[LOGO] OCEAN STATE
TAX EXEMPT FUND
REPORT OF THE PRESIDENT
October 31, 2000
This year the fixed-income market is on a pace to outperform the
equity market for the first time since 1992. Economic reports consistently
indicate that the economy is cooling down from its rapid growth of recent
years and stock prices have fallen. The Federal Reserve appears done with
its program of interest rate hikes, which manifested itself in five
separate rate increases over the past year. This is good news for bond
owners as rising rates can erode the value of existing fixed-income debt.
In fact, it is now more likely that the Federal Reserve's next move will be
a reduction in rates. Such a move would be welcome news to bond owners and
Ocean State Tax-Exempt Fund ("the Fund") shareholders alike.
How has the Fund fared in this environment? During the fiscal year
the Fund's net asset value rose from $10.12 to $10.25 while the dividend
distribution dipped to $0.49 per share down from $0.53 per share in 1999.
Overall, the Fund's total rate of return on net asset value was 6.22%
during the year. Comparatively, the benchmark Lehman Brothers Municipal
Bond Index rose 8.51% while equities, represented by the Standard & Poor's
500 Index, rose 6.78% during the trailing twelve months. However, more
recent equity market performance has generated negative Standard & Poor's
500 Index total annual return numbers (-4.22% at 11/30/00 trailing twelve
months).
Despite the rise in interest rates, it has been nearly impossible to
replace Ocean State's maturing and pre-refunded higher coupon debt with
issues of similar yield without sacrificing quality and safety. We've
worked to emphasize the safety of the Fund by continually increasing credit
quality (which now stands at 67.31% Aaa/AAA) while maintaining an
intermediate maturity of 11.7 years.
The flattening of the yield curve that occurs beyond twenty years
provides little incentive to extend the maturity of the Fund's portfolio
beyond the current 11.7 years. Significantly extending the portfolio's
maturity would increase the yield, but it would also increase the
volatility of the Fund's net asset value or price, a trade-off we do not
believe is in the shareholder's best interest. We've worked to balance the
structure of the portfolio in a way that provides as high a level of
current income, exempt from Federal income tax and Rhode Island income tax,
as is consistent with preservation of capital.
An investment in the Fund may not be as "exciting" as an equity
market investment, but in times of stock market weakness and economic
uncertainty municipal bonds provide a measure of stability. Ocean State is
structured to be a conservative long-term investment for Rhode Island
residents looking to reduce their income tax burden. Though past
performance cannot guarantee future results, when Ocean State's ten year
total rate of return of 5.81% on the offering price is combined with the
Fund's tax advantages, the track record is solid. We are proud of these
results and we will work to improve on this standard 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, 2000
(unaudited)
<TABLE>
<CAPTION>
Prior
November 1, 1999 Fiscal Year November 1, 1995 November 1, 1990
through Ended through through
October 31, 2000 October 31, 1999 October 31, 2000 October 31, 2000
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total Rate of Return(b)
Based on:
Net Asset Value 6.22% (0.66%) 4.61% 6.25%
Offering Price 1.99% (4.67%) 3.75% 5.81%
<CAPTION>
As of As of
October 31, 2000 October 31, 1999
---------------- ----------------
<S> <C> <C>
30-day Current Yield
Based on:
Net Asset Value 4.33% 4.91%
Offering Price 4.16% 4.72%
30-day Tax-Equivalent Yield (a)
Based on:
Net Asset Value 6.85% 7.77%
Offering Price 6.58% 7.47%
<FN>
(a) For 2000, shareholders were subject to a combined Federal and State
tax rate of 36.78% (31% Federal, 27% State).
(b) 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 11.7 years as of October 31, 2000.
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 10/31/00 10/31/99
------ -------- --------
<S> <C> <C>
Aaa/AAA 67.31% 66.85%
Aa/AA 22.45% 22.26%
A 8.61% 9.33%
Baa/BBB 1.63% 1.56%
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, 2000
<TABLE>
ASSETS
<S> <C>
Investments at value (identified cost $ 35,970,478) (Note 1A) $36,881,348
Cash 195,060
Interest receivable 538,261
Receivable for Capital Stock sold 5,000
Prepaid expenses 3,400
-----------
Total Assets $37,623,069
LIABILITIES
Distribution payable to shareholders $ 52,230
Accrued management fees 19,097
Payable for Capital stock redeemed 26,106
-----------
Total Liabilities 97,433
-----------
Net Assets $37,525,636
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share) $ 36,613
Additional paid-in capital (Note 4) 36,591,013
Accumulated net realized loss on investment transactions (12,860)
Net unrealized appreciation of investments 910,870
-----------
Total-Representing Net Assets at Value for 3,661,309 Shares Outstanding $37,525,636
===========
Computation of Net Asset Value & Offering Price:
Net Assets $37,525,636
Divided by number of shares outstanding 3,661,309
Net asset value $ 10.25
===========
Offering price $ 10.68
===========
</TABLE>
See Notes to Financial Statements.
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 2000
<TABLE>
<S> <C> <C>
Investment Income
Interest income (Note 1B) $2,221,766
Expenses:
Adviser fees (Note 2) 132,225
Administrator fees (Note 2) 94,447
Auditing fees 31,300
Transfer agent fees 37,925
Legal fees and expenses 47,716
Distribution expenses (Note 5) 33,286
Trustees fees and expenses 20,750
Shareholder reports 5,097
Custody 13,007
Pricing fees 3,605
Miscellaneous expenses 2,095
Insurance 1,500
Registration fees 919
-------
423,872
----------
Net Investment Income $1,797,894
Realized and Unrealized Loss on Investments
Net Realized Gain on Investments 28,581
Net Change in Unrealized Appreciation of Investments 450,572
-------
Net Realized and Unrealized Gain on Investments 479,153
----------
Net Increase in Net Assets Resulting from Operations $2,277,047
==========
</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, 2000 October 31, 1999
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income $ 1,797,894 $ 2,075,697
Net realized gain (loss) on investments 28,581 (41,442)
Change in unrealized appreciation (depreciation) of
investments 450,572 (2,307,737)
-------------------------------
Net increase (decrease) in net assets resulting from
operations 2,277,047 (273,482)
Dividends and distributions to shareholders from:
Net investment income ($.49 per share in 2000 and $.53
per share in 1999) (1,797,894) (2,075,697)
Capital gain ($.01 per share in 1999) 0 (41,828)
Net decrease from fund share transactions (Note 4) (2,907,482) (902,687)
-------------------------------
Total decrease in net assets (2,428,329) (3,293,694)
NET ASSETS:
Beginning of year 39,953,965 43,247,659
-------------------------------
End of year $37,525,636 $39,953,965
===============================
</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
10/31/00 10/31/99 10/31/98 10/31/97 10/31/96
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Year $ 10.12 $ 10.71 $ 10.69 $ 10.53 $ 10.59
Net investment income .49 .53 .56 .57 .56
Net realized and unrealized gain (loss)
on securities .13 (.58) .03 .16 (.06)
-------------------------------------------------------
Total from Investment Operations .62 (.05) .59 .73 .50
-------------------------------------------------------
Less Distributions:
Dividends from net investment income (.49) (.53) (.56) (.57) (.56)
-------------------------------------------------------
Distribution from net realized gains (.00) (.01) (.01) (.00) (.00)
-------------------------------------------------------
Total Distributions (.49) (.54) (.57) (.57) (.56)
-------------------------------------------------------
Net Asset Value, End of Year $ 10.25 $ 10.12 $ 10.71 $ 10.69 $ 10.53
=======================================================
Total investment return at Net Asset
Value(a) 6.22% (.66)% 5.46% 6.97% 4.89%
Ratios and Supplemental Data:
Net Assets, End of Year (000's omitted) $37,526 $39,954 $43,248 $41,626 $42,456
Ratio of expenses to average net assets 1.12% .94% .94% .99% .98%
Ratio of net investment income to average
net assets 4.76% 4.91% 5.07% 5.25% 5.31%
Portfolio turnover 4.71% 13.19% 10.30% 2.27% 13.30%
Fund expenses per share .12 .10 .10 .11 .10
Net investment income per share .49 .53 .56 .57 .56
<FN>
(a) 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, 2000
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. The
Declaration of Trust permits the Trustees to create additional portfolios
(funds). As of October 31, 2000 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, 2000, 96.92% 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, 2000, 63.26% 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 22.61% 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 year
ended October 31, 2000, the Fund paid no capital gains. 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, 2000 was $2,000.
Legal fees and expenses of $47,716 were paid to a firm of which the
Fund's Secretary is a partner.
During the year ended October 31, 2000, the Distributor received
$2,827 in commissions as a result of Fund share sales.
NOTE 3 Investment Transactions
During the year ended October 31, 2000 purchases and sales of
investment securities, other than short-term investments, aggregated
$1,757,396 and $4,667,352, 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, 2000, gross
unrealized appreciation on investment securities was $1,189,196 and gross
unrealized depreciation on investment securities was ($278,326).
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 10/31/98 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
========================
Shares sold 268,371 $ 2,729,715
Shares issued in reinvestment of dividends 105,404 1,067,876
Shares redeemed (662,176) (6,705,073)
------------------------
Net decrease (288,402) (2,907,482)
------------------------
Balance at 10/31/00 3,661,309 $36,662,159
========================
</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 $33,286 under the Plan during fiscal 2000.
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
as of October 31, 2000
<TABLE>
<CAPTION>
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
--------- --------------------- --------
<S> <C> <C> <C>
MUNICIPAL SECURITIES (98.28%)(a)
Rhode Island General Obligation and Revenue (51.73%)(a)
$ 500,000 Barrington School District 5.00%, 10/1/14 Aa-3/NR $ 485,625
100,000 Bristol General Obligation 7.00%, 12/1/08 A-3/NR 102,198
120,000 Bristol General Obligation MBIA Insured 6.00%, 12/15/10 Aaa/AAA 124,200
250,000 Bristol General Obligation MBIA Insured 5.05%, 8/15/06 Aaa/AAA 254,375
300,000 Burrillville General Obligation MBIA Insured 5.75%, 10/15/17 Aaa/AAA 307,125
200,000 Burrillville General Obligation FGIC Insured 5.70%, 5/1/11 Aaa/AAA 210,500
75,000 Central Falls General Obligation 7.90%, 7/1/02 Baa-3/NR 75,051
130,000 Coventry General Obligation Pre-refunded U.S. T FGIC
Insured 7.25%, 11/1/10 Aaa/AAA 132,600
460,000 Cranston General Obligation MBIA Insured 5.00%, 6/15/02 Aaa/AAA 465,175
50,000 Cumberland General Obligation 5.25%, 9/1/04 A-3/NR 51,812
165,000 Cumberland General Obligation MBIA Insured 5.70%, 10/1/11 Aaa/AAA 169,445
175,000 Cumberland General Obligation MBIA Insured 5.70%, 10/1/12 Aaa/AAA 179,651
300,000 East Providence General Obligation MBIA Insured 5.70%,
5/15/10 Aaa/AAA 316,875
135,000 Jamestown General Obligation CGIC Insured 7.00%, 3/15/07 Aaa/AAA 136,296
250,000 Kent County Water Auth. MBIA Insured 6.35%, 7/15/14 Aaa/AAA 264,062
355,000 Lincoln General Obligation MBIA Insured 5.50%, 8/15/10 Aaa/AAA 366,094
300,000 Lincoln General Obligation FGIC Insured 5.60%, 8/1/12 Aaa/NR 312,000
100,000 Narragansett General Obligation MBIA Insured 5.30%,
9/15/09 Aaa/AAA 102,875
210,000 Newport General Obligation MBIA Insured 6.50%, 8/15/06 Aaa/AAA 217,186
100,000 Newport General Obligation Pre-refunded U.S. T 6.80%,
4/15/09 A-1/NR 103,036
100,000 Newport General Obligation Pre-refunded U.S. T 6.80%,
4/15/10 A-1/NR 103,036
75,000 North Kingstown General Obligation 6.70%, 12/15/05 A-1/NR 82,312
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 82,610
120,000 North Providence General Obligation MBIA Insured 6.00%,
10/01/09 Aaa/AAA 125,100
100,000 Pawtucket General Obligation Pre-refunded U.S. T MBIA
Insured 6.75%, 9/15/08 Aaa/AAA 103,983
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/15 Aaa/AAA 523,750
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/11 Aaa/AAA 530,000
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/13 Aaa/AAA 528,125
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/12 Aaa/AAA 529,375
200,000 Providence Public Bldg. Auth. FSA Insured 5.10%, 12/15/08 Aaa/AAA 204,000
200,000 Providence Public Bldg. Auth. Pre-refunded U.S. T 7.30%,
12/1/08 Baa-2/NR 209,956
300,000 Providence Public Bldg. Auth. Pre-refunded U.S. T 7.30%,
12/1/09 Baa-2/NR 314,934
500,000 Providence Public Bldg. Auth. CGIC Insured 7.25%, 12/15/10 Aaa/AAA 511,625
150,000 Providence Public Bldg. Auth. MBIA Insured 5.50%, 12/15/13 Aaa/AAA 154,687
500,000 Providence Public Bldg. Auth. AMBAC Insured 5.125%,
12/15/14 Aaa/AAA 495,625
185,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 Aaa/AAA 174,825
500,000 Providence Redevelopment Auth. AMBAC Insured 5.30%,
4/1/12 Aaa/AAA 510,625
100,000 South Kingston General Obligation AMBAC Insured 5.00%,
11/15/08 Aaa/AAA 102,000
700,000 Warwick General Obligation MBIA Insured 6.60%, 11/15/06 Aaa/AAA 740,250
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.80%, 6/1/03 A-1/NR 35,744
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.85%, 6/1/04 A-1/NR 37,406
800,000 Rhode Island Clean Water Pre-refunded U.S. T MBIA Insured
6.50%, 10/1/06 NR/AAA 844,456
150,000 Rhode Island Clean Water MBIA Insured 5.30%, 10/1/07 Aaa/AAA 154,687
650,000 Rhode Island Depositors Economic Protection Corp. MBIA
Insured 6.55%, 8/1/10 Aaa/AAA 735,912
215,000 Rhode Island Depositors Economic Protection Corp. CAPMAC
Guaranteed 6.375%, 8/1/22 Aaa/AAA 239,725
250,000 Rhode Island Depositors Economic Protection Corp. Escrowed
to Maturity 5.75%, 8/1/21 Baa-1/A- 259,375
500,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/12 Aaa/AAA 506,875
395,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/13 Aaa/AAA 399,444
545,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/14 Aaa/AAA 547,725
250,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.00%, 7/1/18 Aaa/AAA 236,563
100,000 RI COPS MBIA Insured 5.375%, 10/1/16 Aaa/AAA 100,375
300,000 Rhode Island Lease Participation Certificate Shepard Bldg.
AMBAC Insured 5.125%, 6/1/12 Aaa/AAA 300,000
750,000 Rhode Island Turnpike Authority 5.35%, 12/1/17 A/A 732,188
125,000 Rhode Island Public Building Auth. AMBAC Insured 5.20%,
2/1/06 Aaa/AAA 127,344
150,000 Rhode Island Public Building Auth. AMBAC Insured 5.25%,
2/1/10 Aaa/AAA 152,063
150,000 Rhode Island Port Auth. Pre-refunded U.S. T AMBAC Insured
6.50%, 6/1/08 Aaa/AAA 162,188
500,000 Rhode Island Refunding Bond Authority AMBAC Insured
5.25%, 2/1/10 Aaa/AAA 511,875
250,000 Rhode Island Student Loan Auth. Gtd. Std. Lns. 6.20%,
12/1/09 Aaa/NR 252,500
250,000 Rhode Island General Obligation FGIC Insured 7.00%,
7/15/04 Aaa/AAA 270,625
5,000 Rhode Island General Obligation 7.50%, 6/15/05 Aa-3/AA- 5,013
300,000 Rhode Island General Obligation FGIC Insured 5.125%,
7/15/14 Aaa/AAA 297,375
500,000 Rhode Island General Obligation MBIA Insured 5.75%,
8/1/15 Aaa/AAA 516,875
1,000,000 Rhode Island General Obligation FGIC Insured 5.50%,
9/1/16 Aaa/AAA 1,012,500
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 Aaa/AAA 239,063
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 Aaa/AAA 240,938
-----------
Total Rhode Island General Obligation and Revenue $19,411,333
Rhode Island Health & Education Building Corporation (28.25%)(a)
$ 150,000 Board of Governors CGIC Insured 6.125%, 9/15/10 Aaa/AAA $ 157,313
195,000 Board of Governors CGIC Insured 6.15%, 9/15/11 Aaa/AAA 204,506
220,000 Brown University 5.40%, 9/1/18 Aa-1/AA+ 219,450
375,000 Brown University 6.00%, 9/1/10 Aa-1/AA+ 379,223
100,000 Brown University 4.75%, 9/1/12 Aa-1/AA+ 97,750
200,000 Brown University 5.90%, 9/1/14 Aa-1/AA+ 208,750
400,000 Brown University 5.00%, 9/1/19 Aa-1/AA+ 373,000
400,000 Bryant College MBIA Insured 6.50%, 6/1/05 Aaa/AAA 419,000
100,000 Bryant College MBIA Insured 5.95%, 6/1/07 Aaa/AAA 103,625
100,000 Bryant College MBIA Insured 6.20%, 6/1/13 Aaa/AAA 103,875
355,000 Roger Williams College Connie Lee Insured Pre-refunded
U.S. T 6.50%, 11/15/08 Aaa/AAA 375,856
195,000 Roger Williams College Connie Lee Insured 6.50%,
11/15/08 Aaa/AAA 204,506
355,000 Roger Williams College Connie Lee Insured Pre-refunded
U.S. T 6.625%, 11/15/11 Aaa/AAA 376,744
195,000 Roger Williams College Connie Lee Insured 6.625%,
11/15/11 Aaa/AAA 206,213
1,290,000 South County Hospital Pre-refunded U.S. T 7.25%,
11/1/11 NR/AAA 1,339,020
500,000 Salve Regina College Connie Lee Insured 6.25%, 3/15/13 NR/AAA 523,125
300,000 Salve Regina College Pre-refunded U.S. T Connie Lee Insured
6.30%, 3/15/20 NR/AAA 309,375
525,000 Johnson & Wales College Connie Lee Insured 5.75%, 4/1/12 NR/AAA 543,375
750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 Aaa/AAA 665,625
500,000 St. Antoine Residence Pre-refunded U.S. T 6.75%, 11/15/18 Aa-3/NR 540,625
500,000 St. Antoine Residence 6.125%, 11/15/18 Aa-3/NR 501,250
575,000 Kent County Hospital MBIA Insured 7.00%, 7/1/10 Aaa/AAA 594,418
200,000 Memorial Hospital MBIA Insured 6.50%, 7/1/04 Aaa/AAA 209,500
400,000 Miriam Hospital Pre-refunded U.S. T 6.35%, 4/1/08 NR/A 423,500
400,000 Newport Hospital 5.25%, 7/1/19 A-/A+ 343,500
300,000 Rhode Island Hospital FGIC Insured 6.70%, 8/15/04 Aaa/AAA 310,743
600,000 Women & Infants Hospital CGIC Insured 6.55%, 9/1/13 Aaa/AAA 630,000
100,000 United Methodist Elder Care LOC-Fleet Bank 7.50%, 11/1/14 A/A 106,875
125,000 New England Tech Inst. Connie Lee Insured 6.00%, 3/1/15 NR/AAA 129,844
-----------
Total Rhode Island Health & Education Building Corporation $10,600,586
Rhode Island Housing & Mortgage Finance Corporation (16.25%)(a)
$ 5,000 9.30%, 7/1/04, FGIC Insured Aaa/AAA $ 5,002
20,000 7.625%, 10/1/04 Aa-2/AA 20,181
200,000 5.65%, 10/1/07 NR/A 204,500
300,000 7.60%, 10/1/20 NR/A 306,000
345,000 7.50%, 10/1/11 Aa-2/AA+ 354,201
200,000 5.70%, 4/1/15 Aa-2/AA+ 204,000
400,000 5.00%, 10/1/16 Aa-2/AA+ 388,000
500,000 5.75%, 4/1/17 Aa-2/AA+ 506,250
200,000 6.25%, 4/1/17 Aa-2/AA+ 207,250
110,000 7.95%, 10/1/20 NR/A 110,963
345,000 7.55%, 10/1/22 Aa-2/AA+ 354,277
300,000 6.50%, 10/1/22 Aa-2/AA+ 309,000
1,250,000 6.70%, 10/1/15 Aa-2/AA+ 1,317,187
250,000 5.40%, 10,1/16 Aa-2/AA+ 250,625
500,000 6.15%, 4/1/17 Aa-2/AA+ 511,875
750,000 5.40%, 10/1/17 Aa-2/AA+ 729,375
300,000 6.50%, 4/1/27 Aa-2/AA+ 307,500
10,000 6.85%, 4/1/27 Aa-2/AA+ 10,118
-----------
Total Rhode Island Housing & Mortgage Finance Corporation $ 6,096,304
$ 250,000 Mobil Oil 6.00%, 11/1/14 Aaa/AAA $ 262,500
-----------
Total Rhode Island Industrial Facilities Corporation $ 262,500
-----------
TOTAL RHODE ISLAND BONDS (96.92%)(a) $36,370,723
Puerto Rico Bonds (1.36%)(a)
$ 500,000 Puerto Rico Municipal Finance Auth. FSA Insured, 5.50%,
7/1/17 Aaa/AAA $ 510,625
-----------
TOTAL PUERTO RICO BONDS (1.36%)(a) $ 510,625
-----------
TOTAL INVESTMENTS (Cost $35,970,478)(95.86%)(a) $36,881,348
-----------
<FN>
(a) Percentages indicated are based on net assets of $37,525,636 at
October 31, 2000 (total investments plus cash and receivables less
liabilities) which corresponds to a net asset value per share of
$10.25.
(b) 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)
(c) 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>
See Notes to Financial Statements.
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,
including the portfolio of investments, of Ocean State Tax Exempt Fund (the
"Fund") (a portfolio of the VLC Trust), as of October 31, 2000, and the
related statement of operations for the year then ended, the statements of
changes in net assets for the two years in the period then ended, and
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 auditing standards
generally accepted in the United States. 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,
2000, 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
opinions.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Ocean State Tax Exempt Fund, at October 31, 2000, 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 accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Boston Massachusetts
November 24, 2000
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
8800 Tinicum Boulevard
Philadelphia, Pennsylvania 19153
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
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, 2000
Interest income exempt
from Federal and Rhode
Island income taxes
from quality municipal
bonds.
