LETTER TO SHAREHOLDERS August 22, 1997
==============================================================================
The Oak Value Fund (the Fund) continued its trend of superior performance
and growth during the 1997 fiscal year. The Fund achieved several major
milestones during the year.
o CONTINUED ASSET GROWTH - The net assets of the Fund have increased from
$31.9 million on December 31, 1996 to more than $82.6 million on June 30,
1997. At this writing, net assets in the Fund exceeded $93 million. Total
shareholders in the Fund increased from 886 to 1703 during the fiscal year.
o CONTINUED REDUCTION OF EXPENSE RATIO - As a result of the continued growth
of the Fund, the total expense ratio of the Fund has been reduced to 1.59%
of average net assets on an annualized basis for the year ended June 30,
1997. The current accrual rate for expenses of the Fund is 1.30%. This
decline represents a significant reduction from the 1.90% expense ratio of
the Fund less than two years ago.
o SUPERIOR PERFORMANCE - The Fund outperformed both the S&P 500 Index and its
peer group as measured by the Lipper Growth Fund Index during the fiscal
year. Listed below is a comparison of the Fund's performance versus the S&P
500 Index and the Lipper Growth Fund Index for the periods ended June 30,
1997.
<TABLE>
<CAPTION>
Six One Three Since
Months Year Years* Inception*
<S> <C> <C> <C> <C>
Oak Value Fund.... 20.24% 39.60% 26.67% 21.76%
Lipper Growth
Fund Index..... 15.40% 25.55% 23.11% 16.23%
S&P 500 Index..... 20.61% 34.70% 28.86% 20.18%
<FN>
*Annualized.
</FN>
</TABLE>
Our primary goal is to produce above average returns. We are certainly pleased
with our long term success in this regard. We are also sensitive to both the
expense ratio of the Fund and to the long term tax efficiency of the Fund. The
tax efficiency concern is receiving attention in the investment community and we
believe is of paramount importance to investors. The issue addresses the fact
that investment returns achieved through long term compounding are vastly
superior to similar returns realized over shorter holding periods because of the
tax costs which are incurred along the way.
Rising market valuations and continued cash flows into the Fund make for a
challenging environment. The good news is that we are able to allocate capital
to the companies which represent the largest discounts to their intrinsic value.
While valuations often limit our ability to allocate new capital to existing
companies in our portfolio, we were able to make additional investments in
several of the Fund's holdings during the recent period. We also initiated
positions in a few new holdings during the quarter including investments in
Jacor Communications, True North Communications and General Re Corp. Jacor is a
radio consolidator with major market shares in diverse mid-size markets. Rapidly
growing cash flow and recent legislative changes provide us with many of the
characteristics we enjoy in our newspaper and television broadcasting holdings.
We returned to True North as the discount to intrinsic value provided
substantial upside in this advertising agency. Finally, we are pleased to have
found in General Re Corp. a reinsurer which offers great management, an
international platform and a compelling valuation. Nike was also added to the
portfolio during the period. We will discuss this holding specifically and at
length in the balance of this letter.
We also sold several positions during the most recent six months, including
American Express, Colgate and Torstar. The Fund had owned American Express since
the fall of 1994 when American Express divested Lehman Brothers. Impressed with
Harvey Golub's focus on the core business, we continued to purchase shares of
American Express until as recently as November 1996 as the company continued to
trade at a sufficient discount to our assessment of its intrinsic value. The
stock recently reached and exceeded our price targets. We do not believe the
American Express franchise is unique enough, nor is the moat around the business
wide enough, to warrant current valuations. Colgate also reached our price
target during the period. The competitive nature of the personal care market was
a determining factor in our sale of Colgate. Colgate is one of the smaller
competitors in this global market, yet it was their significant exposure to the
international growth that first attracted us to the company. We hope to return
to this and potentially other personal care product companies at more attractive
valuations in the future. Our intense research into the media group led us to
Torstar as a particularly undervalued company some time ago. As the discount to
the company's intrinsic value closed, we recently sold this position to
concentrate on other media industry holdings such as Washington Post, E. W.
Scripps, Pulitzer Publishing and LIN Television.
<PAGE>
Research
We believe the research process is the distinguishing factor at Oak Value. We
conduct over one hundred face-to-face meetings each year with the management
teams of various publicly traded companies. Why? Our company visits reinforce
our long-standing conviction of the need for barriers to entry to protect our
business franchises from competitors. Above average returns on assets and
capital employed always appear tempting to competitors. Superior franchises are
defined by their ability to establish and maintain formidable barriers to entry.
Company visits help us to understand business models and the position of
companies relative to their competitors, suppliers, customers and substitute
products. The details obtained through the visit process and the reading of a
myriad of trade journals help us to understand the business from the point of
view of someone within the industry. Understanding begets knowledge. From an
understanding of the business model we ask better questions, obtain better
feedback from management and have greater confidence in the inputs into our
valuation equation, thereby reinforcing the "business model" cycle of investing.
Core Holdings, Great Businesses
We continue to search for those elusive core holdings that represent great
companies with wonderful franchises which we hope to own for a long period of
time. We continue to own a few companies in the Fund that we bought during the
inception quarter of the Fund. These holdings, which include AFLAC, Berkshire
Hathaway and Markel, exemplify our "core holding" mentality. These were and
still are "great businesses" with "great management" that we have been afforded
the opportunity to purchase at "attractive prices".
We continue to be mystified by the pundits on Wall Street who choose to use
various public forums to "knock" Berkshire Hathaway. Numerous columnists have
been absolutely wrong in their assessment of Berkshire Hathaway for many years,
yet they continue to bet against the greatest investor of this century. One
would think they would grant themselves more favorable odds by choosing a weaker
opponent.
Our valuation of Berkshire is based on the businesses it owns. We do not factor
in future excess returns from the abilities of Buffett and Munger. We hope that
both of them will be with Berkshire for many years to come. However, when the
day occurs that we lose one or both of them, you should expect the stock price
to decline. We are aware of this potential future scenario and will respond
accordingly. No one will have the ability to provide returns like Buffett, but
the business should continue to have substantial value apart from his daily
activities of allocating capital.
Global Brands
We continue to respect companies that have developed superior, global brand
names. There are far fewer such companies than Wall Street realizes. Pitfalls
abound for those awarding high valuations to companies that are unable to
deliver consistently across a diverse global platform. Conversely, we believe
the investment community may not realize how valuable (and quite possibly how
impenetrable) the companies that have fully developed a seamless global presence
have become. Brand name development in the United States occurred gradually in
an environment where years of mercantile trade had created an extremely
effective distribution mechanism for goods. As our society and our economy
evolved, companies layered on marketing and began to focus on brand building.
Television, newspaper and other forms of advertising allowed them to nurture and
enhance their brands. Advertising continued to create this distinction as the
successful brands became stronger and companies focused even more on national
brand building. Eventually the remaining regional brands (and poorly supported
national brands) declined into extinction or inferior competitive positions.
Current international platforms appear to be developing through a compressed and
somewhat reversed system which we believe plays into the hands of the strong
brand names that are able to couple expert marketing and brand building skills
with efficient distribution. While companies late to the advertising game in the
U.S. often lost any chance of building a national brand presence, it appears to
us that companies late to the international distribution game may risk the same
inability to build a global brand. The new rules of the game require expertise
in both marketing and distribution. We believe the companies possessing these
dual abilities are worth more, have more predictable growth patterns and will
have higher growth rates over the long term. Though we are not currently willing
to pay higher prices than our traditional valuation models indicate for such
businesses, we are ever diligent to identify and stay extremely current with
those companies that potentially fall into this category.
We do not spend a great deal of time worrying about what price to sell our Coca
Cola shares. Our time is more productively spent attempting to better understand
the Coke model for fear that we miss an opportunity to buy a share at a price
that reflects our required margin of safety. We will not sell our core holdings,
even if for some short period of time they fully reflect the future prospects or
even become overvalued. In many cases, overvaluation beliefs are based on models
that truly do not reflect properly the fact that, for these global super-brands,
the future is the brightest it has ever been. We continue to be prudent because
we do not think the rules of investing have been repealed and we believe
patience and prudent behavior will be rewarded once again. We will not overpay!
<PAGE>
Just Like...
Wall Street analysts often suggest that we consider companies they believe are
"just like" some of our superior core holdings, but cheaper. It is our belief (a
lesson learned at great length and some expense) that many of these competitors
are such in appearance only. Peering ever deeper into the business models of our
core holdings leads us to believe that those so called competitors are in fact
not cheaper at all but offer to the investor very different future returns and
much less control of their destiny. We visit many of our companies' competitors
often. We typically leave those visits believing the franchises we own are
superior and that the investing community is not paying attention. While it may
be true we would rather own Pepsi than a shirt manufacturer, those are not our
choices. Our challenge is to determine which of the many companies we visit
offer us predictable growing excess cash flow controlled by management who have
demonstrated their ability to grow and allocate that cash flow. Our fear of
obtaining just that inferior stream of cash flow (less predictable) and being
subject to reinvestment risks in ancillary businesses with poor returns makes us
joyful to miss the "just like" but cheaper group. If these companies were in
fact just like the superior companies, they would not likely be cheaper. Poor
execution of a superior business rarely provides the return of the best
participant. The "just likes" will continue to say they are as good and the
analysts will say they are cheaper. We will continue to visit many of these
companies in the chance that maybe things really are different or a management
change has resulted in brighter prospects.
SWOOSH!
Technologically challenged as we are, we are unable to place the Nike "swoosh"
at the beginning of this paragraph. Had we done so, most of you would know what
it represents. We believe Nike is an undervalued company with many of the
characteristics that may allow it to one day enter the sanctity of our core
holdings. Not yet! It will take us a long period and many trips to Nike, its
competitors, its retailers and its suppliers to know if this company possesses
all the requirements to become part of this class. Nike may in fact already be a
global super-brand, but your managers, being slow to learn, will need more time
and more work to be hit between the eyes. We do believe our significant position
bought at recent prices affords us a solid company meeting our undervalued
requirements. If we are correct in our early thoughts on Nike, we will
experience substantial returns for many years. If we are wrong, we believe we
have a reasonably undervalued company with limited downside and good potential
returns. We will not know the answer for some time.
Nike is followed by a group of Wall Street analysts who follow the footwear,
textile and apparel industries. If Nike were followed by the personal care
products analysts or the consumer non-durable analysts, we believe it would
never have gotten as cheap as it has recently. Nike's dominance and strength in
the United States has resulted in phenomenal growth for the last few years.
Growth in recent years reached rates which were simply not sustainable on such a
large base of business. We suppose analysts would have preferred a lot less
success at slower rates.
Nike has built its brand rapidly. We do expect competitors to emerge over time,
though we would seriously challenge any predictions of the demise of Nike in the
foreseeable future. Nike's footwear, apparel and equipment platform across
different sports and over an ever-increasing global base gives them a true
competitive advantage. Such leadership is not always clear early in the game but
emerges as companies do things that the others cannot because of capital
constraints or earnings. Nike's international platform is virtually unmatchable
by its competitors. Nike is experiencing results in overseas markets that even
our global super-brands only dream about. Nike will double its revenues in Japan
this year after a phenomenal year last year. Such results are both unique and
unprecedented in the Japanese market. Our discussions with AFLAC, Coke,
Gillette, Interpublic Group, Avon Products and R. P. Scherer underscore our
conviction of the superiority of the Nike model and our belief that these
results are phenomenal. Similar results are occurring around the world in other
markets and as we test normal expectations for those markets with many of our
other global players we continue to be amazed at the strength and growth at
Nike.
<PAGE>
Nike's management, led by Phil Knight, thinks about the business along the same
lines as many of the great companies we respect. "Share of mind" for Nike (much
like Disney or Coke or Gillette) is reflected as they track per capita spending
in various countries around the world. Nike is not satisfied to sit back,
produce shoes and fill retailers' demand. They actively participate in the
development of new systems, stores and merchandising to teach the retailer how
to better sell their products. This dissatisfaction with the status quo is
another mark of a great company. Nike's plan of athlete compensation is
rational, well thought out and well executed as they always seek the mantle of
authenticity. As Nike expands its global business, economies of scale become
evident in the cost of endorsements, marketing, distribution and research and
development. This strategy should serve to widen the moat around their
franchise.
Consider the risk to Fila when the large sums paid to Grant Hill cannot be
amortized over a large enough business. Reebok's payments to Allen Iverson
appear risky. Nike's strategy is focused and, with a group of athletes, has less
risk from big name individuals. Michael Jordan's Jump Man shoe is already
recognized as a separate brand name with no Nike logo at all. Multiple brands
confuse the competitors and retain shelf space. Nike will work with Tiger Woods
to launch a major platform transcending golf. Soccer is a new target and as Nike
combines major endorsements (Brazilian national soccer team and many others)
with a global business platform and improved shoe technology, we believe they
will execute their well planned, long term assault on soccer - the most popular
sport in the world. Competitors with isolated strengths in disparate categories
or countries will be unable to spend the dollars necessary to battle with Nike.
We believe the competitors will be relegated to country strengths or single shoe
category strengths as it becomes a matter of time before the Nike "juggernaut"
turns its attention their way. Nike's vast resources, marketing expertise and
global execution skills will continue to thrust it to the lead.
In Closing
Many investors (both professional and lay) worry about what is going to go up
next so they can buy. They seek momentum as a place to catch the trend of rising
prices. Capital is allocated with an eye on the exit and happiness is achieved
if momentum carries the day. Experienced, seasoned professionals now spend much
of their time trying to determine what will go up next or into what sectors
money will flow. We spend our time trying to determine what businesses are
worth. We care only if the business model is sound, management is adept and we
can purchase at a discount. We judge the managers of our companies not by the
increase or decrease in their stock price, but by the fair and rational measure
of increases or decreases in underlying business value. Those changes in
enterprise value are within our management's control and those results are the
basis for our judgment. We have no interest in management that spends more time
promoting than it does running the business - they should be managers, not
promoters.
Over time our methodology has produced above average returns. We believe it will
continue to do so. When (not if) the markets become more challenging, we believe
owners of companies that have demonstrated an ability to increase business
values will shine. Flow of funds, momentum investing and the like are not our
cup of tea. We believe such investment strategies will leave many people trying
to find a chair when the music stops. We and our investors will own good
businesses with good management and we will have purchased those investments at
attractive prices. Markets will fluctuate and will decline, but you have
entrusted your capital to managers making informed rational business decisions
based on proven principles. When declines occur we will all suffer, but the
soundness of our philosophy and the quality our businesses and their management
should provide us comfort and continued long term success. Thank you for your
confidence and support.
Sincerely,
/s/ David R. Carr, Jr.
David R. Carr, Jr.
Co-Manager
/s/ George W. Brumley, III
George W. Brumley, III
Co-Manager
<PAGE>
OAK VALUE FUND
PERFORMANCE INFORMATION
===============================================================================
OAK VALUE FUND
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
A Representation of the Graphic Material Contained in the Oak Value Fund
June 30, 1997 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
<TABLE>
LINE CHART:
STANDARD & POOR'S 500 INDEX: OAK VALUE FUND:
<CAPTION>
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
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
09/30/96 3.09% 17,341 09/30/96 7.43% 18,483
12/31/96 8.34% 18,786 12/31/96 8.08% 19,976
03/31/97 2.68% 19,290 03/31/97 0.34% 20,045
06/30/97 17.46% 22,657 06/30/97 19.83% 24,020
<CAPTION>
LIPPER GROWTH FUND INDEX:
QTRLY
DATE RETURN BALANCE
<S> <C> <C>
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 2.46% 11,030
03/31/94 -2.99% 10,700
06/30/94 -2.20% 10,465
09/30/94 4.91% 10,978
12/31/94 -1.11% 10,857
03/31/95 7.23% 11,642
06/30/95 10.70% 12,888
09/30/95 9.08% 14,058
12/31/95 2.45% 14,402
03/31/96 4.51% 15,051
06/30/96 3.33% 15,552
09/30/96 2.82% 15,991
12/31/96 5.80% 16,919
03/31/97 -0.34% 16,861
06/30/97 15.80% 19,525
Past performance is not predictive of future performance.
Oak Value Fund Average Annual Total Returns
As of June 30, 1997
1 Year Since Inception*
39.60% 21.76%
<FN>
*Inception date of the Oak Value Fund was January 18, 1993.
</FN>
</TABLE>
<TABLE>
NON-STANDARDIZED TOTAL RETURNS
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
YEAR-TO-DATE SINCE
CALENDAR CALENDAR CALENDAR CALENDAR 1997 INCEPTION*
1993* 1994 1995 1996 (AS OF 6/30/97) (AS OF 6/30/97)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Oak Value Fund............... 22.04% -1.54% 28.89% 28.99% 20.24% 140.20%
Lipper Growth Fund Index..... 10.30% -1.57% 32.65% 17.48% 15.40% 95.25%
S&P 500 Index................ 9.60% 1.32% 37.58% 22.96% 20.61% 126.57%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED JUNE 30, 1997
SINCE
SIX MONTHS(A) ONE YEAR THREE YEARS INCEPTION*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Oak Value Fund..................................... 20.24% 39.60% 26.67% 21.76%
Lipper Growth Fund Index........................... 15.40% 25.55% 23.11% 16.23%
S&P 500 Index...................................... 20.61% 34.70% 28.86% 20.18%
<FN>
* Inception date of the Oak Value Fund was January 18, 1993.
(A) Unannualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
============================================================================================================
<CAPTION>
<S> <C>
ASSETS
Investments in securities at value (Note 1) (acquisition cost of $54,891,777)............... $ 70,915,067
Investments in repurchase agreements (Note 1)............................................... 14,520,000
Cash ....................................................................................... 605
Receivable for capital shares sold.......................................................... 992,719
Dividends receivable........................................................................ 51,051
Interest receivable......................................................................... 2,117
Organization expenses, net (Note 1)......................................................... 3,749
Other assets................................................................................ 12,031
--------------
TOTAL ASSETS........................................................................... 86,497,339
--------------
LIABILITIES
Payable for securities purchased............................................................ 3,627,794
Distributions payable....................................................................... 73,799
Payable for capital shares redeemed......................................................... 53,139
Payable to affiliates (Note 3).............................................................. 68,146
Other accrued expenses and liabilities...................................................... 13,049
--------------
TOTAL LIABILITIES........................................................................ 3,835,927
--------------
NET ASSETS ................................................................................. $ 82,661,412
==============
Net assets consist of:
Paid-in capital............................................................................. $ 66,626,124
Accumulated net realized gains from security transactions................................... 11,998
Net unrealized appreciation on investments.................................................. 16,023,290
--------------
Net assets.................................................................................. $ 82,661,412
==============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value)................................................................ 4,006,713
==============
Net asset value, offering price and redemption price per share (Note 1)..................... $ 20.63
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
OAK VALUE FUND
STATEMENT OF OPERATIONS
Year Ended June 30, 1997
============================================================================================================
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends................................................................................ $ 367,040
Interest................................................................................. 190,964
--------------
TOTAL INVESTMENT INCOME................................................................ 558,004
--------------
EXPENSES
Investment advisory fees (Note 3)........................................................ 349,761
Administrative services fees (Note 3).................................................... 70,604
Registration fees........................................................................ 56,661
Accounting services fees (Note 3)........................................................ 25,000
Professional fees........................................................................ 23,834
Postage and supplies..................................................................... 22,287
Trustees' fees and expenses.............................................................. 21,835
Shareholder services and transfer agent fees (Note 3).................................... 19,201
Insurance expense........................................................................ 12,075
Custodian fees........................................................................... 10,062
Amortization of organization expenses (Note 1)........................................... 4,000
Other expenses........................................................................... 4,525
--------------
TOTAL EXPENSES......................................................................... 619,845
--------------
NET INVESTMENT LOSS ........................................................................ (61,841)
--------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions............................................ 1,928,590
Net change in unrealized appreciation/depreciation on investments........................ 12,758,225
--------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........................................... 14,686,815
--------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................................. $ 14,624,974
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
OAK VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1997 and 1996
=============================================================================================================
<CAPTION>
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1997 1996
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment loss................................................... $ (61,841) $ (60,405)
Net realized gains from security transactions......................... 1,928,590 926,281
Net change in unrealized appreciation/depreciation on investments..... 12,758,225 2,549,944
-------------- ---------------
Net increase in net assets from operations............................... 14,624,974 3,415,820
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains from security transactions.................... (2,635,872) (92,392)
-------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS(A):
Proceeds from shares sold............................................. 51,487,814 10,044,743
Net asset value of shares issued in reinvestment
of distributions to shareholders.................................... 2,518,348 89,729
Payments for shares redeemed.......................................... (5,399,389) (1,642,431)
-------------- ---------------
Net increase in net assets from capital share transactions............... 48,606,773 8,492,041
-------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................ 60,595,875 11,815,469
NET ASSETS:
Beginning of year..................................................... 22,065,537 10,250,068
-------------- ---------------
End of year........................................................... $ 82,661,412 $ 22,065,537
============== ===============
(a)Summary of capital share activity:
Shares sold........................................................... 2,752,396 681,397
Shares issued in reinvestment of distributions to shareholders........ 132,044 6,382
Shares redeemed....................................................... (290,774) (115,378)
-------------- ---------------
Net increase in shares outstanding.................................... 2,593,666 572,401
Shares outstanding, beginning of year................................. 1,413,047 840,646
-------------- ---------------
Shares outstanding, end of year....................................... 4,006,713 1,413,047
============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout Each Period
<CAPTION>
================================================================================================================
FOR THE PERIOD
YEAR YEAR TEN MONTHS YEAR JANUARY 18,
ENDED ENDED ENDED ENDED 1993(B) TO
JUNE 30, JUNE 30, JUNE 30, AUG. 31, AUG. 31,
1997 1996 1995(A) 1994 1993
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period.......... $ 15.62 $ 12.19 $ 12.50 $ 10.96 $ 10.00
---------- --------- ---------- --------- -----------
Income from investment operations:
Net investment loss.......................... ( 0.02) ( 0.04) ( 0.05) ( 0.02) ( 0.03)
Net realized and unrealized gains
on investments............................. 6.06 3.57 0.55 1.78 0.99
---------- --------- ---------- --------- -----------
Total from investment operations................ 6.04 3.53 0.50 1.76 0.96
---------- --------- ---------- --------- -----------
Less distributions:
From net realized gains from
security transactions...................... ( 1.03) ( 0.10) ( 0.81) ( 0.22) --
---------- --------- ---------- --------- -----------
Net asset value at end of period................ $ 20.63 $ 15.62 $ 12.19 $ 12.50 $ 10.96
========== ========= ========== ========= ===========
Total return.................................... 39.60% 29.04% 5.78%(d) 16.07% 16.11%(d)
========== ========= ========== ========= ===========
Net assets at end of period (000's)............. $ 82,661 $ 22,066 $ 10,250 $ 8,769 $ 1,890
========== ========= ========== ========= ===========
Ratio of net expenses to average net assets(c).. 1.59% 1.90% 1.89%(d) 1.89% 2.19% (d)
Ratio of net investment loss to average
net assets.................................... ( 0.16%) (0.43%) (0.53%)(d) (0.58%) (0.81%)(d)
Portfolio turnover rate ........................ 22% 58% 103%(d) 91% 43% (d)
Average commission rate per share............... $ .0593 $ -- $ -- $ -- $ --
<FN>
(a) Effective July 1, 1995, the Fund was reorganized and changed its fiscal
year end from August 31 to June 30.
(b) Commencement of operations.
(c) 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.
(d) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS
June 30, 1997
<CAPTION>
==============================================================================================================
MARKET
SHARES COMMON STOCKS -- 85.8% VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
ADVERTISING -- 4.9%
35,550 Interpublic Group Companies, Inc........................................... $ 2,179,659
76,225 True North Communications Inc.............................................. 1,886,569
---------------
4,066,228
---------------
BEVERAGES --1.9%
23,200 Coca-Cola Company.......................................................... 1,566,000
---------------
BROADCASTING -- 6.3%
60,475 Jacor Communications, Inc. (a) ........................................... 2,313,169
66,225 LIN Television Corporation(a) ............................................. 2,922,178
---------------
5,235,347
---------------
CONGLOMERATE -- 5.9%
76 Berkshire Hathaway, Inc., Class A(a) ...................................... 3,587,200
799 Berkshire Hathaway, Inc., Class B(a) ...................................... 1,262,420
---------------
4,849,620
---------------
CONSUMER PRODUCTS-- 6.6%
30,250 Avon Products, Inc......................................................... 2,134,516
56,325 Nike, Inc., Class B........................................................ 3,287,972
---------------
5,422,488
---------------
ENTERTAINMENT -- 4.6%
47,401 The Walt Disney Company.................................................... 3,803,930
---------------
FINANCIAL INSTITUTIONS -- 3.6%
2,500 Associates First Capital Corporation ...................................... 138,750
24,325 Household International, Inc. ............................................. 2,856,667
---------------
2,995,417
---------------
HEALTHCARE/PHARMACEUTICAL -- 6.7%
107,150 R. P. Scherer Corporation(a) .............................................. 5,531,619
---------------
INFORMATION SERVICES -- 1.4%
45,425 Dun & Bradstreet Corporation .............................................. 1,192,406
---------------
INSURANCE - ACCIDENT & HEALTH -- 2.4%
41,975 AFLAC, Inc................................................................. 1,983,319
---------------
INSURANCE - PROPERTY & CASUALTY -- 17.1%
109,475 Acceptance Insurance Companies, Inc.(a) ................................... 2,490,556
22,490 Markel Corporation(a) ..................................................... 2,878,720
35,900 Progressive Corporation ................................................... 3,123,300
153,000 RLI Corporation ........................................................... 5,574,938
---------------
14,067,514
---------------
INSURANCE - REINSURANCE -- 2.4%
11,000 General Re Corporation .................................................... 2,002,000
---------------
<PAGE>
<CAPTION>
OAK VALUE FUND (Continued)
==============================================================================================================
MARKET
SHARES COMMON STOCKS -- 85.8% VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
MANUFACTURED HOUSING -- 4.1%
141,100 Oakwood Homes Corporation.................................................. $ 3,386,400
---------------
MEDIA -- 13.9%
69,033 Pulitzer Publishing Company................................................ 3,658,749
97,325 Scripps (E.W.) Company..................................................... 4,051,153
9,485 Washington Post Company, Class B........................................... 3,775,030
---------------
11,484,932
---------------
MORTGAGE BANKING -- 2.1%
50,200 Federal Home Loan Mortgage Corporation..................................... 1,725,625
---------------
PERSONAL CARE/COSMETICS -- 1.9%
16,910 Gillette Company........................................................... 1,602,222
---------------
TOTAL COMMON STOCKS (COST $54,891,777) .................................... $ 70,915,067
---------------
<CAPTION>
==============================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS(B) -- 17.6% VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
$ 14,520,000 Star Bank, N.A., 5.25%, dated 06/30/97, due 07/01/97,
repurchase proceeds $14,522,118 (Cost $14,520,000)...................... $ 14,520,000
---------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 103.4% ............. $ 85,435,067
LIABILITIES IN EXCESS OF OTHER ASSETS-- ( 3.4% ) .......................... ( 2,773,655 )
---------------
NET ASSETS-- 100.0% ....................................................... $ 82,661,412
===============
<FN>
(a) Non-income producing security.
(b) Repurchase agreement is fully collateralized by U.S. Government
obligations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
==============================================================================
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, 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.
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 is 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.
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.
<PAGE>
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 30,1997:
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------
Gross unrealized appreciation........................ $ 16,137,805
Gross unrealized depreciation........................ (117,489)
--------------
Net unrealized appreciation.......................... $ 16,020,316
==============
- -----------------------------------------------------------------------
</TABLE>
The tax basis of investments for the Fund as of June 30, 1997 was $54,894,751.
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 $61,841 for 1997 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 $45,538,764 and $8,038,083
respectively, for the year ended June 30, 1997.
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Oak Value
Capital Management, Inc. (the Adviser) or Countrywide Fund Services, Inc. (CFS),
formerly MGF Service Corp., 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 0.90% of the Fund's average daily net assets.
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement with the Trust, CFS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services for the Fund. CFS
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, CFS 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, CFS 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, CFS 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, CFS
calculates the daily net asset value per share and maintains the financial books
and records of the Fund. For these services, CFS receives a monthly fee from the
Fund. In addition, the Fund pays certain out-of-pocket expenses incurred by CFS
in obtaining valuations for the Fund's portfolio securities.
<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, 1997, the related
statement of operations for the year then ended, and the statements of changes
in net assets for the periods indicated thereon, and financial highlights for
each of the three periods in the period then ended. 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 were
audited by other auditors whose report thereon dated October 20, 1994, expressed
an unqualified opinion on those financial highlights. The financial highlights
for the period from January 18, 1993 to August 31, 1993 were audited by other
auditors whose report thereon dated September 24, 1993, expressed an unqualified
opinion 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, 1997, 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, 1997, the results of
its operations for the year then ended, and the changes in its net assets for
the periods indicated thereon and the financial highlights for each of the three
periods in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
July 23, 1997
<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
Countrywide Fund Services, Inc.
312 Walnut Street
P.O. Box 5354
Cincinnati, OH 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>
ANNUAL REPORT
JUNE 30,1997
GRAPHIC: OAK VALUE FUND
GRAPHIC: MEMBER OF 100% NO-LOAD MUTUAL FUND COUNCIL
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000941722
<NAME> OAK VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 69,411,777
<INVESTMENTS-AT-VALUE> 85,435,067
<RECEIVABLES> 1,045,887
<ASSETS-OTHER> 15,780
<OTHER-ITEMS-ASSETS> 605
<TOTAL-ASSETS> 86,497,339
<PAYABLE-FOR-SECURITIES> 3,627,794
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 208,133
<TOTAL-LIABILITIES> 3,835,927
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,626,124
<SHARES-COMMON-STOCK> 4,006,713
<SHARES-COMMON-PRIOR> 1,413,047
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,998
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,023,290
<NET-ASSETS> 82,661,412
<DIVIDEND-INCOME> 367,040
<INTEREST-INCOME> 190,964
<OTHER-INCOME> 0
<EXPENSES-NET> 619,845
<NET-INVESTMENT-INCOME> (61,841)
<REALIZED-GAINS-CURRENT> 1,928,590
<APPREC-INCREASE-CURRENT> 12,758,225
<NET-CHANGE-FROM-OPS> 14,624,974
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,635,872
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,752,396
<NUMBER-OF-SHARES-REDEEMED> 290,774
<SHARES-REINVESTED> 132,044
<NET-CHANGE-IN-ASSETS> 60,595,875
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 777,121
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 349,761
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 619,845
<AVERAGE-NET-ASSETS> 39,064,712
<PER-SHARE-NAV-BEGIN> 15.62
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 6.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.63
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
