Semi-Annual Report
December 31, 1996
(Unaudited)
OAK VALUE FUND
Member of 100% No-Load Mutual Fund Council
<PAGE>
LETTER TO SHAREHOLDERS February 14, 1997
==============================================================================
The Oak Value Fund has continued its trend of superior performance and growth
during the first half of the 1997 fiscal year. The Fund achieved several major
milestones during this period. These milestones included:
- - CONTINUED ASSET GROWTH - The total assets of the Fund have increased from
$22.1 million on June 30, 1996 to more than $31.9 million on December 31,
1996. Total shareholders in the Fund increased from 720 to 886 over the
same period.
- - REDUCED EXPENSE RATIO - As a result of the continued growth of the Fund,
the total expense ratio of the Fund has been reduced to 1.75% of average
net assets on an annualized basis for the six month period ended December
31, 1996. Continued growth in the Fund's assets will likely result in
further reductions in the expense ratio. The current accrual rate for
expenses of the Fund is 1.55%.
- - EXPANDED AVAILABILITY THROUGH MUTUAL FUND MARKETPLACES - In October, the
Fund expanded its existing relationship with Fidelity resulting in
availability of the Fund to all of Fidelity's more than four million
retail and institutional customers. Effective January 27, 1997, the Fund
became available through the Schwab Mutual Fund OneSource(R) service.
These relationships represent two of the largest mutual fund marketplaces
in the country.
- - SUPERIOR PERFORMANCE - The Fund outperformed both the broad market as
measured by the S&P 500 Index and its peer group as measured by the Lipper
Growth Fund Index for this period. The Fund also outperformed these
benchmarks for the one year period ending December 31, 1996 and since the
Fund's inception.
Listed below is a comparison of the Fund's performance versus the S&P 500
Index and the Lipper Growth Index for the periods ended December 31, 1996:
Six One Three Since
Months Year Years* Inception*
Oak Value Fund.... 16.10% 28.99% 17.85% 19.13%
Lipper Growth
Fund Index..... 8.79% 17.48% 15.33% 14.23%
S&P 500 Index..... 11.68% 22.96% 19.68% 17.29%
*Annualized.
We are very pleased with the Fund's exceptional returns for the last six
months, calendar year and since inception and are optimistic about long-term
prospects of superior businesses such as those held in the Fund. We continue
to find opportunities that represent attractive values, though these
opportunities are clearly more scarce than they were a year ago. If we are
confident of a business's value, its prospects and the availability of an
adequate margin of safety, we will allocate capital. Where we cannot find
value, we will hold cash. This decision is driven by the prices of the
businesses we wish to own and not by prices of other companies in the market.
If we want to buy oranges, we do not spend time watching the price of lumber.
We allocate capital only when we believe the business value we purchase will
offer us an attractive return over a reasonable period. Our benchmark for
management is the extent to which they create economic value for their
shareholders. History has shown that the market will reflect those increases
in economic value in the company's share price over the long term. Such may
not necessarily be the case over the short term. The management of the
businesses we own have proven their abilities to create and preserve economic
value year in and year out. We will not (and you should not) abandon hope if a
market downturn occurs. Our companies tend to be producers of capital, not
consumers of capital. Such positioning should provide their management with
the flexibility of buying attractive businesses within their circle of
competence or buying back their own businesses through stock repurchases in
periods of lower valuations.
It has been a busy year for the Oak Value team. Our research efforts
culminated in over 130 company visits. Our pursuit of value is based on the
application of proven principles through a rigorous process of hands on,
fundamental research. Central to this pursuit is our belief that we should
view investments in securities with the same diligence, thought process and
analysis that a rational businessperson would apply to the decision to
purchase an entire business. We have long maintained a relatively
straightforward position in this regard - "If we can't understand it, we can't
value it; if we can't value it, we shouldn't own it." We remain convinced that
on-site visits are one of the best mechanisms for our research team to
understand the businesses in which we invest. Understanding a business is
extremely important to our valuation process. As such, we visit companies we
<PAGE>
are invested in, companies we might want to invest in, competitors to both, as
well as suppliers and customers of our companies.
We are often asked how (and why) we trust management when we visit companies.
It is true that most companies put their best foot forward but, after hundreds
of visits, we believe we are better at identifying the fluff. Our best
management teams have helped to educate us immensely about their industries.
Visits and conversations with customers, suppliers to and competitors of the
companies under consideration often yield findings as valuable as those
obtained from the companies themselves. Management's long-term views and
objectives and their perspective of their capital allocation responsibilities
are very important. As owners of the business, we view management as stewards
of our capital. We expect them to think and act accordingly.
Though we tend to own companies which are based in the United States, our
research effort often takes us to other countries as we attempt to understand
the business' operations across the globe. In September, we were invited to
visit AFLAC's Japanese operations in Tokyo. In planning that trip, we also
decided to visit with Interpublic Group's operations in Hong Kong. We were the
only mutual fund portfolio managers to make the trip. All of the other
participants were analysts from various brokerage firms. Perhaps other fund
managers believe that second hand research is enough - we disagree. These
visits further confirmed our belief that these long-term holdings of the Fund
are truly great businesses with great management.
As we have said before, AFLAC is led by Dan Amos who we believe to be a
superior manager in a great business. We were also very impressed with AFLAC's
Japanese management team. We are amazed that AFLAC has created such a
powerhouse in twenty short years. AFLAC is one of the top ten insurance
companies in Japan and one of the strongest, if not the strongest. Most
investment portfolios of Japanese insurers consist predominantly of Japanese
real estate and holdings in the Japanese equity markets. Furthermore, these
assets are reported on their financial statements at cost as they cannot
afford to mark them to market because of the significant impairment of value
which would become apparent. AFLAC's investment portfolio, on the other hand,
consists predominantly of bonds, both government and corporate, which
represent much less risk. AFLAC has applied U.S. credit standards to the
process of building their investment portfolio. The result is a very strong
balance sheet at AFLAC. We believe AFLAC's superior distribution system and
its extensive use of technology have given the company a defined and
defensible competitive advantage relative to its Japanese competitors. This
superior positioning should continue to yield superior returns for AFLAC's
shareholders in the future.
Interpublic Group is one of our long term holdings in the advertising arena.
Our frequent meetings over recent years with Gene Beard, the Vice-Chairman and
CFO of the company, have convinced us of the power of this organization.
Interpublic operates over 175 advertising agencies in more than eighty
countries across the globe. We visited with Interpublic's Ammirati Puris
Lintas division in Hong Kong after we had completed our visit with AFLAC in
Tokyo. Lintas runs Interpublic's Chinese operations from Hong Kong. The visit
with Lintas gave us a birds-eye view of the advertising activity in emerging
markets. The knowledge we gathered had significant implications for our
holdings in Interpublic as well as other companies which have large operations
in those markets - namely Coca Cola, Gillette and Avon. We believe the
advertising business is a wonderful way for us to understand the challenges
and opportunities facing our companies that have significant foreign exposure.
The advertising business highlights the strengths of companies with strong
distribution networks and a solid plan for brand building on a global basis.
Advertising remains one of the few ways to build significant increases in
sales. The success of advertising is made clear as we watch many companies we
greatly respect pour additional funds into advertising to build and protect
their brands. The returns are real and advertising serves to widen the moat
around a strong company as the increases in absolute and relative advertising
budgets serve to widen the gap over the competition. This increasing
advertising phenomenon becomes self-fulfilling as increased sales lead to
increased advertising and the competitor must choose to drown in lower margins
or risk losing market share. We believe that just such a situation may be
developing between Coke and Pepsi as Coke's emphasis on advertising and brand
building may be so far ahead of the competition that catch up may be
impossible. The recent results from Pepsi may portend a situation where Pepsi
has lost the battle. We have felt the two companies were not comparable from a
business structure point of view for some time. If these early signs are
indicative of the depth of the competitor's problems, Coke may have improving
prospects for many years to come, even above our already high expectations.
<PAGE>
The advertising business is a great business as it acts as a toll booth on the
growth of global business. Interpublic's international platform will be of
increasing value and importance as multinational companies require a global
perspective and ability to execute their advertising strategies. The
advertising business produces large free cash flows, high returns on equity
and solid prospects when practiced in the format of Interpublic Group. Combine
that great business with Gene Beard's fanatical attention to cost controls and
masterful allocation of capital, and we sleep well at night (a high priority
for the Fund's managers and shareholders).
As we have continued to increase our exposure to The Walt Disney Co., we have
become ever more convinced that this company is truly a misunderstood
financial powerhouse on Wall Street. We recently had the opportunity for a
private meeting with Richard Nanula, the CFO of Disney, in his Burbank office.
We left the meeting extremely impressed with management's passion and vision
for the future of Disney. We are glad to be on board. Disney does not woo the
research community by spoon feeding the facts, but offers tidbits that give
glimpses into the machine that is Disney. All of our questions were responded
to in detail with pertinent facts and complete information. The challenge is
to ask the right questions. We do not believe Disney suffers the uninformed
easily. Company management enjoys some level of confusion by those who are too
lazy to fully search for the facts. Disney will use the opportunities such
situations provide to return capital to us at advantageous prices through
share repurchases when the market acts manic. We believe intrinsic value is
substantially higher than recent prices. As is often the case when investing
in great businesses with great management, purchasing shares at prices that
reflect an adequate margin of safety requires patience. We believe the future
free cash flow characteristics Disney will evidence may eventually force them
to adopt a regular, ongoing stock repurchase program.
The licensing of Disney characters is a business we would all love. The most
recent deal with Mattel calls for fees in the range of thirteen to fifteen
percent and Disney received warrants to buy two percent of Mattel. This
contract was for the major animated film product over the next three years.
These fees and profits are all additive to Disney with very little capital
devoted to the process, resulting in huge profit margins and wonderful returns
on capital. Mattel depends on Disney for almost a third of its business,
relegating it to the position of an addict who must pay or suffer major
economic losses. Obviously, the underlying economic transaction must be
extremely profitable to Mattel because it is in both companys' best interests
to have a healthy business relationship. Mattel told us during a recent visit
that the Disney line had a similar profit margin to the Barbie line because it
carried higher prices, was more predictable and required less advertising.
McDonalds gave Disney one hundred million dollars for an exclusive ten year
contract for the "right" to use Disney products. The contract requires massive
advertising by McDonalds. All of that advertising inures to the benefit of
Disney through ticket sales, consumer product sales and awareness of the
characters.
In many ways this business model is comparable to that of Coke where others
spend the capital to put profits in the parent's pocket. Mother Coke sells
syrup while the bottlers worldwide buy equipment, trucks and bottles. Syrup is
very profitable. Mattel, McDonalds and a myriad of other businesses spend
capital while Disney benefits with increased profits and high returns on
employed capital. Superior business models work that way. Make no mistake,
when someone cuts you a check just for the right to further your ends, the
profit margin and the return on investment of that revenue stream is very
high. A superior business model with a dominant franchise and a "driven to
win" attitude make Disney another Oak Value favorite.
Our ownership in newspapers and television stations continues in the same vain
as a virtual tax on the growth of business in the U.S. As we anticipated in
our last writing to you, newsprint prices have declined providing our
newspaper holdings increased margins. Furthermore, these companies will
continue to enjoy the efficiencies wrung out by management during the period
of higher newsprint prices. They will also benefit from the fact that
advertising rates have held at the higher levels which were generated to
offset the higher newsprint prices. We are amazed at times that we can buy
shares of E.W. Scripps and own a part of that wonderful group of businesses
run by truly outstanding management. Scripps continues to provide wonderful
returns and impress us with their ability to allocate capital.
RLI Corp. is a new position which we hope will become a long-term holding of
the Fund. Gerald Stephens has compounded returns for shareholders at very
attractive rates for many years. RLI's insurance products include commercial
property, commercial liability and DIC (earthquake insurance). Stephens and
<PAGE>
his team understand both the underwriting and investing opportunities and
challenges of a specialty property and casualty insurer. We are extremely
impressed with their long-term performance of their investment portfolio. We
believe RLI will provide us with great returns for years to come. We certainly
hope earthquakes in California rest a little while so we can compound our
value, but we are cognizant that the earthquake business is one of high
severity and low frequency. We believe RLI is well positioned to take
advantage of the pricing in the DIC business and has their exposure well under
control.
Other new positions added to the Fund during the past six months include
Cincinnati Financial and Dun and Bradstreet, both of which represent
undervalued companies we believe will provide us with attractive returns and
little downside risk over a reasonable period of time. Neither of these are
likely to become long-term holdings and are subject to dislocation if we find
a superior place to invest the capital. Household International is a leading
consumer finance company whose primary business is that of lending smaller
amounts at higher rates. We are quite impressed with the management team and
believe the shares are undervalued at recent prices. Our investment in
Household is a relatively small one and reflects our desire to scale into this
company slowly given the recent move in stock price and the choppy credit
waters.
We disposed of positions in Armor All Products and the New York Times Co.
during the past months. Armor All was eventually bought out, but at a price
below that which we had originally anticipated. We sold early as we believed
the business was deteriorating and we had better uses for the capital. We
earned an acceptable return on the position while we held it. We believed
Armor All exhibited a deep discount from its intrinsic value with a high
dividend yield and a willing seller as a majority owner. New York Times also
left the portfolio as we decided we had three of the best publishers in E. W.
Scripps, The Washington Post and Pulitzer Publishing. We had doubts about the
ability of management of the New York Times to make the tough decisions about
employment cuts at The Boston Globe. While we certainly wish the management
team at the Times well, we chose to allocate our capital to other investments.
The market will go down some time in the future. It is even probable that
future downturns in the market may be more protracted than the quick
corrections and recoveries of the recent past. If the market does experience a
correction, our stock prices will suffer. As long-term investors, we will
remain focused on the economic value of businesses as short-term price
movements will likely be no reflection of changes in underlying economic
value. We will not change what we do. The markets allow us to choose from a
vast array of good businesses and to become partners with truly superior
management teams. We are extremely pleased with the companies we own and are
confident that the underlying businesses they represent will produce above
average returns for our shareholders over the long term. We thank you for your
vote of confidence.
Sincerely,
/s/ David R. Carr, Jr.
David R. Carr, Jr.
Co-Manager
/s/ George W. Brumley
George W. Brumley, III
Co-Manager
<PAGE>
OAK VALUE FUND
PERFORMANCE INFORMATION
==============================================================================
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>
<CAPTION>
Oak Value S&P 500 Lipper Growth
Fund Index Index
<S> <C> <C> <C>
1/93 10000 10000 10000
10353 10393 10127
6/93 10357 10443 10272
11442 10711 10765
12/93 12204 10960 11008
11611 10544 10679
6/94 11818 10588 10444
12472 11106 10957
12/94 12015 11104 10834
13157 12186 11618
6/95 13334 13350 12861
14712 14411 14028
12/95 15487 15272 14244
16633 16098 14887
6/96 17206 16821 15383
18483 17341 15816
12/96 19976 18786 16919
Past performance is not predictive of future performance.
Oak Value Fund
Average Annual Total Returns
as of December 31, 1996
1 Year Since Inception*
28.99% 19.13%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURNS
- --------------------------------------------------------------------------------------------------------------
SINCE
CALENDAR CALENDAR CALENDAR CALENDAR INCEPTION*
1993* 1994 1995 1996 (AS OF 12/31/96)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oak Value Fund.......................... 22.04% -1.54% 28.89% 28.99% 99.76%
Lipper Growth Fund Index................ 10.30% -1.57% 32.65% 17.48% 69.19%
S&P 500 Index........................... 9.60% 1.32% 37.58% 22.96% 87.86%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED DECEMBER 31, 1996
SINCE
SIX MONTHS(A) ONE YEAR THREE YEARS INCEPTION*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oak Value Fund..................................... 16.10% 28.99% 17.85% 19.13%
Lipper Growth Fund Index........................... 8.79% 17.48% 15.33% 14.23%
S&P 500 Index...................................... 11.68% 22.96% 19.68% 17.29%
<FN>
* Inception date of the Oak Value Fund was January 18, 1993.
(A) Unannualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
============================================================================================================
<S> <C>
ASSETS
Investments in securities at value (Note 1) (acquisition cost of $24,643,055)............... $ 31,558,208
Investments in repurchase agreements (Note 1)............................................... 111,000
Cash ....................................................................................... 250
Receivable for securities sold.............................................................. 120,142
Receivable for capital shares sold.......................................................... 309,216
Dividends receivable........................................................................ 22,865
Organization expenses, net (Note 1)......................................................... 5,749
Other assets................................................................................ 15,781
---------------
TOTAL ASSETS............................................................................. 32,143,211
---------------
LIABILITIES
Payable for capital shares redeemed......................................................... 135,054
Payable to affiliates (Note 3).............................................................. 33,415
Other accrued expenses...................................................................... 1,926
---------------
TOTAL LIABILITIES........................................................................ 170,395
---------------
NET ASSETS ................................................................................. $ 31,972,816
===============
Net assets consist of:
Capital shares.............................................................................. $ 24,937,135
Accumulated net investment loss............................................................. ( 54,921 )
Accumulated net realized gains from security transactions................................... 175,449
Net unrealized appreciation on investments.................................................. 6,915,153
---------------
Net assets.................................................................................. $ 31,972,816
===============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value)................................................................ 1,828,204
===============
Net asset value, offering price and redemption price per share (Note 1)..................... $ 17.49
===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1996 (Unaudited)
=============================================================================================================
<S> <C>
INVESTMENT INCOME
Dividends................................................................................ $ 144,296
Interest................................................................................. 34,983
---------------
TOTAL INVESTMENT INCOME................................................................ 179,279
---------------
EXPENSES
Investment advisory fees (Note 3)........................................................ 119,553
Administrative services fees (Note 3).................................................... 26,222
Registration fees........................................................................ 25,262
Accounting services fees (Note 3)........................................................ 12,000
Professional fees........................................................................ 10,954
Postage and supplies..................................................................... 8,144
Shareholder services and transfer agent fees (Note 3).................................... 6,851
Trustees' fees and expenses.............................................................. 6,811
Insurance expense........................................................................ 6,003
Printing of shareholder reports.......................................................... 5,262
Custodian fees........................................................................... 4,479
Amortization of organization expenses (Note 1)........................................... 2,000
Other expenses........................................................................... 659
---------------
TOTAL EXPENSES......................................................................... 234,200
---------------
NET INVESTMENT LOSS ........................................................................ ( 54,921 )
---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions............................................ 466,434
Net change in unrealized appreciation/depreciation on investments........................ 3,650,088
---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........................................... 4,116,522
---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................................. $ 4,061,601
===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1996 and June 30, 1996
==============================================================================================================
SIX MONTHS
ENDED YEAR
DECEMBER 31, ENDED
1996 JUNE 30,
(UNAUDITED) 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss................................................... $ ( 54,921 ) $ ( 60,405 )
Net realized gains from security transactions......................... 466,434 926,281
Net change in unrealized appreciation/depreciation on investments..... 3,650,088 2,549,944
-------------- ---------------
Net increase in net assets from operations............................... 4,061,601 3,415,820
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains from security transactions.................... ( 1,068,106 ) ( 92,392 )
-------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS(A):
Proceeds from shares sold............................................. 7,409,108 10,044,743
Net asset value of shares issued in reinvestment
of distributions to shareholders.................................... 1,024,381 89,729
Payments for shares redeemed.......................................... ( 1,519,705 ) ( 1,642,431 )
-------------- ---------------
Net increase in net assets from capital share transactions............... 6,913,784 8,492,041
-------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................ 9,907,279 11,815,469
NET ASSETS:
Beginning of period................................................... 22,065,537 10,250,068
-------------- ---------------
End of period......................................................... $ 31,972,816 $ 22,065,537
============== ===============
(a)Summary of capital share activity:
Shares sold........................................................... 445,409 681,397
Shares issued in reinvestment of distributions to shareholders........ 59,626 6,382
Shares redeemed....................................................... ( 89,878 ) ( 115,378 )
-------------- ---------------
Net increase in shares outstanding.................................... 415,157 572,401
Shares outstanding, beginning of period............................... 1,413,047 840,646
-------------- ---------------
Shares outstanding, end of period..................................... 1,828,204 1,413,047
============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout Each Period
================================================================================================================
SIX MONTHS FOR THE PERIOD
ENDED YEAR TEN MONTHS YEAR JANUARY 18,
DEC. 31, ENDED ENDED ENDED 1993(A) TO
1996 JUNE 30, JUNE 30, AUG. 31, AUG. 31,
(UNAUDITED) 1996 1995 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.......................... ( 0.03) ( 0.04) ( 0.05) ( 0.02 ) ( 0.03 )
Net realized and unrealized
gains on investments........................ 2.53 3.57 0.55 1.78 0.99
---------- --------- ---------- --------- -----------
Total from investment operations................ 2.50 3.53 0.50 1.76 0.96
---------- --------- ---------- --------- -----------
Less distributions:
From net realized gains...................... ( 0.63) ( 0.10) ( 0.81) ( 0.22 ) --
---------- --------- ---------- --------- -----------
Net asset value at end of period................ $ 17.49 $ 15.62 $ 12.19 $ 12.50 $ 10.96
========== ========= ========== ========= ===========
Total return.................................... 31.95%(c) 29.04% 5.78%(c) 16.07% 16.11% (c)
========== ========= ========== ========= ===========
Net assets at end of period (000's)............. $ 31,973 $ 22,066 $ 10,250 $ 8,769 $ 1,890
========== ========= ========== ========= ===========
Ratio of expenses to average net assets(b) ..... 1.75%(c) 1.90% 1.89%(c) 1.89% 2.19% (c)
Ratio of net investment loss to average net assets ( 0.41%)(c) (0.43%) (0.53%)(c) (0.58%) (0.81%)(c)
Portfolio turnover rate (annualized)............ 28%(c) 58% 103% (c) 91% 43% (c)
Average commission rate paid by Fund per share traded $ .0559 $ -- $ -- $ -- $ --
<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.
(c) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
=============================================================================================================
MARKET
SHARES COMMON STOCKS -- 98.7% VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADVERTISING -- 3.8%
25,550 Interpublic Group Companies, Inc........................................... $ 1,213,625
---------------
BEVERAGES -- 3.2%
19,200 Coca-Cola Company.......................................................... 1,010,400
---------------
BROADCASTING -- 4.7%
35,900 LIN Television Corporation(a) ............................................. 1,516,775
---------------
CONGLOMERATE -- 7.6%
71 Berkshire Hathaway, Inc., Class A(a) ...................................... 2,421,100
---------------
CONSUMER PRODUCTS -- 3.8%
21,250 Avon Products, Inc......................................................... 1,213,906
---------------
ENTERTAINMENT -- 6.4%
29,526 The Walt Disney Company.................................................... 2,055,748
---------------
FINANCIAL INSTITUTIONS -- 6.4%
27,050 American Express Company................................................... 1,528,325
2,500 Associates First Capital Corporation ...................................... 110,313
4,500 Household International, Inc. ............................................. 415,125
---------------
2,053,763
---------------
HEALTHCARE/PHARMACEUTICAL -- 7.1%
45,450 R. P. Scherer Corporation(a) .............................................. 2,283,863
---------------
HOUSEHOLD PRODUCTS -- 2.7%
9,325 Colgate-Palmolive Company ................................................. 860,231
---------------
INFORMATION SERVICES -- 3.4%
45,425 Dun & Bradstreet Corporation .............................................. 1,078,844
---------------
INSURANCE - ACCIDENT & HEALTH -- 4.9%
36,425 AFLAC, Inc................................................................. 1,557,169
---------------
INSURANCE - PROPERTY & CASUALTY -- 17.7%
70,025 Acceptance Insurance Companies, Inc.(a) ................................... 1,382,994
13,500 Cincinnati Financial Corporation .......................................... 875,812
16,890 Markel Corporation(a) ..................................................... 1,520,100
7,000 Progressive Corporation ................................................... 471,625
42,200 RLI Corporation ........................................................... 1,408,425
---------------
5,658,956
---------------
MANUFACTURED HOUSING -- 4.7%
65,700 Oakwood Homes Corporation.................................................. 1,502,887
---------------
<PAGE>
<CAPTION>
OAK VALUE FUND (Continued)
============================================================================================================
MARKET
SHARES COMMON STOCKS -- 98.7% VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEDIA -- 12.9%
29,833 Pulitzer Publishing Company................................................ $ 1,383,505
43,325 Scripps (E.W.) Company..................................................... 1,516,375
3,690 Washington Post Company, Class B........................................... 1,236,611
---------------
4,136,491
---------------
MORTGAGE BANKING -- 4.1%
11,800 Federal Home Loan Mortgage Corporation..................................... 1,299,475
---------------
PERSONAL CARE/COSMETICS -- 3.2%
12,975 Gillette Company........................................................... 1,008,806
---------------
PUBLISHING -- 2.1%
28,500 Torstar Corporation........................................................ 686,169
---------------
TOTAL COMMON STOCKS (COST $24,643,055) .................................... $ 31,558,208
---------------
<CAPTION>
=============================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS(B) -- .3% VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 111,000 Star Bank, N.A., 5.00%, dated 12/31/96, due 01/02/97,
repurchase proceeds $111,031 (Cost $111,000)............................ $ 111,000
---------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 99.0% .............. $ 31,669,208
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.0% .............................. 303,608
---------------
NET ASSETS-- 100.0% ....................................................... $ 31,972,816
===============
<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
December 31, 1996 (Unaudited)
==============================================================================
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.
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 December 31, 1996:
Gross unrealized appreciation........................ $ 6,922,848
Gross unrealized depreciation........................ ( 7,695 )
---------------
Net unrealized appreciation.......................... $ 6,915,153
===============
<PAGE>
2. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investment securities,
other than short-term investments, amounted to $12,239,357 and $3,525,241,
respectively, for the six months ended December 31, 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.
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>
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
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000941722
<NAME> THE TUSCARORA INVESTMENT TRUST - OAK VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 24,754,055
<INVESTMENTS-AT-VALUE> 31,669,208
<RECEIVABLES> 452,223
<ASSETS-OTHER> 15,781
<OTHER-ITEMS-ASSETS> 5,999
<TOTAL-ASSETS> 32,143,211
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 170,395
<TOTAL-LIABILITIES> 170,395
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,937,135
<SHARES-COMMON-STOCK> 1,828,204
<SHARES-COMMON-PRIOR> 1,413,047
<ACCUMULATED-NII-CURRENT> (54,921)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 175,449
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,915,153
<NET-ASSETS> 31,972,816
<DIVIDEND-INCOME> 144,296
<INTEREST-INCOME> 34,983
<OTHER-INCOME> 0
<EXPENSES-NET> 234,200
<NET-INVESTMENT-INCOME> (54,921)
<REALIZED-GAINS-CURRENT> 466,434
<APPREC-INCREASE-CURRENT> 3,650,088
<NET-CHANGE-FROM-OPS> 4,061,601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,068,106
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 445,409
<NUMBER-OF-SHARES-REDEEMED> 89,878
<SHARES-REINVESTED> 59,626
<NET-CHANGE-IN-ASSETS> 9,907,279
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 777,121
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 119,553
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234,200
<AVERAGE-NET-ASSETS> 26,477,000
<PER-SHARE-NAV-BEGIN> 15.62
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 2.53
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .63
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<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
