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
50 KENNEDY PLAZA
SUITE 1500
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, 2006
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, 2006
The steady march by the Federal Reserve Bank toward higher interest rates
continues. The Fed has implemented 16 consecutive rate hikes in the Fed Funds
Rate while our economy was exhibiting steady growth. Now, however that growth
appears to be fading while the specter of inflation still concerns the Federal
Reserve.
Where does that leave municipal bond investors? Shareholders invest in the
Ocean State Tax Exempt Fund because it's income is tax-free* from Rhode Island
state and Federal income taxes. The Fund's management strives to provide as high
a level of current income as is consistent with the preservation of principal.
Whether interest rates are rising or falling, if you're in a high tax bracket
municipal bonds still offer tremendous advantages.
During the six months ended April 30, 2006 the Fund's net asset valued
dipped from $10.16 to $10.02. The Fund's dividend distribution declined modestly
to $0.16 per share in tax-free income* while the Fund's total return on net
asset value was 1.09%. The Fund's investment portfolio is 68% Aaa/AAA (rated by
either Moody's or S&P) with an average maturity of 13 years. A rating of Aaa/AAA
indicates that an issue has bond insurance, a credit enhancement which reduces
the potential loss due to issuer default. Historically the default rate among
municipal bonds has been quite low. The greatest risk bond investors face is
interest rate risk or the loss of principal value from rising rates.
At Ocean State we strive to limit both default and interest rate risk
through investing in high quality investments and structuring maturities to
maximize return while minimizing risk. Often, the portfolio manager selects
municipal bonds that are not Aaa/AAA rated as they may offer a higher comparable
yield, potential return and a stable credit.
We recognize and appreciate your confidence in this Fund and we will work
diligently to maintain your trust in the future. Thank you.
Sincerely yours,
/s/ Alfred B. Van Liew /s/ John H. St. Sauveur
Alfred B. Van Liew John H. St. Sauveur
President Chairman of the Board of Trustees
* For certain investors, some dividends may be subject to Federal and State
taxes.
NOT A PART OF THE SEMI-ANNUAL REPORT
2
OCEAN STATE TAX EXEMPT FUND
INVESTMENT PERFORMANCE REVIEW
as of April 30, 2006
(unaudited)
PRIOR
NOVEMBER 1, 2005 FISCAL YEAR MAY 1, 2001 MAY 1, 1996
THROUGH ENDED THROUGH THROUGH
APRIL 30, 2006 OCTOBER 31, 2005 APRIL 30, 2006 APRIL 30, 2006
---------------- ---------------- -------------- --------------
TOTAL RATE OF RETURN (b)
Based on:
Net Asset Value ................................ 1.09% 0.56% 3.41% 4.17%
Offering Price ................................. (6.89)% (3.50)% 2.55% 3.74%
AS OF AS OF
APRIL 30, 2006 OCTOBER 31, 2005
---------------- ----------------
30-DAY CURRENT YIELD
Based on:
Net Asset Value ................................ 3.32% 3.04%
Offering Price ................................. 3.19% 2.92%
30-DAY TAX-EQUIVALENT YIELD (a)
Based on:
Net Asset Value ................................ 5.68% 5.20%
Offering Price ................................. 5.45% 4.99%
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 April 30, 2006.
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 4/30/06 10/31/05
------ ------- --------
Aaa/AAA ............................. 67.78% 68.14%
Aa/AA ............................... 25.02% 24.55%
A ................................... 1.90% 3.52%
Baa/BBB ............................. 5.30% 3.79%
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.
<FN>
(a) For 2006, 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%.
</FN>
3
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM
NOVEMBER 1, 2005 THROUGH APRIL 30, 2006.
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, 2005 through April 30,
2006.
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 11/1/05 4/30/06 11/1/05-4/30/06
---------- ------------- -------------- ---------------
Actual 1.55% $1,000.00 $ 999.70 $7.79
Hypothetical 1.55% $1,000.00 $1,025.00 $7.89
<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 April 30, 2006
(unaudited)
ASSETS
Investments at value (identified cost $25,927,887) (Note 1A) .............................. $26,443,291
Interest receivable ....................................................................... 322,850
-----------
Total Assets ........................................................................ $26,776,141
LIABILITIES
Overdraft ................................................................................. $ 172,090
Payable for capital stock redeemed ........................................................ 5,000
Distribution payable to shareholders ...................................................... 36,248
Accrued management fees ................................................................... 12,678
Accrued expenses .......................................................................... 16,686
-----------
Total Liabilities ................................................................... $242,702
===========
Net Assets .......................................................................... $26,533,439
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share) ......................................... $ 26,472
Additional paid-in capital ................................................................ 26,026,588
Accumulated net realized gain on investment transactions .................................. 37,432
Distributions in excess of net investment income .......................................... (72,457)
Net unrealized appreciation of investments ................................................ 515,404
-----------
Total -- Representing Net Assets at Value for 2,647,241 Shares Outstanding ................ $26,533,439
===========
Computation of Net Asset Value & Offering Price:
Net Assets ................................................................................ $26,533,439
Divided by number of shares outstanding ................................................... 2,647,241
Net asset value ........................................................................... $10.02
===========
Offering price ............................................................................ $10.44
===========
See Notes to Financial Statements.
5
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
For the period ended April 30, 2006
(unaudited)
INVESTMENT INCOME
Interest income (Note 1C) ................................................................. $ 656,173
Expenses:
Adviser fees (Note 2) ........................................................ $ 47,800
Administrator fees (Note 2) .................................................. 34,143
Transfer agent fees .......................................................... 40,830
Auditing fees ................................................................ 30,215
Legal fees and expenses ...................................................... 17,849
Trustees fees and expenses ................................................... 12,500
Custody ...................................................................... 12,756
Distribution expenses (Note 5) ............................................... 8,691
Shareholder reports .......................................................... 4,553
Miscellaneous expenses ....................................................... 1,942
Pricing fees ................................................................. 1,500
Registration fees ............................................................ 1,775
Insurance .................................................................... 689
--------
$215,243
---------
Net Investment Income ............................................................... $ 440,930
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net Realized Loss on Investments ............................................... $ (1,818)
Net Change in Unrealized Appreciation/(Depreciation) of Investments ............ (262,283)
--------
Net Realized and Unrealized Loss on Investments ........................................... (264,101)
---------
Net Increase in Net Assets Resulting from Operations ...................................... $ 176,829
=========
See Notes to Financial Statements.
6
OCEAN STATE TAX EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FISCAL YEAR
ENDED ENDED
APRIL 30, 2006 OCTOBER 31, 2005
-------------- ----------------
(UNAUDITED)
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income ......................................... $ 440,930 $ 972,986
Net realized loss on investments .............................. (1,818) 121,718
Change in unrealized appreciation/depreciation
of investments ............................................... (262,283) (931,565)
----------- -----------
Net increase in net assets resulting from operations .......... $ 176,829 $ 163,139
Dividends and distributions to shareholders from:
Net investment income ($.16 per share in 2006 and
$.34 per share in 2005) ...................................... (440,930) (965,687)
Net realized gains ($.03 per share in 2006 and
$.02 per share in 2005) ...................................... (92,289) (62,898)
Net decrease from fund share transactions (Note 4) ............ (1,278,871) (2,551,021)
----------- -----------
Total (decrease) in net assets ............................ (1,635,261) (3,416,467)
NET ASSETS:
Beginning of period ........................................... 28,168,700 31,585,167
End of period ................................................. $26,533,439 $28,168,700
=========== ===========
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
SIX MONTHS YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
4/30/06 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
----------- -------- -------- -------- -------- --------
(UNAUDITED)
Per Share Operating Performance:
Net Asset Value, Beginning of Year ............ $ 10.16 $ 10.46 $ 10.48 $ 10.54 $ 10.55 $ 10.25
Net investment income ......................... .16 .34 .35 .42 .45 .47
Net realized and unrealized gain
(loss) on investments ........................ (.11) (.28) .01 (.03) (.01) .30
------- ------- ------- ------- ------- -------
Total from Investment Operations .............. .05 .06 .36 .39 .44 .77
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income .......... (.16) (.34) (.35) (.42) (.45) (.47)
Distribution from net realized gains .......... (.03) (.02) (.03) (.03) (.00) (.00)
------- ------- ------- ------- ------- -------
Total Distributions ........................... (.19) (.36) (.38) (.45) (.45) (.47)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Year .................. $ 10.02 $ 10.16 $ 10.46 $ 10.48 $ 10.54 $ 10.55
======= ======= ======= ======= ======= =======
Total investment return at Net Asset
Value (a) .................................... 1.09% 0.56% 3.55% 3.60% 4.21% 7.63%
Ratios and Supplemental Data: Net Assets,
End of Year (000's omitted) .................. $26,533 $28,169 $31,585 $33,115 $36,089 $36,303
Ratio of expenses to average net assets (b) ... 0.78% 1.39% 1.24% 1.06% 1.04% 1.19%
Ratio of net investment income to average
net assets ................................... 1.59% 3.27% 3.40% 3.82% 4.25% 4.52%
Portfolio turnover ............................ 0% 13% 15% 19% 17% 4%
Fund expenses per share ....................... .08 .14 .13 .12 .11 .13
Net investment income per share ............... .16 .34 .35 .42 .45 .47
<FN>
(a) Total investment return does not reflect sales load. 2006 total investment
return is not annualized.
(b) 2006 ratio of expenses to average net assets is not annualized.
</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
April 30, 2006
(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, 2006 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, 2006, 94.44% 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,
2006, 81.00% of the portfolio of investments have credit enhancements backing
them which the Fund relies on, such as: letters of credit, insurance, or
guarantees. MBIA provides the largest total enhancements for the Fund,
representing 22.49% 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)
April 30, 2006
(unaudited)
C) FEDERAL INCOME TAXES: The Fund's policy is to comply with the
provisions of subchapter M of the Internal Revenue Code available to regulated
investment companies and distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
Federal income tax or excise tax is necessary. Dividends paid by the Fund from
net interest on tax-exempt municipal bonds are not includable by shareholders
as gross income for Federal income tax purposes, because the Fund intends to
meet certain requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Fund to pay tax-exempt interest
dividends. The portion of such interest, if any, earned on private activity
bonds issued after August 7, 1986 may be considered a tax preference item to
shareholders.
The tax character of distributions as reported on the Statements of
Changes in Net Assets for the years ended October 31, 2005 and 2004 were as
follows:
2005 2004
---- ----
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 exces 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:
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.
10
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
April 30, 2006
(unaudited)
NOTE 2 ADVISORY AND ADMINISTRATIVE SERVICES AND OTHER AFFILIATED TRANSACTIONS
Van Liew Capital Inc. is the Adviser and the Administrator to the Fund.
The Fund pays Van Liew Capital Inc. at the following annual rates for the
adviser and administrator services, respectively:
.35 and.25 of 1% of the first $200 million of average daily net assets.
.30 and.20 of 1% of average daily net assets over $200 million.
The Fund does not pay fees to Trustees affiliated with the Adviser or to
any of its officers. The Fund pays Trustees who are not interested persons of
the Fund an annual retainer plus $250 per meeting attended. The annual
retainer at April 30, 2006 was $2,000. The Chairman of the Board of Trustees
annual retainer is $4,000. The Chairman of the Audit Committee's annual
retainer is $2,500.
Legal fees and expenses of $17,849 were paid to a firm of which the
Fund's Secretary is a partner.
During the period November 1, 2005 through April 30, 2006, the
Distributor received $494 in commissions as a result of Fund share sales.
NOTE 3 INVESTMENT TRANSACTIONS
During the period ended April 30, 2006 purchases and sales of investment
securities, other than short-term investments, aggregated $0 and $1,163,737,
respectively. The aggregate cost of investments for Federal income tax
purposes was $25,927,887. At April 30, 2006, gross unrealized appreciation on
investment securities was $650,710 and gross unrealized depreciation on
investment securities was $135,306.
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
------ ------
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
========= ===========
Shares sold ....................................... 33,969 344,650
Shares issued in reinvestment of dividends ........ 25,747 260,808
Shares redeemed ................................... (186,128) (1,884,329)
--------- -----------
Net decrease ...................................... (126,412) (1,278,871)
--------- -----------
Balance at 4/30/06 ................................ 2,647,241 $26,053,060
========= ===========
11
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
April 30, 2006
(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 $8,691 under the
Plan during fiscal 2006.
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, 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.
NOTE 7 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 com-
12
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
April 30, 2006
(unaudited)
panies 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 ratio 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 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.
13
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
as of April 30, 2006
(unaudited)
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (b) (NOTE 1)
--------- --------------------- --------
MUNICIPAL SECURITIES (99.66%) (a)
RHODE ISLAND GENERAL OBLIGATION AND REVENUE (66.60%) (a)
$ 500,000 Barrington School District 5.00%, 10/1/14 ........................... Aa-2/NR $ 524,615
200,000 Burrillville General Obligation FGIC Insured 5.70%, 5/1/11 .......... Aaa/AAA 204,246
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/24 .............. Aaa/AAA 259,117
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/22 .............. Aaa/AAA 259,952
225,000 Middletown General Obligation 4.00%, 7/15/12 ........................ Aa-3/NR 225,234
80,000 North Kingstown General Obligation 6.80%, 12/15/06 .................. Aa-3/NR 81,532
200,000 North Kingstown General Obligation FGIC Insured
5.70%, 10/1/18 ..................................................... Aaa/NR 214,152
250,000 North Providence General Obligation FSA Insured
4.00%, 10/15/17 .................................................... Aaa/AAA 243,710
500,000 Providence General Obligation FSA Insured 5.00%, 7/15/14 ............ Aaa/AAA 531,060
150,000 Providence Public Bldg. Auth. MBIA Insured 5.50%, 12/15/13 .......... Aaa/AAA 154,599
500,000 Providence Public Bldg. Auth. AMBAC Insured 5.125%, 12/15/14......... Aaa/AAA 527,955
685,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 ........... Aaa/AAA 702,276
250,000 Providence Public Bldg. Auth. AMBAC Insured 5.25%, 12/15/15 ......... Aaa/AAA 264,702
500,000 Providence Redevelopment Auth. AMBAC Insured,
5.30%, 4/1/12 ...................................................... Aaa/NR 531,165
200,000 Providence Redevelopment Radian Insured 4.25%, 9/1/13 ............... NR/AA 199,242
8,000 Warwick General Obligation MBIA Insured 6.60%, 11/15/06 ............. Aaa/AAA 8,013
250,000 Warwick General Obligation FSA Insured 4.00%, 7/15/11 ............... Aaa/AAA 252,448
250,000 Warwick General Obligation FSA Insured 4.125%, 7/15/13 .............. Aaa/AAA 251,418
500,000 West Warwick General Obligation 5.00%, 10/15/25 ..................... A-3/NR 503,110
225,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/18 ................ Aaa/AAA 232,913
500,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/19 ................ Aaa/AAA 524,480
500,000 Rhode Island Clean Water MBIA Insured 4.40%, 10/1/25 ................ Aaa/AAA 489,120
650,000 Rhode Island Depositors Economic Protection Corp. MBIA Insured
Escrowed to Maturity 6.55%, 8/1/10 ................................. Aaa/AAA 700,450
215,000 Rhode Island Depositors Economic Protection Corp. CAPMAC Guaranteed
Escrowed to Maturity 6.375%, 8/1/22 ................................ Aaa/AAA 265,903
250,000 Rhode Island Depositors Economic Protection Corp.
Escrowed to Maturity 5.75%, 8/1/21 ................................. Aaa/NR 287,187
500,000 Rhode Island Economic Department of Transportation AMBAC Insured
3.75%, 6/15/13 ..................................................... Aaa/AAA 492,000
500,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/12 ...................................................... Aaa/AAA 520,800
14
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
(unaudited)
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (b) (NOTE 1)
--------- --------------------- --------
MUNICIPAL SECURITIES (a) -- (CONTINUED)
RHODE ISLAND GENERAL OBLIGATION AND REVENUE (CONTINUED)
$ 395,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/13 ...................................................... Aaa/AAA $ 410,926
545,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/14 ...................................................... Aaa/AAA 566,397
450,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.00%, 7/1/18 ...................................................... Aaa/AAA 463,923
1,100,000 Rhode Island Economic Development Corp. Providence Place Radian
Insured 6.125%, 7/1/20 ............................................. NR/AA 1,192,169
100,000 RI COPS MBIA Insured 5.375%, 10/1/16 ................................ Aaa/AAA 103,209
250,000 RI COPS Kent County Courthouse MBIA Insured 5.00%, 10/1/22 .......... Aaa/AAA 259,200
300,000 Rhode Island Lease Participation Certificate Shepard Bldg. AMBAC
Insured 5.125%, 6/1/12 ............................................. Aaa/AAA 307,728
500,000 Rhode Island Refunding Bond Authority AMBAC Insured
5.25%, 2/1/10 ...................................................... Aaa/AAA 518,715
500,000 Rhode Island General Obligation MBIA Insured 5.00%, 9/1/18 .......... Aaa/AAA 522,180
300,000 Rhode Island General Obligation FGIC Insured 5.125%, 7/15/14 ........ Aaa/AAA 311,337
500,000 Rhode Island General Obligation MBIA Insured 5.75%, 8/1/15 .......... Aaa/AAA 507,680
1,000,000 Rhode Island General Obligation FGIC Insured 5.50%, 9/1/16 .......... Aaa/AAA 1,064,760
400,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.40%, 9/1/14 ............. Aaa/AAA 424,660
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 ............. Aaa/AAA 259,713
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 ............. Aaa/AAA 259,713
1,000,000 Tobacco Settlement Financing Corp. 6.25%, 6/1/42 .................... Baa-3/BBB 1,047,550
-----------
TOTAL RHODE ISLAND GENERAL OBLIGATION AND REVENUE ................... $17,671,259
-----------
RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION (22.72%) (a)
$ 100,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/15 ............. Aaa/AAA $106,685
300,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/16 ............. Aaa/AAA 320,055
100,000 Bryant College AMBAC Insured 4.60%, 6/1/12 .......................... Aaa/AAA 103,755
780,000 Brown University 5.25%, 9/1/16 ...................................... Aa-1/AA+ 819,866
400,000 Brown University 5.00%, 9/1/19 ...................................... Aa-1/AA+ 409,968
500,000 Brown University 5.00%, 9/1/23 ...................................... Aa-1/AA+ 512,195
250,000 Salve Regina College Radian Insured 5.25%, 3/15/18 .................. NR/AA 260,573
750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 .................. Aaa/AAA 771,885
500,000 Johnson & Wales College XL Capital 5.25%, 4/1/14 .................... Aaa/AAA 533,685
250,000 Rhode Island School of Design MBIA Insured 4.40%, 6/1/15 ............ Aaa/AAA 253,180
585,000 Rhode Island School of Design MBIA Insured 4.60%, 6/1/17 ............ Aaa/AAA 596,314
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 309,793
500,000 Times 2 Academy LOC-Citizens Bank 5.00%, 12/15/24 ................... Aa-2/NR 501,710
-----------
TOTAL RHODE ISLAND HEALTH & EDUCATION BUILDING CORPORATION .......... $ 6,029,214
-----------
15
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
(unaudited)
RATINGS
PRINCIPAL MOODY'S/ VALUE
AMOUNT STANDARD & POOR'S (b) (NOTE 1)
--------- --------------------- --------
MUNICIPAL SECURITIES (a) -- (CONTINUED)
RHODE ISLAND HOUSING & MORTGAGE FINANCE CORPORATION (5.12%) (a)
$ 400,000 5.00%, 10/1/16 ...................................................... Aa-2/AA+ $ 402,476
10,000 6.50%, 10/1/22 ...................................................... Aa-2/AA+ 10,033
950,000 4.30%, 10/1/17 ...................................................... Aa-2/AA+ 940,671
5,000 6.50%, 4/1/27 ....................................................... Aa-2/AA+ 5,016
-----------
TOTAL RHODE ISLAND HOUSING & MORTGAGE FINANCE CORPORATION ........... $ 1,358,196
-----------
TOTAL RHODE ISLAND BONDS (94.44%) (a) ............................... $25,058,669
-----------
PUERTO RICO BONDS (5.22%) (a)
$ 350,000 Puerto Rico Commonwealth 5.00%, 7/1/29 .............................. Baa3/BBB $ 353,717
500,000 Puerto Rico Electric Power Authority MBIA Insured
5.125%, 7/1/29 ..................................................... Aaa/AAA 513,385
500,000 Puerto Rico Municipal Finance Auth. FSA Insured 5.50%, 7/1/17 ....... Aaa/AAA 517,520
-----------
TOTAL PUERTO RICO BONDS (5.22%) (a) ................................. $ 1,384,622
-----------
TOTAL INVESTMENTS (Cost $25,927,887)(97.72%) (a) .................... $26,443,291
-----------
OTHER ASSETS AND LIABILITIES (0.34%) ................................ $ 90,148
-----------
TOTAL NET ASSETS (100%) ............................................. $26,533,439
===========
<FN>
(a) Percentages indicated are based on net assets of $26,533,439 at April 30,
2006 (total investments plus cash and receivables less liabilities) which
corresponds to a net asset value per share of $10.02.
(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>
See Notes to Financial Statements.
16
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 www.sec.gov. The Fund's Form N-Q may be reviewed and
copied 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
- --------------------- -------------------------- -------------------------------------------------
Alfred B. Van Liew *(71) President (since 1987) and Managing Partner of the Adviser, since 1984;
One Regency Plaza Trustee (since 1986) Director of the Distributor since May 1990;
Suite One 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 since1971; 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.
Mary Ann Altrui (63) Trustee (since 2001) Administrator of St. Antoine Residence (a
10 Rhodes Avenue nursing facility) (1988 - Present); Director
North Smithfield of Diocesan Elder Care Services (1997 -
Rhode Island 02896 Present); Oversight responsibility for St.
Clare Home; Founding member with St.
Elizabeth Community, 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 Providence, the
State of Rhode Island, and the Nonprofit
Association of Facilities and Services for
the Aging.
17
NAME, ADDRESS AND AGE POSITION(s) HELD WITH FUND PRINCIPAL OCCUPATION(s) DURING PAST FIVE YEARS
- --------------------- -------------------------- -------------------------------------------------
Milton C. Bickford, Jr. (74) Trustee (since 1987) Private investor since 1989; Director
147 Beavertail Road (Chairman 1999-2002) of AAA Southern New
Jamestown, Rhode Island 02835 England; CEO National Bickford Foremost, Inc.
(national color printing firm) (1980-1989);
Trustee, National Traffic Safety Foundation
(1999-2002).
Meredith A. Curren (46) 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,
Providence Chamber of Commerce; SVP RI Social
Venture Partners of RI
Michael E. Hogue (63) Trustee (since 1989) Managing Partner, eTime (Insurance Services)
116 Chestnut Street (February 2002 - present); President,
Providence, Rhode Island 02903 VIAcorp.(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 (51) Trustee (since 2001) In practice as a Certified Public Accountant
28 Spruce Street (sole proprietor) in Westerly, RI (1991-
Westerly, Rhode Island 02891 present); 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 and Library
Association of Westerly (2004 - present).
18
NAME, ADDRESS AND AGE POSITION(s) HELD WITH FUND PRINCIPAL OCCUPATION(s) DURING PAST FIVE YEARS
- --------------------- -------------------------- -------------------------------------------------
Lawrence B. Sadwin (62) Trustee (since 2001) President, Lifestyle Security, LLC (since
18 Oyster Point August 2002), Division Marketing Leader for
Warren, Rhode Island 02885 General 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)
John St. Sauveur (71) Trustee (since 1992) President and CEO, WestBank Realty
219 Great Road Corporation; Director of Van Liew Trust
North Smithfield Company; Director of the Community College of
Rhode Island 02896 Rhode Island Foundation; 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; Commissioner of the Rhode
Island Resource Recovery Corporation since
1992; Chairman, The Rehabilitation Hospital
of Rhode Island; Director and Corporate
Secretary, Gooding Realty Corporation.
Samuel H. Hallowell, Jr. (58) 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 Society
Providence, Rhode Island 02903 of Rhode Island; Member Providence Society of
Security Analysts.
Joseph J. Healy (39) Vice President Vice President of the Adviser (1992 -
One Regency Plaza (since 1996) present); Vice President, Van Liew Trust
Suite One Company; President and General Securities
Providence, Rhode Island 02903 Principal of the Distributor (1993 -
present); Member Providence Society of
Security Analysts and CFA Institute.
19
NAME, ADDRESS AND AGE POSITION(s) HELD WITH FUND PRINCIPAL OCCUPATION(s) DURING PAST FIVE YEARS
- --------------------- -------------------------- -------------------------------------------------
Kevin M. Oates (46) Vice President and CCO (2004 - present) Partner of the Adviser
One Regency Plaza Treasurer (since 1991) (1996 - present); Chief Operating Officer of
Suite One the Adviser (April, 2000 - present) and Van
Providence, Rhode Island 02903 Liew Trust Company, and Vice President and
Treasurer of the Distributor, since 1991;
Vice President-Administration of the Adviser
(1991-2000).
Margaret D. Farrell (56) Secretary (since 1986) Partner, Hinckley, Allen & Snyder LLP,
1500 Fleet Center general legal counsel to the Fund, (1981 -
Providence, Rhode Island 02903 Present); 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.
20
INVESTMENT ADVISER & ADMINISTRATOR
Van Liew Capital Inc.
One Regency Plaza, Suite One [LOGO] OCEAN STATE
Providence, Rhode Island 02903 TAX EXEMPT FUND
(THE PORTFOLIO OF VLC TRUST)
DISTRIBUTOR
Van Liew Securities, Inc.
One Regency Plaza, Suite One
Providence, Rhode Island 02903
CUSTODIAN
PFPC Trust Company
Airport Business Center
200 Stevens Drive, Suite 440
Lester, Pennsylvania 19113
TRANSFER AGENT
Ocean State Tax Exempt Fund
c/o PFPC, Inc. SEMI-ANNUAL REPORT
P.O. Box 9839 APRIL 30, 2006
Providence, Rhode Island 02903 (unaudited)
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
John H. St. Sauveur, Chairman
Alfred B. Van Liew
Mary Ann Altrui
Milton C. Bickford, Jr.
Meredith A. Curren INTEREST INCOME EXEMPT
Michael E. Hogue FROM FEDERAL AND RHODE
Arthur H. Lathrop ISLAND INCOME TAXES
Lawrence B. Sadwin FROM QUALITY MUNICIPAL
BONDS.
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. 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)(2) 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: July 6, 2006 By: /s/ Alfred B. Van Liew
-------------------------------
Alfred B. Van Liew
President
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: July 6, 2006 By: /s/ Alfred B. Van Liew
-------------------------------
Alfred B. Van Liew
President
Date: July 6, 2006 By: /s/ Kevin M. Oates
-------------------------------
Kevin M. Oates
Vice President & Treasurer