UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4788
VLC TRUST
(Exact name of registrant as specified in charter)
ONE REGENCY PLAZA, PROVIDENCE, RHODE ISLAND 02903
(Address of principal executive offices)
MARGARET D. FARRELL, ESQ.
SECRETARY
HINCKLEY, ALLEN & SNYDER LLP
1500 FLEET CENTER
PROVIDENCE, RHODE ISLAND 02903
(Name and address of agent for service)
Registrant's telephone number, including area code: (401) 421-1411
Date of fiscal year end: October 31, 2004
Date of reporting period: April 30, 2004
Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission
to stockholders of any report that is required to be transmitted to
stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17
CFR 270.30e-1). The Commission may use the information provided on Form N-
CSR in its regulatory, disclosure review, inspection, and policymaking
roles.
A registrant is required to disclose the information specified by
Form N-CSR, and the Commission will make this information public. A
registrant is not required to respond to the collection of information
contained in Form N-CSR unless the Form displays a currently valid Office
of Management and Budget ("OMB") control number. Please direct comments
concerning the accuracy of the information collection burden estimate and
any suggestions for reducing the burden to Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The
OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. Section 3507.
- -----------------------------------------------------------------------
TABLE OF CONTENTS APRIL 30, 2004
ITEM 1
The following is a copy of the report transmitted to shareholders
pursuant to Rule 30e-1 under the Investment Company Act of 1940 (17 CFR
270.30e-1)
OCEAN STATE TAX EXEMPT FUND [LOGO]
REPORT OF THE PRESIDENT
April 30, 2004
Are interest rates going to rise? How would it impact my investment
in the Ocean State Tax Exempt Fund ("the Fund")? These are appropriate and
important questions for investors.
Many market observers believe the Federal Reserve is moving closer to
boosting interest rates 25 to 50 basis points. The Federal Reserve has
historically raised interest rates to moderate growth in the economy before
it becomes overheated and triggers an inflationary spiral. Remember the
1980's when a home mortgage rate was 15%? We don't believe that rates will
return to those levels but we recognize that the Federal Reserve needs the
flexibility to raise rates to keep our economy on track.
Be careful, Mr. Greenspan. Although, recent economic indicators point
toward an economy that is rebounding much of the data is contradictory. If
our economy accelerates too rapidly it could lead to higher inflation and
stifle future growth. That is why the Fed is weighing a rate hike.
Inflation and rapid growth is a threat that the Federal Reserve hopes to
contain. However, the Federal Reserve faces a delicate balancing act.
Boosting rates too aggressively could derail the process.
Interest rates are cyclical, rising and falling over time during
economic cycles. When interest rates rise the price of existing bonds
should fall. However, while bond prices are falling the Fund's monthly per
share dividend distribution is at the same time increasing.
Investment in bond funds like Ocean State should be viewed as long-
term investments. Over time the price will both rise and fall. In either
case, the Fund maintains it's objective to balance the preservation of
principal with a high level of current income exempt from Rhode Island and
Federal taxes for Rhode Island residents.
Very truly yours,
/s/ Alfred B. Van Liew
Alfred B. Van Liew
President and Chairman of the
Board of Trustees
1
OCEAN STATE TAX EXEMPT FUND
INVESTMENT PERFORMANCE REVIEW
as of April 30, 2004
(unaudited)
Prior
November 1, 2003 Fiscal Year May 1, 1999 May 1, 1994
through Ended through through
April 30, 2004 October 31, 2003 April 30, 2004 April 30, 2004
---------------- ---------------- -------------- --------------
<s> <c> <c> <c> <c>
Total Rate of Return (b)
Based on:
Net Asset Value 0.70% 3.60% 4.00% 5.27%
Offering Price (7.38)% (0.55)% 3.14% 4.84%
As of As of
April 30, 2004 October 31, 2003
-------------- ----------------
<s> <c> <c>
30-day Current Yield
Based on:
Net Asset Value 3.41% 3.38%
Offering Price 3.27% 3.25%
30-day Tax-Equivalent Yield (a)
Based on:
Net Asset Value 5.76% 5.71%
Offering Price 5.53% 5.49%
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 10.7 years as of April 30, 2004.
The average quality rating of the investments, in the following table was
Aaa/AAA (Moody's and Standard & Poor's bond rating services).
Portfolio Quality Analysis
% of Total Portfolio
--------------------
as of as of
Rating 4/30/04 10/31/03
------ ------- --------
<s> <c> <c>
Aaa/AAA 77.92% 75.13%
Aa/AA 21.28% 22.95%
A 0.80% 1.05%
Baa/BBB 0% 0.87%
Not Rated 0% 0%
The Fund will continue its policy of seeking the highest tax advantaged
yields available, consistent with maintaining quality and diversification
objectives.
(a) For 2004, shareholders subject to a maximum Federal tax rate of 35%
and a Rhode Island tax rate of 9.90% of Federal taxable income. All
dividend income is exempt from local, state and Federal taxes for
Rhode Island residents. Capital gains taxes will apply to any
distributed capital gains.
(b) Past performance is no guarantee of future results. Total return does
not reflect the deduction of taxes that a shareholder would pay on
Fund distributions or the redemption of Fund shares. The offering
price reflects a maximum sales charge of 4.00%.
2
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
as of April 30, 2004
(unaudited)
ASSETS
<s> <c>
Investments at value (identified cost $28,018,856) (Note 1A) $29,262,437
Cash 76,184
Interest receivable 338,658
Prepaid expense 24,537
Receivable for Capital Stock Sold 17,000
-----------
Total Assets $29,718,816
LIABILITIES
Distribution payable to shareholders 37,239
Payable for Capital Stock Redeemed 4,659
Accrued management fees 14,771
-----------
Total Liabilities $ 56,669
===========
Net Assets $29,662,147
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share) $ 28,772
Additional paid-in capital 28,365,242
Accumulated net realized gain on investment transactions 24,552
Net unrealized appreciation of investments 1,243,581
-----------
Total-Representing Net Assets at Value for 2,877,248 Shares Outstanding $29,662,147
===========
Computation of net Asset Value & Offering Price:
Net Assets $29,662,147
Divided by number of shares outstanding 2,877,248
Net asset value $ 10.31
===========
Offering price $ 10.74
===========
See Notes to Financial Statements.
3
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
For the period ended April 30, 2004
(unaudited)
<s> <c> <c>
Investment Income
Interest income (Note 1B) $ 732,133
Expenses:
Adviser fees (Note 2) $ 55,049
Administrator fees (Note 2) 39,320
Transfer agent fees 25,653
Auditing fees 18,138
Legal fees and expenses 18,633
Trustees fees and expenses 12,750
Distribution expenses (Note 5) 7,187
Custody 9,718
Shareholder reports 3,517
Pricing fees 1,656
Miscellaneous expenses 2,084
Insurance 689
Registration fees 975
---------
$ 195,369
---------
Net Investment Income $ 536,764
Realized and Unrealized Gain/(Loss) on Investments
Net Realized Gain on Investments 28,110
Net Change in Unrealized Depreciation of Investments (411,682)
---------
Net Realized and Unrealized Loss on Investments (383,572)
---------
Net Increase in Net Assets Resulting from Operations $ 153,192
=========
See Notes to Financial Statements.
4
OCEAN STATE TAX EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Fiscal Year
Ended Ended
April 30, 2004 October 31, 2003
-------------- ----------------
(unaudited)
<s> <c> <c>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income $ 536,764 $ 1,317,767
Net realized gain on investments 28,110 90,977
Change in unrealized depreciation of investments (411,682) (161,791)
----------- -----------
Net increase in net assets resulting from operations $ 153,192 $ 1,246,953
Dividends and distributions to shareholders from:
Net investment income ($.19 per share in 2004 and
$.42 per share in 2003) (536,764) (1,317,766)
Net realized gains ($.03 per share in 2004 and
$.03 per share in 2003) (92,412) (105,799)
Net decrease from fund share transactions (Note 4) (2,976,750) (2,797,165)
----------- -----------
Total decrease in net assets (3,452,734) (2,973,777)
NET ASSETS:
Beginning of period 33,114,881 36,088,658
----------- -----------
End of period $29,662,147 $33,114,881
=========== ===========
See Notes to Financial Statements.
5
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.
Fiscal Fiscal Fiscal Fiscal Fiscal
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
4/30/04 10/31/03 10/31/02 10/31/01 10/31/00 10/31/99
---------- -------- -------- -------- -------- --------
(unaudited)
<s> <c> <c> <c> <c> <c> <c>
Per Share Operating Performance:
Net Asset Value, Beginning of Year $ 10.48 $ 10.54 $ 10.55 $ 10.25 $ 10.12 $ 10.71
Net investment income .19 .42 .45 .47 .49 .53
Net realized and unrealized gain
(loss) on securities (.14) (.03) (.01) .30 .13 (.58)
------- ------- ------- ------- ------- -------
Total from Investment Operations .05 .39 .44 .77 .62 (.05)
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.19) (.42) (.45) (.47) (.49) (.53)
Distribution from net realized gains (.03) (.03) (.00) (.00) (.00) (.01)
------- ------- ------- ------- ------- -------
Total Distributions (.22) (.45) (.45) (.47) (.49) (.54)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Year $ 10.31 $ 10.48 $ 10.54 $ 10.55 $ 10.25 $ 10.12
======= ======= ======= ======= ======= =======
Total investment return at Net
Asset Value (a) 0.70% 3.60% 4.21% 7.63% 6.22% (.66)%
Ratios and Supplemental Data:
Net Assets, End of Year (000's
omitted) $29,662 $33,115 $36,089 $36,303 $37,526 $39,954
Ratio of expenses to average net
assets 0.59% 1.06% 1.04% 1.19% 1.12% .94%
Ratio of net investment income to
average net assets 1.61% 3.82% 4.25% 4.52% 4.76% 4.91%
Portfolio turnover 3% 19% 17% 4% 5% 13%
Fund expenses per share .07 .12 .11 .13 .12 .10
Net investment income per share .19 .42 .45 .47 .49 .53
<FN>
(a) Total investment return does not reflect sales load.
</FN>
See Notes to Financial Statements.
6
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 2004
(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 non diversified, open-end management investment company. The
Declaration of Trust permits the Trustees to create additional portfolios
(funds). As of April 30, 2004 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 April 30, 2004, 95.88% 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, 2004, 82.57% 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 23.79% of the portfolio.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 are frequently 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, trading charactariscics, broker quotes and other
local market conditions. Valuations developed through pricing techniques
may vary from the actual amounts realized upon sale of the securities, and
the potential variation may be greater for those securities valued using
fundamental analysis. 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.
7
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS-(Continued)
(unaudited)
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.
The tax character of distributions as reported on the Statements of
Changes in Net Assets for the years ended October 31, 2003 and 2002 were as
follows:
2003 2002
---- ----
<s> <c> <c>
Tax-Exempt Income $1,317,766 $1,532,647
Long-Term Capital Gains 105,799 -
As of October 31, 2003, the components of distributable earnings on a
tax basis were as follows:
<s> <c>
Undistributed Long-Term Capital Gains $ 96,783
Unrealized Appreciation 1,664,234
Unaudited
For the year ended October 31, 2003, the amount of long-term capital
gain designated by the Fund was $105,799. The amount of tax exempt interest
dividends distributed by the Fund was $1,317,766.
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.
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.
8
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS-(Continued)
(unaudited)
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, 2004 was $2,000.
Legal fees and expenses of $18,633 were paid to a firm of which the
Fund's Secretary is a partner.
During the period November 1, 2003 through April 30, 2004, the
Distributor received $1,607 in commissions as a result of Fund share sales.
NOTE 3 Investment Transactions
During the period ended April 30, 2004 purchases and sales of
investment securities, other than short-term investments, aggregated
$779,821 and $3,903,042, 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, 2004, gross unrealized
appreciation on investment securities was $1,292,727 and gross unrealized
depreciation on investment securities was $49,146.
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:
Shares Amount
------ ------
<s> <c> <c>
Balance at 10/31/02 3,425,514 $34,202,464
Shares sold 224,010 2,360,385
Shares issued in reinvestment of dividends 77,128 812,802
Shares redeemed (567,847) (5,970,352)
--------- -----------
Net decrease (266,709) (2,797,165)
--------- -----------
Balance at 10/31/03 3,158,805 $31,405,299
========= ===========
Shares sold 28,566 300,000
Shares issued in reinvestment of dividends 32,201 338,874
Shares redeemed (342,324) (3,615,624)
--------- -----------
Net decrease (281,557) (2,976,750)
--------- -----------
Balance at 4/30/04 2,877,248 $28,428,549
========= ===========
9
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS-(Continued)
(unaudited)
NOTE 5 Distribution Plan
The Fund has adopted a Distribution Plan (the Plan) pursuant to Rule
12b-1 (the Rule) of the Investment Company Act of 1940 (the Act). The Rule
provides in substance that the Fund may not engage directly or indirectly
in financing any activity which is primarily intended to result in the sale
of its shares except pursuant to a plan adopted under the Rule. Under the
Plan, the Fund is authorized to pay for the printing of all prospectuses,
statements of additional information and reports and notices to
shareholders, even those which are not sent to existing shareholders. The
Fund paid $7,187 under the Plan during fiscal 2004.
10
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
as of April 30, 2004
(unaudited)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
--------- --------------------- --------
<s> <c> <c> <c>
MUNICIPAL SECURITIES (98.65%) (a)
Rhode Island General Obligation and Revenue (67.93%) (a)
$ 500,000 Barrington School District 5.00%, 10/1/14 Aa-2/NR $ 536,379
200,000 Burrillville General Obligation FGIC Insured 5.70%, 5/1/11 Aaa/AAA 210,857
300,000 East Providence General Obligation MBIA Insured
5.70%, 5/15/10 Aaa/AAA 316,443
200,000 East Providence General Obligation MBIA Insured
3.125%, 3/15/11 Aaa/AAA 195,475
250,000 Kent County Water Auth. MBIA Insured 6.35%, 7/15/14 Aaa/AAA 255,799
300,000 Lincoln General Obligation FGIC Insured 5.60%, 8/1/12 Aaa/NR 319,598
225,000 Middletown General Obligation 4.00%, 7/15/12 Aa-3/NR 229,943
210,000 Newport General Obligation MBIA Insured 6.50%, 8/15/06 Aaa/AAA 209,411
75,000 North Kingstown General Obligation 6.70%, 12/15/05 Aa-3/NR 80,550
80,000 North Kingstown General Obligation 6.80%, 12/15/06 Aa-3/NR 88,893
200,000 North Kingstown General Obligation FGIC Insured
5.70%, 10/1/18 Aaa/NR 218,515
120,000 North Providence General Obligation MBIA Insured
6.00%, 10/01/09 Aaa/AAA 120,434
500,000 North Providence General Obligation FSA Insured
4.00%, 10/15/17 Aaa/AAA 484,971
250,000 North Smithfield General Obligation FGIC Insured
4.00%, 10/15/12 Aaa/NR 255,802
500,000 Pawtucket General Obligation AMBAC Insured
5.00%, 4/15/09 Aaa/NR 546,908
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/15 Aaa/AAA 526,573
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/11 Aaa/AAA 526,573
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/13 Aaa/AAA 526,573
500,000 Pawtucket General Obligation CGIC Insured 6.00%, 3/15/12 Aaa/AAA 526,573
200,000 Providence Public Bldg. Auth. FSA Insured 5.10%, 12/15/08 Aaa/AAA 218,763
150,000 Providence Public Bldg. Auth. MBIA Insured
5.50%, 12/15/13 Aaa/AAA 163,887
500,000 Providence Public Bldg. Auth. AMBAC Insured
5.125%, 12/15/14 Aaa/AAA 539,476
185,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 Aaa/AAA 189,981
250,000 Providence Public Bldg. Auth. AMBAC Insured
5.25%, 12/15/15 Aaa/AAA 272,215
500,000 Providence Redevelopment Auth. AMBAC Insured
5.30%, 4/1/12 Aaa/NR 547,528
200,000 Providence Redevelopment Radian Insured 4.25%, 9/1/13 NR/AA 202,164
250,000 Smithfield General Obligation MBIA Insured 5.00%, 10/15/07 Aaa/AAA 270,977
250,000 Warwick General Obligation MBIA Insured 4.60%, 11/15/05 Aaa/AAA 258,899
11
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS-(Continued)
(unaudited)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
--------- --------------------- --------
<s> <c> <c> <c>
MUNICIPAL SECURITIES (a)-(continued)
Rhode Island General Obligation and Revenue (67.93%) (a)
$ 24,000 Warwick General Obligation MBIA Insured 6.60%, 11/15/06 Aaa/AAA $ 24,108
250,000 Warwick General Obligation FSA Insured 4.00%, 7/15/11 Aaa/AAA 257,970
250,000 Warwick General Obligation FSA Insured 4.125%, 7/15/13 Aaa/AAA 255,182
200,000 West Warwick General Obligation AMBAC Insured
4.625%, 3/1/03 Aaa/AAA 210,835
35,000 Westerly Dunn's Corner Fire District Unlimited Tax
Assessment 7.85%, 6/1/04 A-1/NR 34,898
145,000 Rhode Island Clean Water Pre-refunded U.S. T MBIA Insured
6.50%, 10/1/06 Aaa/AAA 146,994
150,000 Rhode Island Clean Water MBIA Insured 5.30%, 10/1/07 Aaa/AAA 163,887
100,000 Rhode Island Clean Water AMBAC Insured 4.75%, 10/1/18 Aaa/AAA 101,206
225,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/18 Aaa/AAA 233,845
650,000 Rhode Island Depositors Economic Protection Corp.
MBIA Insured Escrowed to Maturity 6.55%, 8/1/10 Aaa/AAA 756,077
215,000 Rhode Island Depositors Economic Protection Corp. CAPMAC
Guaranteed Escrowed to Maturity 6.375%, 8/1/22 Aaa/AAA 262,869
250,000 Rhode Island Depositors Economic Protection Corp.
Escrowed to Maturity 5.75%, 8/1/21 Aaa/NR 283,364
250,000 Rhode Island Economic Department of Transportation FSA
Insured 5.25%, 6/15/10 Aaa/AAA 278,099
500,000 Rhode Island Economic Department of Transportation AMBAC
Insured 3.75%, 6/15/13 Aaa/AAA 497,978
500,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/12 Aaa/AAA 538,237
395,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/13 Aaa/AAA 422,761
545,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/14 Aaa/AAA 578,577
450,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.00%, 7/1/18 Aaa/AAA 466,018
400,000 Rhode Island Economic Development Corp. Providence Place
Radian Insured 6.125%, 7/1/20 NR/AA 445,454
100,000 RI COPS MBIA Insured 5.375%, 10/1/16 Aaa/AAA 108,514
300,000 Rhode Island Lease Participation Certificate Shepard
Bldg. AMBAC Insured 5.125%, 6/1/12 Aaa/AAA 325,172
150,000 Rhode Island Port Auth. Pre-refunded U.S. T AMBAC Insured
6.50%, 6/1/08 Aaa/AAA 152,531
500,000 Rhode Island Refunding Bond Authority AMBAC Insured
5.25%, 2/1/10 Aaa/AAA 550,624
500,000 Rhode Island General Obligation MBIA Insured 5.00%, 9/1/18 Aaa/AAA 525,849
12
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS-(Continued)
(unaudited)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
--------- --------------------- --------
<s> <c> <c> <c>
MUNICIPAL SECURITIES (a)-(continued)
Rhode Island General Obligation and Revenue (67.93%) (a)
$ 300,000 Rhode Island General Obligation FGIC Insured
5.125%, 7/15/14 Aaa/AAA $ 322,199
480,000 Rhode Island General Obligation FGIC Insured 5.00%, 9/1/14 Aaa/AAA 514,329
500,000 Rhode Island General Obligation MBIA Insured 5.75%, 8/1/15 Aaa/AAA 545,050
1,000,000 Rhode Island General Obligation FGIC Insured 5.50%, 9/1/16 Aaa/AAA 1,101,249
200,000 Rhode Island Cons. Cap. Dev. MBIA Insured 5.25%, 11/1/10 Aaa/AAA 222,727
400,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.40%, 9/1/14 Aaa/AAA 451,896
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 Aaa/AAA 264,473
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 Aaa/AAA 266,331
-----------
Total Rhode Island General Obligation and Revenue $20,149,463
Rhode Island Health & Education Building Corporation (21.60%)(a)
100,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/15 Aaa/AAA $ 106,409
300,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/16 Aaa/AAA 317,739
100,000 Bryant College AMBAC Insured 4.60%, 6/1/12 Aaa/AAA 106,532
100,000 Brown University 4.75%, 9/1/12 Aa-1/AA+ 104,798
200,000 Brown University 5.90%, 9/1/14 Aa-1/AA+ 213,065
780,000 Brown University 5.25%, 9/1/16 Aa-1/AA+ 836,751
400,000 Brown University 5.00%, 9/1/19 Aa-1/AA+ 414,733
500,000 Brown University 5.00%, 9/1/23 Aa-1/AA+ 507,268
250,000 Salve Regina College Radian Insured 5.25%, 3/15/18 NR/AA 261,686
750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 Aaa/AAA 756,257
500,000 Johnson & Wales College XL Capital 5.25%, 4/1/14 Aaa/AAA 548,147
250,000 Rhode Island School of Design MBIA Insured 4.40%, 6/1/15 Aaa/AAA 255,492
585,000 Rhode Island School of Design MBIA Insured 4.60%, 6/1/17 Aaa/AAA 596,402
500,000 St. Antoine Residence LOC-Allied Irish Bank
6.125%, 11/15/18 Aa-3/NR 523,372
300,000 Lifespan MBIA Insured 5.75%, 5/15/23 Aaa/AAA 322,942
300,000 Rhode Island Hospital FGIC Insured 6.70%, 8/15/04 Aaa/AAA 302,687
100,000 United Methodist Elder Care LOC-Fleet Bank 7.50%, 11/1/14 NR/AA- 103,051
125,000 New England Tech Inst. Connie Lee Insured 6.00%, 3/1/15 NR/AAA 129,473
-----------
Total Rhode Island Health & Education Building Corporation $ 6,406,804
Rhode Island Housing & Mortgage Finance Corporation (6.35%)(a)
$ 5,000 9.30%, 7/1/04, FGIC Insured Aaa/AAA $ 4,954
200,000 5.65%, 10/1/07 NR/A 200,140
250,000 4.00%, 4/1/13 Aa-2/AA+ 246,511
200,000 5.70%, 4/1/15 Aa-2/AA+ 204,394
400,000 5.00%, 10/1/16 Aa-2/AA+ 402,841
10,000 6.50%, 10/1/22 Aa-2/AA+ 9,913
13
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS-(Continued)
(unaudited)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
--------- --------------------- --------
<s> <c> <c> <c>
MUNICIPAL SECURITIES (a)-(continued)
Rhode Island Housing & Mortgage Finance Corporation (6.35%)(a)
$ 250,000 5.40%, 10,1/16 Aa-2/AA+ $ 254,253
545,000 5.40%, 10/1/17 Aa-2/AA+ 555,623
5,000 6.50%, 4/1/27 Aa-2/AA+ 5,011
-----------
Total Rhode Island Housing & Mortgage Finance Corporation $ 1,883,640
TOTAL RHODE ISLAND BONDS (95.88%) (a) $28,439,907
===========
Puerto Rico Bonds (2.78%) (a)
$ 250,000 Puerto Rico Electric Power Authority MBIA Insured,
5.00%, 7/1/10 Aaa/AAA $ 274,383
500,000 Puerto Rico Municipal Finance Auth. FSA Insured,
5.50%, 7/1/17 Aaa/AAA 548,147
-----------
TOTAL PUERTO RICO BONDS (2.78%) (a) $ 822,530
TOTAL INVESTMENTS (Cost $28,018,856)(94.46%) (a) $29,262,437
===========
<FN>
(a) Percentages indicated are based on net assets of $29,662,147 at April
30, 2004 (total investments plus cash and receivables less
liabilities) which corresponds to a net asset value per share of
$10.31.
(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 and are unaudited.
The ratings indicated are the most current available and are
unaudited. 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
CAPMAC- Capital Markets Assurance Corp.
Radian- Radian Insurance Co.
</FN>
14
Privacy Plan
The Van Liew Companies and Ocean State Tax Exempt Fund have always
been committed to ensuring your financial privacy. We do not sell personal
information to anyone. We recognize and respect the privacy of our
customers. This notice is being sent to comply with the privacy regulations
of the Securities and Exchange Commission. Each of the above financial
institutions has in effect the following policy with respect to nonpublic
personal information about its customers.
* Only such information received from you, through application forms or
otherwise, and information about your transactions will be collected.
* None of such information about you (or former customers) will be
disclosed to anyone, except as permitted by law (which includes
disclosure to employees necessary to service your account). We do not
disclose nonpublic personal information about you to non-affiliated
third parties.
* Policies and procedures (including physical, electronic and
priocedural safeguards) are in place that are designed to protect the
confidentiality of such information.
15
Investment Adviser & Administrator
Van Liew Capital Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
Distributor
Van Liew Securities, Inc. OCEAN STATE TAX EXEMPT FUND [LOGO]
One Regency Plaza, Suite One
Providence, Rhode Island 02903 (The Portfolio of VLC Trust)
Custodian
PFPC Trust Company
Airport Business Center
200 Stevens Drive, Suite 440
Lester, Pennsylvania 19113
Transfer Agent
Ocean State Tax Exempt Fund Semi-Annual Report
C/O PFPC, Inc. April 30, 2004
P.O. Box 9839 (unaudited)
Providence, Rhode Island 02903
Independent Registered Public
Accounting Firm
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
Mary Ann Altrui
Milton C. Bickford, Jr.
Meredith A. Curren Interest income exempt
Michael E. Hogue from Federal and Rhode
Arthur H. Lathrop Island income taxes
Alice M. Macintosh from quality municipal
Lawrence B. Sadwin bonds.
John H. St. Sauveur
Officers
Alfred B. Van Liew, President
Samuel H. Hallowell, Vice President
Joseph J. Healy, Vice President
Kevin M. Oates, Treasurer
Margaret D. Farrell, Secretary
ITEM 2. CODE OF ETHICS. Not applicable to semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable to semi-
annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable to
semi-annual report. Effective for annual report for first fiscal year
ending after December 15, 2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable.
Registrant is not a listed issuer as defined in Rule 10A-3 of the
Securities Exchange Act of 1934.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-
END MANAGEMENT INVESTMENT COMPANIES. Not applicable. Registrant is an
open-end management investment company.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure
controls and procedures conducted within 90 days of the filing date of this
report, the President and Treasurer have concluded that those controls and
procedures (as defined in rule 30a-2(c) under the Investment Company Act of
1940) provide reasonable assurance that material information required to be
disclosed by the registrant in this Form N-CSR has been recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) There were no significant changes in the registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation described above,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
ITEM 10. EXHIBITS.
(a) Any Code of Ethics, or amendment thereto, that is subject
to the disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an exhibit.
See Item 2.
(b) A separate certification for each principal executive
officer and principal financial officer of the registrant as required by
Rule 30a-2(a) under the Investment Company Act of 1940.
(i) EX-99.CERT - Certifications pursuant to Section 302
of the Sarbanes - Oxley Act of 2002 (filed herewith).
(ii) EX-99.906 CERT - Certifications pursuant to Section
906 of the Sarbanes - Oxley Act of 2002 (filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(Registrant) VLC Trust
ON BEHALF OF
OCEAN STATE TAX EMEMPT FUND
Date: July 6, 2004 By: /s/ Alfred B. Van Liew
--------------------------------
Alfred B. Van Liew
President
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Date: July 6, 2004 By: /s/ Alfred B. Van Liew
--------------------------------
Alfred B. Van Liew
President
Date: July 6, 2004 By: /s/ Kevin M. Oates
--------------------------------
Kevin M. Oates
Vice President & Treasurer