N-CSR
1
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: October 31, 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.
- -----------------------------------------------------------------------
TABLE OF CONTENTS OCTOBER 31, 2005
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
October 31, 2005
The Federal Reserve appears to be nearing the end of their cycle of
rate hikes. Since June 2004 we've witnessed twelve increases in the
overnight lending rates between banks, commonly known as the Fed Funds
Rate. Resilient U.S. consumer spending and rising oil prices have
contributed to the Federal Reserve program to keep increasing rates in a
long-term effort to fight inflation.
How has the bond market responded to these rate hikes? Long-term
rates have remained relatively flat whereas short-term rates have risen
dramatically. For many investors this "flattening" of the yield curve, or
the spread between short and long-term rates, is a cause for concern. In
the previous ten episodes of a pronounced flattening or inversion of the
yield curve, the expansion has tipped into a recession six times. Should
Ocean State Tax Exempt Fund investors worry?
In our view with current long-term rates so low this environment
could lead to slower growth but will not likely cause a recession. The Fed
Funds Rate is still well below the level that has existed before past
recessions. Much of the slowing in our economy could be attributed to
higher fuel costs, a situation that has drastically improved of late,
rather than a broad increase in the overall cost of goods and services.
Interestingly, the gloom and doom that a recession spells for the
economy and correspondingly for the equity market could have the opposite
effect for investors in bonds or municipal bond funds like the Ocean State
Tax Exempt Fund. A recession could prove profitable to bond investors if
the economy slows and the Fed is moved to lower interest rates. Whatever
the future may hold the Fund's investment objective of preservation of
principal with a high level of current income exempt from Rhode Island and
Federal taxes for Rhode Island investors holds true in any investment
environment.
Happy holidays!
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, 2005
Prior
November 1, 2004 Fiscal Year November 1, 2000 November 1, 1995
through Ended through through
October 31, 2005 October 31, 2004 October 31, 2005 October 31, 2005
---------------- ---------------- ---------------- ----------------
<s> <c> <c> <c> <c>
Total Rate of Return (b)
Based on:
Net Asset Value 0.56% 3.55% 3.95% 4.24%
Offering Price -3.50% -0.62% 3.09% 3.82%
As of As of
October 31, 2005 October 31, 2004
---------------- ----------------
<s> <c> <c>
30-day Current Yield
Based on:
Net Asset Value 3.04% 3.30%
Offering Price 2.92% 3.16%
30-day Tax-Equivalent Yield (a)
Based on:
Net Asset Value 5.20% 5.58%
Offering Price 4.99% 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 13.0 years as of October 31, 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 10/31/05 10/31/04
------ -------- --------
<s> <c> <c>
Aaa/AAA 68.14% 73.32%
Aa/AA 24.55% 24.94%
A 3.52% 1.74%
Baa/BBB 3.79% 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 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
MANAGEMENT'S DISCUSSION OF INVESTMENT PERFORMANCE
October 31, 2005 marked the end of the Fund's nineteenth fiscal year.
During the prior 12 months, the Fund's net asset value (NAV) declined from
$10.46 to $10.16. The Fund's dividend distribution climbed from $0.35 to
$0.36 per share during the year while the Fund's total return on net asset
value was 0.56%.*
During the year the Fund's management continued to increase the
Fund's average maturity from 11 to 13 years while the Aaa/AAA component of
the portfolio was reduced to 68%. Management concentrated on adding longer-
term, lower-rated investment grade bonds and higher yielding bonds during
the period. In addition, management has worked to emphasize call protection
in a period where bond calls increased due to the continued low long-term
interest rate environment.
Insured general obligation bonds represented the largest sector
weighting of the bond's portfolio followed by insured revenue bonds.** Fund
management remains focused on the Fund's investment objective to provide as
high a level of current income, exempt from Federal and Rhode Island tax,
as is consistent with the preservation of principal.
Fund Expenses Borne by Shareholders During the Period from
May 31, 2005 through October 31, 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, May 1, 2005 through
October 31, 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.
<FN>
* A portion of the Fund's income may be subject to Federal income
and/or state income tax. The total return on net asset value does not
include the 4.00% maximum sales charge.
** Private insurance does not decrease the risk of loss of principal
associated with this investment.
</FN>
3
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 5/1/05 10/31/05 5/1/05-10/31/05
---------- ------------- -------------- ---------------
<s> <c> <c> <c> <c>
Actual 1.48% $1,000.00 $ 994.10 $7.42
Hypothetical 1.48% $1,000.00 $1,025.00 $7.53
<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>
4
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
as of October 31, 2005
ASSETS
<s> <c>
Investments at value (identified cost $27,112,396) (Note 1A) $27,890,083
Interest receivable 344,853
-----------
TOTAL ASSETS $28,234,936
LIABILITIES
Overdraft $ 1,885
Distribution payable to shareholders 35,589
Accrued management fees 14,012
Accrued expenses 14,750
-----------
TOTAL LIABILITIES $ 66,236
===========
NET ASSETS $28,168,700
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share) $ 27,737
Additional paid-in capital 27,304,194
Accumulated net realized gain on investment transactions 131,539
Distributions in excess of net investment income (72,457)
Net unrealized appreciation of investments 777,687
-----------
TOTAL-REPRESENTING NET ASSETS AT VALUE FOR 2,773,653 SHARES
OUTSTANDING $28,168,700
===========
COMPUTATION OF NET ASSET VALUE & OFFERING PRICE:
Net Assets $28,168,700
Divided by number of shares outstanding 2,773,653
Net asset value $ 10.16
===========
Offering price $ 10.58
===========
See Notes to Financial Statements.
5
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<s> <c> <c>
Investment Income
Interest income (Note 1C) $1,386,440
Expenses:
Adviser fees (Note 2) $ 103,777
Administrator fees (Note 2) 74,127
Transfer agent fees 69,446
Auditing fees 41,532
Legal fees and expenses 40,710
Trustees fees and expenses 23,622
Custody 21,255
Distribution expenses (Note 5) 21,076
Shareholder reports 8,861
Miscellaneous expenses 3,206
Pricing fees 2,646
Registration fees 1,765
Insurance 1,431
---------
$ 413,454
----------
Net Investment Income $ 972,986
Realized and Unrealized Gain/(Loss) on Investments
Net Realized Gain on Investments $ 121,718
Net Change in Unrealized Appreciation/Depreciation of Investments (931,565)
Net Realized and Unrealized Loss on Investments (809,847)
----------
Net Increase in Net Assets Resulting from Operations $ 163,139
==========
See Notes to Financial Statements.
6
OCEAN STATE TAX EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Fiscal Year
Ended Ended
October 31, 2005 October 31, 2004
---------------- ----------------
<s> <c> <c>
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income $ 972,986 $ 1,059,913
Net realized gain on investments 121,718 23,002
Change in unrealized appreciation (depreciation)
of investments (931,565) 53,989
----------- -----------
Net increase in net assets resulting from operations $ 163,139 $ 1,136,904
Dividends and distributions to shareholders from:
Net investment income ($.34 per share in 2005 and
$.35 per share in 2004) (965,687) (1,059,913)
Net realized gains ($.02 per share in 2005 and
$.03 per share in 2004) (62,898) (92,412)
Net decrease from fund share transactions (Note 4) (2,551,021) (1,514,293)
----------- -----------
Total (decrease) in net assets (3,416,467) (1,529,714)
NET ASSETS:
Beginning of year 31,585,167 33,114,881
----------- -----------
End of period $28,168,700 $31,585,167
=========== ===========
See Notes to Financial Statements.
7
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
Year Year Year Year Year
Ended Ended Ended Ended Ended
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
-------- -------- -------- -------- --------
<s> <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
Net investment income .34 .35 .42 .45 .47
Net realized and unrealized gain (loss)
on investment (.28) .01 (.03) (.01) .30
------- ------- ------- ------- -------
Total from Investment Operations .06 .36 .39 .44 .77
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income (.34) (.35) (.42) (.45) (.47)
Distribution from net realized gains (.02) (.03) (.03) (.00) (.00)
------- ------- ------- ------- -------
Total Distributions (.36) (.38) (.45) (.45) (.47)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 10.16 $ 10.46 $ 10.48 $ 10.54 $ 10.55
======= ======= ======= ======= =======
Total investment return at Net Asset
Value (a) 0.56% 3.55% 3.60% 4.21% 7.63%
Ratios and Supplemental Data:
Net Assets, End of Year (000's
omitted) $28,169 $31,585 $33,115 $36,089 $36,303
Ratio of expenses to average
net assets 1.39% 1.24% 1.06% 1.04% 1.19%
Ratio of net investment income to
average net assets 3.27% 3.40% 3.82% 4.25% 4.52%
Portfolio turnover 13% 15% 19% 17% 4%
Fund expenses per share .14 .13 .12 .11 .13
Net investment income per share .34 .35 .42 .45 .47
<FN>
(a) Total investment return does not reflect sales load.
</FN>
Average share method was used to calculate financial highlights.
See Notes to Financial Statements.
8
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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, 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 October 31, 2005, 93.11% 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, 2005, 81.49% 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 21.94% 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.
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.
9
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS-(Continued)
NOTE 1 Significant Accounting Policies (continued)
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, 2005 and 2004 were as
follows:
2005 2004
---- ----
<s> <c> <c>
Tax-Exempt Income $965,687 $1,059,913
Long-Term Capital Gains 62,898 92,412
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States. The book/tax
differences are either considered temporary or permanent in nature.
Temporary differences are generally due to differing book and tax
treatments of market discounts. Permanent differences are generally due to
the treatment of market discount upon disposition. Permanent book and tax
basis differences may result in reclassifications to undistributed
(distributions in excess of) net investment income, accumulated net
realized gain (loss) and paid-in capital.
As of October 31, 2005, the components of distributable earnings on a
tax basis were as follows:
<s> <c>
Undistributed Long-Term Capital Gains $ 92,276
Unrealized Appreciation 816,950
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 ADMINSTRATIVE 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.
10
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS-(Continued)
NOTE 2 ADVISORY AND ADMINSTRATIVE SERVICES AND OTHER AFFILIATED
TRANSACTIONS (continued)
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, 2005 was $2,000.
Legal fees and expenses of $40,710 were paid to a firm of which the
Fund's Secretary is a partner.
During the period November 1, 2004 through October 31, 2005, the
Distributor received $5,636 in commissions as a result of Fund share sales.
NOTE 3 INVESTMENT TRANSACTIONS
During the period ended October 31, 2005 purchases and sales of
investment securities, other than short-term investments, aggregated
$3,906,037 and $6,290,208, respectively. The aggregate cost of investments
for Federal income tax purposes was $27,073,133. At October 31, 2005, gross
unrealized appreciation on investment securities was $894,795 and gross
unrealized depreciation on investment securities was $77,845.
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 140,947 1,456,842
Shares issued in reinvestment of dividends 49,576 511,851
Shares redeemed (437,652) (4,519,714)
--------- -----------
Net decrease (247,129) (2,551,021)
--------- -----------
Balance at 10/31/05 2,773,653 $27,331,931
========= ===========
11
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS-(Continued)
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 $21,076 under the Plan during fiscal 2005.
12
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
as of October 31, 2005
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
- --------- --------------------- --------
<s> <c> <c> <c>
MUNICIPAL SECURITIES (99.01%) (a)
Rhode Island General Obligation and Revenue (65.92%) (a)
$ 500,000 Barrington School District 5.00%, 10/1/14 Aa-2/NR $ 530,040
200,000 Burrillville General Obligation FGIC Insured 5.70%, 5/1/11 Aaa/AAA 204,344
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/24 Aaa/AAA 260,125
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/22 Aaa/AAA 261,363
225,000 Middletown General Obligation 4.00%, 7/15/12 Aa-3/NR 227,365
75,000 North Kingstown General Obligation 6.70%, 12/15/05 Aa-3/NR 75,330
80,000 North Kingstown General Obligation 6.80%, 12/15/06 Aa-3/NR 83,238
200,000 North Kingstown General Obligation FGIC Insured 5.70%,
10/1/18 Aaa/NR 218,614
500,000 North Providence General Obligation FSA Insured 4.00%,
10/15/17 Aaa/AAA 493,445
500,000 Providence General Obligation FSA Insured 5.00%, 7/15/14 Aaa/AAA 539,070
150,000 Providence Public Bldg. Auth. MBIA Insured 5.50%, 12/15/13 Aaa/AAA 156,747
500,000 Providence Public Bldg. Auth. AMBAC Insured 5.125%,
12/15/14 Aaa/AAA 533,770
685,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 Aaa/AAA 707,420
250,000 Providence Public Bldg. Auth. AMBAC Insured 5.25%,
12/15/15 Aaa/AAA 268,145
500,000 Providence Redevelopment Auth. AMBAC Insured 5.30%,
4/1/12 Aaa/NR 540,765
200,000 Providence Redevelopment Radian Insured 4.25%, 9/1/13 NR/AA 201,582
16,000 Warwick General Obligation MBIA Insured 6.60%, 11/15/06 Aaa/AAA 16,033
250,000 Warwick General Obligation FSA Insured 4.00%, 7/15/11 Aaa/AAA 254,713
250,000 Warwick General Obligation FSA Insured 4.125%, 7/15/13 Aaa/AAA 254,163
500,000 West Warwick General Obligation 5.00%, 10/15/25 A-3/NR 503,655
145,000 Rhode Island Clean Water Pre-refunded U.S. T MBIA Insured
6.50%, 10/1/06 Aaa/AAA 146,997
100,000 Rhode Island Clean Water MBIA Insured 5.30%, 10/1/07 Aaa/AAA 103,841
100,000 Rhode Island Clean Water AMBAC Insured 4.75%, 10/1/18 Aaa/AAA 102,469
225,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/18 Aaa/AAA 235,240
500,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/19 Aaa/AAA 530,605
500,000 Rhode Island Clean Water MBIA Insured 4.40%, 10/1/25 Aaa/AAA 490,230
650,000 Rhode Island Depositors Economic Protection Corp.
MBIA Insured Escrowed to Maturity 6.55%, 8/1/10 Aaa/AAA 714,367
215,000 Rhode Island Depositors Economic Protection Corp.
CAPMAC Guaranteed Escrowed to Maturity 6.375%, 8/1/22 Aaa/AAA 267,844
250,000 Rhode Island Depositors Economic Protection Corp.
Escrowed to Maturity 5.75%, 8/1/21 Aaa/NR 289,890
500,000 Rhode Island Economic Department of Transportation
AMBAC Insured 3.75%, 6/15/13 Aaa/AAA 497,365
500,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/12 Aaa/AAA 528,155
13
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS-(Continued)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
- --------- --------------------- --------
<s> <c> <c> <c>
MUNICIPAL SECURITIES (99.01%) (a)-(Continued)
Rhode Island General Obligation and Revenue (65.92%) (a)-(Continued)
$ 395,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/13 Aaa/AAA $ 416,725
545,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.25%, 7/1/14 Aaa/AAA 574,261
450,000 Rhode Island Economic Development Corp. Airport Revenue
FSA Insured 5.00%, 7/1/18 Aaa/AAA 468,522
1,100,000 Rhode Island Economic Development Corp. Providence Place
Radian Insured 6.125%, 7/1/20 NR/AA 1,207,789
100,000 RI COPS MBIA Insured 5.375%, 10/1/16 Aaa/AAA 104,616
250,000 RI COPS Kent County Courthouse MBIA Insured 5.00%,
10/1/22 Aaa/AAA 260,575
300,000 Rhode Island Lease Participation Certificate Shepard Bldg.
AMBAC Insured 5.125%, 6/1/12 Aaa/AAA 311,661
500,000 Rhode Island Refunding Bond Authority AMBAC Insured
5.25%, 2/1/10 Aaa/AAA 526,550
500,000 Rhode Island General Obligation MBIA Insured 5.00%, 9/1/18 Aaa/AAA 527,035
300,000 Rhode Island General Obligation FGIC Insured 5.125%, 7/15/14 Aaa/AAA 314,460
500,000 Rhode Island General Obligation MBIA Insured 5.75%, 8/1/15 Aaa/AAA 514,910
1,000,000 Rhode Island General Obligation FGIC Insured 5.50%, 9/1/16 Aaa/AAA 1,086,150
400,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.40%, 9/1/14 Aaa/AAA 433,032
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 Aaa/AAA 264,140
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 Aaa/AAA 264,140
1,000,000 Tobacco Settlement Financing Corp. 6.25%, 6/1/42 Baa-3/BBB 1,058,270
-----------
Total Rhode Island General Obligation and Revenue $18,569,766
-----------
Rhode Island Health & Education Building Corporation (21.92%)(a)
$ 100,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/15 Aaa/AAA $ 105,806
300,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/16 Aaa/AAA 317,010
100,000 Bryant College AMBAC Insured 4.60%, 6/1/12 Aaa/AAA 104,912
780,000 Brown University 5.25%, 9/1/16 Aa-1/AA+ 831,449
400,000 Brown University 5.00%, 9/1/19 Aa-1/AA+ 413,044
500,000 Brown University 5.00%, 9/1/23 Aa-1/AA+ 515,410
250,000 Salve Regina College Radian Insured 5.25%, 3/15/18 NR/AA 263,142
750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 Aaa/AAA 771,990
500,000 Johnson & Wales College XL Capital 5.25%, 4/1/14 Aaa/AAA 541,725
250,000 Rhode Island School of Design MBIA Insured 4.40%, 6/1/15 Aaa/AAA 256,310
585,000 Rhode Island School of Design MBIA Insured 4.60%, 6/1/17 Aaa/AAA 602,334
500,000 St. Antoine Residence LOC-Allied Irish Bank 6.125%, 11/15/18 Aa-3/NR 529,550
300,000 Lifespan MBIA Insured 5.75%, 5/15/23 Aaa/AAA 315,447
100,000 United Methodist Elder Care LOC-Fleet Bank 7.50%, 11/1/14 NR/AA 101,000
500,000 Times 2 Academy LOC-Citizens Bank 5.00%, 12/15/24 Aa2/NR 504,715
-----------
Total Rhode Island Health & Education Building Corporation $ 6,173,844
-----------
14
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS-(Continued)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
- --------- --------------------- --------
<s> <c> <c> <c>
MUNICIPAL SECURITIES (99.01%) (a)-(Continued)
Rhode Island Housing & Mortgage Finance Corporation (5.27%)(a)
$ 120,000 5.65%, 10/1/07 NR/A $ 121,122
400,000 5.00%, 10/1/16 Aa-2/AA+ 403,656
10,000 6.50%, 10/1/22 Aa-2/AA+ 10,015
950,000 4.30%, 10/1/17 Aa-2/AA+ 945,592
5,000 6.50%, 4/1/27 Aa-2/AA+ 5,003
-----------
Total Rhode Island Housing & Mortgage Finance Corporation $ 1,485,388
-----------
TOTAL RHODE ISLAND BONDS (93.11%) (a) $26,228,998
===========
Puerto Rico Bonds (5.90%) (a)
$ 350,000 Puerto Rico Commonwealth 5.00%, 7/1/29 Baa2/A- $ 355,883
250,000 Puerto Rico Electric Power Authority MBIA Insured 5.00%,
7/1/10 Aaa/AAA 263,972
500,000 Puerto Rico Electric Power Authority MBIA Insured 5.125%,
7/1/29 Aaa/AAA 516,430
500,000 Puerto Rico Municipal Finance Auth. FSA Insured 5.50%,
7/1/17 Aaa/AAA 524,800
-----------
TOTAL PUERTO RICO BONDS (5.90%) (a) $ 1,661,085
-----------
TOTAL INVESTMENTS (Cost $27,112,396)(96.25%)(a) $27,890,083
-----------
OTHER ASSETS AND LIABILITIES (0.99%) $ 278,617
-----------
TOTAL NET ASSETS (100%) $28,168,700
===========
See Notes to Financial Statements.
15
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS-(Continued)
<FN>
(a) Percentages indicated are based on net assets of $28,168,700 at
October 31, 2005 (total investments plus cash and receivables less
liabilities) which corresponds to a net asset value per share of
$10.16.
(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>
16
OCEAN STATE TAX EXEMPT FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2005, 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 the standards of the Public
Company Accounting Oversight Board (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. We were not engaged to perform an audit of the
Fund's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements
and financial highlights, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of October 31, 2005, by correspondence with the
custodian. We believe that our audits provide a reasonable basis for our
opinion.
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, 2005, 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 U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 9, 2005
17
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, 2005 the amount of long-term capital
gains distributions designated by the Fund was $127,226. The amount of tax
exempt interest dividends distributed by the Fund was $965,687.
BASIS FOR THE BOARD OF TRUSTEES APPROVING THE INVESTMENT ADVISORY
AGREEMENT (Unaudited)
The Advisory Agreement between the Fund and the Adviser became
effective in March of 1988. The Advisory Agreement was initially approved
by the holders of a majority of the outstanding shares of the Fund and had
an initial term of one year and thereafter is renewed annually. Each annual
renewal of the Advisory Agreement must be approved by a majority of the
Board of Trustees or by a majority of the holders of the Fund's outstanding
voting securities. In addition, each annual renewal is approved by a vote
of a majority of the members of the Board of Trustees who are not parties
to the agreement or interested parties of any such party, cast in person at
a meeting called for such purpose. On November 17, 2005 the Board of
Trustees, including a majority of the disinterested trustees, approved the
continuation of the Advisory Agreement. In approving the Advisory
Agreement, the Board of Trustees considered the qualifications of the
Adviser, the scope of the services to be provided to the Fund, the prior
performance of the Adviser, the services to be provided to the Fund, and
the fee and expenses ratios as compared to a peer group of funds. As part
of this approval process, the Board of Trustees considered quarterly
reports provided by the Adviser during the year regarding the performance
of the Fund and reviewed the basic future strategy of the Adviser with
regard to the Fund. In addition, before the Board of Trustees' meeting to
decide on whether to renew the Advisory Agreement, the Adviser was
requested to provided the Board of Trustee with information and material
about the Adviser and its services to the Fund.
As part of its evaluation of the Adviser, the Board of Trustee considered
the nature, extent and quality of services to be provided to the Fund by
the Adviser. The Board of Trustee noted that the Adviser has significant
experience providing investment advice involving fixed-income securities
and is qualified to provide investment advisory services to the Fund.
Furthermore, the Board of Trustees took into account the absence of
shareholder complaints and compliance issues. The Board of Trustees then
considered the prior performance of the Adviser, including the investment
results achieved by the Adviser for the Fund and the investment results of
other investment companies with similar investment objectives. The Board of
Trustees determined that the prior performance of the Adviser was
reasonable in comparision to the relevant benchmarks and that of comparable
investment companies, in light of general market conditions. The Board of
Trustees considered information relating to the Fund's fees, costs and
expense ratios and compared such fees, cost and expense ratios to
competitive industry fee structures and expense ratios. The Board of
Trustees noted that the expense ratio has consistently been comparable to
the average expense ratio for single state municipal bond funds and single
state municipal bond funds of similar size. The Board also considered
whether the Adviser would receive any fall-out benefits through its
relationship with the Fund. The Board of Trustee noted that, except for the
Distributor, none of the Fund's other service providers are affiliates of
the Adviser, and the Distributor has reallocated any load on sales of Fund
shares to the selling
18
group, and determined, therefore, there are no fall-out benefits accruing
to the Adviser. In addition, the Board of Trustees considered the Adviser's
cost of providing services to the Fund and noted that the Adviser's
compensation is reasonable in comparision to other advisory compensation
and that the Adviser includes in it advisory fee all expenses associated
with administrative services to the Fund. The Board of Trustees noted that
every effort is made to share economies of scale with the Fund's
shareholders, but given the size of the Fund, it economies of scale are
less than that of a larger fund family.
In its deliberations, the Board of Trustees did not identify any
single consideration or particular piece of information that was all
important or controlling in determining whether to approve the Advisory
Agreement, although significant weight was accorded the advisory fee levels
relative to industry averages for comparable funds based on the comparative
data presented at the meeting. The board of Trustees evaluated all
information presented to it and determined that the compensation paid to
the Adviser under the Advisory Agreement was fair and reasonable in light
of the services to be performed and such other matters as the Board of
Trustees considered relevant in the exercise of its reasonable judgment.
Also, the Board of Trustees concluded that was satisfied with the Adviser's
services, personnel and investment strategies and that it was in the best
interests of the Fund to continue its relationship with the Adviser.
19
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 files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The
fund's Form N-Q is available on the Commission's website at
<http://www.sec.gov>. The fund's Form N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC, and that information
on the operation of the Public Reference Room may be obtained by calling 1-
800-SEC-0330. The Fund's Statement of Additional Information includes
additional information about Trustees and is available along with Form N-Q,
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 Director of the Distributor since May 1990;
Suite One (since 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 Adviser (until Dec. 2005); President
219 Great Road and CEO, WestBank Realty Corporation; Director of
North Smithfield, Rhode Island the Community College of Rhode Island Foundation;
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 Chair-
man, Landmark Medical System and Trustee,
Landmark Medical Center; Commissioner of the
Rhode Island Resource Recovery Corporation
since 1992; Chairman, The Rehabilitation
Hospital of Rhode Island; Director and Corporate
Secretary, Gooding Realty Corporation.
20
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
<s> <c> <c>
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 Commu-
nity, Scandinavian Home and Steere House of
"CareLink", a Management service organization
incorporated in 1997; Member of the American
College of Health Care Administrators, the
Diocesan Biomedical Ethics Commission 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 Provi-
dence, 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 2001) Since 1990, Chief Financial Officer, Pease &
75 Pennsylvania Avenue Curren, Inc. (refiners of precious metals);
Warwick, Rhode Island 02888 Director of Bancorp Rhode Island, Inc. and Bank
Rhode Island; Board Member, Providence
Jeweler Club; Board Member Partner, Provi-
dence 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).
21
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
<s> <c> <c>
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.; Profes-
sional Advisory Council Member (1995-2000)
of The Rhode Island Foundation; Incorporator of
Memorial and Library Association of Westerly
(2004-present).
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 Associa-
tion (2001-2002).
Samuel H. Hallowell, Jr. (57) Vice President Partner of the Adviser and Vice President Van
One Regency Plaza (since 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 (38) Vice President Vice President of the Adviser (1992-present);
One Regency Plaza (since 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 CCO (2004-present) Partner of the Adviser
One Regency Plaza Treasurer (since 1991) (1996-present); Chief Operating Officer of the
Suite One Adviser (April, 2000-present) and Van Liew
Providence, Rhode Island 02903 Trust Company, and Vice President and Trea-
surer of the Distributor, since 1991; Vice
President-Administration of the Adviser
(1991-2000).
22
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
<s> <c> <c>
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).
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
procedural safeguards) are in place that are designed to protect
the confidentiality of such information.
23
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. (The Portfolio of VLC Trust)
One Regency Plaza, Suite One
Providence, Rhode Island 02903
Custodian
PFPC Trust Company
Airport Business Center
200 Stevens Drive, Suite 440
Lester, Pennsylvania 19113
Transfer Agent
Ocean State Tax Exempt Fund
C/O PFPC, Inc.
P.O. Box 9839 Annual Report
Providence, Rhode Island 02903 October 31, 2005
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, Chief Compliance
Officer and Treasurer
Margaret D. Farrell, Secretary
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics applicable to its
President (as the registrant's principal executive officer), the Treasurer
(as the registrant's principal financial and accounting officer) and any
other person or persons performing the functions of these offices or the
functions of a controller. The registrant undertakes to provide a copy of
such code of ethics to any person upon request, without charge, by calling
1-800-330-1116.
(b) During the period covered by this report, no amendments were adopted
to the registrant's code of ethics applicable to its President, Treasurer
or other persons performing the functions of those offices or the functions
of a controller.
(c) During the period covered by this report, no implicit or explicit
waivers to the provisions of the code of ethics adopted in 2(a) above were
granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's board has
designated Arthur H. Lathrop, an independent trustee, as its audit
committee financial expert. Mr. Lathrop is a practicing certified public
accountant and sole proprietor in Westerly, Rhode Island. Previously, Mr.
Lathrop served as Tax Manager of Sansiveri, Ryan, Sullivan & Co. of
Providence and Westerly, Rhode Island.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (d) The following table sets forth the aggregate fees billed for
the past two fiscal years by the independent auditor Ernst & Young LLP, for
professional services rendered for: (i) the audit of the Fund's annual
financial statements included in the Fund's annual report to shareholders;
and (ii) tax compliance, tax advice and tax return preparation. No fees
were paid for audit related or other services.
Fiscal Year Ended Audit Audit Related Tax All Other
- ----------------- ----- ------------- --- ---------
October 31, 2004 $33,500 $0 $4,000 $0
October 31, 2005 $35,500 $0 $4,300 $0
(e) (1) The Fund's Audit Committee Charter requires the pre-approval of
all audit and non-audit services provided to the Fund by the Fund's
independent auditors. The Fund's Audit Committee Charter also requires pre-
approval of all audit and non-audit services provided to the Adviser and
service affiliates to the extent that these services are directly related
to the operations or financial reporting of the Fund.
(e) (2) All of the amounts for Audit Fees and Tax Fees in the table above
are for services pre-approved by the Fund's Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services for
the past two fiscal years provided to the Fund, the Fund's Adviser and
entities that control, are controlled by or under common control with the
Adviser that provide ongoing services to the Fund, which include
conducting an annual internal control report pursuant to Statement on
Auditing Standards No. 70 ("Service Affiliates"):
All Fees for Non-Audit Total Amount of
Services Provided to the Foregoing Column
Fund, the Adviser and Pre-Approved by
Service Affiliates the Audit Committee
------------------------ -------------------
October 31, 2004 $0 $0
October 31, 2005 $0 $0
(h) Not applicable. No non-audit services were provided to the Fund, the
Adviser or any Service Affiliates during the past two fiscal years.
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. 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 AFFILIATED PURCHASERS. 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) 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.(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).
(iii) EX-99.906(a) CERT - Certification of President pursuant to
Section 906 of the Sarbanes - Oxley Act of 2002 (filed herewith).
(iv) 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: January 5, 2006 By:/s/ Alfred B. Van Liew
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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: January 5, 2006 By:/s/ Alfred B. Van Liew
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Alfred B. Van Liew
President
Date: January 5, 2006 By:/s/ Kevin M. Oates
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Kevin M. Oates
Vice President & Treasurer