[LOGO] OCEAN STATE
TAX EXEMPT FUND
REPORT OF THE PRESIDENT
October 31, 1999
1999 has been a volatile year for bonds and especially volatile for
the municipal market. Your investment has held up well in this rising rate
environment. During the fiscal year the Fund's net asset value dipped from
$10.71 to $10.12 while the dividend distribution rate was relatively steady
at $0.53 per share down from $0.56 per share in 1998. This decline
represents a (0.66)% total rate of return on net asset value. Comparatively,
the benchmark Lehman Brothers Municipal Bond Index declined (1.78)% during
the same period.
An investment like Ocean State Tax Exempt Fund ("the Fund") aims to
provide as high a level of current net income, exempt from Federal and Rhode
Island taxes, as is consistent with preservation of capital. Volatility in
the bond market, like this year, has historically been a cyclical
phenomenon. For the long-term investor the Fund remains a steady source of
income dividends and an opportunity for your double tax-free income to
compound tax-free.
The Federal Reserve's efforts to slow the economy down through a
program of three successive rate increases has helped ease inflation fears
and inflation is the scourge of any bond investor. Can the stock market
maintain its dramatic run? We believe it has surprised most investors with
its strength over the last five years. However, investors with tax avoidance
in mind could look at the current situation in municipals as a buying
opportunity. Reduced net asset values and rising interest rates have boosted
the yield of municipal bonds.
Ocean State continues to increase its Aaa/AAA component and quality of
portfolio holdings. The portfolio's emphasis on high-coupon pre-refunded
"cushion" bonds has aided the Fund's stability. This structure has helped
the Fund outperform during rising interest rate environments.
The year 2000 will mark the Fund's fourteenth anniversary. Our
investment environment has undergone radical changes during this period.
However, one significant constant remains. Individuals still have to pay
hefty Federal and State taxes. We will strive to assure Ocean State remains
an effective tax planning and income tool for the new millenium. We're proud
of the Fund's track record and we will work to maintain your trust in the
future.
Very truly yours,
/s/ Alfred B. Van Liew
Alfred B. Van Liew
President and Chairman of the
Board of Trustees
OCEAN STATE TAX EXEMPT FUND
INVESTMENT PERFORMANCE REVIEW
as of October 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Prior
November 1, 1998 Fiscal Year November 1, 1994 November 1, 1989
through Ended through through
October 31, 1999 October 31, 1998 October 31, 1999 October 31, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total Rate of Return(b)
Based on:
Net Asset Value (0.66%) 5.46% 5.53% 6.23%
Offering Price (4.67%) 1.20% 4.66% 5.79%
<CAPTION>
As of As of
October 31, 1999 October 31, 1998
---------------- ----------------
<S> <C> <C>
30-day Current Yield
Based on:
Net Asset Value 4.91% 4.87%
Offering Price 4.72% 4.67%
30-day Tax-Equivalent Yield (a)
Based on:
Net Asset Value 7.99% 7.70%
Offering Price 7.67% 7.39%
<FN>
<Fa> For 1999, shareholders were subject to a combined Federal and State
tax rate of 36.78% (31% Federal, 27% State).
<Fb> Past performance is no guarantee of future results.
</FN>
</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 12.2 years as of October 31, 1999.
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 10/31/99 10/31/98
------ -------- --------
<S> <C> <C>
Aaa/AAA 66.85% 64.74%
Aa/AA 22.26% 20.45%
A 9.33% 13.06%
Baa/BBB 1.56% 1.75%
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.
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
as of October 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost $38,873,555) (Note 1A) $39,333,853
Cash 103,679
Interest receivable 601,380
Receivable for fund shares sold 20,000
-----------
Total Assets $40,058,912
LIABILITIES
Distribution payable to shareholders $ 66,887
Accrued management fees 20,472
Accrued expenses 17,588
-----------
Total Liabilities 104,947
-----------
Net Assets $39,953,965
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share) $ 39,954
Additional paid-in capital (Note 4) 39,495,154
Accumulated net realized loss on investment transactions (41,442)
Net unrealized appreciation of investments 460,299
-----------
Total-Representing Net Assets at Value for 3,949,710 Shares Outstanding $39,953,965
===========
Computation of Net Asset Value & Offering Price:
Net Assets $39,953,965
Divided by number of shares outstanding 3,949,710
Net asset value $ 10.12
===========
Offering price $ 10.54
===========
</TABLE>
See Notes to Financial Statements.
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
<TABLE>
<S> <C> <C>
Investment Income
Interest income (Note 1B) $ 2,474,383
Expenses:
Adviser fees (Note 2) 148,114
Administrator fees (Note 2) 105,796
Auditing fees 28,900
Transfer agent fees 27,376
Legal fees and expenses 25,094
Distribution expenses (Note 5) 20,180
Trustees fees and expenses 19,000
Shareholder reports 9,504
Custody 5,196
Pricing fees 3,772
Miscellaneous expenses 3,154
Insurance 1,775
Registration fees 825
----------
398,686
-----------
Net Investment Income $ 2,075,697
Realized and Unrealized Loss on Investments
Net Realized Loss on Investments (41,442)
Net Change in Unrealized Appreciation of Investments (2,307,737)
----------
Net Realized and Unrealized Loss on Investments (2,349,179)
-----------
Net Decrease in Net Assets Resulting from Operations $ (273,482)
===========
</TABLE>
See Notes to Financial Statements.
OCEAN STATE TAX EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
October 31, 1999 October 31, 1998
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income $ 2,075,697 $ 2,140,593
Net realized gain (loss) on investments (41,442) 41,822
Change in unrealized appreciation (depreciation) of investments (2,307,737) 56,057
--------------------------------
Net increase (decrease) in net assets resulting from
operations (273,482) 2,238,472
Dividends and distributions to shareholders from:
Net investment income ($.53 per share in 1999 and $.56 per
share in 1998) (2,075,697) (2,140,593)
Capital Gain ($.01 per share in 1999 and $.01 per share in
1998) (41,828) (30,119)
Net increase (decrease) from fund share transactions (Note 4) (902,687) 1,554,210
--------------------------------
Total increase (decrease) in net assets (3,293,694) 1,621,970
NET ASSETS:
Beginning of year 43,247,659 41,625,689
--------------------------------
End of year(1) $39,953,965 $43,247,659
================================
<FN>
- --------------------
<F1> Including undistributed net investment income $ 0 $ 12,511
================================
</FN>
</TABLE>
See Notes to Financial Statements.
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
Year Year Year Year Year
Ended Ended Ended Ended Ended
10/31/99 10/31/98 10/31/97 10/31/96 10/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Year $ 10.71 $ 10.69 $ 10.53 $ 10.59 $ 10.10
Net investment income .53 .56 .57 .56 .58
Net realized and unrealized gain (loss)
on securities (.58) .03 .16 (.06) .49
Total from Investment Operations (.05) .59 .73 .50 1.07
Less Distributions:
Dividends from net investment income (.53) (.56) (.57) (.56) (.58)
Distribution from net realized gains (.01) (.01) (.00) (.00) (.00)
Total Distributions (.54) (.57) (.57) (.56) (.58)
Net Asset Value, End of Year $ 10.12 $ 10.71 $ 10.69 $ 10.53 $ 10.59
Total investment return at Net Asset
Value(a) (.66)% 5.46% 6.97% 4.89% 10.89%
Ratios and Supplemental Data:
Net Assets, End of Year (000's omitted) $39,954 $43,248 $41,626 $42,456 $43,088
Ratio of expenses to average net assets .94% .94% .99% .98% .98%
Ratio of net investment income to
average net assets 4.91% 5.07% 5.25% 5.31% 5.58%
Portfolio turnover 13.19% 10.30% 2.27% 13.30% 11.77%
Fund expenses per share .10 .10 .11 .10 .10
Net investment income per share .53 .56 .57 .56 .58
Ratio of expenses to average net assets .94% .94% .99% .98% .98%
Ratio of net investment income to
average net assets 4.91% 5.07% 5.25% 5.31% 5.58%
<FN>
<Fa> Total investment return does not reflect sales load.
</FN>
</TABLE>
See Notes to Financial Statements.
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
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. The Declaration of Trust permits the Trustees to create additional
portfolios (funds). As of October 31, 1999 there is only one fund, Ocean
State Tax Exempt Fund (the Fund). The objective of the Fund is to seek to
provide as high a 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, 1999, 97.86% 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, 1999, 63.06% 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 23.05% 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 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 October 31,
1999, the Fund paid distributions of $41,828 from long-term capital gains
realized in the fiscal year ended October 31, 1998. 100% of the income
dividends paid by the Fund are exempt from Federal and Rhode Island income
taxes.
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 pays 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, 1999 was $2,000.
Legal fees and expenses of $25,094 were paid to a firm of which the
Fund's Secretary is a partner.
During the period November 1, 1998 through October 31, 1999, the
Distributor received $11,021 in commissions as a result of Fund share sales.
NOTE 3 Investment Transactions
During the period ended October 31, 1999 purchases and sales of
investment securities, other than short-term investments, aggregated
$5,516,479 and $6,503,282, respectively. The aggregate cost of investments
for Federal income tax purposes is substantially the same as the aggregate
cost for financial statement purposes. At October 31, 1999, gross unrealized
appreciation on investment securities was $1,168,718 and gross unrealized
depreciation on investment securities was $708,419.
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 10/31/97 3,892,789 $38,918,118
Shares sold 524,456 5,603,144
Shares issued in reinvestment of dividends 108,162 1,157,248
Shares redeemed (487,599) (5,206,182)
Net increase 145,019 1,554,210
Balance at 10/31/98 4,037,808 $40,472,328
Shares sold 391,381 $ 4,134,236
Shares issued in reinvestment of dividends 87,346 911,455
Shares redeemed (566,825) (5,948,378)
Net decrease (88,098) (902,687)
Balance at 10/31/99 3,949,710 $39,569,641
</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 $20,180 under the Plan during fiscal 1999.
NOTE 6 Year 2000 Problem (unaudited)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do not
properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem".
The Fund's Adviser and Administrator have taken measures that it believes
are reasonably designed to address the Year 2000 Problem with respect to
computer systems that it uses and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service
providers. At this time, however, there can no assurance that these steps
will be sufficient to avoid any adverse impact on the Fund as a result of
the Year 2000 Problem.
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
as of October 31, 1999
<TABLE>
<CAPTION>
Ratings
Principal Moody's/ Value
Amount Standard & Poor's(b) (Note 1)
--------- -------------------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES (98.45%)(a)
Rhode Island General Obligation and Revenue (52.56%)(a)
$ 500,000 Barrington School District 5.00%, 10/1/14 Aa-3/NR $ 460,000
100,000 Bristol General Obligation 7.00%, 12/1/08 A-3/NR 104,850
120,000 Bristol General Obligation MBIA Insured 6.00%, 12/15/10 Aaa/AAA 124,800
250,000 Bristol General Obligation MBIA Insured 5.05%, 8/15/06 Aaa/AAA 251,563
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 205,250
75,000 Central Falls General Obligation 7.90%, 7/1/02 Baa-3/NR 75,469
200,000 Coventry General Obligation FSA Insured 4.00%, 11/07/07 Aaa/NR 186,750
130,000 Coventry General Obligation Pre-refunded U.S. T FGIC
Insured 7.25%, 11/1/10 Aaa/AAA 136,644
460,000 Cranston General Obligation MBIA Insured 5.00%, 6/15/02 Aaa/AAA 466,325
50,000 Cumberland General Obligation 5.25%, 9/1/04 A-3/NR 51,875
165,000 Cumberland General Obligation MBIA Insured 5.70%, 10/1/11 Aaa/AAA 169,538
175,000 Cumberland General Obligation MBIA Insured 5.70%, 10/1/12 Aaa/AAA 180,030
300,000 East Providence General Obligation MBIA Insured 5.70%,
5/15/10 Aaa/AAA 309,000
750,000 Foster/Glocester General Obligation Pre-refunded U.S. T
AMBAC Insured 6.90%, 9/1/11 Aaa/AAA 782,310
135,000 Jamestown General Obligation CGIC Insured 7.00%, 3/15/07 Aaa/AAA 136,187
250,000 Kent County Water Auth. MBIA Insured 6.35%, 7/15/14 Aaa/AAA 265,313
355,000 Lincoln General Obligation MBIA Insured 5.50%, 8/15/10 Aaa/AAA 360,325
300,000 Lincoln General Obligation FGIC Insured 5.60%, 8/1/12 Aaa/NR 304,125
110,000 Little Compton General Obligation Pre-refunded U.S. T 7.00%,
1/15/09 A-1/NR 112,819
100,000 Narragansett General Obligation MBIA Insured 5.30%, 9/15/09 Aaa/AAA 100,374
210,000 Newport General Obligation MBIA Insured 6.50%, 8/15/06 Aaa/AAA 220,237
100,000 Newport General Obligation Pre-refunded U.S. T 6.80%,
4/15/09 A-1/NR 105,374
100,000 Newport General Obligation Pre-refunded U.S. T 6.80%,
4/15/10 A-1/NR 105,374
75,000 North Kingstown General Obligation 6.70%, 12/15/05 A-1/NR 82,874
80,000 North Kingstown General Obligation 6.80%, 12/15/06 A-1/NR 89,500
80,000 North Kingstown General Obligation Pre-refunded U.S. T
6.30%, 7/15/07 A-1/NR 84,100
120,000 North Providence General Obligation MBIA Insured 6.00%,
10/01/09 Aaa/AAA 124,950
100,000 Pawtucket General Obligation Pre-refunded U.S. T MBIA
Insured 6.75%, 9/15/08 Aaa/AAA 106,250
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/15 Aaa/AAA 513,124
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/11 Aaa/AAA 523,750
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/13 Aaa/AAA 516,250
$ 500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/12 Aaa/AAA $ 523,750
200,000 Providence Public Bldg. Auth. FSA Insured 5.10%, 12/15/08 Aaa/AAA 199,000
200,000 Providence Public Bldg. Auth. Pre-refunded U.S. T 7.30%,
12/1/08 Baa-2/NR 215,250
300,000 Providence Public Bldg. Auth. Pre-refunded U.S. T 7.30%,
12/1/09 Baa-2/NR 322,875
500,000 Providence Public Bldg. Auth. CGIC Insured 7.25%, 12/15/10 Aaa/AAA 522,500
150,000 Providence Public Bldg. Auth. MBIA Insured 5.50%, 12/15/13 Aaa/AAA 149,063
500,000 Providence Public Bldg. Auth. AMBAC Insured 5.125%,
12/15/14 Aaa/AAA 464,375
185,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 Aaa/AAA 161,180
750,000 Providence General Obligation Pre-refunded U.S. T MBIA
Insured 6.75%, 1/15/11 Aaa/AAA 768,930
100,000 South Kingstown General Obligation AMBAC Insured 5.00%,
11/15/08 Aaa/AAA 99,125
700,000 Warwick General Obligation MBIA Insured 6.60%, 11/15/06 Aaa/AAA 747,250
155,000 Warwick General Obligation Pre-refunded U.S. T FGIC Insured
7.20%, 11/15/08 Aaa/AAA 158,270
35,000 Westerly Dunn's Corner Fire District Unlimited Tax Assessment
7.80%, 6/1/03 A-1/NR 37,406
35,000 Westerly Dunn's Corner Fire District Unlimited Tax Assessment
7.85%, 6/1/04 A-1/NR 37,888
800,000 Rhode Island Clean Water Pre-refunded U.S. T MBIA Insured
6.50%, 10/1/06 NR/AAA 856,188
150,000 Rhode Island Clean Water MBIA Insured 5.30%, 10/1/07 Aaa/AAA 151,875
650,000 Rhode Island Depositors Economic Protection Corp. MBIA
Insured 6.55%, 8/1/10 Aaa/AAA 716,925
215,000 Rhode Island Depositors Economic Protection Corp. CAPMAC
Guaranteed 6.375%, 8/1/22 Aaa/AAA 227,900
250,000 Rhode Island Depositors Economic Protection Corp. Escrowed
to Maturity 5.75%, 8/1/21 NR/A- 248,438
500,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/12 Aaa/AAA 486,250
395,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/13 Aaa/AAA 377,719
545,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/14 Aaa/AAA 515,025
250,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.00%, 7/1/18 Aaa/AAA 218,125
100,000 RI COPS MBIA Insured 5.375%, 10/1/16 Aaa/AAA 95,250
300,000 Rhode Island Lease Participation Certificate Shepard Bldg.
AMBAC Insured 5.125%, 6/1/12 Aaa/AAA 286,875
$ 750,000 Rhode Island Turnpike Authority 5.35%, 12/1/17 NR/A $ 690,000
125,000 Rhode Island Public Building Auth. AMBAC Insured 5.20%,
2/1/06 Aaa/AAA 126,406
150,000 Rhode Island Public Building Auth. AMBAC Insured 5.25%,
2/1/10 Aaa/AAA 148,875
150,000 Rhode Island Port Auth. Pre-refunded U.S. T AMBAC Insured
6.50%, 6/1/08 Aaa/AAA 163,313
500,000 Rhode Island Refunding Bond Authority AMBAC Insured
5.00%, 2/1/07 Aaa/AAA 496,875
500,000 Rhode Island Refunding Bond Authority AMBAC Insured
5.25%, 2/1/10 Aaa/AAA 496,250
250,000 Rhode Island Student Loan Auth. Gtd. Std. Lns. 6.20%,
12/1/09 Aaa/NR 250,625
250,000 Rhode Island General Obligation FGIC Insured 7.00%, 7/15/04 Aaa/AAA 274,375
5,000 Rhode Island General Obligation 7.50%, 6/15/05 A-1/AA- 5,040
300,000 Rhode Island General Obligation FGIC Insured 5.125%, 7/15/14 Aaa/AAA 280,500
500,000 Rhode Island General Obligation MBIA Insured 5.75%, 8/1/15 Aaa/AAA 501,250
1,000,000 Rhode Island General Obligation FGIC Insured 5.50%, 9/1/16 Aaa/AAA 967,500
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 Aaa/AAA 226,563
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 Aaa/AAA 228,125
-----------
Total Rhode Island General Obligation and Revenue $20,999,584
Rhode Island Health & Education Building Corporation (29.40%)(a)
$ 150,000 Board of Governors CGIC Insured 6.125%, 9/15/10 Aaa/AAA $ 159,188
195,000 Board of Governors CGIC Insured 6.15%, 9/15/11 Aaa/AAA 207,188
220,000 Brown University 5.40%, 9/1/18 Aa-1/AA+ 208,175
375,000 Brown University 6.00%, 9/1/10 Aa-1/AA+ 382,500
100,000 Brown University 4.75%, 9/1/12 Aa-1/AA+ 92,875
200,000 Brown University 5.90%, 9/1/14 Aa-1/AA+ 207,500
400,000 Brown University 5.00%, 9/1/19 Aa-1/AA+ 353,000
400,000 Bryant College MBIA Insured 6.50%, 6/1/05 Aaa/AAA 423,000
100,000 Bryant College MBIA Insured 5.95%, 6/1/07 Aaa/AAA 103,125
100,000 Bryant College MBIA Insured 6.20%, 6/1/13 Aaa/AAA 103,625
150,000 Providence College Pre-refunded U.S. T 7.45%, 11/1/03 Aaa/NR 153,000
125,000 Providence College Pre-refunded U.S. T 7.50%, 11/1/04 Aaa/NR 127,500
120,000 Providence College Pre-refunded U.S. T 7.75%, 11/1/09 Aaa/NR 122,400
355,000 Roger Williams College Connie Lee Insured Pre-refunded U.S.
T 6.50%, 11/15/08 NR/AAA 381,625
195,000 Roger Williams College Connie Lee Insured 6.50%, 11/15/08 Aaa/AAA 205,238
355,000 Roger Williams College Connie Lee Insured Pre-refunded U.S. T
6.625%, 11/15/11 NR/AAA 382,513
$ 195,000 Roger Williams College Connie Lee Insured 6.625%, 11/15/11 Aaa/AAA $ 208,406
1,290,000 South County Hospital Pre-refunded U.S. T 7.25%, 11/1/11 NR/AAA 1,373,850
325,000 Roger Williams Realty Corp. Collateral U.S. T 7.50%, 8/1/29 NR/AA- 332,465
500,000 Salve Regina College Connie Lee Insured 6.25%, 3/15/13 NR/AAA 520,625
400,000 Salve Regina College LOC-Fleet Bank Pre-refunded U.S. T
7.70%, 1/1/20 A-2/NR 410,352
300,000 Salve Regina College Pre-refunded U.S. T Connie Lee Insured
6.30%, 3/15/20 NR/AAA 310,125
525,000 Johnson & Wales College Connie Lee Insured 5.75%, 4/1/12 NR/AAA 535,500
750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 Aaa/AAA 628,125
500,000 St. Antoine Residence 6.75%, 11/15/18 Aa-3/NR 547,500
500,000 St. Antoine Residence 6.125%, 11/15/18 Aa-3/NR 490,000
575,000 Kent County Hospital MBIA Insured 7.00%, 7/1/10 Aaa/AAA 603,750
200,000 Memorial Hospital MBIA Insured 6.50%, 7/1/04 Aaa/AAA 212,000
400,000 Miriam Hospital Pre-refunded U.S. T 6.35%, 4/1/08 NR/A 428,000
400,000 Newport Hospital 5.25%, 7/1/19 NR/A 351,000
300,000 Rhode Island Hospital FGIC Insured 6.70%, 8/15/04 Aaa/AAA 316,875
600,000 Women & Infants Hospital CGIC Insured 6.55%, 9/1/13 Aaa/AAA 630,750
100,000 United Methodist Elder Care LOC-Fleet Bank 7.50%, 11/1/14 A/A 107,125
125,000 New England Tech Inst. Connie Lee Insured 6.00%, 3/1/15 NR/AAA 127,030
-----------
Total Rhode Island Health & Education Building Corporation $11,745,930
Rhode Island Housing & Mortgage Finance Corporation (15.18%)(a)
$ 5,000 9.30%, 7/1/04, FGIC Insured Aaa/AAA $ 5,000
30,000 7.625%, 10/1/04 Aa-2/AA 30,600
200,000 5.65%, 10/1/07 NR/A 201,250
300,000 7.80%, 10/1/10, Series A Aa-2/AA+ 309,786
300,000 7.60%, 10/1/20 NR/A 307,875
85,000 7.80%, 10/1/11 Aa-2/AA+ 86,594
360,000 7.50%, 10/1/11 Aa-2/AA+ 373,500
190,000 7.80%, 10/1/11 Aa-2/AA+ 193,800
200,000 5.70%, 4/1/15 Aa-2/AA+ 195,250
400,000 5.00%, 10/1/16 Aa-2/AA+ 366,000
500,000 5.75%, 4/1/17 Aa-2/AA+ 499,375
200,000 6.25%, 4/1/17 Aa-2/AA+ 202,250
110,000 7.95%, 10/1/20 NR/A 112,475
25,000 7.25%, 10/1/21 Aa-2/AA+ 25,780
25,000 7.875%, 10/1/21, MBIA Insured Aaa/AAA 25,438
50,000 7.875%, 10/1/22 Aa-2/AA+ 51,000
35,000 7.75%, 4/1/22 Aa-2/AA+ 35,867
345,000 7.55%, 10/1/22 Aa-2/AA+ 357,938
300,000 6.50%, 10/1/22 Aa-2/AA+ 306,375
$1,250,000 6.70%, 10/1/15 Aa-2/AA+ $ 1,285,938
250,000 5.40%, 10,1/16 Aa-2/AA+ 237,500
500,000 6.15%, 4/1/17 Aa-2/AA+ 502,500
10,000 5.875%, 4/1/25 Aa-2/AA+ 10,138
300,000 6.50%, 4/1/27 Aa-2/AA+ 306,000
35,000 6.85%, 4/1/27 Aa-2/AA+ 36,050
-----------
Total Rhode Island Housing & Mortgage Finance Corporation $ 6,064,279
Rhode Island Industrial Facilities Corporation (0.72%)(a)
$ 25,000 Inge Corporation SBA GTD 9.125%, 10/1/00 Aaa/NR $ 25,032
250,000 Mobil Oil 6.00%, 11/1/14 Aa-2/AA 263,750
-----------
Total Rhode Island Industrial Facilities Corporation $ 288,782
-----------
TOTAL RHODE ISLAND BONDS (97.86%)(a) $39,098,575
Puerto Rico Bonds (0.59%)(a)
$ 225,000 Puerto Rico Highway Pre-refunded U.S. T 7.70%, 7/1/03 Baa1/AAA $ 235,278
-----------
TOTAL PUERTO RICO BONDS (0.59%)(a) $ 235,278
-----------
TOTAL INVESTMENTS (Cost $38,873,555)(97.30%)(a) $39,333,853
<FN>
<Fa> Percentages indicated are based on net assets of $39,953,965 at
October 31, 1999 (total investments plus cash and receivables less
liabilities) which corresponds to a net asset value per share of
$10.12.
<Fb> 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. 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. 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)
<Fc> Abbreviations used:
AMBAC -American Municipal Bond Assurance Corp.
CGIC -Capital Guaranty Insurance Co.
FGIC -Financial Guaranty Insurance Co.
FSA -Financial Security Assurance Inc.
MBIA -Municipal Bond Investors Assurance Corp.
LOC -Letter of Credit
BIG -Bond Investors Guaranty (subsidiary of MBIA)
SBA -Small Business Administration
CAPMAC -Capital Markets Assurance Corp.
</FN>
</TABLE>
OCEAN STATE TAX EXEMPT FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of VLC Trust and Shareholders of Ocean State Tax Exempt Fund
We have audited the accompanying statement of assets and liabilities
of Ocean State Tax Exempt Fund (the Fund) (a portfolio of VLC Trust),
including the portfolio of investments, as of October 31, 1999, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five 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.
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 and financial highlights. Our procedures
included confirmation of securities owned as of October 31, 1999, 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 at October 31, 1999, 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 five years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young, LLP
Boston, Massachusetts
December 10, 1999
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
PFPC Trust Company
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 LLP
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
[Logo] OCEAN STATE
TAX EXEMPT FUND
(The Portfolio of VLC Trust)
Annual Report
October 31, 1999
Interest income exempt
from Federal and Rhode
Island income taxes
from quality municipal
bonds.
