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, 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.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS OCTOBER 31, 2006
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, 2006
Interest rates. Are they going up, down or staying where they are? It
appears that the economy is still digesting the Federal Reserve Board's 17 rate
increases since June, 2004. Though there is a general sense in the market that
we are not going to see higher rates the odds that rates will be lowered in the
1st quarter are growing dim. Stronger than expected employment and services
growth numbers may have delayed any imminent downward rate move.
Market pundits have been surprised at the relative strength of bonds.
Instead of a normal (upward sloping) yield curve the current curve is flat,
where short-term yields are almost the same as long-term yields.
Why is there so little difference in yields across the maturity spectrum?
When we look at the current yield curve it represents not just today's
environment but it also incorporates expectations of the future investment
environment in terms of yields, inflation and both boom and recessionary fears
among many other factors. The theory that longer-term rates are determined by
investor expectations of future short-term rates is commonly known as the
"expectations theory". Add in a dearth of longer-term investment alternatives,
foreign investment in our markets and maturity extension of portfolios in
pursuit of higher yields - the result is lower long-term yields.
What does this environment mean for Ocean State Tax Exempt Fund (the
"Fund") shareholders? The Ocean State fund takes a long-term approach to
investing regardless of the market environment. The Fund aims to strike a
balance between risk and return. Management is committed to meeting its
objective to provide a high level of current net income, exempt from Rhode
Island and Federal income taxes*, as is consistent with preservation of
capital.
Happy holidays!
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 ANNUAL REPORT
OCEAN STATE TAX EXEMPT FUND
INVESTMENT PERFORMANCE REVIEW
as of October 31, 2006
Prior
November 1, 2005 Fiscal Year November 1, 2001 November 1, 1996
through Ended through through
October 31, 2006 October 31, 2005 October 31, 2006 October 31, 2006
---------------- ---------------- ---------------- ----------------
Total Rate of Return (b)
Based on:
Net Asset Value ....................... 3.56% 0.565% 3.14% 4.11%
Offering Price ........................ (0.55)% (3.50)% 2.29% 3.68%
As of As of
October 31, 2006 October 31, 2005
---------------- ----------------
30-day Current Yield
Based on:
Net Asset Value ....................... 3.30% 3.04%
Offering Price ........................ 3.17% 2.92%
30-day Tax-Equivalent Yield (a)
Based on:
Net Asset Value ....................... 5.64% 5.20%
Offering Price ........................ 5.42% 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 12.2 years as of October 31, 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 10/31/06 10/31/05
- ------ -------- --------
Aaa/AAA ............................................ 66.50% 68.14%
Aa/AA .............................................. 25.94% 24.55%
A .................................................. 2.01% 3.52%
Baa/BBB ............................................ 5.55% 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.
(a) For 2005, shareholders were subject to a maximum Federal tax rate of 35%
and a Rhode Island tax rate of 9.90% of Federal taxable income. All
interest 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, 2006 marked the end of the Fund's nineteenth fiscal year.
During the prior 12 months, the Fund's net asset value (NAV) declined from
$10.16 to $10.15. The Fund's dividend distribution stayed steady at $0.36 per
share during the year while the Fund's total return on net asset value was
3.56%.*
During the year the Fund's management shortened the Fund's average
maturity from 13 to 12 years while the Aaa/AAA component of the portfolio was
reduced to 67%. Due to the relatively flat yield curve environment the Fund's
management refrained from extending the maturity of the Fund's portfolio.
Management continues to emphasize call protection in the lingering low long-
term interest rate environment.
Insured general obligation bonds still represent 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.
* 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.
3
The following graph compares the performance of the Fund to the
performance of the Lehman Brothers Municipal Bond Index. The graph assumes a
$10,000 hypothetical investment at November 1, 1996 through October 31, 2006
with all distributions reinvested in shares. The Fund information with respect
to Class A Shares reflects the maximum sales charge of 4% and all Fund
expenses. The Index graph line does not reflect any expenses or sales charges.
The performance table and graph of the Fund do not reflect the deduction of
taxes that a shareholder would pay on Fund capital gains distributions or the
redemption of shares. All performance data represents past performance and
should not be considered indicative of future performance.
PERFORMANCE COMPARISON
OCEAN STATE TAX-EXEMPT FUND VS. LEHMAN BROTHERS MUNICIPAL BOND INDEX
[GRAPHIC OMITTED]
- ----------------------------------------------------------------------------------------------------------------------------------
OCT-31-96 OCT-31-97 OCT-31-98 OCT-31-99 OCT-31-00 OCT-31-01 OCT-31-02 OCT-31-03 OCT-31-04 OCT-31-05 OCT-31-06
- ----------------------------------------------------------------------------------------------------------------------------------
Ocean State Tax-
Exempt Fund ....... 9,599 10,268 10,828 10,757 11,426 12,298 12,816 13,277 13,748 13,825 14,318
- ----------------------------------------------------------------------------------------------------------------------------------
Lehman Municipal
Bond Index ........ 10,000 10,850 11,721 11,512 12,492 13,806 14,616 15,363 16,288 16,704 17,666
- ----------------------------------------------------------------------------------------------------------------------------------
The following table shows the Fund's average annual total returns over
the past 1, 5 and 10 fiscal years. The information reflects the maximum sales
charge of 4%.
Fiscal Year Periods Ending
October 31, 2006 Past One Year Past 5 Years Past 10 Years
- -------------------------- ------------- ------------ -------------
Ocean State Tax-Exempt Fund ...................... -0.55% 2.29% 3.68%
4
Fund Expenses Borne by Shareholders During the Period from
May 31, 2006 through October 31, 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, May 1, 2006 through October 31,
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 5/1/06 10/31/06 5/1/05-10/31/06
---------- ------------- -------------- ---------------
Actual ........................... 1.40% $1,000.00 $1,024.40 $7.14
Hypothetical ..................... 1.40% $1,000.00 $1,025.00 $7.15
* 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.
5
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
as of October 31, 2006
ASSETS
Investments at value (identified cost $24,963,392) (Note 1A) .............................. $25,804,722
Cash ...................................................................................... 165,895
Interest receivable ....................................................................... 319,414
Receivable for Capital Stock Sold ......................................................... 25,000
-----------
Total Assets ........................................................................ $26,315,031
LIABILITIES
Distribution payable to shareholders ...................................................... $ 35,587
Accrued management fees ................................................................... 12,837
Accrued expenses .......................................................................... 28,899
Payable for Capital Stock Redeemed ........................................................ 42,981
-----------
Total Liabilities ................................................................... $ 120,304
-----------
Net Assets .......................................................................... $26,194,727
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share) ......................................... $ 25,813
Additional paid-in capital ................................................................ 25,379,950
Accumulated net realized gain on investment transactions .................................. 19,748
Distributions in excess of net investment income .......................................... (72,114)
Net unrealized appreciation of investments ................................................ 841,330
-----------
Total -- Representing Net Assets at Value for 2,581,330 Shares Outstanding ................ $26,194,727
===========
Computation of Net Asset Value & Offering Price:
Net Assets ................................................................................ $26,194,727
Divided by number of shares outstanding ................................................... 2,581,330
Net asset value ........................................................................... $ 10.15
===========
Offering price ............................................................................ $ 10.57
===========
See Notes to Financial Statements.
6
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 2006
Investment Income
Interest income (Note 1B) .................................................. $1,283,298
Expenses:
Adviser fees (Note 2) ......................................... $ 94,205
Administrator fees (Note 2) ................................... 67,289
Transfer agent fees ........................................... 88,807
Auditing fees ................................................. 40,429
Legal fees and expenses ....................................... 27,913
Trustees fees and expenses .................................... 25,000
Custody ....................................................... 22,979
Distribution expenses (Note 5) ................................ 17,382
Shareholder reports ........................................... 8,250
Miscellaneous expenses ........................................ 3,238
Pricing fees .................................................. 3,000
Registration fees ............................................. 1,975
Insurance ..................................................... 1,377
--------
$401,844
----------
Net Investment Income ................................................ $ 881,454
Realized and Unrealized Gain/(Loss) on Investments
Net Realized Loss on Investments ................................ $ (2,865)
Net Change in Unrealized Appreciation of Investments ............ 63,643
--------
Net Realized and Unrealized Gain on Investments ............................ 60,778
----------
Net Increase in Net Assets Resulting from Operations ....................... $ 942,232
==========
See Notes to Financial Statements.
7
OCEAN STATE TAX EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
Fiscal Year Fiscal Year
Ended Ended
October 31, 2006 October 31, 2005
---------------- ----------------
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income ...................................... $ 881,454 $ 972,986
Net realized gain/(loss) on investments .................... (2,865) 121,718
Change in unrealized appreciation/(depreciation)
of investments ............................................ 63,643 (931,565)
----------- -----------
Net increase in net assets resulting from operations ....... $ 942,232 $ 163,139
Dividends and distributions to shareholders from:
Net investment income ($.33 per share in 2006 and
$.34 per share in 2005) ................................... (881,453) (965,687)
Net realized gains ($.03 per share in 2006 and
$.02 per share in 2005) ................................... (92,289) (62,898)
----------- -----------
Total distributions to shareholders .................... (973,742) (1,028,585)
Net (decrease) from fund share transactions (Note 4) ....... (1,942,463) (2,551,021)
----------- -----------
Total (decrease) in net assets ......................... (1,973,973) (3,416,467)
NET ASSETS:
Beginning of year .......................................... 28,168,700 31,585,167
----------- -----------
End of year ................................................ $26,194,727 $28,168,700
=========== ===========
Distribution in excess of net investment income .............. (72,114) (72,457)
See Notes to Financial Statements.
8
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
10/31/06 10/31/05 10/31/04 10/31/03 10/31/02
-------- -------- -------- -------- --------
Per Share Operating Performance:
Net Asset Value, Beginning of Year ..................... $ 10.16 $ 10.46 $ 10.48 $ 10.54 $ 10.55
Net investment income .................................. .33 .34 .35 .42 .45
Net realized and unrealized gain (loss) on investments . (.02) (.28) .01 (.03) (.01)
------- ------- ------- ------- -------
Total from Investment Operations ....................... .35 .06 .36 .39 .44
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income ................... (.33) (.34) (.35) (.42) (.45)
Distribution from net realized gains ................... (.03) (.02) (.03) (.03) (.00)
------- ------- ------- ------- -------
Total Distributions .................................... (.36) (.36) (.38) (.45) (.45)
------- ------- ------- ------- -------
Net Asset Value, End of Year ........................... $ 10.15 $ 10.16 $ 10.46 $ 10.48 $ 10.54
======= ======= ======= ======= =======
Total investment return at Net Asset Value (a) ......... 3.56% 0.56% 3.55% 3.60% 4.21%
Ratios and Supplemental Data:
Net Assets, End of Year (000's omitted) ............... $26,195 $28,169 $31,585 $33,115 $36,089
Ratio of expenses to average net assets ................ 1.49% 1.39% 1.24% 1.06% 1.04%
Ratio of net investment income to average
net assets ............................................ 3.28% 3.27% 3.40% 3.82% 4.25%
Portfolio turnover ..................................... 1% 13% 15% 19% 17%
Fund expenses per share ................................ .15 .14 .13 .12 .11
Net investment income per share ........................ .33 .34 .35 .42 .45
(a) Total investment return does not reflect sales load.
Average share method was used to calculate financial highlights.
See Notes to Financial Statements.
9
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
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, 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 October 31, 2006, 93.15% of the Fund's net assets are invested in
Rhode Island municipal securities. Economic changes affecting 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,
2006, 76.21% 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 21.42% 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 at least weekly on the
basis of valuations furnished by a pricing service since such valuations are
believed to reflect the fair value of such securities, and adjusted as needed
by management based on 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. Securities having an
original maturity of less than sixty days are valued at cost adjusted for
amortization of premiums and accretion of discounts. Other securities are
appraised in good faith at fair value using methods determined by the Trustees
and applied on a consistent basis. The Trustees monitor the valuation of the
Fund's municipal bonds through receipt of periodic reports from the Adviser.
B) Security Transactions and Related Investment Income: Security
transactions are accounted for on a trade date basis (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis. The
specific identification method is used for determining net realized gains and
losses for both financial statement and Federal income tax purposes.
C) Federal Income Taxes: The Fund's policy is to comply with the
provisions of subchapter M of the Internal Revenue Code available to regulated
investment companies and distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision
10
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (Continued)
October 31, 2006
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, 2006 and
2005 were as follows:
2006 2005
Tax-Exempt Income .................. $878,381 $965,687
Long-Term Capital Gains ............ 92,289 62,898
Taxable Ordinary Income ............ 3,072 0
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, 2006 the components of distributable earnings on a tax
basis were as follows:
Unrealized Appreciation ........................ $862,378
Undistributed Tax-Exempt Income ................ --
Capital Loss Carryforward ...................... (1,300)
Capital loss carryforward expires on 10/31/14.
D) Distributions to Shareholders: Dividends from net investment income
are declared daily and distributed monthly. Capital gains distributions, if
any, are declared and distributed annually.
NOTE 2 Advisory and Administrative Services and Other Affiliated Transactions
Van Liew Capital Inc. is the Adviser and the Administrator to the Fund.
The Fund pays Van Liew Capital Inc. at the following annual rates for the
adviser and administrator services, respectively:
.35 and .25 of 1% of the first $200 million of average daily net
assets.
.30 and .20 of 1% of average daily net assets over $200 million.
11
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (Continued)
October 31, 2006
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, 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 $27,913 were paid to a firm of which the
Fund's Secretary is a partner.
Van Liew Securities, Inc. a subsidiary of the Adviser, is the Distributor
of the Fund (the "Distributor"). During the period November 1, 2005 through
October 31, 2006, the Distributor received $1,109 in commissions as a result of
Fund share sales.
NOTE 3 Investment Transactions
During the period ended October 31, 2006 purchases and sales of
investment securities, other than short-term investments, aggregated $200,000
and $2,334,878, respectively. The aggregate cost of investments for Federal
income tax purposes was $24,942,344. At October 31, 2006, gross unrealized
appreciation on investment securities was $852,723 and gross unrealized
depreciation on investment securities was $11,393.
NOTE 4 Shares of benefifical 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 .................................... 51,974 525,457
Shares issued in reinvestment of dividends ..... 47,149 476,296
Shares redeemed ................................ (291,446) (2,994,216)
--------- -----------
Net decrease ................................... (192,323) (1,942,463)
--------- -----------
Balance at 10/31/06 ............................ 2,581,330 $25,389,468
========= ===========
12
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (Continued)
October 31, 2006
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 $17,382 under the
Plan during fiscal 2006.
NOTE 6 New Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board (FASB)
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the financial
statements. FIN 48 requires the evaluation of tax positions taken or expected
to be taken in the course of preparing the Fund's tax returns to determine
whether the tax positions will "more-likely-than-not" be sustained by the
applicable tax authority. Tax positions not deemed to meet the more-likely-
than-not threshold would be recorded as a tax benefit or expense in the
reporting period. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of the
effective date. At this time, management is evaluating the implications of FIN
48 and any impact in the financial statements has not been determined.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the Fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement on the Fund's financial statements.
13
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS
as of October 31, 2006
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
- --------- --------------------- --------
MUNICIPAL SECURITIES (98.51%) (a)
Rhode Island General Obligation and Revenue (63.79%) (a)
$ 500,000 Barrington School District 5.00%, 10/1/14 .......................... Aa-2/NR $ 529,325
200,000 Burrillville General Obligation FGIC Insured 5.70%, 5/1/11 ......... Aaa/AAA 204,490
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/24 ............. Aaa/AAA 264,835
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/22 ............. Aaa/AAA 265,808
225,000 Middletown General Obligation 4.00%, 7/15/12 ....................... Aa-3/NR 228,778
80,000 North Kingstown General Obligation 6.80%, 12/15/06 ................. Aa-3/NR 80,293
200,000 North Kingstown General Obligation FGIC Insured
5.70%, 10/1/18 .................................................... Aaa/NR 213,476
250,000 North Providence General Obligation FSA Insured
4.00%, 10/15/17 ................................................... Aaa/AAA 252,873
500,000 Providence General Obligation FSA Insured 5.00%, 7/15/14 ........... Aaa/AAA 544,580
150,000 Providence Public Bldg. Auth. MBIA Insured 5.50%, 12/15/13 ......... Aaa/AAA 153,310
500,000 Providence Public Bldg. Auth. AMBAC Insured 5.125%, 12/15/14 ....... Aaa/AAA 532,290
685,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 .......... Aaa/AAA 712,194
250,000 Providence Public Bldg. Auth. AMBAC Insured 5.25%, 12/15/15 ........ Aaa/AAA 266,140
500,000 Providence Redevelopment Auth. AMBAC Insured, 5.30%, 4/1/12 ........ Aaa/NR 530,970
200,000 Providence Redevelopment Radian Insured 4.25%, 9/1/13 .............. NR/AA 203,670
8,000 Warwick General Obligation MBIA Insured 6.60%, 11/15/06 ............ Aaa/AAA 8,008
250,000 Warwick General Obligation FSA Insured 4.00%, 7/15/11 .............. Aaa/AAA 254,603
250,000 Warwick General Obligation FSA Insured 4.125%, 7/15/13 ............. Aaa/AAA 255,920
500,000 West Warwick General Obligation 5.00%, 10/15/25 .................... A-3/NR 518,360
225,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/18 ............... Aaa/AAA 236,054
500,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/19 ............... Aaa/AAA 539,585
500,000 Rhode Island Clean Water MBIA Insured 4.40%, 10/1/25 ............... Aaa/AAA 509,215
650,000 Rhode Island Depositors Economic Protection Corp. MBIA Insured
Escrowed to Maturity 6.55%, 8/1/10 ................................ Aaa/AAA 698,129
215,000 Rhode Island Depositors Economic Protection Corp. CAPMAC Guaranteed
Escrowed to Maturity 6.375%, 8/1/22 ............................... Aaa/AAA 276,855
250,000 Rhode Island Depositors Economic Protection Corp. Escrowed to
Maturity 5.75%, 8/1/21 ............................................ Aaa/NR 298,670
500,000 Rhode Island Economic Department of Transportation AMBAC Insured
3.75%, 6/15/13 .................................................... Aaa/AAA 503,485
500,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/12 ..................................................... Aaa/AAA 518,120
395,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/13 ..................................................... Aaa/AAA 409,184
545,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/14 ..................................................... Aaa/AAA 564,484
450,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.00%, 7/1/18 ..................................................... Aaa/AAA 463,478
14
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS -- (Continued)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
- --------- --------------------- --------
MUNICIPAL SECURITIES (a) -- (continued)
Rhode Island General Obligation and Revenue (continued)
$ 900,000 Rhode Island Economic Development Corp. Providence Place Radian
Insured 6.125%, 7/1/20 ............................................ NR/AA $ 992,142
100,000 RI COPS MBIA Insured 5.375%, 10/1/16 ............................... Aaa/AAA 102,532
250,000 RI COPS Kent County Courthouse MBIA Insured 5.00%, 10/1/22 ......... Aaa/AAA 265,930
300,000 Rhode Island Lease Participation Certificate Shepard Bldg. AMBAC
Insured 5.125%, 6/1/12 ............................................ Aaa/AAA 305,661
500,000 Rhode Island Refunding Bond Authority AMBAC Insured
5.25%, 2/1/10 ..................................................... Aaa/AAA 515,200
500,000 Rhode Island General Obligation MBIA Insured 5.00%, 9/1/18 ......... Aaa/AAA 531,520
300,000 Rhode Island General Obligation FGIC Insured 5.125%, 7/15/14 ....... Aaa/AAA 310,035
1,000,000 Rhode Island General Obligation FGIC Insured 5.50%, 9/1/16 ......... Aaa/AAA 1,061,860
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 ............ Aaa/AAA 258,917
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 ............ Aaa/AAA 258,917
1,000,000 Tobacco Settlement Financing Corp. 6.25%, 6/1/42 ................... Baa-3/BBB 1,068,420
-----------
Total Rhode Island General Obligation and Revenue ................... $16,708,316
-----------
Rhode Island Health & Education Building Corporation (23.26%)(a)
$ 100,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/15 ............ Aaa/AAA $ 106,856
300,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/16 ............ Aaa/AAA 320,568
100,000 Bryant College AMBAC Insured 4.60%, 6/1/12 ......................... Aaa/AAA 105,113
780,000 Brown University 5.25%, 9/1/16 ..................................... Aa-1/AA+ 832,962
400,000 Brown University 5.00%, 9/1/19 ..................................... Aa-1/AA+ 408,788
500,000 Brown University 5.00%, 9/1/23 ..................................... Aa-1/AA+ 511,065
250,000 Salve Regina College Radian Insured 5.25%, 3/15/18 ................. NR/AA 265,473
750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 ................. Aaa/AAA 774,045
500,000 Johnson & Wales College XL Capital 5.25%, 4/1/14 ................... Aaa/AAA 544,450
250,000 Rhode Island School of Design MBIA Insured 4.40%, 6/1/15 ........... Aaa/AAA 259,832
585,000 Rhode Island School of Design MBIA Insured 4.60%, 6/1/17 ........... Aaa/AAA 611,653
500,000 St. Antoine Residence LOC-Allied Irish Bank 6.125%, 11/15/18 ....... Aa-3/NR 526,430
300,000 Lifespan MBIA Insured 5.75%, 5/15/23 ............................... Aaa/AAA 309,451
500,000 Times 2 Academy LOC-Citizens Bank 5.00%, 12/15/24 .................. Aa2/NR 517,160
-----------
Total Rhode Island Health & Education Building Corporation ......... $ 6,093,846
-----------
Rhode Island Housing & Mortgage Finance Corporation (6.10%)(a)
$ 200,000 3.95%, 10/1/15 ..................................................... Aa-2/AA+ $ 201,100
400,000 5.00%, 10/1/16 ..................................................... Aa-2/AA+ 412,876
10,000 6.50%, 10/1/22 ..................................................... Aa-2/AA+ 10,038
950,000 4.30%, 10/1/17 ..................................................... Aa-2/AA+ 968,183
5,000 6.50%, 4/1/27 ...................................................... Aa-2/AA+ 5,040
-----------
Total Rhode Island Housing & Mortgage Finance Corporation .......... $ 1,597,237
-----------
TOTAL RHODE ISLAND BONDS (93.15%) (a) .............................. $24,399,399
-----------
15
OCEAN STATE TAX EXEMPT FUND
PORTFOLIO OF INVESTMENTS -- (Continued)
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
- --------- --------------------- --------
MUNICIPAL SECURITIES (a) -- (continued)
Puerto Rico Bonds (5.36%) (a)
$ 350,000 Puerto Rico Commonwealth 5.00%, 7/1/29 ............................. Baa3/B $ 363,972
500,000 Puerto Rico Electric Power Authority MBIA Insured
5.125%, 7/1/29 .................................................... Aaa/AAA 527,195
500,000 Puerto Rico Municipal Finance Auth. FSA Insured
5.50%, 7/1/17 ..................................................... Aaa/AAA 514,156
-----------
TOTAL PUERTO RICO BONDS (5.36%) (a) ................................ $ 1,405,323
-----------
TOTAL INVESTMENTS (Cost $24,963,392)(95.30%) (a) ................... $25,804,722
-----------
OTHER ASSETS AND LIABILITIES (1.49%) ............................... $ 390,005
-----------
TOTAL NET ASSETS (100%) ............................................ $26,194,727
===========
(a) Percentages indicated are based on net assets of $26,194,727 at October 31,
2006 (total investments plus cash and receivables less liabilities) which
corresponds to a net asset value per share of $10.15.
(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.
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.
See Notes to Financial Statements.
16
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 the Ocean State Tax Exempt Fund (the
"Fund") (the only portfolio of the VLC Trust), as of October 31, 2006, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of 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, 2006 by correspondence with
the custodian and brokers. 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 the Ocean State Tax Exempt Fund of VLC Trust, at October 31, 2006,
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 8, 2006
17
TAX INFORMATION (Unaudited)
For the year ended October 31, 2006 the amount of long-term capital gains
distributions designated by the Fund was $92,289. The amount of tax exempt
interest dividends distributed by the Fund was $878,381. The amount of ordinary
income dividends distributed by the Fund was $3,072.
18
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 Commissions website at 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
- --------------------- -------------------------- ----------------------------------------------
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; 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 Seamen's Institute, Newport,
Rhode Island since 1994.
John St. Sauveur (72) Chairman (since 2006) and Director of the Adviser until 2005; President
219 Great Road Trustee (since 1992) and CEO, WestBank Realty Corporation;
North Smithfield, Director, Community College of Rhode Island
Rhode Island 02896 Foundation; Chairman, Woonsocket Industrial
Development Corporation; Chairman, Greater
Woonsocket Industrial Development Foundation;
Vice-Chairman, North Smithfield Industrial
Development Commission; a Vice President and
Director, Rhode Island Chamber of Commerce
Federation; Member, Rhode Island State Job
Training Coordination Council; Finance
Chairman, Landmark Health System; Trustee,
Landmark Medical Center; Commissioner of the
Rhode Island Resource Recovery Corporation
(1992-present); Chairman, The Rehabilitation
Hospital of Rhode Island; Director and
Corporate Secretary, Gooding Realty
Corporation.
19
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
Mary Ann Altrui (64) Trustee (since 2001) Executive Director of St. Antoine Residence
10 Rhodes Avenue and Villa at St. Antoine (1988-present);
North Smithfield, Director of Diocesan Elder Care Services
Rhode Island 02896 (1997-present); oversight responsibility for
St. Clare Home (a 44-bed nursing facility in
Newport, RI); founding member with St.
Elizabeth Community, Scandinavian Home, and
Steere House of "CareLink" (a management
service organization incorporated in 1977);
member of American College of Health Care
Administrators; Board member of Visiting
Nursing Services of Greater Rhode Island;
advisory committee member for the Diocese of
Providence, the State of Rhode Island and the
Nonprofit Association of Facilities and
Services for the Aging.
Milton C. Bickford, Jr. (75) Trustee (since 1987) Private investor since 1989; Director
147 Beavertail Road (Chairman 1999-2002) of AAA Southern New
Jamestown, Rhode Island 02835 England; Director, AAA Southern New England
Bank (1999-2005); Trustee, National Traffic
Safety Foundation (1999-2000).
Meredith A. Curren (46) Trustee (since 2001) Chief Executive Officer, Pease & Curren, Inc.
75 Pennsylvania Avenue (refiners of precious metals) since 1990;
Warwick, Rhode Island 02888 Director, Bancorp Rhode Island, Inc. and Bank
Rhode Island; Board Member, Providence
Jewelers Club; Board Member, Providence
Chamber of Commerce; Partner, SVP RI, Social
Venture Partners of RI.; Board Member,
Research Engineering & Manufacturing, Inc.
Michael E. Hogue (64) Trustee (since 1989) Managing Partner, eTime (insurance services)
116 Chestnut Street (February 2002-present); President, VIAcorp
Providence, Rhode Island 02903 (financial services) (June 1994-present);
Assistant Professor of Insurance at the
Wharton School, University of Pennsylvania;
Trustee Emeritus, Trinity Repertory Company
(1997-present); President, Jewelry District
Association (1999-present).
20
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
Arthur H. Lathrop (51) Trustee (since 2001) In practice as a Certified Public Accountant
3 Orleans Court (sole proprietor) in Westerly, RI (1991-
Westerly, Rhode Island 02891 present); Director and Audit Committee
member, Newport Federal Savings Bank and
Newport Bancorp, Inc. (2005-present);
Trustee, Westerly Savings Bank (1993 2005);
Trustee and Treasurer, River Bend Cemetery
Company (1990-present); Incorporator,
Community Health Company of Westerly, Inc.
(1989-Present); Incorporator, Memorial &
Library Association of Westerly (2004-
present)
Lawrence B. Sadwin (62) Trustee (since 2001) President/CEO, Landmark Healthcare Foundation
18 Oyster Point (since October 2005); President, Lifestyle
Warren, Rhode Island 02885 Security, LLC (since August 2002), Division
Marketing Leader for 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), MGS Holding
Corporation; Member-At-Large, National Board
of Directors, American Heart Association;
Member, National Leadership Council, Research
America; Chairman, Landmark Medical Center;
Member and counsel to public representatives,
National Institution of Health; Chairman,
American Heart Association (2001-2002).
Samuel H. Hallowell, Jr. (58) Vice President Partner of the Adviser and Vice President,
One Regency Plaza (since 1989) Van Liew Trust Company (1984-present);
Suite One Secretary and past Secretary, Audubon Society
Providence, Rhode Island 02903 of Rhode Island.
Joseph J. Healy (39) Vice President Investment Officer, Fund Controller and
One Regency Plaza (since 1996) primary trader of the Adviser (1992-2000);
Suite One President and General Securities Principal of
Providence, Rhode Island 02903 the Distributor (1993-present).
Kevin M. Oates (46) Vice President, Treasurer Partner of the Adviser (1996-present); Chief
One Regency Plaza and Chief Compliance Operating Officer of the Adviser and Van Liew
Suite One Officer (since 1991) Trust Company (April 2000-present), Vice
Providence, Rhode Island 02903 President and Treasurer of the Distributor
(1991-present); Vice President-Administration
of the Adviser (1991-2000).
21
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
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); Secretary, Bancorp Rhode Island,
Inc. and Bank Rhode Island; Director, Care
New England Health System; Director, Women &
Infants Corporation; Trustee, 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.
o Only such information received from you, through application forms or
otherwise, and information about your transactions will be collected.
o 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.
o Policies and procedures (including physical, electronic and procedural
safeguards) are in place that are designed to protect the confidentiality
of such information.
22
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. Annual Report
P.O. Box 9839 October 31, 2006
Providence, Rhode Island 02903
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Counsel
Hinckley, Allen & Snyder LLP
1500 Fleet Center
Providence, Rhode Island 02903
Trustees
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.
(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, 2005 $35,500 $0 $4,300 $0
October 31, 2006 $35,500 $0 $5,000 $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, 2005 $0 $0
October 31, 2006 $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. 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 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 4, 2007 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: January 4, 2007 By: /s/ Alfred B. Van Liew
------------------------------------
Alfred B. Van Liew
President
Date: January 4, 2007 By: /s/ Kevin M. Oates
------------------------------------
Kevin M. Oates
Vice President & Treasurer