-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EKRofutHbPULzQ8juTIYuVGYKxyXs2BkZCmqrqenHe1nL/zGAvMP9cT/SFuyKTsI EnOVM0riG69vi8B5s489DQ== 0000910647-06-000006.txt : 20060109 0000910647-06-000006.hdr.sgml : 20060109 20060109152950 ACCESSION NUMBER: 0000910647-06-000006 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20051031 FILED AS OF DATE: 20060109 DATE AS OF CHANGE: 20060109 EFFECTIVENESS DATE: 20060109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VLC TRUST CENTRAL INDEX KEY: 0000798524 IRS NUMBER: 056080569 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04788 FILM NUMBER: 06519147 BUSINESS ADDRESS: STREET 1: ONE REGENCY PLZ STE ONE CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4014211411 MAIL ADDRESS: STREET 1: ONE REGENCY PLAZA STREET 2: STE ONE CITY: PROVIDENCE STATE: RI ZIP: 02903 N-CSR 1 ocea-oct.txt BODY OF N-CSR N-CSR 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-4788 VLC TRUST (Exact name of registrant as specified in charter) ONE REGENCY PLAZA, PROVIDENCE, RHODE ISLAND 02903 (Address of principal executive offices) MARGARET D. FARRELL, ESQ. SECRETARY HINCKLEY, ALLEN & SNYDER LLP 1500 FLEET CENTER PROVIDENCE, RHODE ISLAND 02903 (Name and address of agent for service) Registrant's telephone number, including area code: (401) 421-1411 Date of fiscal year end: October 31 Date of reporting period: October 31, 2005 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N- CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. - ----------------------------------------------------------------------- TABLE OF CONTENTS OCTOBER 31, 2005 ITEM 1 The following is a copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1) OCEAN STATE TAX EXEMPT FUND [LOGO] REPORT OF THE PRESIDENT October 31, 2005 The Federal Reserve appears to be nearing the end of their cycle of rate hikes. Since June 2004 we've witnessed twelve increases in the overnight lending rates between banks, commonly known as the Fed Funds Rate. Resilient U.S. consumer spending and rising oil prices have contributed to the Federal Reserve program to keep increasing rates in a long-term effort to fight inflation. How has the bond market responded to these rate hikes? Long-term rates have remained relatively flat whereas short-term rates have risen dramatically. For many investors this "flattening" of the yield curve, or the spread between short and long-term rates, is a cause for concern. In the previous ten episodes of a pronounced flattening or inversion of the yield curve, the expansion has tipped into a recession six times. Should Ocean State Tax Exempt Fund investors worry? In our view with current long-term rates so low this environment could lead to slower growth but will not likely cause a recession. The Fed Funds Rate is still well below the level that has existed before past recessions. Much of the slowing in our economy could be attributed to higher fuel costs, a situation that has drastically improved of late, rather than a broad increase in the overall cost of goods and services. Interestingly, the gloom and doom that a recession spells for the economy and correspondingly for the equity market could have the opposite effect for investors in bonds or municipal bond funds like the Ocean State Tax Exempt Fund. A recession could prove profitable to bond investors if the economy slows and the Fed is moved to lower interest rates. Whatever the future may hold the Fund's investment objective of preservation of principal with a high level of current income exempt from Rhode Island and Federal taxes for Rhode Island investors holds true in any investment environment. Happy holidays! Very truly yours, /s/ Alfred B. Van Liew Alfred B. Van Liew President and Chairman of the Board of Trustees OCEAN STATE TAX EXEMPT FUND INVESTMENT PERFORMANCE REVIEW as of October 31, 2005
Prior November 1, 2004 Fiscal Year November 1, 2000 November 1, 1995 through Ended through through October 31, 2005 October 31, 2004 October 31, 2005 October 31, 2005 ---------------- ---------------- ---------------- ---------------- Total Rate of Return (b) Based on: Net Asset Value 0.56% 3.55% 3.95% 4.24% Offering Price -3.50% -0.62% 3.09% 3.82% As of As of October 31, 2005 October 31, 2004 ---------------- ---------------- 30-day Current Yield Based on: Net Asset Value 3.04% 3.30% Offering Price 2.92% 3.16% 30-day Tax-Equivalent Yield (a) Based on: Net Asset Value 5.20% 5.58% Offering Price 4.99% 5.34%
The Ocean State Tax Exempt Fund has placed a high priority on capital preservation while at the same time striving for competitive after-tax investment returns. The Fund has maintained the weighted average maturity of the portfolio at 13.0 years as of October 31, 2005. The average quality rating of the investments, in the following table was Aaa/AAA (Moody's and Standard & Poor's bond rating services). Portfolio Quality Analysis
% of Total Portfolio -------------------- as of as of Rating 10/31/05 10/31/04 ------ -------- -------- Aaa/AAA 68.14% 73.32% Aa/AA 24.55% 24.94% A 3.52% 1.74% Baa/BBB 3.79% 0% Not Rated 0% 0%
The Fund will continue its policy of seeking the highest tax advantaged yields available, consistent with maintaining quality and diversification objectives. (a) For 2005, shareholders subject to a maximum Federal tax rate of 35% and a Rhode Island tax rate of 9.90% of Federal taxable income. All dividend income is exempt from local, state and Federal taxes for Rhode Island residents. Capital gains taxes will apply to any distributed capital gains. (b) Past performance is no guarantee of future results. Total return does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The offering price reflects a maximum sales charge of 4.00%. 2 MANAGEMENT'S DISCUSSION OF INVESTMENT PERFORMANCE October 31, 2005 marked the end of the Fund's nineteenth fiscal year. During the prior 12 months, the Fund's net asset value (NAV) declined from $10.46 to $10.16. The Fund's dividend distribution climbed from $0.35 to $0.36 per share during the year while the Fund's total return on net asset value was 0.56%.* During the year the Fund's management continued to increase the Fund's average maturity from 11 to 13 years while the Aaa/AAA component of the portfolio was reduced to 68%. Management concentrated on adding longer- term, lower-rated investment grade bonds and higher yielding bonds during the period. In addition, management has worked to emphasize call protection in a period where bond calls increased due to the continued low long-term interest rate environment. Insured general obligation bonds represented the largest sector weighting of the bond's portfolio followed by insured revenue bonds.** Fund management remains focused on the Fund's investment objective to provide as high a level of current income, exempt from Federal and Rhode Island tax, as is consistent with the preservation of principal. Fund Expenses Borne by Shareholders During the Period from May 31, 2005 through October 31, 2005. As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on certain purchase payments, and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, May 1, 2005 through October 31, 2005. Actual Expenses The first line in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. * 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 Hypothetical Example for Comparison Purposes The second line in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Expenses Table Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Annualized Beginning Ending Paid During Expense Account Value Account Value* Period** Ratio 5/1/05 10/31/05 5/1/05-10/31/05 ---------- ------------- -------------- --------------- Actual 1.48% $1,000.00 $ 994.10 $7.42 Hypothetical 1.48% $1,000.00 $1,025.00 $7.53 * 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.
4 OCEAN STATE TAX EXEMPT FUND STATEMENT OF ASSETS AND LIABILITIES as of October 31, 2005 ASSETS Investments at value (identified cost $27,112,396) (Note 1A) $27,890,083 Interest receivable 344,853 ----------- TOTAL ASSETS $28,234,936 LIABILITIES Overdraft $ 1,885 Distribution payable to shareholders 35,589 Accrued management fees 14,012 Accrued expenses 14,750 ----------- TOTAL LIABILITIES $ 66,236 =========== NET ASSETS $28,168,700 =========== Net Assets consist of: Shares of beneficial interest at par ($.01/share) $ 27,737 Additional paid-in capital 27,304,194 Accumulated net realized gain on investment transactions 131,539 Distributions in excess of net investment income (72,457) Net unrealized appreciation of investments 777,687 ----------- TOTAL-REPRESENTING NET ASSETS AT VALUE FOR 2,773,653 SHARES OUTSTANDING $28,168,700 =========== COMPUTATION OF NET ASSET VALUE & OFFERING PRICE: Net Assets $28,168,700 Divided by number of shares outstanding 2,773,653 Net asset value $ 10.16 =========== Offering price $ 10.58 ===========
See Notes to Financial Statements. 5 OCEAN STATE TAX EXEMPT FUND STATEMENT OF OPERATIONS For the year ended October 31, 2005 Investment Income Interest income (Note 1C) $1,386,440 Expenses: Adviser fees (Note 2) $ 103,777 Administrator fees (Note 2) 74,127 Transfer agent fees 69,446 Auditing fees 41,532 Legal fees and expenses 40,710 Trustees fees and expenses 23,622 Custody 21,255 Distribution expenses (Note 5) 21,076 Shareholder reports 8,861 Miscellaneous expenses 3,206 Pricing fees 2,646 Registration fees 1,765 Insurance 1,431 --------- $ 413,454 ---------- Net Investment Income $ 972,986 Realized and Unrealized Gain/(Loss) on Investments Net Realized Gain on Investments $ 121,718 Net Change in Unrealized Appreciation/Depreciation of Investments (931,565) Net Realized and Unrealized Loss on Investments (809,847) ---------- Net Increase in Net Assets Resulting from Operations $ 163,139 ==========
See Notes to Financial Statements. 6 OCEAN STATE TAX EXEMPT FUND STATEMENTS OF CHANGES IN NET ASSETS
For the Period Fiscal Year Ended Ended October 31, 2005 October 31, 2004 ---------------- ---------------- Increase (Decrease) in Net Assets Resulting from: Operations: Net investment income $ 972,986 $ 1,059,913 Net realized gain on investments 121,718 23,002 Change in unrealized appreciation (depreciation) of investments (931,565) 53,989 ----------- ----------- Net increase in net assets resulting from operations $ 163,139 $ 1,136,904 Dividends and distributions to shareholders from: Net investment income ($.34 per share in 2005 and $.35 per share in 2004) (965,687) (1,059,913) Net realized gains ($.02 per share in 2005 and $.03 per share in 2004) (62,898) (92,412) Net decrease from fund share transactions (Note 4) (2,551,021) (1,514,293) ----------- ----------- Total (decrease) in net assets (3,416,467) (1,529,714) NET ASSETS: Beginning of year 31,585,167 33,114,881 ----------- ----------- End of period $28,168,700 $31,585,167 =========== ===========
See Notes to Financial Statements. 7 OCEAN STATE TAX EXEMPT FUND FINANCIAL HIGHLIGHTS For a share outstanding throughout each period. The following data includes selected data and other performance information derived from the financial statements.
Fiscal Fiscal Fiscal Fiscal Fiscal Year Year Year Year Year Ended Ended Ended Ended Ended 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01 -------- -------- -------- -------- -------- Per Share Operating Performance: Net Asset Value, Beginning of Year $ 10.46 $ 10.48 $ 10.54 $ 10.55 $ 10.25 Net investment income .34 .35 .42 .45 .47 Net realized and unrealized gain (loss) on investment (.28) .01 (.03) (.01) .30 ------- ------- ------- ------- ------- Total from Investment Operations .06 .36 .39 .44 .77 ------- ------- ------- ------- ------- Less Distributions: Dividends from net investment income (.34) (.35) (.42) (.45) (.47) Distribution from net realized gains (.02) (.03) (.03) (.00) (.00) ------- ------- ------- ------- ------- Total Distributions (.36) (.38) (.45) (.45) (.47) ------- ------- ------- ------- ------- Net Asset Value, End of Year $ 10.16 $ 10.46 $ 10.48 $ 10.54 $ 10.55 ======= ======= ======= ======= ======= Total investment return at Net Asset Value (a) 0.56% 3.55% 3.60% 4.21% 7.63% Ratios and Supplemental Data: Net Assets, End of Year (000's omitted) $28,169 $31,585 $33,115 $36,089 $36,303 Ratio of expenses to average net assets 1.39% 1.24% 1.06% 1.04% 1.19% Ratio of net investment income to average net assets 3.27% 3.40% 3.82% 4.25% 4.52% Portfolio turnover 13% 15% 19% 17% 4% Fund expenses per share .14 .13 .12 .11 .13 Net investment income per share .34 .35 .42 .45 .47 (a) Total investment return does not reflect sales load.
Average share method was used to calculate financial highlights. See Notes to Financial Statements. 8 OCEAN STATE TAX EXEMPT FUND NOTES TO FINANCIAL STATEMENTS October 31, 2005 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES VLC Trust (the Trust) is a Massachusetts business trust organized on August 1, 1986 and registered under the Investment Company Act of 1940, as amended, as a non diversified, open-end management investment company. The Declaration of Trust permits the Trustees to create additional portfolios (funds). As of October 31, 2005 there is only one fund, Ocean State Tax Exempt Fund (the Fund). The objective of the Fund is to seek to provide as high a level of current income, exempt from Rhode Island and Federal income taxes, as is consistent with preservation of capital. The Fund invests primarily in obligations which pay interest exempt from Rhode Island and Federal income taxes. The Fund commenced operations on December 8, 1986. At October 31, 2005, 93.11% of the Fund's net assets are invested in Rhode Island municipal securities. Economic changes effecting the state in certain of its public bodies and municipalities may affect the ability of the issuer to pay the required principal and interest payments of the municipal securities. In order to reduce risk associated with such factors on October 31, 2005, 81.49% of the portfolio of investments have credit enhancements backing them which the Fund relies on, such as: letters of credit, insurance, or guarantees. MBIA provides the largest total enhancements for the Fund, representing 21.94% of the portfolio. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A) SECURITY VALUATION: Debt securities are valued on the basis of valuations furnished by a pricing service since such valuations are believed to reflect the fair value of such securities. Valuations used by the Fund are frequently determined without exclusive reliance on quoted prices and take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, broker quotes and other local market conditions. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis. Securities having an original maturity of less than sixty days are valued at cost adjusted for amortization of premiums and accretion of discounts. Other securities are appraised in good faith at fair value using methods determined by the Trustees and applied on a consistent basis. The Trustees monitor the valuation of the Fund's municipal bonds through receipt of periodic reports from the Adviser. B) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are accounted for on a trade date basis (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. The specific identification method is used for determining net realized gains and losses for both financial statement and Federal income tax purposes. 9 OCEAN STATE TAX EXEMPT FUND NOTES TO FINANCIAL STATEMENTS-(Continued) NOTE 1 Significant Accounting Policies (continued) C) FEDERAL INCOME TAXES: The Fund's policy is to comply with the provisions of subchapter M of the Internal Revenue Code available to regulated investment companies and distribute to shareholders all of its net income, including any net realized gain on investments. Accordingly, no provision for Federal income tax or excise tax is necessary. Dividends paid by the Fund from net interest on tax-exempt municipal bonds are not includable by shareholders as gross income for Federal income tax purposes, because the Fund intends to meet certain requirements of the Internal Revenue Code applicable to regulated investment companies which will enable the Fund to pay tax-exempt interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders. The tax character of distributions as reported on the Statements of Changes in Net Assets for the years ended October 31, 2005 and 2004 were as follows:
2005 2004 ---- ---- Tax-Exempt Income $965,687 $1,059,913 Long-Term Capital Gains 62,898 92,412
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States. The book/tax differences are either considered temporary or permanent in nature. Temporary differences are generally due to differing book and tax treatments of market discounts. Permanent differences are generally due to the treatment of market discount upon disposition. Permanent book and tax basis differences may result in reclassifications to undistributed (distributions in excess of) net investment income, accumulated net realized gain (loss) and paid-in capital. As of October 31, 2005, the components of distributable earnings on a tax basis were as follows: Undistributed Long-Term Capital Gains $ 92,276 Unrealized Appreciation 816,950
D) DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income are declared daily and distributed monthly. Capital gains distributions, if any, are declared and distributed annually. NOTE 2 ADVISORY AND ADMINSTRATIVE SERVICES AND OTHER AFFILIATED TRANSACTIONS Van Liew Capital Inc. is the Adviser and the Administrator to the Fund. The Fund pays Van Liew Capital Inc. at the following annual rates for the adviser and administrator services, respectively: .35 and .25 of 1% of the first $200 million of average daily net assets. .30 and .20 of 1% of average daily net assets over $200 million. 10 OCEAN STATE TAX EXEMPT FUND NOTES TO FINANCIAL STATEMENTS-(Continued) NOTE 2 ADVISORY AND ADMINSTRATIVE SERVICES AND OTHER AFFILIATED TRANSACTIONS (continued) The Fund does not pay fees to Trustees affiliated with the Adviser or to any of its officers. The Fund pays Trustees who are not interested persons of the Fund an annual retainer plus $250 per meeting attended. The annual retainer at October 31, 2005 was $2,000. Legal fees and expenses of $40,710 were paid to a firm of which the Fund's Secretary is a partner. During the period November 1, 2004 through October 31, 2005, the Distributor received $5,636 in commissions as a result of Fund share sales. NOTE 3 INVESTMENT TRANSACTIONS During the period ended October 31, 2005 purchases and sales of investment securities, other than short-term investments, aggregated $3,906,037 and $6,290,208, respectively. The aggregate cost of investments for Federal income tax purposes was $27,073,133. At October 31, 2005, gross unrealized appreciation on investment securities was $894,795 and gross unrealized depreciation on investment securities was $77,845. NOTE 4 SHARES OF BENEFICIAL INTEREST The authorized capital of the Fund consists of unlimited number of shares of beneficial interest with par value of one cent per share. Transactions in shares of beneficial interest and in dollars were as follows:
Shares Amount ------ ------ Balance at 10/31/03 3,158,805 $31,397,245 Shares sold 312,218 3,209,753 Shares issued in reinvestment of dividends 57,598 601,754 Shares redeemed (507,839) (5,325,800) --------- ----------- Net decrease (138,023) (1,514,293) --------- ----------- Balance at 10/31/04 3,020,782 $29,882,952 ========= =========== Shares sold 140,947 1,456,842 Shares issued in reinvestment of dividends 49,576 511,851 Shares redeemed (437,652) (4,519,714) --------- ----------- Net decrease (247,129) (2,551,021) --------- ----------- Balance at 10/31/05 2,773,653 $27,331,931 ========= ===========
11 OCEAN STATE TAX EXEMPT FUND NOTES TO FINANCIAL STATEMENTS-(Continued) NOTE 5 DISTRIBUTION PLAN The Fund has adopted a Distribution Plan (the Plan) pursuant to Rule 12b-1 (the Rule) of the Investment Company Act of 1940 (the Act). The Rule provides in substance that the Fund may not engage directly or indirectly in financing any activity which is primarily intended to result in the sale of its shares except pursuant to a plan adopted under the Rule. Under the Plan, the Fund is authorized to pay for the printing of all prospectuses, statements of additional information and reports and notices to shareholders, even those which are not sent to existing shareholders. The Fund paid $21,076 under the Plan during fiscal 2005. 12 OCEAN STATE TAX EXEMPT FUND PORTFOLIO OF INVESTMENTS as of October 31, 2005
Ratings Principal Moody's/ Value Amount Standard & Poor's (b) (Note 1) - --------- --------------------- -------- MUNICIPAL SECURITIES (99.01%) (a) Rhode Island General Obligation and Revenue (65.92%) (a) $ 500,000 Barrington School District 5.00%, 10/1/14 Aa-2/NR $ 530,040 200,000 Burrillville General Obligation FGIC Insured 5.70%, 5/1/11 Aaa/AAA 204,344 250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/24 Aaa/AAA 260,125 250,000 Cranston General Obligation FSA Insured 5.00%, 2/15/22 Aaa/AAA 261,363 225,000 Middletown General Obligation 4.00%, 7/15/12 Aa-3/NR 227,365 75,000 North Kingstown General Obligation 6.70%, 12/15/05 Aa-3/NR 75,330 80,000 North Kingstown General Obligation 6.80%, 12/15/06 Aa-3/NR 83,238 200,000 North Kingstown General Obligation FGIC Insured 5.70%, 10/1/18 Aaa/NR 218,614 500,000 North Providence General Obligation FSA Insured 4.00%, 10/15/17 Aaa/AAA 493,445 500,000 Providence General Obligation FSA Insured 5.00%, 7/15/14 Aaa/AAA 539,070 150,000 Providence Public Bldg. Auth. MBIA Insured 5.50%, 12/15/13 Aaa/AAA 156,747 500,000 Providence Public Bldg. Auth. AMBAC Insured 5.125%, 12/15/14 Aaa/AAA 533,770 685,000 Providence Public Bldg. Auth. FSA Insured 5.00%, 12/15/18 Aaa/AAA 707,420 250,000 Providence Public Bldg. Auth. AMBAC Insured 5.25%, 12/15/15 Aaa/AAA 268,145 500,000 Providence Redevelopment Auth. AMBAC Insured 5.30%, 4/1/12 Aaa/NR 540,765 200,000 Providence Redevelopment Radian Insured 4.25%, 9/1/13 NR/AA 201,582 16,000 Warwick General Obligation MBIA Insured 6.60%, 11/15/06 Aaa/AAA 16,033 250,000 Warwick General Obligation FSA Insured 4.00%, 7/15/11 Aaa/AAA 254,713 250,000 Warwick General Obligation FSA Insured 4.125%, 7/15/13 Aaa/AAA 254,163 500,000 West Warwick General Obligation 5.00%, 10/15/25 A-3/NR 503,655 145,000 Rhode Island Clean Water Pre-refunded U.S. T MBIA Insured 6.50%, 10/1/06 Aaa/AAA 146,997 100,000 Rhode Island Clean Water MBIA Insured 5.30%, 10/1/07 Aaa/AAA 103,841 100,000 Rhode Island Clean Water AMBAC Insured 4.75%, 10/1/18 Aaa/AAA 102,469 225,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/18 Aaa/AAA 235,240 500,000 Rhode Island Clean Water MBIA Insured 5.00%, 10/1/19 Aaa/AAA 530,605 500,000 Rhode Island Clean Water MBIA Insured 4.40%, 10/1/25 Aaa/AAA 490,230 650,000 Rhode Island Depositors Economic Protection Corp. MBIA Insured Escrowed to Maturity 6.55%, 8/1/10 Aaa/AAA 714,367 215,000 Rhode Island Depositors Economic Protection Corp. CAPMAC Guaranteed Escrowed to Maturity 6.375%, 8/1/22 Aaa/AAA 267,844 250,000 Rhode Island Depositors Economic Protection Corp. Escrowed to Maturity 5.75%, 8/1/21 Aaa/NR 289,890 500,000 Rhode Island Economic Department of Transportation AMBAC Insured 3.75%, 6/15/13 Aaa/AAA 497,365 500,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured 5.25%, 7/1/12 Aaa/AAA 528,155 13 OCEAN STATE TAX EXEMPT FUND PORTFOLIO OF INVESTMENTS-(Continued) Ratings Principal Moody's/ Value Amount Standard & Poor's (b) (Note 1) - --------- --------------------- -------- MUNICIPAL SECURITIES (99.01%) (a)-(Continued) Rhode Island General Obligation and Revenue (65.92%) (a)-(Continued) $ 395,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured 5.25%, 7/1/13 Aaa/AAA $ 416,725 545,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured 5.25%, 7/1/14 Aaa/AAA 574,261 450,000 Rhode Island Economic Development Corp. Airport Revenue FSA Insured 5.00%, 7/1/18 Aaa/AAA 468,522 1,100,000 Rhode Island Economic Development Corp. Providence Place Radian Insured 6.125%, 7/1/20 NR/AA 1,207,789 100,000 RI COPS MBIA Insured 5.375%, 10/1/16 Aaa/AAA 104,616 250,000 RI COPS Kent County Courthouse MBIA Insured 5.00%, 10/1/22 Aaa/AAA 260,575 300,000 Rhode Island Lease Participation Certificate Shepard Bldg. AMBAC Insured 5.125%, 6/1/12 Aaa/AAA 311,661 500,000 Rhode Island Refunding Bond Authority AMBAC Insured 5.25%, 2/1/10 Aaa/AAA 526,550 500,000 Rhode Island General Obligation MBIA Insured 5.00%, 9/1/18 Aaa/AAA 527,035 300,000 Rhode Island General Obligation FGIC Insured 5.125%, 7/15/14 Aaa/AAA 314,460 500,000 Rhode Island General Obligation MBIA Insured 5.75%, 8/1/15 Aaa/AAA 514,910 1,000,000 Rhode Island General Obligation FGIC Insured 5.50%, 9/1/16 Aaa/AAA 1,086,150 400,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.40%, 9/1/14 Aaa/AAA 433,032 250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/16 Aaa/AAA 264,140 250,000 Rhode Island Cons. Cap. Dev. FGIC Insured 5.00%, 9/1/15 Aaa/AAA 264,140 1,000,000 Tobacco Settlement Financing Corp. 6.25%, 6/1/42 Baa-3/BBB 1,058,270 ----------- Total Rhode Island General Obligation and Revenue $18,569,766 ----------- Rhode Island Health & Education Building Corporation (21.92%)(a) $ 100,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/15 Aaa/AAA $ 105,806 300,000 University of Rhode Island AMBAC Insured 5.20%, 9/15/16 Aaa/AAA 317,010 100,000 Bryant College AMBAC Insured 4.60%, 6/1/12 Aaa/AAA 104,912 780,000 Brown University 5.25%, 9/1/16 Aa-1/AA+ 831,449 400,000 Brown University 5.00%, 9/1/19 Aa-1/AA+ 413,044 500,000 Brown University 5.00%, 9/1/23 Aa-1/AA+ 515,410 250,000 Salve Regina College Radian Insured 5.25%, 3/15/18 NR/AA 263,142 750,000 Johnson & Wales College MBIA Insured 5.00%, 4/1/29 Aaa/AAA 771,990 500,000 Johnson & Wales College XL Capital 5.25%, 4/1/14 Aaa/AAA 541,725 250,000 Rhode Island School of Design MBIA Insured 4.40%, 6/1/15 Aaa/AAA 256,310 585,000 Rhode Island School of Design MBIA Insured 4.60%, 6/1/17 Aaa/AAA 602,334 500,000 St. Antoine Residence LOC-Allied Irish Bank 6.125%, 11/15/18 Aa-3/NR 529,550 300,000 Lifespan MBIA Insured 5.75%, 5/15/23 Aaa/AAA 315,447 100,000 United Methodist Elder Care LOC-Fleet Bank 7.50%, 11/1/14 NR/AA 101,000 500,000 Times 2 Academy LOC-Citizens Bank 5.00%, 12/15/24 Aa2/NR 504,715 ----------- Total Rhode Island Health & Education Building Corporation $ 6,173,844 ----------- 14 OCEAN STATE TAX EXEMPT FUND PORTFOLIO OF INVESTMENTS-(Continued) Ratings Principal Moody's/ Value Amount Standard & Poor's (b) (Note 1) - --------- --------------------- -------- MUNICIPAL SECURITIES (99.01%) (a)-(Continued) Rhode Island Housing & Mortgage Finance Corporation (5.27%)(a) $ 120,000 5.65%, 10/1/07 NR/A $ 121,122 400,000 5.00%, 10/1/16 Aa-2/AA+ 403,656 10,000 6.50%, 10/1/22 Aa-2/AA+ 10,015 950,000 4.30%, 10/1/17 Aa-2/AA+ 945,592 5,000 6.50%, 4/1/27 Aa-2/AA+ 5,003 ----------- Total Rhode Island Housing & Mortgage Finance Corporation $ 1,485,388 ----------- TOTAL RHODE ISLAND BONDS (93.11%) (a) $26,228,998 =========== Puerto Rico Bonds (5.90%) (a) $ 350,000 Puerto Rico Commonwealth 5.00%, 7/1/29 Baa2/A- $ 355,883 250,000 Puerto Rico Electric Power Authority MBIA Insured 5.00%, 7/1/10 Aaa/AAA 263,972 500,000 Puerto Rico Electric Power Authority MBIA Insured 5.125%, 7/1/29 Aaa/AAA 516,430 500,000 Puerto Rico Municipal Finance Auth. FSA Insured 5.50%, 7/1/17 Aaa/AAA 524,800 ----------- TOTAL PUERTO RICO BONDS (5.90%) (a) $ 1,661,085 ----------- TOTAL INVESTMENTS (Cost $27,112,396)(96.25%)(a) $27,890,083 ----------- OTHER ASSETS AND LIABILITIES (0.99%) $ 278,617 ----------- TOTAL NET ASSETS (100%) $28,168,700 =========== See Notes to Financial Statements. 15 OCEAN STATE TAX EXEMPT FUND PORTFOLIO OF INVESTMENTS-(Continued) (a) Percentages indicated are based on net assets of $28,168,700 at October 31, 2005 (total investments plus cash and receivables less liabilities) which corresponds to a net asset value per share of $10.16. (b) These municipal securities meet the four highest ratings assigned by Moody's Investors Service, Inc. or Standard & Poor's Corp. or where not rated, are determined by the Fund to be of comparable quality within the guidelines approved by the directors and are unaudited. The ratings indicated are the most current available and are unaudited. When bonds are rated differently by Moody's and S&P, the higher rating has been reported. The rating NR means it is not rated by Moody's or S&P. Certain securities have credit enhancement features backing them. Without these enhancement features the securities may or may not meet the quality standards of other securities purchased by the Fund. (See Note 1) (c) Abbreviations used: AMBAC -American Municipal Bond Assurance Corp. CGIC -Capital Guaranty Insurance Co. FGIC -Financial Guaranty Insurance Co. FSA -Financial Security Assurance Inc. MBIA -Municipal Bond Investors Assurance Corp. LOC -Letter of Credit CAPMAC -Capital Markets Assurance Corp. Radian -Radian Insurance Co.
16 OCEAN STATE TAX EXEMPT FUND REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Trustees of VLC Trust and Shareholders of Ocean State Tax Exempt Fund We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Ocean State Tax Exempt Fund (the "Fund") (a portfolio of the VLC Trust), as of October 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for the two years in the period then ended, and financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2005, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Ocean State Tax Exempt Fund, at October 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts December 9, 2005 17 TAX INFORMATION (Unaudited) Of the distributions paid by the Fund from investment income, 100% is tax exempt for Federal income tax purposes. For the year ended October 31, 2005 the amount of long-term capital gains distributions designated by the Fund was $127,226. The amount of tax exempt interest dividends distributed by the Fund was $965,687. BASIS FOR THE BOARD OF TRUSTEES APPROVING THE INVESTMENT ADVISORY AGREEMENT (Unaudited) The Advisory Agreement between the Fund and the Adviser became effective in March of 1988. The Advisory Agreement was initially approved by the holders of a majority of the outstanding shares of the Fund and had an initial term of one year and thereafter is renewed annually. Each annual renewal of the Advisory Agreement must be approved by a majority of the Board of Trustees or by a majority of the holders of the Fund's outstanding voting securities. In addition, each annual renewal is approved by a vote of a majority of the members of the Board of Trustees who are not parties to the agreement or interested parties of any such party, cast in person at a meeting called for such purpose. On November 17, 2005 the Board of Trustees, including a majority of the disinterested trustees, approved the continuation of the Advisory Agreement. In approving the Advisory Agreement, the Board of Trustees considered the qualifications of the Adviser, the scope of the services to be provided to the Fund, the prior performance of the Adviser, the services to be provided to the Fund, and the fee and expenses ratios as compared to a peer group of funds. As part of this approval process, the Board of Trustees considered quarterly reports provided by the Adviser during the year regarding the performance of the Fund and reviewed the basic future strategy of the Adviser with regard to the Fund. In addition, before the Board of Trustees' meeting to decide on whether to renew the Advisory Agreement, the Adviser was requested to provided the Board of Trustee with information and material about the Adviser and its services to the Fund. As part of its evaluation of the Adviser, the Board of Trustee considered the nature, extent and quality of services to be provided to the Fund by the Adviser. The Board of Trustee noted that the Adviser has significant experience providing investment advice involving fixed-income securities and is qualified to provide investment advisory services to the Fund. Furthermore, the Board of Trustees took into account the absence of shareholder complaints and compliance issues. The Board of Trustees then considered the prior performance of the Adviser, including the investment results achieved by the Adviser for the Fund and the investment results of other investment companies with similar investment objectives. The Board of Trustees determined that the prior performance of the Adviser was reasonable in comparision to the relevant benchmarks and that of comparable investment companies, in light of general market conditions. The Board of Trustees considered information relating to the Fund's fees, costs and expense ratios and compared such fees, cost and expense ratios to competitive industry fee structures and expense ratios. The Board of Trustees noted that the expense ratio has consistently been comparable to the average expense ratio for single state municipal bond funds and single state municipal bond funds of similar size. The Board also considered whether the Adviser would receive any fall-out benefits through its relationship with the Fund. The Board of Trustee noted that, except for the Distributor, none of the Fund's other service providers are affiliates of the Adviser, and the Distributor has reallocated any load on sales of Fund shares to the selling 18 group, and determined, therefore, there are no fall-out benefits accruing to the Adviser. In addition, the Board of Trustees considered the Adviser's cost of providing services to the Fund and noted that the Adviser's compensation is reasonable in comparision to other advisory compensation and that the Adviser includes in it advisory fee all expenses associated with administrative services to the Fund. The Board of Trustees noted that every effort is made to share economies of scale with the Fund's shareholders, but given the size of the Fund, it economies of scale are less than that of a larger fund family. In its deliberations, the Board of Trustees did not identify any single consideration or particular piece of information that was all important or controlling in determining whether to approve the Advisory Agreement, although significant weight was accorded the advisory fee levels relative to industry averages for comparable funds based on the comparative data presented at the meeting. The board of Trustees evaluated all information presented to it and determined that the compensation paid to the Adviser under the Advisory Agreement was fair and reasonable in light of the services to be performed and such other matters as the Board of Trustees considered relevant in the exercise of its reasonable judgment. Also, the Board of Trustees concluded that was satisfied with the Adviser's services, personnel and investment strategies and that it was in the best interests of the Fund to continue its relationship with the Adviser. 19 Trustees and Officers The Trustees of the Fund are responsible for the management and direction of the business and affairs of the Fund. The Trustees and officers of the Fund, their affiliations, if any, with the Adviser, and their principal occupations during at least the past five years are set forth below. Trustees who are "interested persons" of the Fund as that term is defined in the 1940 Act are designated with an (*) asterisk. Age of the Trustee is in parentheses ( ). The VLC Trust consists of one investment portfolio. The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the Commission's website at . 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 *(70) President (since 1987) Managing Partner of the Adviser, since 1984; One Regency Plaza and Trustee Director of the Distributor since May 1990; Suite One (since 1986) Chairman and Chief Executive Officer of Van Providence, Rhode Island 02903 Liew Trust Company, a Rhode Island chartered trust company, since 1984, Trustee of Preserve Rhode Island since 1971; Adviser to the National Trust for Historic Preservation since 1983; Trustee of St. Andrew's School since 1984; Trustee of the Museum of Yachting since 1988; and Trustee of the Seamen's Institute Newport, Rhode Island since 1994. John St. Sauveur * (71) Trustee (since 1992) Director of the Adviser (until Dec. 2005); President 219 Great Road and CEO, WestBank Realty Corporation; Director of North Smithfield, Rhode Island the Community College of Rhode Island Foundation; 02896 Chairman, Woonsocket Industrial Development Corporation; Chairman, Greater Woonsocket Industrial Development Foundation; Vice Chairman of the North Smithfield Industrial Development Corporation; a Vice President and Director, Rhode Island Chamber of Commerce Federation; Member Rhode Island State Job Training Coordinating Council; Finance Chair- man, Landmark Medical System and Trustee, Landmark Medical Center; Commissioner of the Rhode Island Resource Recovery Corporation since 1992; Chairman, The Rehabilitation Hospital of Rhode Island; Director and Corporate Secretary, Gooding Realty Corporation. 20 Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years - --------------------- -------------------------- ---------------------------------------------- Mary Ann Altrui (62) Trustee (since 2001) Administrator of St. Antoine Residence (a 10 Rhodes Avenue nursing facility) (1988-Present); Director of North Smithfield, Rhode Island Diocesan Elder Care Services (1997-Present); 02896 Oversight responsibility for St. Clare Home; Founding member with St. Elizabeth Commu- nity, Scandinavian Home and Steere House of "CareLink", a Management service organization incorporated in 1997; Member of the American College of Health Care Administrators, the Diocesan Biomedical Ethics Commission of the North Smithfield Advisory Council; Director of Woonsocket Industrial Development Corporation and WIDC Realty Corporation, and serves on advisory committees for the Diocese of Provi- dence, the State of Rhode Island, and the Nonprofit Association of Facilities and Services for the Aging. Milton C. Bickford, Jr. (73) Trustee (since 1987) Private investor since 1989; Director (Chairman 147 Beavertail Road 1999-2002) of AAA Southern New England; Jamestown, Rhode Island 02835 CEO National Bickford Foremost, Inc. (national color printing firm) (1980-1989); Trustee, National Traffic Safety Foundation (1999- 2002). Meredith A. Curren (45) Trustee (since 2001) Since 1990, Chief Financial Officer, Pease & 75 Pennsylvania Avenue Curren, Inc. (refiners of precious metals); Warwick, Rhode Island 02888 Director of Bancorp Rhode Island, Inc. and Bank Rhode Island; Board Member, Providence Jeweler Club; Board Member Partner, Provi- dence Chamber of Commerce; SVP RI Social Venture Partners of RI. Michael E. Hogue (62) Trustee (since 1989) Managing Partner, eTime (Insurance Services) 116 Chestnut Street (February 2002-present); President, VIAcorp. Providence, Rhode Island 02903 (Financial Services) (June 1994 until present); Assistant Professor of Insurance at the Wharton School, University of Pennsylvania; Trustee of Trinity Repertory Company (1997-present); President of the Jewelry District Association (1999-present). 21 Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years - --------------------- -------------------------- ---------------------------------------------- Arthur H. Lathrop (50) Trustee (since 2001) In practice as a Certified Public Accountant (sole 28 Spruce Street proprietor) in Westerly, RI (1991-present); Westerly, Rhode Island 02891 Member of American Institute of Certified Public Accountants. Trustee (1998-present) and Chairman of the Audit Committee of Westerly Savings Bank; Trustee and Assistant Treasurer (1990-present) of River Bend Cemetery Company; Corporator (1989-present) of Community Health of Westerly, Inc.; Profes- sional Advisory Council Member (1995-2000) of The Rhode Island Foundation; Incorporator of Memorial and Library Association of Westerly (2004-present). Lawrence B. Sadwin (61) Trustee (since 2001) President, Lifestyle Security, LLC (since August 18 Oyster Point 2002), Division Marketing Leader for General Warren, Rhode Island 02885 Electric (2000-2002); Chief Operating Officer (1999-2000), Regional Manager (1998- 1999), Recruiter (1997-1998) and Long Term Care Specialist (1997) for Travelers/NET Plus, Inc.; Consultant (1994-1997) for MGS Holding Corporation; Member-At-Large National Board of Directors, American Heart Association; Member, National Leadership Council, Research America; Vice Chairman, Landmark Medical Center; Chairman of the Board, American Heart Associa- tion (2001-2002). Samuel H. Hallowell, Jr. (57) Vice President Partner of the Adviser and Vice President Van One Regency Plaza (since 1989) Liew Trust Company (1984-Present); Suite One Secretary and Past President Audubon Providence, Rhode Island 02903 Society of Rhode Island; Member Providence Society of Security Analysts. Joseph J. Healy (38) Vice President Vice President of the Adviser (1992-present); One Regency Plaza (since 1996) Vice President, Van Liew Trust Company; Suite One President and General Securities Principal of the Providence, Rhode Island 02903 Distributor (1993-present); Member Providence Society of Security Analysts and CFA Institute. Kevin M. Oates (45) Vice President and CCO (2004-present) Partner of the Adviser One Regency Plaza Treasurer (since 1991) (1996-present); Chief Operating Officer of the Suite One Adviser (April, 2000-present) and Van Liew Providence, Rhode Island 02903 Trust Company, and Vice President and Trea- surer of the Distributor, since 1991; Vice President-Administration of the Adviser (1991-2000). 22 Name, Address and Age Position(s) Held with Fund Principal Occupation(s) During Past Five Years - --------------------- -------------------------- ---------------------------------------------- Margaret D. Farrell (55) Secretary (since 1986) Partner, Hinckley, Allen & Snyder LLP, general 1500 Fleet Center legal counsel to the Fund, (1981-Present); Providence, Rhode Island, 02903 Director and Secretary of Bancorp Rhode Island, Inc. and Bank Rhode Island; Director Care New England Health System; Director and Chairman of Women & Infants Corporation; Trustee and Chairman Women and Infants Hospital of Rhode Island; Secretary, Astro-Med, Inc. (manufacturer of graphic recording and printing systems).
PRIVACY POLICY The Van Liew Companies and Ocean State Tax Exempt Fund have always been committed to ensuring your financial privacy. We do not sell personal information to anyone. We recognize and respect the privacy of our customers. This notice is being sent to comply with the privacy regulations of the Securities and Exchange Commission. Each of the above financial institutions has in effect the following policy with respect to nonpublic personal information about its customers. * Only such information received from you, through application forms or otherwise, and information about your transactions will be collected. * None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). We do not disclose nonpublic personal information about you to non- affiliated third parties. * Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information. 23 Investment Adviser & Administrator Van Liew Capital Inc. One Regency Plaza, Suite One Providence, Rhode Island 02903 Distributor [LOGO] OCEAN STATE TAX EXEMPT FUND Van Liew Securities, Inc. (The Portfolio of VLC Trust) One Regency Plaza, Suite One Providence, Rhode Island 02903 Custodian PFPC Trust Company Airport Business Center 200 Stevens Drive, Suite 440 Lester, Pennsylvania 19113 Transfer Agent Ocean State Tax Exempt Fund C/O PFPC, Inc. P.O. Box 9839 Annual Report Providence, Rhode Island 02903 October 31, 2005 Independent Registered Public Accounting Firm Ernst & Young LLP 200 Clarendon Street Boston, MA 02116-5072 Counsel Hinckley, Allen & Snyder LLP 1500 Fleet Center Providence, Rhode Island 02903 Trustees Alfred B. Van Liew, Chairman Mary Ann Altrui Milton C. Bickford, Jr. Interest income exempt Meredith A. Curren from Federal and Rhode Michael E. Hogue Island income taxes Arthur H. Lathrop from quality municipal Lawrence B. Sadwin bonds. John H. St. Sauveur Officers Alfred B. Van Liew, President Samuel H. Hallowell, Vice President Joseph J. Healy, Vice President Kevin M. Oates, Chief Compliance Officer and Treasurer Margaret D. Farrell, Secretary ITEM 2. CODE OF ETHICS. (a) The registrant has adopted a code of ethics applicable to its President (as the registrant's principal executive officer), the Treasurer (as the registrant's principal financial and accounting officer) and any other person or persons performing the functions of these offices or the functions of a controller. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-330-1116. (b) During the period covered by this report, no amendments were adopted to the registrant's code of ethics applicable to its President, Treasurer or other persons performing the functions of those offices or the functions of a controller. (c) During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a) above were granted. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's board has designated Arthur H. Lathrop, an independent trustee, as its audit committee financial expert. Mr. Lathrop is a practicing certified public accountant and sole proprietor in Westerly, Rhode Island. Previously, Mr. Lathrop served as Tax Manager of Sansiveri, Ryan, Sullivan & Co. of Providence and Westerly, Rhode Island. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) - (d) The following table sets forth the aggregate fees billed for the past two fiscal years by the independent auditor Ernst & Young LLP, for professional services rendered for: (i) the audit of the Fund's annual financial statements included in the Fund's annual report to shareholders; and (ii) tax compliance, tax advice and tax return preparation. No fees were paid for audit related or other services. Fiscal Year Ended Audit Audit Related Tax All Other - ----------------- ----- ------------- --- --------- October 31, 2004 $33,500 $0 $4,000 $0 October 31, 2005 $35,500 $0 $4,300 $0 (e) (1) The Fund's Audit Committee Charter requires the pre-approval of all audit and non-audit services provided to the Fund by the Fund's independent auditors. The Fund's Audit Committee Charter also requires pre- approval of all audit and non-audit services provided to the Adviser and service affiliates to the extent that these services are directly related to the operations or financial reporting of the Fund. (e) (2) All of the amounts for Audit Fees and Tax Fees in the table above are for services pre-approved by the Fund's Audit Committee. (f) Not applicable. (g) The following table sets forth the aggregate non-audit services for the past two fiscal years provided to the Fund, the Fund's Adviser and entities that control, are controlled by or under common control with the Adviser that provide ongoing services to the Fund, which include conducting an annual internal control report pursuant to Statement on Auditing Standards No. 70 ("Service Affiliates"): All Fees for Non-Audit Total Amount of Services Provided to the Foregoing Column Fund, the Adviser and Pre-Approved by Service Affiliates the Audit Committee ------------------------ ------------------- October 31, 2004 $0 $0 October 31, 2005 $0 $0 (h) Not applicable. No non-audit services were provided to the Fund, the Adviser or any Service Affiliates during the past two fiscal years. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. Registrant is not a listed issuer as defined in Rule 10A-3 of the Securities Exchange Act of 1934. ITEM 6. Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. Registrant is an open- end management investment company. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. Registrant is an open-end management investment company. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. Registrant is an open-end management investment company. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11. CONTROLS AND PROCEDURES. (a) Based on their evaluation of the registrant's disclosure controls and procedures conducted within 90 days of the filing date of this report, the President and Treasurer have concluded that those controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act of 1940) provide reasonable assurance that material information required to be disclosed by the registrant in this Form N-CSR has been recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation described above, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 12. EXHIBITS. (a) Any Code of Ethics, or amendment thereto, that is subject to the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. See Item 2. (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940. (i) EX-99.(a) CERT - Certification of President pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (filed herewith). (ii) EX-99.(b) CERT - Certification of Vice President and Treasurer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (filed herewith). (iii) EX-99.906(a) CERT - Certification of President pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 (filed herewith). (iv) EX-99.906(b) CERT - Certification of Vice President and Treasurer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 (filed herewith). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) VLC Trust ON BEHALF OF OCEAN STATE TAX EMEMPT FUND Date: January 5, 2006 By:/s/ Alfred B. Van Liew --------------------------------- Alfred B. Van Liew President Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: January 5, 2006 By:/s/ Alfred B. Van Liew --------------------------------- Alfred B. Van Liew President Date: January 5, 2006 By:/s/ Kevin M. Oates --------------------------------- Kevin M. Oates Vice President & Treasurer EX-99 2 ocea-o991.txt EXHIBIT 99(A) CERT EX - 99.(a) CERT Certification under Investment Company Act Rule 30a-2 and Section 302 of the Sarbanes - Oxley Act of 2002 I, Alfred B. Van Liew, certify that: 1. I have reviewed this report on Form N-CSR of VLC Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 5, 2006 By:/s/ Alfred B. Van Liew --------------------------------- President EX-99 3 ocea-o992.txt EXHIBIT 99(B) CERT EX - 99.(b) CERT Certification under Investment Company Act Rule 30a-2 and Section 302 of the Sarbanes - Oxley Act of 2002 I, Kevin M. Oates, certify that: 1. I have reviewed this report on Form N-CSR of VLC Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 5, 2006 By:/s/ Kevin M. Oates --------------------------------- Vice President & Treasurer EX-99 4 ocea-o993.txt EXHIBIT 99.906(A) CERT EX-99.906(a) CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of VLC Trust on behalf of the Ocean State Tax Exempt Fund (the "Company"), hereby certifies, to the best of his knowledge, that the Company's Report on Form N-CSR for the period ended October 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company Dated: January 5, 2006 By:/s/ Alfred B. Van Liew --------------------------------- Alfred B. Van Liew President A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 5 ocea-o994.txt EXHIBIT 99.906(B) CERT EX-99.906(b) CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of VLC Trust on behalf of the Ocean State Tax Exempt Fund (the "Company"), hereby certifies, to the best of his knowledge, that the Company's Report on Form N-CSR for the period ended October 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company Dated: January 5, 2006 By:/s/ Kevin M. Oates --------------------------------- Kevin M. Oates Vice President & Treasurer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----