland General Obligation 5.25%, 9/1/04....... A-3/NR 52,529
200,000 Cumberland General Obligation Pre-refunded U.S.
Treasury 6.80%, 7/15/08......................... A-3/NR 204,608
165,000 Cumberland General Obligation MBIA Insured 5.70%,
10/1/11......................................... Aaa/AAA 170,879
175,000 Cumberland General Obligation MBIA Insured 5.70%,
10/1/12......................................... Aaa/AAA 181,236
300,000 East Providence General Obligation MBIA Insured
5.70%, 5/15/10.................................. Aaa/AAA 318,915
750,000 Foster/Glocester General Obligation AMBAC Insured
6.90%, 9/1/11................................... Aaa/AAA 803,831
135,000 Jamestown General Obligation CGIC Insured 7.00%,
3/15/07......................................... Aaa/AAA 135,911
250,000 Kent County Water Auth. MBIA Insured 6.35%,
7/15/14......................................... Aaa/AAA 274,798
100,000 Lincoln General Obligation MBIA Insured 7.55%,
7/15/08......................................... Aaa/AAA 102,964
355,000 Lincoln General Obligation MBIA Insured 5.50%,
8/15/10......................................... Aaa/AAA 369,861
300,000 Lincoln General Obligation FGIC Insured 5.60%,
8/1/12.......................................... Aaa/AAA 313,681
110,000 Little Compton General Obligation 7.00%, 1/15/09.. A-1/NR 116,250
100,000 Little Compton General Obligation 6.90%, 1/15/08.. A-1/NR 105,433
100,000 Narragansett General Obligation MBIA Insured
5.30%, 9/15/09.................................. Aaa/AAA 103,563
</TABLE>
10
<PAGE> 11
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S(B) (NOTE 1)
- --------- -------------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS--CONTINUED
$ 200,000 Narragansett General Obligation Pre-refunded U.S.
Treasury AMBAC Insured 7.10%, 6/15/10........... Aaa/NR $ 210,118
210,000 Newport General Obligation MBIA Insured 6.50%,
8/15/06......................................... Aaa/AAA 228,213
100,000 Newport General Obligation Pre-refunded U.S.
Treasury 6.80%, 4/15/09......................... A-1/NR 108,299
100,000 Newport General Obligation Pre-refunded U.S.
Treasury 6.80%, 4/15/10......................... A-1/NR 108,299
100,000 New Shoreham General Obligation MBIA Insured
7.00%, 1/15/10.................................. Aaa/AAA 103,851
75,000 North Kingstown General Obligation 6.70%,
12/15/05........................................ A-1/NR 84,028
80,000 North Kingstown General Obligation 6.80%,
12/15/06........................................ A-1/NR 90,926
80,000 North Kingstown General Obligation 6.30%,
7/15/07......................................... A-1/NR 84,546
120,000 North Providence General Obligation MBIA Insured
6.00%, 10/01/09................................. Aaa/AAA 127,716
100,000 Pawtucket General Obligation MBIA Insured 6.75%,
9/15/08......................................... Aaa/AAA 109,296
500,000 Pawtucket General Obligation CGIC Insured 6.00%,
3/15/15......................................... Aaa/AAA 533,395
500,000 Pawtucket General Obligation CGIC Insured 6.00%,
3/15/11......................................... Aaa/AAA 536,511
500,000 Pawtucket General Obligation CGIC Insured 6.00%,
3/15/13......................................... Aaa/AAA 535,887
500,000 Pawtucket General Obligation CGIC Insured, 6.00%,
3/15/12......................................... Aaa/AAA 539,003
200,000 Providence Public Bldg. Auth. FSA Insured 5.10%,
12/15/08........................................ Aaa/AAA 206,130
200,000 Providence Public Bldg. Auth. Pre-refunded U.S.
Treasury 7.30%, 12/1/08......................... Baa2/NR 222,580
300,000 Providence Public Bldg. Auth. Pre-refunded U.S.
Treasury 7.30%, 12/1/09......................... Baa2/NR 333,870
500,000 Providence Public Bldg. Auth. CGIC Insured 7.25%,
12/15/10........................................ Aaa/AAA 542,742
150,000 Providence Public Building Auth. MBIA Insured
5.50% 12/15/13.................................. Aaa/AAA 155,719
750,000 Providence General Obligation MBIA Insured 6.75%,
1/15/11......................................... Aaa/AAA 794,484
</TABLE>
11
<PAGE> 12
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S(B) (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 $ 279,659
100,000 South Kingston General Obligation AMBAC Insured
5.00%, 11/15/08................................. Aaa/AAA 102,566
700,000 Warwick General Obligation MBIA Insured 6.60%,
11/15/06........................................ Aaa/AAA 765,073
155,000 Warwick General Obligation FGIC Insured 7.20%,
11/15/08........................................ Aaa/AAA 164,773
250,000 Warwick General Obligation FGIC Insured 4.85%,
3/1/12.......................................... Aaa/AAA 243,953
225,000 Westerly General Obligation Pre-refunded U.S.
Treasury 7.00%, 1/15/06......................... A-1/NR 234,673
100,000 Westerly General Obligation Pre-refunded U.S.
Treasury 7.00%, 1/15/09......................... A-1/NR 104,299
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.80%, 6/1/03........................ A-1/NR 38,515
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.85%, 6/1/04........................ A-1/NR 39,126
800,000 Rhode Island Clean Water MBIA Insured 6.50%,
10/1/06......................................... Aaa/AAA 873,372
150,000 Rhode Island Clean Water MBIA Insured 5.30%,
10/1/07......................................... Aaa/AAA 157,588
600,000 Rhode Island Correctional Facility MBIA Insured
7.00%, 8/1/09................................... Aaa/AAA 631,849
650,000 Rhode Island Depositors Economic Protection Corp.
MBIA Insured 6.55%, 8/1/10...................... Aaa/AAA 751,738
215,000 Rhode Island Depositors Economic Protection Corp.
CAPMAC Guaranteed 6.375%, 8/1/22................ Aaa/AAA 249,456
250,000 Rhode Island Depositors Economic Protection Corp.
Escrowed to Maturity 5.75%, 8/1/21.............. NR/A- 271,059
100,000 RI COPS MBIA Insured 5.375%, 10/1/16.............. Aaa/AAA 101,320
300,000 Rhode Island Lease Participation Certificate
Shepard Building AMBAC Insured 5.125%, 6/1/12... Aaa/AAA 300,596
500,000 Rhode Island Turnpike Authority 5.35%, 12/1/17.... NR/A 496,631
250,000 Rhode Island Public Building Auth. 5.25%,
8/1/05.......................................... A/A 251,817
645,000 Rhode Island Public Building Auth. Pre-refunded
U.S. Treasury 7.60%, 2/1/09..................... A/A 673,289
125,000 Rhode Island Public Building Auth. AMBAC Insured
5.20%, 2/1/06................................... Aaa/AAA 128,987
</TABLE>
12
<PAGE> 13
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S(B) (NOTE 1)
- --------- -------------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND GENERAL OBLIGATION AND REVENUE BONDS--CONTINUED
$ 150,000 Rhode Island Public Building Auth. AMBAC Insured
5.25%, 2/1/10................................... Aaa/AAA $ 152,728
150,000 Rhode Island Port Auth. AMBAC Insured 6.50%,
6/1/08.......................................... Aaa/AAA 168,243
250,000 Rhode Island Student Loan Auth. Gtd. Std. Lns.
6.20%, 12/1/09.................................. Aaa/NR 257,039
250,000 Rhode Island General Obligation FGIC Insured
7.00%, 7/15/04.................................. Aaa/AAA 284,145
5,000 Rhode Island General Obligation 7.50%, 6/15/05.... A-1/AA- 5,066
500,000 Rhode Island General Obligation MBIA Insured
5.75%, 8/1/15................................... Aaa/AAA 523,425
125,000 Rhode Island Water Resources Fruit Hill Reservoir
MBIA Insured 7.05%, 9/15/07..................... Aaa/AAA 132,258
-----------
TOTAL RHODE ISLAND GENERAL OBLIGATION AND
REVENUE......................................... $18,996,380
-----------
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION (31.55%)(A)
$ 150,000 Board of Governors CGIC Insured 6.125%, 9/15/10... Aaa/AAA $ 162,636
195,000 Board of Governors CGIC Insured 6.15%, 9/15/11.... Aaa/AAA 211,669
120,000 Brown University 6.75%, 9/1/16.................... Aa-1/AA 126,220
220,000 Brown University 5.40%, 9/1/18.................... Aa-1/AA 221,533
375,000 Brown University 6.00%, 9/1/10.................... Aa-1/AA 387,895
100,000 Brown University 4.75%, 9/1/12.................... Aa-1/AA 97,706
200,000 Brown University 5.90%, 9/1/14.................... Aa-1/AA 214,106
400,000 Brown University 5.00%, 9/1/19.................... Aa-1/AA 385,839
400,000 Bryant College MBIA Insured 6.50%, 6/1/05......... Aaa/AAA 435,191
100,000 Bryant College MBIA Insured 5.95%, 6/1/07......... Aaa/AAA 106,181
100,000 Bryant College MBIA Insured 6.20%, 6/1/13......... Aaa/AAA 105,931
100,000 Higher Education Auth. CGIC Insured 7.375%,
9/15/09......................................... Aaa/AAA 106,181
150,000 Providence College Pre-refunded U.S. Treasury
7.45%, 11/1/03.................................. Aaa/NR 159,832
125,000 Providence College Pre-refunded U.S. Treasury
7.50%, 11/1/04.................................. Aaa/NR 133,349
120,000 Providence College Pre-refunded U.S. Treasury
7.75%, 11/1/09.................................. Aaa/NR 128,463
550,000 Roger Williams College Connie Lee Insured 6.50%,
11/15/08........................................ NR/AAA 601,814
550,000 Roger Williams College Connie Lee Insured 6.625%,
11/15/11........................................ NR/AAA 605,241
</TABLE>
13
<PAGE> 14
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S(B) (NOTE 1)
- --------- -------------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION--CONTINUED
$ 320,000 Roger Williams College LOC-Fleet National
Pre-refunded U.S. Treasury 7.75%, 10/1/18....... A-1/NR $ 330,554
1,290,000 South County Hospital Pre-refunded U.S. Treasury
7.25%, 11/1/11.................................. NR/AAA 1,421,174
345,000 Roger Williams Realty Corp. Collateral U.S.
Treasury, 7.50%, 8/1/29......................... NR/AA- 358,154
500,000 Salve Regina College Connie Lee Insured 6.25%,
3/15/13......................................... NR/AAA 536,511
400,000 Salve Regina College LOC-Fleet Bank Pre-refunded
U.S. Treasury 7.70%, 1/1/20..................... A-2/NR 428,710
300,000 Salve Regina College Pre-refunded U.S. Treasury
Connie Lee Insured 6.30%, 3/15/20............... NR/AAA 321,906
525,000 Johnson & Wales College Connie Lee Insured 5.75%,
4/1/12.......................................... NR/AAA 550,905
500,000 St. Antoine Residence LOC-Allied Irish 6.75%,
11/15/18........................................ Aa-3/NR 539,003
150,000 Landmark Medical Center Escrowed to Maturity
7.625%, 7/1/99.................................. NR/AAA 153,289
500,000 Landmark Medical Center Pre-refunded U.S. Treasury
8.375%, 7/1/09.................................. NR/AAA 533,395
575,000 Kent County Hospital MBIA Insured 7.00%, 7/1/10... Aaa/AAA 625,586
200,000 Memorial Hospital MBIA Insured 6.50%, 7/1/04...... Aaa/AAA 218,094
140,000 Miriam Hospital Pre-refunded U.S. Treasury 7.00%,
4/1/06.......................................... NR/A 146,111
400,000 Miriam Hospital Pre-refunded U.S. Treasury 6.35%,
4/1/08.......................................... NR/A 438,680
900,000 Miriam Hospital Pre-refunded U.S. Treasury 7.25%,
4/1/11.......................................... NR/A 941,295
300,000 Rhode Island Hospital FGIC Insured 6.70%,
8/15/04......................................... Aaa/AAA 327,141
600,000 Women & Infants Hospital CGIC Insured 6.55%,
9/1/13.......................................... Aaa/AAA 650,543
</TABLE>
14
<PAGE> 15
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S(B) (NOTE 1)
- --------- -------------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION--CONTINUED
$ 100,000 United Methodist Elder Care LOC-Fleet Bank 7.50%,
11/1/14......................................... A/A $ 112,038
125,000 New England Tech Inst. Connie Lee Insured 6.00%,
3/1/15.......................................... NR/AAA 131,635
-----------
TOTAL RHODE ISLAND HEALTH & EDUCATION BUILDING
CORPORATION..................................... $12,954,511
-----------
RHODE ISLAND HOUSING & MORTGAGE FINANCE CORPORATION (17.96%)(A)
$ 5,000 9.30%, 7/1/04, FGIC Insured....................... Aaa/AAA $ 5,003
40,000 7.625%, 10/1/04................................... Aa-2/AA 41,276
200,000 5.65%, 10/1/07.................................... NR/A 206,878
300,000 8.00%, 10/1/08.................................... Aa/AA+ 307,639
500,000 7.80%, 10/1/10, Series A.......................... Aa-2/AA+ 527,787
300,000 7.60%, 10/1/20.................................... NR/A 313,681
90,000 7.80%, 10/1/11.................................... Aa-2/AA+ 92,871
380,000 7.50%, 10/1/11.................................... Aa-2/AA+ 402,539
205,000 7.80%, 10/1/11.................................... Aa-2/AA+ 212,560
200,000 5.70%, 4/1/15..................................... Aa-2/AA+ 204,136
500,000 5.75%, 4/1/17..................................... Aa-2/AA+ 517,194
200,000 6.25%, 4/1/17..................................... Aa-2/AA+ 209,869
110,000 7.95%, 10/1/20.................................... NR/A 114,057
90,000 7.25%, 10/1/21.................................... Aa-2/AA+ 95,226
365,000 7.875%, 10/1/21, MBIA Insured..................... Aaa/AAA 375,732
640,000 7.875%, 10/1/22................................... Aa-2/AA+ 662,806
50,000 7.75%, 4/1/22..................................... Aa-2/AA+ 52,156
345,000 7.55%, 10/1/22.................................... Aa-2/AA+ 365,893
300,000 6.50%, 10/1/22.................................... Aa-2/AA+ 317,420
1,250,000 6.70%, 10/1/15.................................... Aa-2/AA+ 1,344,392
500,000 6.15%, 4/1/17..................................... Aa-2/AA+ 524,048
65,000 5.875%, 4/1/25.................................... Aa-2/AA+ 66,668
300,000 6.50%, 4/1/27..................................... Aa-2/AA+ 316,672
90,000 6.85%, 4/1/27..................................... Aa-2/AA+ 97,021
-----------
TOTAL RHODE ISLAND HOUSING & MORTGAGE FINANCE
CORPORATION..................................... $ 7,373,524
-----------
RHODE ISLAND INDUSTRIAL FACILITIES CORPORATION (0.84%)(A)
$ 80,000 Inge Corporation SBA GTD 9.125%, 10/1/00.......... Aaa/NR $ 79,561
250,000 Mobil Oil 6.00%, 11/1/14.......................... Aa-2/AA 264,517
-----------
TOTAL RHODE ISLAND INDUSTRIAL FACILITIES
CORPORATION..................................... $ 344,078
-----------
TOTAL RHODE ISLAND BONDS (96.62%)(a).............. $39,668,493
-----------
</TABLE>
15
<PAGE> 16
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S(B) (NOTE 1)
- --------- -------------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
PUERTO RICO BONDS (1.85%)(A)
$ 200,000 Puerto Rico Commonwealth Pre-refunded U.S.
Treasury 7.75%, 7/1/13.......................... NR/AAA $ 204,772
100,000 Puerto Rico Highway Pre-refunded U.S. Treasury
8.00%, 7/1/03................................... NR/AAA 102,429
200,000 Puerto Rico Highway Pre-refunded U.S. Treasury
8.00%, 7/1/05................................... NR/AAA 204,858
225,000 Puerto Rico Highway Pre-refunded U.S. Treasury
7.70%, 7/1/03................................... Baa1/AAA 245,636
-----------
TOTAL PUERTO RICO BONDS (1.85%)(a)................ $ 757,695
-----------
TOTAL INVESTMENTS (Cost $38,080,552)(92.76%)(a)... $40,426,188
===========
</TABLE>
(a) Percentages indicated are based on net assets of $41,054,664 at April 30,
1998 (total investments plus cash and receivables less liabilities) which
corresponds to a net asset value per share of $10.60.
(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 the 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:
<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.
<C> <C> <S>
See Notes to Financial Statements.
16
</TABLE>
<PAGE> 17
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<PAGE> 18
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<PAGE> 19
INVESTMENT ADVISER &
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 8871
Wilmington, Delaware 19899-8871
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 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
Alfred B. Van Liew, President
Samuel H. Hallowell, Vice President
Joseph J. Healy, Vice President
Kevin M. Oates, Treasurer
Margaret D. Farrell, Secretary
OCEAN STATE TAX EXEMPT FUND
(THE PORTFOLIO OF VLC TRUST)
SEMI-ANNUAL REPORT
APRIL 30, 1998
(UNAUDITED)
INTEREST INCOME EXEMPT
FROM FEDERAL AND RHODE
ISLAND INCOME TAXES
FROM QUALITY MUNICIPAL
BONDS.
