ANNUAL REPORT
JUNE 30, 1996
OAK VALUE FUND
MEMBER OF 100% NO-LOAD MUTUAL FUND COUNCIL
<PAGE>
LETTER TO SHAREHOLDERS August 14, 1996
==============================================================================
The Oak Value Fund has, by all measures, had another banner year. The Fund
achieved several major milestones during the past year. These milestones
include:
o OUTPERFORMANCE - The Fund outperformed both the broad market as measured
by the S&P 500 and its peer group as measured by the Lipper Growth Index
for the six months and one year ended June 30, 1996. The Fund has also
outperformed these benchmarks for the three year period ending June 30,
1996 and since the Fund's inception
o MORNINGSTAR RATING - The Fund received an initial star rating of four
stars from Morningstar in March. In early August, this rating was
increased to five stars. The five star rating is awarded to the top ten
percent of all mutual funds tracked by Morningstar. We are pleased to have
been honored with Morningstar's highest rating.
o CONTINUED ASSET GROWTH - The total assets of the Fund have increased from
$10.3 million on June 30, 1995 to $22.1 million on June 30, 1996.
Total shareholders in the Fund have increased from 426 to 720 in that
same period of time.
o FIDELITY RELATIONSHIP - In May, the Trustees of the Fund approved a plan
to establish a distribution relationship with the Fidelity Investment
Advisors Group. This relationship will allow nearly four hundred financial
planners and investment advisors who use this service the ability to
invest in the Oak Value Fund.
Listed below is a comparison of the Fund's performance versus the S&P 500
Index and the Lipper Growth Fund Index:
Six One Three Since
MONTHS YEAR YEARS INCEPTION
Oak Value Fund 11.10% 29.04% 18.42% 17.03%
S&P 500 w/ div 10.10 26.00 17.22 16.31
Lipper Growth Index 7.99 20.68 14.75 13.61
<PAGE>
The market's recent volatility continues to confirm our long-standing belief
that few people, if any, can consistently predict the future. As long term
investors, volatility creates opportunity. Such volatility gives us the
opportunity to deploy additional capital into businesses of which we are
knowledgeable. The Oak Value Fund ended its fiscal year with approximately
eighteen percent of total assets in cash equivalent investments. This cash
position was not by design. It is our goal to be fully invested at all times,
though we will allocate capital only when we find opportunities which provide
the requisite margin of safety. The recent volatility since the end of June
has provided us with such opportunities. Many of our purchases were of
companies we know well that afforded us a brief opportunity to buy at very
attractive prices. Purchases made during the few panic days in July have
already experienced significant appreciation.
Our search for good businesses is driven by the requirements that the
underlying economics of those businesses in which we invest must be both
attractive and predictable. We have long been attracted to the economics of
the newspaper publishing and television broadcasting businesses, though we
have until recently had little, if any, exposure to these industries in the
Fund. We have long considered these industries to be great businesses.
Historically, they have been characterized as having very attractive
economics, very high barriers to entry and very high returns on capital.
We have met with the management of twenty-nine companies in these two
industries over the past eighteen months. This intensive research effort has
led us to several companies which we believe represent "good businesses with
good management at attractive prices." Our exposure to these industries is
represented through our holdings in such companies as LIN Television, Pulitzer
Publishing, E.W. Scripps Co., Washington Post Co., New York Times Co. and
Torstar Inc. (Collectively, these companies represented approximately nineteen
percent of the Fund's assets at the end of the fiscal year.) They all possess
defined, defensible franchises which produce predictable, excess cash flow.
They are operated by management teams which have demonstrated their abilities
and loyalties to their shareholders. Finally, the share prices of the
companies that we have purchased represent, in our opinion, significant
discounts to the true intrinsic values of the underlying businesses. We have
been able to buy public equity positions in superior companies at significant
discounts to the value these franchises would sell for in the private market.
<PAGE>
Our decision to increase our exposure to these industries was related to
several factors. In broadcasting, a major telecommunications bill was passed
in January 1996. We believed as early as late last Fall that regulatory
changes would presage a long term positive for the broadcasting industry. The
ultimate passage of this legislation has resulted in an increase in the
maximum U.S. market coverage that one company may control from twenty-five
percent to thirty-five percent. This legislation also addresses the
grandfathering of LMAs (Local Marketing Agreements-operation of a second
station in an existing market). Our decision to invest in this industry was
also influenced by the fact that both the Olympics and a national election
campaign will likely have a very positive impact on the near term earnings
prospects for these companies, providing us with increased near term
predictability. Though we believe that further consolidation in this industry
is likely, our decision to invest in this industry is not predicated on such
consolidation. All but one of the above mentioned companies operates network
affiliated television broadcasting stations. Collectively, these companies own
thirty-eight network affiliated television stations. Over ninety percent of
these properties operate within the top one hundred markets in the country.
Over eighty percent of these properties are ranked one or two in their
respective markets. A key success factor for many of these companies has been
their dominance of local news. Superior local news production is a key factor
in attaining high market share ratings and building the value of the local
franchise. Profit margins on local news can be in excess of seventy percent.
Local news provides a demonstrated ability to win viewers and maintain the
value of the franchise. Additionally, successful local news production often
reduces the need for expanded syndicated programming. We believe that we have
identified and invested in truly great franchises at prices which provide a
significant margin of safety. If further consolidation does take place, we
will gladly participate in the positive surprise. The past ten years have
presented a very unique set of challenges which have resulted in mediocre
returns for most newspaper companies. Major shifts in advertising from local,
main street retailers has occurred as the category killers continued their
rampant onslaught with less advertising and more preprint messages.
Advertising revenue growth has not been spectacular during the last decade.
One reason for the less than robust growth in advertising has been the shift
in identity and methodology of the local advertiser. We believe the shift is
for the most part nearing its completion and these franchises have new base
positions. Accelerating newsprint prices have created an opportunity for us.
We believe the majority of the advertising shift has run its course and that
newsprint prices have now finally reversed their cyclical climb. The
management teams of these companies have responded to these and other
challenges by rationalizing plants, increasing advertising and circulation
prices, reducing employee headcount, reducing newsprint consumption,
leveraging existing marketing and distribution channels, increasing use of new
and innovative technologies, and diversifying investments. The results are
stronger, more efficient businesses with attractive long term economics.
Competition from alternate providers of news and information content will
certainly continue to represent risks as well. Though growth challenges will
continue, we believe these franchises will yield predictable, growing excess
cash flow from this base. Additionally, we believe this cash flow will be less
subject to the risk of lost advertisers than has been the case in recent
years. We have allocated a significant amount of time and effort to visiting
and analyzing many companies within this industry. It is our belief that the
management of the companies we own are aware of these risks and are responding
to them just as they have responded to other challenges in recent years.
<PAGE>
Based in Cincinnati, Ohio, E. W. Scripps Co. owns and operates daily and
Sunday newspapers in Cincinnati, Denver, Memphis and Knoxville with combined
circulation of over 500,000, as well as twelve regional daily newspapers. It
is also the largest independently owned operator of ABC affiliated television
stations in the country. This combination of good newspaper and broadcasting
properties is further enhanced by the truly superior management team at E. W.
Scripps. In 1995, Scripps launched Home & Garden Television (HGTV), a cable
television station which focuses on programming for the home, garden and home
improvement markets. This launch was considered the most successful launch of
1995 and now reaches over 160 markets across the country, including fifteen of
the twenty largest markets. Growing rapidly, HGTV's subscriber base is now in
excess of 17 million subscribers. HGTV has a great future as superior audience
demographics and fantastic advertiser support provide a very valuable cable
franchise. The company also announced earlier this year that it had signed an
agreement to sell its cable television operations (exclusive of HGTV) to
Comcast. Though recent pressures on the cable industry have drawn this
transaction into question, we are confident that the underlying valuation of
Scripps and its component pieces is far in excess of the stock's recent
trading range.
Scripps' management team is extremely impressive as one analyzes the many
brilliant moves they have made-from starting HGTV to successfully executing
affiliation switches at three stations from FOX to ABC, to combining a group
of small newspapers into a local California stronghold. This management team
is either unbelievably lucky or extremely bright. We choose to believe the
latter. They are fair to their shareholders and are dedicated to creating long
term value. We are glad to be associated with this fine enterprise.
As our firm approaches a ten year anniversary, we are pleased to say that we
have owned shares of Berkshire Hathaway for our clients for most of that time
period. We have diligently monitored the company, its holdings in publicly
traded securities and its wholly-owned businesses for this entire period. This
long-term experience has provided Oak Value a unique ability to analyze and
value the shares of this often misunderstood and frequently mispriced company.
We find it very interesting that this highly publicized company provides so
many people with the opportunity to have an opinion on a company about which
they know so little. Berkshire Hathaway is a collection of businesses and as
such can be analyzed (if diligence is applied) just as any other company.
Recent prophecies suggest that Mr. Buffett has recently fallen off the turnip
truck and that the future is dim for Berkshire shareholders. We do not share
this opinion. While we do not believe that Berkshire can continue to compound
at its historically high rates of return, we do believe that Mr. Buffett's
long term, stated goal of increasing intrinsic value fifteen percent per year
is quite achievable.
<PAGE>
We have owned Berkshire in the Oak Value Fund since the Fund's inception in
1993. Our decision to increase the Fund's allocation to this long term holding
in recent months has been driven by several factors:
o We believe the underlying businesses, whether partially or wholly owned,
will continue to compound at above average rates for the foreseeable
future. Additionally, Berkshire's recent acquisition of GEICO will
significantly increase the "float" available for long term investment at
Berkshire. Earlier investors in the Fund will recall that the Fund was a
shareholder of GEICO when it was acquired by Berkshire earlier this year.
We had purchased shares of GEICO in early 1995 based on the belief that
GEICO's already efficient delivery system coupled with the further use of
additional technology would allow it to take advantage of major changes in
the automobile insurance industry.
o The management structure and compensation employed by Mr. Buffett are the
most efficient of any major U.S. corporation. Total corporate office
staff was recently a total of twelve employees including Chairman Buffett
and Vice Chairman Munger. They each receive annual compensation of
$100,000 per year. There are no stock option plans. We compare this
structure to the hundreds of companies where management is paid seven or
eight figure salaries in addition to their egregious stock option plans
which in effect give them a "call" on the future growth of shareholder
value. Stock options are often viewed as a way for managers to "help
themselves" to the corporate coffers over the long term. Many companies
have granted significant portions of the company's ownership to
management over a period of years. Of course, the accounting confession
(we mean profession) says this has no costs to us as shareholders. The
compensation and overhead structure employed at Berkshire provide nearly
frictionless participation in the underlying businesses which the company
owns and/or operates.
o Recent share price volatility has given us the opportunity to purchase
Berkshire shares at very attractive valuations. The publicity surrounding
the recent issuance of the Class B shares has created increased trading
activity in the shares of this otherwise inactively traded company. The
primary reason for the issuance of the Class B shares was to forestall
potential issuers of unit investment trusts from plying their trade with
Berkshire's good name. Berkshire's holdings in Coke and Gillette have
together added over two billion dollars ($1,800 per share) to the value
of Berkshire as their share prices have increased significantly since the
offering was announced. Meanwhile, Berkshire's Class A share price has
declined by more than $2,000 over the same period of time. Though Mr.
Buffett did comment that he did not believe the shares were undervalued
at the time he announced the offering, we believe the recent share prices
near $30,000 represent significant value and we have acted accordingly.
<PAGE>
Many of the companies which we have owned for some time continue to give us
opportunities to invest in good enterprises at valuations which represent
discounts to their true intrinsic value. For many of these companies, these
discounts may remain intact as investors' misunderstanding of these franchises
continues (particularly in the insurance industry where some participants
consistently trade at a price below that of their intrinsic value). Meanwhile,
we should continue to compound at the rate of growth of the underlying
businesses even if the valuation gap does not close.
Oakwood Homes continues to demonstrate its management expertise as our thesis
develops at this emerging finance powerhouse. Deutsche Bank ( the largest
floor plan financing provider for the manufactured housing industry in the
country) recently established a joint venture with Oakwood to pursue the
financing of retail sales through the many dealers with which it already has
relationships. This joint venture provides Oakwood the opportunity to further
leverage its existing base of underwriting and servicing systems while
Deutsche Bank provides the capital and the business development. This combined
effort of two major players in an otherwise fragmented industry should have
significant impact on the industry.
R. P. Scherer's management continues to be forthright with its shareholders,
focused on the long term and diligent about capital allocation. We believe the
fruits of their efforts and investments to transition this business are coming
to bear. Meanwhile, management continues to make the best of a very difficult
market in the vitamin soft gel business while building a base of alternative
drug delivery systems that should yield superior financial results over the
long term.
We are extremely pleased with the portfolio of companies we own. We are
confident that the underlying businesses they represent will produce above
average returns for our shareholders.
Thank you for your vote of confidence.
Sincerely,
/s/ David R. Carr, Jr.
David R. Carr, Jr.
Co-Manager
/s/ George W. Brumley, III
George W. Brumley, III
Co-Manager
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
PERFORMANCE INFORMATION
===================================================================================================================
A Representation of the graphic material contained in the Oak Value Fund
Annual Report is set forth below:
Comparison of the Change in Value of a $10,000 Investment in the Oak Value Fund,
Lipper Growth Fund Index and Standard & Poor's 500 Index
S&P 500 INDEX: OAK VALUE FUND:
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
01/18/93 10,000 01/18/93 10,000
03/31/93 3.93% 10,393 03/31/93 3.53% 10,353
06/30/93 0.49% 10,443 06/30/93 0.04% 10,357
09/30/93 2.56% 10,711 09/30/93 10.48% 11,442
12/31/93 2.32% 10,960 12/31/93 6.66% 12,204
03/31/94 -3.79% 10,544 03/31/94 -4.86% 11,611
06/30/94 0.42% 10,588 06/30/94 1.79% 11,818
09/30/94 4.89% 11,106 09/30/94 5.53% 12,472
12/31/94 -0.02% 11,104 12/31/94 -3.66% 12,015
03/31/95 9.74% 12,186 03/31/95 9.50% 13,157
06/30/95 9.55% 13,350 06/30/95 1.34% 13,334
09/30/95 7.95% 14,411 09/30/95 10.34% 14,712
12/31/95 6.02% 15,278 12/31/95 5.27% 15,487
03/31/96 5.37% 16,098 03/31/96 7.40% 16,633
06/30/96 4.49% 16,821 06/30/96 3.44% 17,206
LIPPER GROWTH FUND INDEX:
QTRLY
DATE RETURN BALANCE
01/18/93 10,000
03/31/93 1.27% 10,127
06/30/93 1.47% 10,272
09/30/93 4.80% 10,765
12/31/93 2.26% 11,008
03/31/94 -2.99% 10,679
06/30/94 -2.20% 10,444
09/30/94 4.91% 10,957
12/31/94 -1.12% 10,834
03/31/95 7.23% 11,618
06/30/95 10.70% 12,861
09/30/95 9.08% 14,028
12/31/95 1.54% 14,244
03/31/96 4.51% 14,887
06/30/96 3.33% 15,383
Past performance is not predictive of future performance.
Oak Value Fund
Average Annual Total Returns
As of June 30, 1996
1 Year Since Inception*
29.04% 17.03%
*Inception date of the Oak Value Fund was January 18, 1993.
NON-STANDARDIZED TOTAL RETURNS
1996 SINCE
CALENDAR CALENDAR CALENDAR YEAR TO DATE INCEPTION*
1993* 1994 1995 (AS OF 6/30/96)(AS OF 6/30/96)
<S> <C> <C> <C> <C> <C>
Oak Value Fund.......................... 22.05% -1.51% 28.84% 11.10% 72.06%
Lipper Growth Fund Index................ 10.13% -1.57% 31.48% 7.99% 53.83%
S&P 500 Index........................... 9.70% 1.32% 37.58% 10.10% 68.21%
*Inception date of the Oak Value Fund was January 18, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
===================================================================================================================
ASSETS
Investments in securities:
<S> <C>
At acquisition cost...................................................................... $ 15,462,506
===============
At value (Note 1)........................................................................ $ 18,727,571
Investments in repurchase agreements (Note 1)............................................... 3,990,000
Cash ....................................................................................... 65
Receivable for capital shares sold.......................................................... 49,431
Dividends receivable........................................................................ 15,233
Interest receivable......................................................................... 1,663
Organization expenses, net (Note 1)......................................................... 7,749
Other assets................................................................................ 25,320
---------------
TOTAL ASSETS............................................................................. 22,817,032
---------------
LIABILITIES
Payable for securities purchased............................................................ 507,441
Payable for capital shares redeemed......................................................... 205,205
Payable to affiliates (Note 3).............................................................. 31,525
Other accrued expenses...................................................................... 7,324
---------------
TOTAL LIABILITIES........................................................................ 751,495
---------------
NET ASSETS ................................................................................. $ 22,065,537
===============
Net assets consist of:
Capital shares.............................................................................. $ 18,023,351
Accumulated net realized gains from security transactions................................... 777,121
Net unrealized appreciation on investments.................................................. 3,265,065
---------------
Net assets.................................................................................. $ 22,065,537
===============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value)................................................................ 1,413,047
===============
Net asset value, offering price and redemption price per share (Note 1)..................... $ 15.62
===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
===================================================================================================================
INVESTMENT INCOME
<S> <C>
Dividends................................................................................ $ 138,408
Interest................................................................................. 66,726
---------------
TOTAL INVESTMENT INCOME................................................................ 205,134
---------------
EXPENSES
Investment advisory fees (Note 3)........................................................ 125,782
Administrative services fees (Note 3).................................................... 28,013
Professional fees........................................................................ 27,507
Accounting services fees (Note 3)........................................................ 24,000
Registration fees........................................................................ 23,304
Postage and supplies..................................................................... 15,514
Trustees' fees and expenses.............................................................. 14,097
Shareholder services and transfer agent fees (Note 3).................................... 12,000
Insurance expense........................................................................ 10,875
Custodian fees........................................................................... 6,692
Printing of shareholder reports.......................................................... 4,093
Amortization of organization expenses (Note 1)........................................... 4,000
Other expenses........................................................................... 4,534
---------------
TOTAL EXPENSES......................................................................... 300,411
Fees waived by the Adviser (Note 3)...................................................... ( 34,872)
---------------
NET EXPENSES........................................................................... 265,539
---------------
NET INVESTMENT LOSS ........................................................................ ( 60,405)
---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions............................................ 926,281
Net change in unrealized appreciation/depreciation on investments........................ 2,549,944
---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........................................... 3,476,225
---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................................. $ 3,415,820
===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
===================================================================================================================
YEAR TEN MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss.................................................... $ ( 60,405) $ ( 39,220)
Net realized gains from security transactions.......................... 926,281 247,324
Net change in unrealized appreciation/depreciation on investments...... 2,549,944 272,160
--------------- ---------------
Net increase in net assets from operations................................ 3,415,820 480,264
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains from security transactions..................... ( 92,392) ( 515,382)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS(A):
Proceeds from shares sold.............................................. 10,044,743 3,131,449
Net asset value of shares issued in reinvestment
of distributions to shareholders..................................... 89,729 503,235
Payments for shares redeemed........................................... ( 1,642,431) ( 2,118,927)
--------------- ---------------
Net increase in net assets from capital share transactions................ 8,492,041 1,515,757
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................. 11,815,469 1,480,639
NET ASSETS:
Beginning of period.................................................... 10,250,068 8,769,429
--------------- ---------------
End of period.......................................................... $ 22,065,537 $ 10,250,068
=============== ===============
(a)Summary of capital share activity:
Shares sold............................................................ 681,397 270,560
Shares issued in reinvestment of distributions to shareholders......... 6,382 46,309
Shares redeemed........................................................ ( 115,378) ( 177,823)
--------------- ---------------
Net increase in shares outstanding..................................... 572,401 139,046
Shares outstanding, beginning of period................................ 840,646 701,600
--------------- ---------------
Shares outstanding, end of period...................................... 1,413,047 840,646
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FOR THE PERIOD
YEAR TEN MONTHS YEAR JANUARY 18,
ENDED ENDED ENDED 1993(A) TO
JUNE 30, JUNE 30, AUGUST 31, AUGUST 31,
1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 12.19 $ 12.50 $ 10.96 $ 10.00
------------ ------------- ------------- ------------
Income from investment operations:
Net investment loss......................... ( 0.04) ( 0.05) ( 0.02) ( 0.03)
Net realized and unrealized gains
on investments........................... 3.57 0.55 1.78 0.99
------------ ------------- ------------- ------------
Total from investment operations............... 3.53 0.50 1.76 0.96
------------ ------------- ------------- ------------
Less distributions:
From net realized gains..................... ( 0.10) ( 0.81) ( 0.22) --
------------ ------------- ------------- ------------
Net asset value at end of period............... $ 15.62 $ 12.19 $ 12.50 $ 10.96
============ ============= ============= ============
Total return................................... 29.04% 5.78%(c) 16.07% 16.11%(c)
============ ============= ============= ============
Net assets at end of period (000's)............ $ 22,066 $ 10,250 $ 8,769 $ 1,890
============ ============= ============= ============
Ratio of expenses to average net assets(b) .... 1.90% 1.89%(c) 1.89% 2.19%(c)
Ratio of net investment loss to average
net assets................................ (0.43%) (0.53%)(c) (0.58%) (0.81%)(c)
Portfolio turnover rate (annualized)........... 58% 103%(c) 91% 43%(c)
<FN>
(a)Commencement of operations.
(b)Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 2.15%, 2.38%(c), 2.80%,
and 6.29%(c) for the periods ended June 30, 1996, June 30, 1995, August 31,
1994 and August 31, 1993, respectively (Note 3).
(c)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
===================================================================================================================
MARKET
SHARES COMMON STOCKS -- 84.9% VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADVERTISING -- 3.7%
17,350 Interpublic Group Companies, Inc............................................. $ 813,281
--------------
BEVERAGES -- 4.2%
19,200 Coca-Cola Company............................................................ 938,400
--------------
BROADCASTING -- 4.2%
25,550 LIN Television Corporation(a) ............................................... 919,800
--------------
CONGLOMERATE -- 7.8%
56 Berkshire Hathaway, Inc., Class A(a) ........................................ 1,719,200
--------------
CONSUMER PRODUCTS -- 5.7%
35,925 Armor All Product Corporation................................................ 534,384
16,200 Avon Products, Inc........................................................... 731,025
--------------
1,265,409
--------------
ENTERTAINMENT -- 5.0%
17,526 The Walt Disney Company...................................................... 1,101,947
--------------
FINANCIAL INSTITUTIONS -- 5.0%
22,850 American Express Company..................................................... 1,019,681
2,500 Associates First Capital Corporation(a) ..................................... 94,063
--------------
1,113,744
--------------
HEALTHCARE/PHARMACEUTICAL -- 6.4%
30,950 R. P. Scherer Corporation(a) ................................................ 1,404,356
--------------
HOUSEHOLD PRODUCTS -- 4.1%
10,625 Colgate-Palmolive Company ................................................... 900,469
--------------
INSURANCE - ACCIDENT & HEALTH -- 4.0%
29,925 AFLAC, Inc................................................................... 894,009
--------------
INSURANCE - PROPERTY & CASUALTY -- 9.8%
65,525 Acceptance Insurance Companies, Inc.(a) ..................................... 1,122,116
11,100 Markel Corporation(a) ....................................................... 1,032,300
--------------
2,154,416
--------------
MANUFACTURED HOUSING -- 3.6%
38,400 Oakwood Homes Corporation.................................................... 792,000
--------------
<PAGE>
<CAPTION>
OAK VALUE FUND (CONTINUED)
===================================================================================================================
MARKET
SHARES COMMON STOCKS -- 84.9% VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEDIA -- 11.3%
18,775 Pulitzer Publishing Company.................................................. $ 1,112,419
22,650 Scripps (E.W.) Company....................................................... 1,056,056
1,000 Washington Post Company, Class B............................................. 324,000
--------------
2,492,475
--------------
MORTGAGE BANKING -- 4.0%
10,300 Federal Home Loan Mortgage Corporation....................................... 880,650
--------------
PERSONAL CARE/COSMETICS -- 1.9%
6,700 Gillette Company............................................................. 417,913
--------------
PUBLISHING -- 4.2%
12,000 New York Times Company, Class A.............................................. 391,500
28,500 Torstar Corporation.......................................................... 528,002
--------------
919,502
--------------
TOTAL COMMON STOCKS (COST $15,462,506) ...................................... $ 18,727,571
--------------
<PAGE>
<CAPTION>
===================================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS(B) -- 18.1% VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 3,990,000 Star Bank, N.A., 5.00%, dated 06/28/96, due 07/01/96,
repurchase proceeds $3,991,663 (Cost $3,990,000)......................... $ 3,990,000
--------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 103.0% ............... $ 22,717,571
LIABILITIES IN EXCESS OF OTHER ASSETS-- (3.0%) .............................. ( 652,034)
--------------
NET ASSETS-- 100.0% ......................................................... $ 22,065,537
==============
<FN>
(a)Non-income producing security.
(b)Repurchase agreement is fully collateralized by U.S. Government obligations.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
==============================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Oak Value Fund (the Fund) is a diversified series of shares of The
Tuscarora Investment Trust (the Trust). The Trust, registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended, was organized as a Massachusetts business trust on March 3, 1995. The
Fund itself began operations on January 18, 1993 as a series of the Albemarle
Investment Trust (Note 4).
The Investment objective of the Fund is to seek capital appreciation primarily
through investments in equity securities, consisting of common and preferred
stocks and securities convertible into common stocks. Current income will be
of secondary importance.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(currently 4:00 p.m., Eastern time). Securities which are traded
over-the-counter are valued at the last sales price, if available, otherwise,
at the last quoted bid price. Securities traded on a national stock exchange
are valued based upon the closing price on the principal exchange where the
security is traded.
Repurchase agreements -- Repurchase agreements, which are collateralized by
U.S. Government obligations, are valued at cost which, together with accrued
interest, approximates market. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement. In addition, the Fund actively monitors
and seeks additional collateral, as needed.
Share valuation -- The net asset value per share of the Fund is calculated
daily by dividing the total value of the Fund's assets, less liabilities, by
the number of shares outstanding. The offering price and redemption price per
share are equal to the net asset value per share.
<PAGE>
Investment income and distributions to shareholders -- Interest income is
accrued as earned. Dividend income is recorded on the ex-dividend date.
Dividends arising from net investment income, if any, are declared and paid
annually. Net realized short-term capital gains, if any, may be distributed
throughout the year and net realized long-term capital gains, if any, are
distributed at least once each year. Income distributions and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles.
Organization expenses -- Expenses of organization, net of certain expenses
paid by the Adviser, have been capitalized and are being amortized on a
straight-line basis over five years.
Security transactions -- Security transactions are accounted for on trade
date. Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of 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.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the
income distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during
the twelve months ended October 31) plus undistributed amounts from prior
years.
The following information is based upon the federal income tax cost of
portfolio investments of the Fund as of June 30, 1996:
Gross unrealized appreciation............................ $ 3,370,071
Gross unrealized depreciation............................ ( 107,980)
---------------
Net unrealized appreciation.............................. $ 3,262,091
===============
<PAGE>
The tax basis of investments for the Fund as of June 30, 1996 was $15,465,480.
The difference between financial reporting and federal income tax cost amounts
is due to certain timing differences in recognizing capital losses under
generally accepted accounting principles and tax regulations. The Fund's net
investment loss of $60,405 for 1996 was used to offset net short-term realized
capital gains and, as such, has been reclassified to accumulated net realized
gains from security transactions on the Statement of Assets and Liabilities.
2. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investment securities,
other than short-term investments, amounted to $12,658,766 and $7,416,625,
respectively, for the year ended June 30, 1996.
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Oak Value
Capital Management, Inc. (the Adviser) or MGF Service Corp. (MGF), the
administrator, transfer agent and accounting services agent for the Trust
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser under the terms of an
Investment Advisory Agreement. Under the Investment Advisory Agreement, the
Fund pays the Adviser a fee, which is computed and accrued daily and paid
monthly, at an annual rate of .90% of the Fund's average daily net assets.
The Adviser currently intends to waive its investment advisory fees to the
extent necessary to limit the total operating expenses of the Fund to 1.90% of
the Fund's average daily net assets. In accordance with the above limitation,
the Adviser voluntarily waived $34,872 of its investment advisory fees for the
year ended June 30, 1996.
<PAGE>
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement with the Trust, MGF supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services for the Fund.
MGF supervises the preparation of tax returns, reports to shareholders of the
Fund, reports to and filings with the Securities and Exchange Commission and
state securities commissions, and materials for meetings of the Board of
Trustees. For the performance of these administrative services, MGF receives a
monthly fee based on the Fund's average daily net assets.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with the Trust, MGF maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, MGF receives a monthly fee based on the
number of shareholder accounts in the Fund. In addition, the Fund pays
out-of-pocket expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement with the Trust, MGF
calculates the daily net asset value per share and maintains the financial
books and records of the Fund. For these services, MGF receives a monthly fee
from the Fund. In addition, the Fund pays certain out-of-pocket expenses
incurred by MGF in obtaining valuations for the Fund's portfolio securities.
4. REORGANIZATION OF THE OAK VALUE FUND
The Oak Value Fund was originally organized as a series of the Albemarle
Investment Trust, a Massachusetts business trust. On May 19, 1995, pursuant to
an Agreement and Plan of Reorganization, all assets and liabilities of this
series (the Predecessor Fund), which had substantially identical investment
objectives and policies as the Fund, were transferred in exchange for all
capital shares of the Fund. The Predecessor Fund then distributed to its
shareholders as a liquidating dividend all capital shares of the Fund in
exchange for and in cancellation of its capital shares.
For federal income tax purposes, the reorganization qualified as a tax-free
reorganization with no tax consequences to the Predecessor Fund, the Fund or
the shareholders.
In connection with the reorganization, the Fund changed its fiscal year-end
from August 31 to June 30.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
==============================================================================
To the Shareholders and Board of Trustees
of Tuscarora Investment Trust:
We have audited the accompanying statement of assets and liabilities of Oak
Value Fund of the Tuscarora Investment Trust (a Massachusetts business trust),
including the portfolio of investments, as of June 30, 1996, the related
statement of operations for the year then ended, and the statements of changes
in net assets and financial highlights for the year ended June 30, 1996 and
the period from September 1, 1994 to June 30, 1995. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year ended August 31,
1994 and for the period from January 18, 1993 to August 31, 1993 were audited
by other auditors whose reports thereon dated October 20, 1994, and September
24, 1993, respectively, expressed unqualified opinions on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of June 30, 1996, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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 Oak
Value Fund of the Tuscarora Investment Trust as of June 30, 1996, the results
of its operations for the year then ended, and the changes in its net assets
and the financial highlights for the year ended June 30, 1996 and the period
from September 1, 1994 to June 30, 1995, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
July 19, 1996
<PAGE>
OAK VALUE FUND
INVESTMENT ADVISOR
Oak Value Capital Management, Inc.
3100 Tower Boulevard, Suite 800
Durham, North Carolina 27707
1-800-680-4199
ADMINISTRATOR
MGF Service Corp.
312 Walnut Street
P.O. Box 5354
Cincinnati, Ohio 45201-5354
1-800-622-2474
INDEPENDENT AUDITORS
Arthur Andersen LLP
425 Walnut Street
Cincinnati, OH 45202
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
BOARD OF TRUSTEES
George W. Brumley III
C. Russell Bryan
David R. Carr, Jr.
John M. Day
Joseph T. Jordan, Jr.
OFFICERS
George W. Brumley III, President
David R. Carr, Jr., Vice President and Treasurer
John F. Splain, Secretary
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000941722
<NAME> THE TUSCARORA INVESTMENT TRUST - OAK VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 19,452,506
<INVESTMENTS-AT-VALUE> 22,717,571
<RECEIVABLES> 66,327
<ASSETS-OTHER> 25,320
<OTHER-ITEMS-ASSETS> 7,814
<TOTAL-ASSETS> 22,817,032
<PAYABLE-FOR-SECURITIES> 507,441
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 244,054
<TOTAL-LIABILITIES> 751,495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,023,351
<SHARES-COMMON-STOCK> 1,413,047
<SHARES-COMMON-PRIOR> 840,646
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<DIVIDEND-INCOME> 138,408
<INTEREST-INCOME> 66,726
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<EXPENSES-NET> 265,539
<NET-INVESTMENT-INCOME> (60,405)
<REALIZED-GAINS-CURRENT> 926,281
<APPREC-INCREASE-CURRENT> 2,549,944
<NET-CHANGE-FROM-OPS> 3,415,820
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 92,392
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<NUMBER-OF-SHARES-SOLD> 681,397
<NUMBER-OF-SHARES-REDEEMED> 115,378
<SHARES-REINVESTED> 6,382
<NET-CHANGE-IN-ASSETS> 11,815,469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (363)
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<AVERAGE-NET-ASSETS> 13,992,548
<PER-SHARE-NAV-BEGIN> 12.19
<PER-SHARE-NII> (.04)
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</TABLE>
