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, 2007
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.
- -------------------------------------------------------------------------------
OCTOBER 31, 2007
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, 2007
Recession threat? Sub-prime debt debacle? Inflation? Weakened U.S.
dollar? Lingering U.S. housing slump? The news headlines have not been the most
upbeat or optimistic for the investment environment.
Fortunately, remember in times of turmoil the objective of the Ocean
State Tax Exempt Fund ("the Fund") is to provide a high level of current net
income, exempt from Rhode Island and Federal taxes*, as is consistent with
preservation of capital. With the Fund we take a long-term approach to
investing, regardless of the market environment.
Historically, interest rates have been cyclical, rising and falling over
time during economic cycles. Currently, the Federal Reserve Bank is in a rate
reduction mode - normally good news for bond owners. Rate cuts increase the
attractiveness of existing municipal bonds due to their now relatively higher
interest rates. The Fund has been structured to be held in any kind of
investment environment. We strive to minimize the Fund's price volatility or
swings in share net asset value through a variety of strategies. With the
Fund's current 10 year average maturity management's goal is to maintain a
solid dividend yield while not extending the portfolio too far.
Why own an investment in municipal bonds? Simply put - income taxes are
high and we expect them to remain so. Investing in tax exempt municipal bonds
is a tax avoidance strategy for those in higher tax brackets. For Rhode Island
residents the Ocean State Tax Exempt Fund offers double tax-free income -
exempt from both Rhode Island and Federal taxes. This tax advantage is the
chief reason investors own and buy this Fund.
Recently private bond insurers have been placed under scrutiny over the
deteriorating credit profile of some insurers as a result of the ongoing U.S.
mortgage crisis. These same firms insure many of the bonds held by the Ocean
State Tax Exempt Fund. Are municipal bond owners at risk? We believe the risk
to municipal bonds is minimal. Remember that what is really backing up the
bonds we purchase for the Fund is the strength of the underlying credit of each
bond. Each bonds underlying credit is unaffected by private guarantors. Even if
an insurer were to default it doesn't mean that the city, hospital or
university that issued the bond won't fulfill its obligation to pay principal
and interest due to the bondholder.
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, 2007
Prior
November 1, 2006 Fiscal Year November 1, 2002 November 1, 1997
through Ended through through
October 31, 2007 October 31, 2006 October 31, 2007 October 31, 2007
---------------- ---------------- ---------------- ----------------
Total Rate of Return (b)
Based on:
Net Asset Value ....................... 1.24% 3.56% 2.53% 3.54%
Offering Price ........................ (2.78)% (0.55)% 1.69% 3.11%
As of As of
October 31, 2007 October 31, 2006
---------------- ----------------
30-day Current Yield
Based on:
Net Asset Value ....................... 2.28% 3.30%
Offering Price ........................ 2.19% 3.17%
30-day Tax-equivalent Yield (a)
Based on:
Net Asset Value ....................... 3.90% 5.64%
Offering Price ........................ 3.74% 5.42%
The Ocean State Tax Exempt Fund has placed a high priority on capital
preservation while at the same time striving for competitive after-tax
investment returns. The Fund has maintained the weighted average maturity of
the portfolio at 10.2 years as of October 31, 2007.
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 10/31/07 10/31/06
------ -------- --------
Aaa/AAA ................................. 76.12% 66.50%
Aa/AA ................................... 19.93% 25.94%
A ....................................... 2.33% 2.01%
Baa/BBB ................................. 1.62% 5.55%
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 2007, shareholders were subject to a maximum Federal tax rate of 35%
and a Rhode Island tax rate of 9.90% of Federal taxable income. All
dividend income is exempt from local, state and Federal taxes for Rhode
island residents. Capital gains taxes will apply to any distributed capital
gains.
(b) Past performance is no guarantee of future results. Total return does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The offering price reflects
a maximum sales charge of 4.00%.
2
Management's Discussion of Investment Performance
October 31, 2007 marked the end of the Fund's twentieth fiscal year.
During the prior 12 months, the Fund's net asset value (NAV) declined from
$10.15 to $9.97. The Fund's dividend distribution declined to $0.31 per share
during the year while the Fund's total return on net asset value was 1.24%.*
During the year the Fund's management shortened the Fund's average
maturity from 12 to 10 years while the Aaa/AAA component of the portfolio was
increased to 76%. Due to the declining interest rate environment the Fund's
management refrained from extending the maturity of the Fund's portfolio.
Management continues to emphasize call protection in this 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, 1997 through October 31, 2007
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
- ------------------------------------------------------------------------------------------------------------------------------------
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 OCT-31-07
- -----------------------------------------------------------------------------------------------------------------------------------
Ocean State
Tax-Exempt
Fund ...... 9,596 10,120 10,053 10,678 11,494 11,978 12,409 12,849 12,921 13,381 13,548
- -----------------------------------------------------------------------------------------------------------------------------------
Lehman
Municipal
Bond Index. 10,000 10,802 10,611 11,513 12,724 13,471 14,160 15,012 15,396 16,282 16,756
- -----------------------------------------------------------------------------------------------------------------------------------
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, 2007 Past One Year Past 5 Years Past 10 Years
- -------------------------- ------------- ------------ -------------
Ocean State Tax-Exempt Fund ... -2.78% 1.69% 3.11%
4
Fund Expenses Borne by Shareholders During the Period from
May 1, 2007 through October 31, 2007.
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, 2007 through October 31,
2007.
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 5/1/07 10/31/07 5/1/07-10/31/07
---------- ------------- -------------- ---------------
Actual .................... 1.95% $1,000.00 $ 994.90 $9.81
Hypothetical .............. 1.95% $1,000.00 $1,025.00 $9.95
* 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, 2007
ASSETS
Investments at value (identified cost $21,452,881) (Note 1A) .............................. $21,897,639
Cash 173,780
Interest receivable 271,786
-----------
Total Assets ........................................................................ $22,343,205
LIABILITIES
Payable for securities purchased .......................................................... $111,659
Accrued expenses .......................................................................... 30,767
Distribution payable to shareholders ...................................................... 18,717
Accrued management fees ................................................................... 21,879
-----------
Total Liabilities ................................................................... $183,022
===========
Net Assets .......................................................................... $22,160,183
===========
Net Assets consist of:
Shares of beneficial interest at par ($.01/share) ......................................... $22,222
Additional paid-in capital ................................................................ 21,769,471
Accumulated net realized loss on investment transactions .................................. (3,812)
Distributions in excess of net investment income .......................................... (72,456)
Net unrealized appreciation of investments ................................................ 444,758
-----------
Total -- Representing Net Assets at Value for 2,222,215 Shares Outstanding ................ $22,160,183
===========
Computation of Net Asset Value & Offering Price:
Net Assets ................................................................................ $22,160,183
Divided by number of shares outstanding ................................................... 2,222,215
Net asset value ........................................................................... $ 9.97
===========
Offering price ............................................................................ $10.39
===========
See Notes to Financial Statements.
6
OCEAN STATE TAX EXEMPT FUND
STATEMENT OF OPERATIONS
For the period ended October 31, 2007
Investment Income
Interest income (Note 1C) ................................................... $1,132,033
Expenses:
Adviser fees (Note 2) ......................................... $ 84,058
Administrator fees (Note 2) ................................... 60,041
Transfer agent fees ........................................... 95,340
Auditing fees ................................................. 52,315
Legal fees and expenses ....................................... 24,467
Trustees fees and expenses .................................... 24,750
Custody ....................................................... 20,495
Distribution expense (Note 5) ................................. 18,502
Shareholder reports ........................................... 9,810
Miscellaneous expenses ........................................ 3,336
Pricing fees .................................................. 3,083
Registration fees ............................................. 1,975
Insurance ..................................................... 1,377
---------
$ 399,549
----------
Net Investment Income ................................................. $ 732,484
Realized and Unrealized Gain/(loss) on Investments
Net Realized Gain/(Loss) on Investments ......................... $ (27,189)
Net Change in Unrealized (Depreciation) of Investments .......... (396,572)
---------
Net Realized and Unrealized (Loss) on Investments ........................... (423,761)
----------
Net Increase in Net Assets Resulting from Operations ........................ $ 308,723
==========
See Notes to Financial Statements.
7
OCEAN STATE TAX EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Fiscal Year
Ended Ended
October 31, 2007 October 31, 2006
---------------- ----------------
Increase (Decrease) in Net Assets Resulting from:
Operations:
Net investment income ...................................... $ 732,484 $ 881,454
Net realized gain/(loss) on investments .................... (27,189) (2,865)
Change in unrealized appreciation/(depreciation)
of investments ............................................ (396,572) 63,643
----------- -----------
Net increase in net assets resulting from operations ....... $ 308,723 $ 942,232
Dividends and distributions to shareholders from:
Net investment income ($.31 per share in 2007 and
$.33 per share in 2006) ................................... (732,484) (881,453)
Net realized gains ($.00 per share in 2007 and
$.03 per share in 2006) ................................... 0 (92,289)
----------- -----------
Total distributions to shareholders .................... (732,484) (973,742)
Net (decrease) from fund share transactions (Note 4) ....... (3,610,783) (1,942,463)
----------- -----------
Total (decrease) in net assets ......................... (4,034,544) (1,973,973)
NET ASSETS:
Beginning of period ........................................ 26,194,727 28,168,700
----------- -----------
End of period .............................................. $22,160,183 $26,194,727
=========== ===========
Distribution in excess of net investment income ............ $ (72,456) $ (72,114)
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
10/31/07 10/31/06 10/31/05 10/31/04 10/31/03
-------- -------- -------- -------- --------
Per Share Operating Performance:
Net Asset Value, Beginning of Year ..................... $ 10.15 $ 10.16 $ 10.46 $ 10.48 $ 10.54
Net investment income .................................. .31 .33 .34 .35 .42
Net realized and unrealized gain (loss) on investment .. (.18) .02 (.28) .01 (.03)
------- ------- ------- ------- -------
Total from Investment Operations ....................... .13 .35 .06 .36 .39
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income ................... (.31) (.33) (.34) (.35) (.42)
Distribution from net realized gains ................... (.00) (.03) (.02) (.03) (.03)
------- ------- ------- ------- -------
Total Distributions .................................... (.31) (.36) (.36) (.38) (.45)
------- ------- ------- ------- -------
Net Asset Value, End of Year ........................... $ 9.97 $ 10.15 $10.16 $ 10.46 $ 10.48
======= ======= ======= ======= =======
Total investment return at Net Asset Value (a) ......... 1.24% 3.56% 0.56% 3.55% 3.60%
Ratios and Supplemental Data:
Net Assets, End of Year (000's omitted) .............. $22,160 $26,195 $28,169 $31,585 $33,115
Ratio of expenses to average net assets ................ 1.66% 1.49% 1.39% 1.24% 1.06%
Ratio of net investment income to average
net assets ............................................ 3.05% 3.28% 3.27% 3.40% 3.82%
Portfolio turnover ..................................... 6% 1% 13% 15% 19%
Fund expenses per share ................................ .17 .15 .14 .13 .12
Net investment income per share ........................ .31 .33 .34 .35 .42
(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, 2007
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, 2007 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, 2007, 94.23% 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,
2007, 84.09% 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 19.84% 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: The net asset value per share (NAV) for the Fund
is determined at 4:30 p.m., Eastern Time, on each business day the New York
Stock Exchange is open. Due to the fact that the market for municipal
securities is a dealer market with no central trading location or continuous
quotation system, the Fund has developed a method to determine the current fair
value of portfolio securities that accurately reflects the value of the Fund.
This method reflects a combination of prices derived from market inputs on a
weekly basis, which are adjusted daily, based on estimated fair value using
methods determined by the Trustees and applied on a consistent basis.
Once a week, the Fund uses a national pricing service to obtain values
for its portfolio securities. Valuations furnished by a pricing service are
believed to reflect the fair value of such securities 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. The Fund will also use values
from the pricing service on volatile municipal market days. The Fund then
utilizes a pricing matrix based on the Bond Buyer 40 Municipal Bond Index to
adjust valuations as needed on a daily basis between dates when values are
obtained from the pricing service. 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.
10
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (Continued)
October 31, 2007
Other securities, for which the pricing service is unable to provide a
value, 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. At October 31, 2007 there were no securities fair valued.
B) Security Transactions and Related Investment Income: Security
transactions are accounted for on a trade date basis (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis. The
specific identification method is used for determining net realized gains and
losses for both financial statement and Federal income tax purposes.
C) Federal Income Taxes: The Fund's policy is to comply with the
provisions of subchapter M of the Internal Revenue Code available to regulated
investment companies and distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
Federal income tax or excise tax is necessary. Dividends paid by the Fund from
net interest on tax-exempt municipal bonds are not includable by shareholders
as gross income for Federal income tax purposes, because the Fund intends to
meet certain requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Fund to pay tax-exempt interest
dividends. The portion of such interest, if any, earned on private activity
bonds issued after August 7, 1986 may be considered a tax preference item to
shareholders.
The tax character of distributions as reported on the Statements of
Changes in Net Assets for the years ended October 31, 2007 and 2006 were as
follows:
2007 2006
---- ----
Tax-Exempt Income .................. $729,197 $878,381
Long-Term Capital Gains ............ 0 92,289
Taxable Ordinary Income ............ 3,287 3,072
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, 2007 the components of distributable earnings on a tax
basis were as follows:
Unrealized Appreciation ........................ $466,652
Undistributed Tax-Exempt Income ................ --
Capital Loss Carryforward ...................... (25,706)
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.
11
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (Continued)
October 31, 2007
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 October 31, 2007 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 $24,467 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, 2006
through October 31, 2007, the Distributor received $1,115 in commissions as a
result of Fund share sales.
NOTE 3 Investment Transactions
During the period ended October 31, 2007 purchases and sales of
investment securities, other than short-term investments, aggregated $1,460,779
and $4,928,267, respectively. The aggregate cost of investments for Federal
income tax purposes was $21,430,987. At October 31, 2007, gross unrealized
appreciation on investment securities was $470,599 and gross unrealized
depreciation on investment securities was $25,841.
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 10/31/05 ............................ 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) (2,944,216)
--------- -----------
Net decrease ................................... (192,323) (1,942,463)
--------- -----------
Balance at 10/31/06 ............................ 2,581,330 $25,389,468
========= ===========
Shares sold .................................... 69,749 701,681
Shares issued in reinvestment of dividends ..... 35,912 361,044
Shares redeemed ................................ (464,776) (4,673,508)
--------- -----------
Net decrease ................................... (359,115) (3,610,783)
--------- -----------
Balance at 10/31/07 ............................ 2,222,215 $21,778,685
========= ===========
12
OCEAN STATE TAX EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (Continued)
October 31, 2007
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 plan paid $18,502 during
fiscal year 2007.
NOTE 6 Disclosure in the Tax Section of the Notes
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.
NOTE 7 Disclosure in Valuation Section of the Notes
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, 2007
Ratings
Principal Moody's/ Value
Amount Standard & Poor's (b) (Note 1)
- --------- --------------------- --------
MUNICIPAL SECURITIES (98.82%) (a)
Rhode Island General Obligation and Revenue (67.97%) (a)
$ 500,000 Barrington School District 5.00%, 10/1/14 .......................... Aa-2/NR $ 521,160
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/24 ............. Aaa/AAA 260,360
250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/22 ............. Aaa/AAA 261,203
225,000 Middletown General Obligation 4.00%, 7/15/12 ....................... Aa-2/NR 228,456
200,000 North Kingstown General Obligation FGIC Insured 5.70%, 10/1/18 ..... Aaa/NR 210,286
250,000 North Providence General Obligation FSA Insured 4.00%, 10/15/17 .... Aaa/AAA 250,783
365,000 Narragansett Bay Waste Water System MBIA Insured 5.00%, 8/1/27 ..... Aaa/AAA 380,180
500,000 Providence General Obligation FSA Insured 5.00%, 7/15/14 ........... Aaa/AAA 537,900
150,000 Providence Public Bldg. Auth. MBIA Insured 5.50%, 12/15/13 ......... Aaa/AAA 151,823
500,000 Providence Public Bldg. Auth. AMBAC Insured 5.125%, 12/15/14 ....... Aaa/AAA 524,415
685,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 .......... Aaa/AAA 703,009
250,000 Providence Public Bldg. Auth. AMBAC Insured 5.25%, 12/15/15 ........ Aaa/AAA 263,045
500,000 Providence Redevelopment Auth. AMBAC Insured, 5.30%, 4/1/12 ........ Aaa/NR 525,410
200,000 Providence Redevelopment Radian Insured 4.25%, 9/1/13 .............. NR/AA 199,378
250,000 Warwick General Obligation FSA Insured 4.00%, 7/15/11 .............. Aaa/AAA 253,940
250,000 Warwick General Obligation FSA Insured 4.125%, 7/15/13 ............. Aaa/AAA 255,070
500,000 West Warwick General Obligation 5.00%, 10/15/25 .................... A-3/NR 509,210
225,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/18 ............... Aaa/AAA 231,791
500,000 Rhode Island Clean Water MBIA Insured 4.40%, 10/1/25 ............... Aaa/AAA 496,920
650,000 Rhode Island Depositors Economic Protection Corp. MBIA Insured
Escrowed to Maturity 6.55%, 8/1/10 ................................ Aaa/AAA 680,436
215,000 Rhode Island Depositors Economic Protection Corp. CAPMAC Guaranteed
Escrowed to Maturity 6.375%, 8/1/22 ............................... Aaa/AAA 268,417
250,000 Rhode Island Depositors Economic Protection Corp.
Escrowed to Maturity 5.75%, 8/1/21 ................................ Aaa/NR 291,263
395,000 Rhode Island Economic Department of Transportation 5.00%, 6/15/10 .. Aaa/AAA 409,848
500,000 Rhode Island Economic Department of Transportation AMBAC Insured
3.75%, 6/15/13 .................................................... Aaa/AAA 502,250
500,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/12 ..................................................... Aaa/AAA 510,225
395,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/13 ..................................................... Aaa/AAA 402,896
545,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.25%, 7/1/14 ..................................................... Aaa/AAA 555,786
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)
$ 450,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured
5.00%, 7/1/18 ..................................................... Aaa/AAA $ 457,447
900,000 Rhode Island Economic Development Corp. Providence Place Radian
Insured 6.125%, 7/1/20 ............................................ NR/AA 965,430
100,000 RI COPS MBIA Insured 5.375%, 10/1/16 ............................... Aaa/AAA 101,138
250,000 RI COPS Kent County Courthouse MBIA Insured
5.00%, 10/1/22 .................................................... Aaa/AAA 261,263
300,000 Rhode Island Lease Participation Certificate Shepard Bldg. AMBAC
Insured 5.125%, 6/1/12 ............................................ Aaa/AAA 303,315
500,000 Rhode Island Refunding Bond Authority AMBAC Insured 5.25%, 2/1/10 .. Aaa/AAA 507,000
500,000 Rhode Island General Obligation MBIA Insured 5.00%, 9/1/18 ......... Aaa/AAA 523,640
1,000,000 Rhode Island General Obligation FGIC Insured 5.50%, 9/1/16 ......... Aaa/AAA 1,046,520
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 ............ Aaa/AAA 255,717
250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 ............ Aaa/AAA 255,717
-----------
Total Rhode Island General Obligation and Revenue .................. $15,062,647
-----------
Rhode Island Health & Education Building Corporation (20.98%)(a)
$ 100,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/15 ............ Aaa/AAA $ 105,744
300,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/16 ............ Aaa/AAA 317,232
100,000 Bryant College AMBAC Insured 4.60%, 6/1/12 ......................... Aaa/AAA 104,179
250,000 Salve Regina College Radian Insured 5.25%, 3/15/18 ................. NR/AA 257,790
750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 ................. Aaa/AAA 766,807
500,000 Johnson & Wales College XL Capital 5.25%, 4/1/14 ................... Aaa/AAA 537,130
500,000 Rhode Island Public Schools Financing Program FSA Insured 5.00%,
5/15/20 ........................................................... Aaa/AAA 533,970
100,000 Providence Public Schools Financing Program FSA Insured 5.50%,
5/15/16 ........................................................... Aaa/AAA 111,986
250,000 Rhode Island School of Design MBIA Insured 4.40%, 6/1/15 ........... Aaa/AAA 257,590
585,000 Rhode Island School of Design MBIA Insured 4.60%, 6/1/17 ........... Aaa/AAA 604,129
500,000 St. Antoine Residence LOC-Allied Irish Bank 6.125%, 11/15/18 ....... Aa-2/NR 517,385
30,000 Lifespan MBIA Insured 5.75%, 5/15/23 ............................... Aaa/AAA 30,629
500,000 Times 2 Academy LOC-Citizens Bank 5.00%, 12/15/24 .................. Aa2/NR 505,640
-----------
Total Rhode Island Health & Education Building Corporation ......... $ 4,650,211
-----------
Rhode Island Housing & Mortgage Finance Corporation (5.27%)(a)
$ 200,000 3.95%, 10/1/15 ..................................................... Aa-2/AA+ $ 200,236
10,000 6.50%, 10/1/22 ..................................................... Aa-2/AA+ 10,032
950,000 4.30%, 10/1/17 ..................................................... Aa-2/AA+ 953,410
5,000 6.50%, 4/1/27 ...................................................... Aa-2/AA+ 5,034
-----------
Total Rhode Island Housing & Mortgage Finance Corporation .......... $ 1,168,712
-----------
TOTAL RHODE ISLAND BONDS (94.23%) (a) .............................. $20,881,570
-----------
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 (4.59%) (a)
$ 350,000 Puerto Rico Commonwealth 5.00%, 7/1/29 ............................. Baa3/BBB- $ 354,721
500,000 Puerto Rico Electric Power Authority MBIA Insured 5.125%, 7/1/29 ... Aaa/AAA 539,475
120,000 Puerto Rico Municipal Finance Auth. FSA Insured 5.50%, 7/1/17 ...... Aaa/AAA 121,873
-----------
TOTAL PUERTO RICO BONDS (4.59%) (a) ................................ $ 1,016,069
-----------
TOTAL INVESTMENTS (Cost $21,452,881) (96.81%) (a) .................. $21,897,639
-----------
OTHER ASSETS AND LIABILITIES (1.18%) ............................... $ 262,544
-----------
TOTAL NET ASSETS (100%) ............................................ $22,160,183
===========
(a) Percentages indicated are based on net assets of $22,160,183 at October 31,
2007 (total investments plus cash and receivables less liabilities) which
corresponds to a net asset value per share of $9.97.
(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.
See Notes to Financial Statements.
16
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of VLC Trust and Shareholders of
Ocean State Tax Exempt Fund:
We have audited the accompanying statement of assets and liabilities of
Ocean State Tax Exempt Fund (the "Fund") (the only portfolio of the VLC Trust),
including the schedule of investments, as of October 31, 2007, 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 the
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, 2007, by correspondence with
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 Ocean State Tax Exempt Fund of VLC Trust, at October 31, 2007, 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 17, 2007
17
TAX INFORMATION (Unaudited)
For the year ended October 31, 2007 the amount of long-term capital gain
distributions designated by the Fund was $0. The amount of tax exempt interest
dividends distributed by the Fund was $729,197. The amount of ordinary income
dividends distributed by the Fund was $3,287.
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.
Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years
- --------------------- -------------------------- ----------------------------------------------
Alfred B. Van Liew* (73) President (since 1987) Managing Partner of the Adviser since 1984;
One Regency Plaza and 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) Director of the Adviser until 2005; President
219 Great Road and 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) Former Executive Director of St. Antoine
75 Meridian Street Residence and Villa at St. Antoine (1988-
Providence, Rhode Island 02908 present); Director of Diocesan Elder Care
Services (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. (76) 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 (48) 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 (53) 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, Friends of World Heart Foundation,
18 Oyster Point President, Lifestyle Security, LLC (since
Warren, Rhode Island 02885 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. (60) 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 (40) Vice President Investment Officer, Fund controller and
One Regency Plaza (since 1996) primary trader of the Adviser (1992-2000);
Suite One Vice President of the Adviser (1992-2000);
Providence, Rhode Island 02903 Vice President, Van Liew Trust Company (1996-
present); President and General Securities
Principal of the Distributor (1993-present)
Kevin M. Oates (47) 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 (sinze 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 (58) 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).
NOTE 6 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. [LOGO] OCEAN STATE
One Regency Plaza, Suite One TAX EXEMPT FUND
Providence, Rhode Island 02903 (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 Annual Report
c/o PFPC, Inc. October 31, 2007
P.O. Box 9839
Providence, Rhode Island 02903
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Counsel
Hinckley, Allen & Snyder LLP
1500 Fleet Center
Providence, Rhode Island 02903
Trustees
John H. St. Sauveur, Chairman
Alfred B. Van Liew
Mary Ann Altrui
Milton C. Bickford, Jr.
Meredith A. Curren
Michael E. Hogue
Arthur H. Lathrop
Lawrence B. Sadwin
Officers
Alfred B. Van Liew, President
Samuel H. Hallowell, Vice President Interest income exempt
Joseph J. Healy, Vice President from Federal and Rhode
Kevin M. Oates, Chief Compliance Officer Island income taxes
and Treasurer from quality municipal
Margaret D. Farrell, Secretary Bonds.
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, 2006 $35,500 $0 $5,000 $0
October 31, 2007 $47,200 $0 $5,115 $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, 2006 $0 $0
October 31, 2007 $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: December 31, 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: December 31, 2007 By: /s/ Alfred B. Van Liew
------------------------------------
Alfred B. Van Liew
President
Date: December 31, 2007 By: /s/ Kevin M. Oates
------------------------------------
Kevin M. Oates
Vice President & Treasurer