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
Date of reporting period: April 30, 2005
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.
- -----------------------------------------------------------------------
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, 2005
When will the Federal Reserve stop raising short-term interest rates?
Why are longer-term rates falling while short-term rates have risen? How
will this environment effect my holdings in the Ocean State Tax Exempt Fund
("the Fund")?
The Federal Reserve has stated that the campaign to lift its interest
rate target is an ongoing process. Chairman Alan Greenspan testified at a
recent Congressional hearing that the Federal Reserve will keep to a
"measured" pace of rate increases. However, even Mr. Greenspan was
surprised by falling long-term rates remarking that it was a "conundrum"
because, historically, long rates generally rise when short rates are
increased. These rising short rates and declining long rates are creating
what's commonly known as a "flattening" of the yield curve, making it
relatively unattractive for investors to purchase long-term securities
because they receive little or no additional income for their heightened
risk.
Many factors have created this situation. Inflation has remained low
with a comfortably growing economy and a stronger dollar promoting a
reduction in import costs. Inflation is feared as it can erode the value of
a bond's fixed-coupon payment. Foreign investors have had a strong appetite
for relatively higher yielding U.S. debt investments, keeping longer-term
yields down. Foreign governments buy our debt to keep their currency in
balance with the dollar. Investors, skeptical of prospects for the stock
market, may be choosing bonds to "invest conservatively" after allowing
their equity asset allocations to swell over the past few years. Also, some
market observers speculate that we may be settling into an extended period
of low rates.
Ocean State Tax Exempt Fund aims to strike a balance between risk and
return. The investment objective of the Fund is preservation of principal
with a high level of current income exempt from Rhode Island and Federal
taxes for Rhode Island investors. With the Ocean State Tax Exempt Fund we
take a long-term approach to investing, regardless of the market
environment. Also, for those investors in higher income tax brackets the
avoidance of income taxes should be an integral part of their investment
strategy. As a shareholder, the Ocean State Tax Exempt Fund can help you
attain these objectives.
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 April 30, 2005
(unaudited)
Prior
November 1, 2004 Fiscal Year November 1, 2000 November 1, 1995
through Ended through through
April 30, 2005 October 31, 2004 April 30, 2005 April 30, 2005
---------------- ---------------- ---------------- ----------------
<s> <c> <c> <c> <c>
Total Rate of Return (b)
Based on:
Net Asset Value 1.16% 3.55% 4.74% 4.77%
Offering Price (6.96)% (0.62)% 3.87% 4.34%
As of As of
April 30, 2005 October 31, 2004
-------------- ----------------
<s> <c> <c>
30-day Current Yield
Based on:
Net Asset Value 3.39% 3.30%
Offering Price 3.26% 3.16%
30-day Tax-Equivalent Yield (a)
Based on:
Net Asset Value 5.80% 5.58%
Offering Price 5.57% 5.34%
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 11.8 years as of April 30, 2005.
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 4/30/05 10/31/04
------ ------- --------
<s> <c> <c>
Aaa/AAA 72.01% 73.32%
Aa/AA 26.10% 24.94%
A 1.89% 1.74%
Baa/BBB 0% 0%
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 2005, shareholders were 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
Fund Expenses Borne by Shareholders During the Period from
November 1, 2004 through April 30, 2005.
As a shareholder of the fund, you incur two types of costs: (1)
transaction costs, including sales charges (loads) on certain purchase
payments, and (2) ongoing costs, including management fees; distribution
and service (12b-1) fees; and other fund expenses. This example is intended
to help you understand your ongoing costs (in dollars) of investing in the
fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period, November 1, 2004
through April 30, 2005.
Actual Expenses
The first line in the table provides information about actual account
values and actual expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000=8.6), then multiply the
result by the number in the first line under the heading entitled "Expenses
Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The second line in the table provides information about hypothetical
account values and hypothetical expenses based on the fund's actual
expenses ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use the information to
compare the ongoing costs of investing in the Fund and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples
that appear in the shareholder reports of the other funds.
Expenses Table
Please note that the expenses shown in the table are meant to
highlight your ongoing costs only and do not reflect any transactional
costs, such as sales charges (loads). Therefore, the second line in the
table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been
higher.
Expenses
Annualized Beginning Ending Paid During
Expense Account Value Account Value* Period**
Ratio 11/1/04 4/30/05 11/1/04-4/30/05
---------- ------------- -------------- ---------------
<s> <c> <c> <c> <c>
Actual 1.29% $1,000 $1,012 $6.52
Hypothetical 1.29% $1,000 $1,025 $6.57
<FN>
* Ending account value reflects the ending account value assuming the
actual return per year before expenses (Actual) and a hypothetical 5%
return per year before expenses (Hypothetical).
** Expenses paid is equal to the annualized expense ratio for the most
recent 6 month period, as shown above, multiplied by the average
account value over the period multiplied by the number of days in the
period divided by the number of days in the year. Expenses paid do
not include any applicable sales charges (loads) or redemption fees.
If these transaction costs had been included, your costs would have
been higher.
</FN>
3
STATEMENT OF ASSETS AND LIABILITIES
as of April 30, 2005
(unaudited)
ASSETS
<s> <c>
Investments at value (identified cost $27,536,613) (Note 1A) $28,839,779
Cash 271,418
Interest receivable 353,095
Prepaid expense 42,017
-----------
Total Assets $29,506,309
LIABILITIES
Distribution payable to shareholders $ 40,745
Accrued management fees 14,470
Payable for Capital Stock Redeemed 10,197
-----------
Total Liabilities $ 65,412
===========
Net Assets $29,440,897
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share) $ 28,500
Additional paid-in capital 28,086,951
Accumulated net realized gain on investment transactions 94,104
Distributions in excess of net investment income (71,824)
Net unrealized appreciation of investments 1,303,166
-----------
Total-Representing Net Assets at Value for 2,849,979 Shares Outstanding $29,440,897
===========
Computation of Net Asset Value & Offering Price:
Net Assets $29,440,897
Divided by number of shares outstanding 2,849,979
Net asset value $ 10.33
===========
Offering price $ 10.76
===========
See Notes to Financial Statements.
4
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
For the period ended April 30, 2005
(unaudited)
<s> <c> <c>
Investment Income
Interest income (Note 1B) $ 711,071
Expenses:
Adviser fees (Note 2) $ 52,568
Administrator fees (Note 2) 37,549
Transfer agent fees 25,123
Auditing fees 20,000
Legal fees and expenses 19,931
Trustees fees and expenses 12,000
Distribution expenses (Note 5) 10,149
Custody 10,476
Shareholder reports 3,643
Pricing fees 1,249
Miscellaneous expenses 1,315
Insurance 689
Registration fees 975
---------
$ 195,667
---------
Net Investment Income $ 515,404
Realized and Unrealized Gain/(Loss) on Investments
Net Realized Gain on Investments $ 68,264
Net Change in Unrealized Appreciation/Depreciation of Investments (406,086)
---------
Net Realized and Unrealized Loss on Investments (337,822)
---------
Net Increase in Net Assets Resulting from Operations $ 177,582
=========
See Notes to Financial Statements.
5
OCEAN STATE TAX EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Fiscal Year
Ended Ended
April 30, 2005 October 31, 2004
-------------- ----------------
(unaudited)
<s> <c> <c>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income $ 515,404 $ 1,059,913
Net realized gain on investments 68,264 23,002
Change in unrealized appreciation/depreciation
of investments (406,086) 53,989
----------- -----------
Net increase in net assets resulting from operations $ 177,582 $ 1,136,904
Dividends and distributions to shareholders from:
Net investment income ($.18 per share in 2005 and
$.35 per share in 2004) (526,437) (1,059,913)
Net realized gains ($.01 per share in 2005 and
$.03 per share in 2004) (27,914) (92,412)
Net decrease from fund share transactions (Note 4) (1,767,501) (1,514,293)
----------- -----------
Total decrease in net assets (2,144,270) (1,529,714)
NET ASSETS:
Beginning of period 31,585,167 33,114,881
----------- -----------
End of period $29,440,897 $31,585,167
=========== ===========
See Notes to Financial Statements.
6
OCEAN STATE TAX EXEMPT FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period.
The following data includes selected data and other performance
information derived from the financial statements.
Fiscal Fiscal Fiscal Fiscal Fiscal
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
4/30/05 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00
----------- -------- -------- -------- -------- --------
(unaudited)
<s> <c> <c> <c> <c> <c> <c>
Per Share Operating Performance:
Net Asset Value, Beginning of Year $ 10.46 $ 10.48 $ 10.54 $ 10.55 $ 10.25 $ 10.12
Net investment income .18 .35 .42 .45 .47 .49
Net realized and unrealized gain
(loss) on investments (.12) .01 (.03) (.01) .30 .13
------- ------- ------- ------- ------- -------
Total from Investment Operations .06 .36 .39 .44 .77 .62
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.18) (.35) (.42) (.45) (.47) (.49)
Distribution from net realized gains (.01) (.03) (.03) (.00) (.00) (.00)
------- ------- ------- ------- ------- -------
Total Distributions (.19) (.38) (.45) (.45) (.47) (.49)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Year $ 10.33 $ 10.46 $ 10.48 $ 10.54 $ 10.55 $ 10.25
======= ======= ======= ======= ======= =======
Total investment return at Net
Asset Value (a) 1.16% 3.55% 3.60% 4.21% 7.63% 6.22%
Ratios and Supplemental Data:
Net Assets, End of Year (000's
omitted) $29,441 $31,585 $33,115 $36,089 $36,303 $37,526
Ratio of expenses to average net
assets 0.65% 1.24% 1.06% 1.04% 1.19% 1.12%
Ratio of net investment income to
average net assets 1.70% 3.40% 3.82% 4.25% 4.52% 4.76%
Portfolio turnover 8% 15% 19% 17% 4% 5%
Fund expenses per share .07 .13 .12 .11 .13 .12
Net investment income per share .18 .35 .42 .45 .47 .49
<FN>
(a) Total investment return does not reflect sales load.
</FN>
See Notes to Financial Statements.
7
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(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, 2005 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, 2005, 92.22% 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, 2005, 81.93% 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 21.76% 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 characteristics, 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.
8
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS-(Continued)
(unaudited)
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.
The tax character of distributions as reported on the Statements of
Changes in Net Assets for the years ended October 31, 2004 and 2003 were as
follows:
2004 2003
---- ----
<s> <c> <c>
Tax-Exempt Income $1,059,913 $1,317,766
Long-Term Capital Gains 92,412 105,799
As of October 31, 2004, the components of distributable earnings on a
tax basis were as follows:
<s> <c>
Undistributed Long-Term Capital Gains $ 27,984
Unrealized Appreciation 1,735,058
Undistributed Tax-Exempt Income 27,582
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.
9
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, 2005 was $2,000.
Legal fees and expenses of $19,931 were paid to a firm of which the
Fund's Secretary is a partner.
During the period November 1, 2004 through April 30, 2005, the
Distributor received $4,577 in commissions as a result of Fund share sales.
NOTE 3 Investment Transactions
During the period ended April 30, 2005 purchases and sales of
investment securities, other than short-term investments, aggregated
$2,339,038 and $4,261,627, 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, 2005, gross unrealized
appreciation on investment securities was $1,326,102 and gross unrealized
depreciation on investment securities was $22,936.
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 10/31/03 3,158,805 $31,397,245
Shares sold 312,218 3,209,753
Shares issued in reinvestment of dividends 57,598 601,754
Shares redeemed (507,839) (5,325,800)
--------- -----------
Net decrease (138,023) (1,514,293)
--------- -----------
Balance at 10/31/04 3,020,782 $29,882,952
========= ===========
Shares sold 48,529 501,929
Shares issued in reinvestment of dividends 26,718 276,331
Shares redeemed (246,050) (2,545,761)
--------- -----------
Net decrease (170,803) (1,767,501)
--------- -----------
Balance at 4/30/05 2,849,979 $28,115,451
========= ===========
10
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 $10,149 under the Plan during fiscal 2005.
NOTE 6 Tax Information (unaudited)
Of the distributions paid by the Fund from investment income, 100% is
tax exempt for federal income tax purposes.
For the year ended October 31, 2004, the amount of long-term capital
gains distributions designated by the Fund was $92,412. The amount of tax
exempt interest dividends distributed by the Fund was $1,059,913.
11
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
as of April 30, 2005
(unaudited)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
--------- --------------------- --------
<s> <c> <c> <c>
MUNICIPAL SECURITIES (97.96%) (a)
Rhode Island General Obligation and Revenue (63.69%) (a)
$ 500,000 Barrington School District 5.00%, 10/1/14 Aa-2/NR $ 540,366
200,000 Burrillville General Obligation FGIC Insured 5.70%, 5/1/11 Aaa/AAA 205,368
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/24 Aaa/AAA 264,541
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/22 Aaa/AAA 266,422
300,000 East Providence General Obligation MBIA Insured 5.70%,
5/15/10 Aaa/AAA 307,466
300,000 Lincoln General Obligation FGIC Insured 5.60%, 8/1/12 Aaa/NR 309,464
225,000 Middletown General Obligation 4.00%, 7/15/12 Aa-3/NR 233,009
75,000 North Kingstown General Obligation 6.70%, 12/15/05 Aa-3/NR 77,160
80,000 North Kingstown General Obligation 6.80%, 12/15/06 Aa-3/NR 85,355
200,000 North Kingstown General Obligation FGIC Insured 5.70%,
10/1/18 Aaa/NR 223,669
500,000 North Providence General Obligation FSA Insured 4.00%,
10/15/17 Aaa/AAA 503,381
500,000 Providence General Obligation FSA Insured 5.00%, 7/15/14 Aaa/AAA 553,531
200,000 Providence Public Bldg. Auth. FSA Insured 5.10%, 12/15/08 Aaa/AAA 211,382
150,000 Providence Public Bldg. Auth. MBIA Insured 5.50%, 12/15/13 Aaa/AAA 159,477
500,000 Providence Public Bldg. Auth. AMBAC Insured 5.125%,
12/15/14 Aaa/AAA 544,128
685,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 Aaa/AAA 718,831
250,000 Providence Public Bldg. Auth. AMBAC Insured 5.25%,
12/15/15 Aaa/AAA 273,318
500,000 Providence Redevelopment Auth. AMBAC Insured, 5.30%,
4/1/12 Aaa/NR 555,411
200,000 Providence Redevelopment Radian Insured 4.25%, 9/1/13 NR/AA 205,364
16,000 Warwick General Obligation MBIA Insured 6.60%, 11/15/06 Aaa/AAA 16,087
250,000 Warwick General Obligation FSA Insured 4.00%, 7/15/11 Aaa/AAA 259,526
250,000 Warwick General Obligation FSA Insured 4.125%, 7/15/13 Aaa/AAA 259,213
145,000 Rhode Island Clean Water Pre-refunded U.S. T MBIA Insured
6.50%, 10/1/06 Aaa/AAA 147,855
150,000 Rhode Island Clean Water MBIA Insured 5.30%, 10/1/07 Aaa/AAA 158,725
100,000 Rhode Island Clean Water AMBAC Insured 4.75%, 10/1/18 Aaa/AAA 103,936
225,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/18 Aaa/AAA 238,934
500,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/19 Aaa/AAA 540,993
500,000 Rhode Island Clean Water MBIA Insured 4.40%, 10/1/25 Aaa/AAA 499,619
650,000 Rhode Island Depositors Economic Protection Corp. MBIA
Insured Escrowed to Maturity 6.55%, 8/1/10 Aaa/AAA 734,998
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 (continued)
$ 215,000 Rhode Island Depositors Economic Protection Corp. CAPMAC
Guaranteed Escrowed to Maturity 6.375%, 8/1/22 Aaa/AAA $ 275,487
250,000 Rhode Island Depositors Economic Protection Corp. Escrowed
to Maturity 5.75%, 8/1/21 Aaa/NR 294,945
500,000 Rhode Island Economic Department of Transportation AMBAC
Insured 3.75%, 6/15/13 Aaa/AAA 507,769
500,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/12 Aaa/AAA 536,605
395,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/13 Aaa/AAA 422,432
545,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/14 Aaa/AAA 582,850
450,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.00%, 7/1/18 Aaa/AAA 475,046
1,100,000 Rhode Island Economic Development Corp. Providence Place
Radian Insured 6.125%, 7/1/20 NR/AA 1,242,591
100,000 RI COPS MBIA Insured 5.375%, 10/1/16 Aaa/AAA 106,443
250,000 RI COPS Kent County Courthouse MBIA Insured 5.00%,
10/1/22 Aaa/AAA 266,108
300,000 Rhode Island Lease Participation Certificate Shepard Bldg.
AMBAC Insured 5.125%, 6/1/12 Aaa/AAA 315,945
500,000 Rhode Island Refunding Bond Authority AMBAC Insured
5.25%, 2/1/10 Aaa/AAA 540,993
500,000 Rhode Island General Obligation MBIA Insured 5.00%, 9/1/18 Aaa/AAA 535,978
300,000 Rhode Island General Obligation FGIC Insured 5.125%,
7/15/14 Aaa/AAA 320,082
480,000 Rhode Island General Obligation FGIC Insured 5.00%, 8/1/14 Aaa/AAA 517,548
500,000 Rhode Island General Obligation MBIA Insured 5.75%, 8/1/15 Aaa/AAA 525,321
1,000,000 Rhode Island General Obligation FGIC Insured 5.50%, 9/1/16 Aaa/AAA 1,110,823
400,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.40%, 9/1/14 Aaa/AAA 442,323
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 Aaa/AAA 264,855
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 Aaa/AAA 269,243
-----------
Total Rhode Island General Obligation and Revenue $18,750,916
-----------
Rhode Island Health & Education Building Corporation (22.36%) (a)
$ 100,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/15 Aaa/AAA $ 107,697
300,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/16 Aaa/AAA 322,715
100,000 Bryant College AMBAC Insured 4.60%, 6/1/12 Aaa/AAA 107,446
100,000 Brown University 4.75%, 9/1/12 Aa-1/AA+ 104,688
200,000 Brown University 5.90%, 9/1/14 Aa-1/AA+ 207,053
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 Health & Education Building Corporation (continued)
$ 780,000 Brown University 5.25%, 9/1/16 Aa-1/AA+ $ 847,861
400,000 Brown University 5.00%, 9/1/19 Aa-1/AA+ 417,750
500,000 Brown University 5.00%, 9/1/23 Aa-1/AA+ 518,426
250,000 Salve Regina College Radian Insured 5.25%, 3/15/18 NR/AA 267,989
750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 Aaa/AAA 784,221
500,000 Johnson & Wales College XL Capital 5.25%, 4/1/14 Aaa/AAA 555,411
250,000 Rhode Island School of Design MBIA Insured 4.40%, 6/1/15 Aaa/AAA 261,407
585,000 Rhode Island School of Design MBIA Insured 4.60%, 6/1/17 Aaa/AAA 613,159
500,000 St. Antoine Residence LOC-Allied Irish Bank 6.125%,
11/15/18 Aa-3/NR 533,471
300,000 Lifespan MBIA Insured 5.75%, 5/15/23 Aaa/AAA 321,211
100,000 United Methodist Elder Care LOC-Fleet Bank 7.50%, 11/1/14 NR/AA 102,640
500,000 Times 2 Academy LOC-Citizens Bank 5.00%, 12/15/24 Aa2/NR 509,649
-----------
Total Rhode Island Health & Education Building Corporation $ 6,582,794
-----------
Rhode Island Housing & Mortgage Finance Corporation (6.17%) (a)
$ 180,000 5.65%, 10/1/07 NR/A $ 182,504
250,000 4.00%, 4/1/13 Aa-2/AA+ 250,123
400,000 5.00%, 10/1/16 Aa-2/AA+ 407,720
10,000 6.50%, 10/1/22 Aa-2/AA+ 10,071
950,000 4.30%, 10/1/17 Aa-2/AA+ 959,996
5,000 6.50%, 4/1/27 Aa-2/AA+ 5,036
-----------
Total Rhode Island Housing & Mortgage Finance Corporation $ 1,815,450
-----------
TOTAL RHODE ISLAND BONDS (92.22%) (a) $27,149,160
-----------
Puerto Rico Bonds (5.74%) (a)
$ 350,000 Puerto Rico Commonwealth 5.00%, 7/1/29 Baa2/A- $ 362,898
250,000 Puerto Rico Electric Power Authority MBIA Insured
5.00%, 7/1/10 Aaa/AAA 268,929
500,000 Puerto Rico Electric Power Authority MBIA Insured 5.125%,
7/1/29 Aaa/AAA 524,694
500,000 Puerto Rico Municipal Finance Auth. FSA Insured 5.50%,
7/1/17 Aaa/AAA 534,098
-----------
TOTAL PUERTO RICO BONDS (5.74%) (a) $ 1,690,619
-----------
TOTAL INVESTMENTS (Cost $27,536,613)(93.53%)(a) $28,839,779
-----------
OTHER ASSETS AND LIABILITIES (2.04%) 601,118
-----------
TOTAL NET ASSETS (100.00%) $29,440,897
===========
14
<FN>
(a) Percentages indicated are based on net assets of $29,440,897 at April
30, 2005 (total investments plus cash and receivables less
liabilities) which corresponds to a net asset value per share of
$10.33.
(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>
15
Trustees and Officers
The Trustees of the Fund are responsible for the management and
direction of the business and affairs of the Fund. The Trustees and
officers of the Fund, their affiliations, if any, with the Adviser, and
their principal occupations during at least the past five years are set
forth below. Trustees who are "interested persons" of the Fund as that term
is defined in the 1940 Act are designated with an (*) asterisk. Age of the
Trustee is in parentheses ( ). The VLC Trust consists of one investment
portfolio. The Fund's Statement of Additional Information includes
additional information about Trustees and is available, without charge and
upon request, by calling 401-421-1411.
Trustees Background
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
<s> <c> <c>
Alfred B. Van Liew *(70) President (since 1987) Managing Partner of the Adviser, since 1984;
One Regency Plaza and Trustee (since Director of the Distributor since May 1990;
Suite One 1986) Chairman and Chief Executive Officer of Van
Providence, Rhode Island 02903 Liew Trust Company, a Rhode Island chartered
trust company, since 1984; Trustee of Preserve
Rhode Island since 1971; Adviser to the
National Trust for Historic Preservation since
1983; Trustee of St. Andrew's School since
1984; Trustee of the Museum of Yachting since
1988; and Trustee of the Seamen's Institute,
Newport, Rhode Island since 1994.
John St. Sauveur * (71) Trustee (since 1992) Director of the Advisor; President and CEO,
219 Great Road WestBank Realty Corporation; Director of the
North Smithfield Community College of Rhode Island Foundation;
Rhode Island 02896 Chairman, Woonsocket Industrial Development
Corporation; Chairman, Greater Woonsocket
Industrial Development Foundation; Vice
Chairman of the North Smithfield Industrial
Development Corporation; a Vice President and
Director, Rhode Island Chamber of Commerce
Federation; Member Rhode Island State
Job Training Coordinating Council; Finance
Chairman, Landmark Medical System and
Trustee, Landmark Medical Center; Commis-
sioner of the Rhode Island Resource Recovery
Corporation since 1992; Chairman, The
Rehabilitation Hospital of Rhode Island; Director
and Corporate Secretary, Gooding Realty
Corporation.
Mary Ann Altrui (62) Trustee (since 2001) Administrator of St. Antoine Residence (a
10 Rhodes Avenue nursing facility) (1988-Present); Director of
North Smithfield, Rhode Island Diocesan Elder Care Services (1997-Present);
02896 Oversight responsibility for St. Clare Home;
Founding member with St. Elizabeth
16
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
<s> <c> <c>
Community, Scandinavian Home and Steere
House of "CareLink", a Management service
organization incorporated in 1997; Member of
the American College of Health Care Administra-
tors, the Diocesan Biomedical Ethics Commis-
sion of the North Smithfield Advisory Council;
Director of Woonsocket Industrial Development
Corporation and WIDC Realty Corporation, and
serves on advisory committees for the Diocese
of Providence, the State of Rhode Island, and
the Nonprofit Association of Facilities and
Services for the Aging.
Milton C. Bickford, Jr. (73) Trustee (since 1987) Private investor since 1989; Director (Chairman
147 Beavertail Road 1999-2002) of AAA Southern New England;
Jamestown, Rhode Island 02835 CEO National Bickford Foremost, Inc. (national
color printing firm) (1980-1989); Trustee,
National Traffic Safety Foundation
(1999-2002).
Meredith A. Curren (45) Trustee Since 1990, Chief Financial Officer, Pease &
75 Pennsylvania Avenue (since 2001) Curren, Inc. (refiners of precious metals).
Warwick, Rhode Island 02888 Director of Bancorp Rhode Island, Inc.
and Bank Rhode Island; Board Member,
Providence Jewelers Club; Board Member
Partner, Providence Chamber of Commerce;
SVP RI Social Venture Partners of RI.
Michael E. Hogue (62) Trustee (since 1989) Managing Partner, eTime (Insurance Services)
116 Chestnut Street (February 2002-present); President, VIAcorp.
Providence, Rhode Island 02903 (Financial Services) (June 1994 until present);
Assistant Professor of Insurance at the Wharton
School, University of Pennsylvania; Trustee of
Trinity Repertory Company (1997-present);
President of the Jewelry District
Association (1999-present).
Arthur H. Lathrop (50) Trustee (since 2001) In practice as a Certified Public Accountant (sole
28 Spruce Street proprietor) in Westerly, RI (1991-present);
Westerly, Rhode Island 02891 Member of American Institute of Certified Public
Accountants. Trustee (1998-present) and
Chairman of the Audit Committee of Westerly
Savings Bank; Trustee and Assistant Treasurer
(1990-present) of River Bend Cemetery
Company; Corporator (1989-present) of
Community Health of Westerly, Inc.;
Professional Advisory Council Member
(1995-2000) of The Rhode Island Foundation;
Incorporator of Memorial & Library Association
of Westerly (2004-present).
17
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
<s> <c> <c>
Lawrence B. Sadwin (61) Trustee (since 2001) President, Lifestyle Security, LLC (since August
18 Oyster Point 2002), Division Marketing Leader for General
Warren, Rhode Island 02885 Electric (2000-2002); Chief Operating Officer
(1999-2000), Regional Manager (1998-1999),
Recruiter (1997-1998) and Long Term Care
Specialist (1997) for Travelers/NET Plus, Inc.;
Consultant (1994-1997) for MGS Holding
Corporation; Member-At-Large National Board of
Directors, American Heart Association; Member,
National Leadership Council, Research America;
Vice Chairman, Landmark Medical Center;
Chairman of the Board, American Heart
Association (2001-2002).
Samuel H. Hallowell, Jr. (57) Vice President (since Partner of the Adviser and Vice President, Van
One Regency Plaza 1989) Liew Trust Company (1984-present);
Suite One Secretary and Past President Audubon
Providence, Rhode Island 02903 Society of Rhode Island; Member Providence
Society of Security Analysts.
Joseph J. Healy (37) Vice President (since Vice President of the Advisor (1992-present);
One Regency Plaza 1996) Vice President, Van Liew Trust Company;
Suite One President and General Securities Principal of the
Providence, Rhode Island 02903 Distributor (1993-present); Member Providence
Society of Security Analysts and CFA Institute.
Kevin M. Oates (45) Vice President and Partner of the Adviser (1996-present); Chief
One Regency Plaza Treasurer (since 1991) Operating Officer of the Adviser (April, 2000-
Suite One present) and Van Liew Trust Company, and Vice
Providence, Rhode Island 02903 President and Treasurer of the Distributor, since
1991; Vice President-Administration of the
Adviser (1991-2000).
Margaret D. Farrell (55) Secretary (since 1986) Partner, Hinckley, Allen & Snyder LLP, general
1500 Fleet Center legal counsel to the Fund, (1981-Present);
Providence, Rhode Island, 02903 Director and Secretary of Bancorp Rhode
Island, Inc. and Bank Rhode Island; Director
Care New England Health System; Director and
Chairman of Women & Infants Corporation;
Trustee and Chairman Women and Infants
Hospital of Rhode Island; Secretary, Astro-Med,
Inc. (manufacturer of graphic recording and
printing systems).
18
Privacy Policy
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.
19
Investment Adviser & Administrator
Van Liew Capital Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
Distributor [LOGO] OCEAN STATE TAX EXEMPT FUND
Van Liew Securities, Inc.
One Regency Plaza, Suite One (The Portfolio of VLC Trust)
Providence, Rhode Island 02903
Custodian
PFPC Trust Company
Airport Business Center
200 Stevens Drive, Suite 440
Lester, Pennsylvania 19113
Transfer Agent Semi-Annual Report
Ocean State Tax Exempt Fund April 30, 2005
C/O PFPC, Inc. (unaudited)
P.O. Box 9839
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. Interest income exempt
Meredith A. Curren from Federal and Rhode
Michael E. Hogue Island income taxes
Arthur H. Lathrop 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.
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. SCHEDULE OF INVESTMENTS. Please see Schedule of Investments
contained in the Report to Shareholders included under Item 1 of this Form
N-CSR.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable. Registrant is an open-end management investment company.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFLIATED PURCHASER. Not applicable. Registrant is
an open-end management investment company.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not
applicable.
ITEM 11. 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 12. EXHIBITS.
(a)(1) 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.
(a)(ii) 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.(a) CERT - Certification of President
pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (filed
herewith).
(ii) EX-99.(b) CERT - Certification of Vice President
and Treasurer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
(filed herewith).
(b) Certifications of principal executive and principal financial
officers required by Rule 30a-2(b) under the Investment Company Act of
1940.
(i) EX-99.906(a) CERT - Certification of President
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 (filed
herewith).
(ii) EX-99.906(b) CERT - Certification of Vice President
and Treasurer 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: June 30, 2005 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: June 30, 2005 By:/s/ Alfred B. Van Liew
------------------------------------
Alfred B. Van Liew
President
Date: June 30, 2005 By:/s/ Kevin M. Oates
------------------------------------
Kevin M. Oates
Vice President & Treasurer