ANNUAL REPORT
JUNE 30, 1998
OAK VALUE FUND
100% NO-LOAD MUTUAL FUND COUNCIL
<PAGE>
LETTER TO SHAREHOLDERS August 14, 1998
===============================================================================
The Oak Value Fund (the Fund) continued its trend of superior performance and
growth during the 1998 fiscal year. The Fund achieved several major milestones
during the most recent six month period including:
CONTINUED ASSET GROWTH-- The net assets of the Fund have increased from
$141.8 million on December 31, 1997 to $433.9 million on June
30, 1998. At this writing, net assets in the Fund exceeded $440 million.
CONTINUED REDUCTION OF THE EXPENSE RATIO -- As a result of the continued
growth of the Fund, the total expense ratio of the Fund was reduced to 1.22%
of average net assets for the fiscal year ended June 30, 1998. The current
accrual rate for expenses of the Fund is 1.10%.
OAKVALUEFUND.COM -- We recently introduced the Fund's internet website to
provide basic and background information on the Fund for current and
prospective shareholders.
SUPERIOR PERFORMANCE -- The Fund outperformed both the S&P 500 Index and its
peer group as measured by the Lipper Growth Fund Index for the one, three
and five year periods ending June 30, 1998 and since the Fund's inception.
Listed below is a comparison of the Fund's average annual total returns
versus the Lipper Growth Fund Index and the S&P 500 Index (with dividends)
for the periods ended June 30, 1998:
Six One Three Five Since
Months* Year Years Years Inception
Oak Value Fund... 17.49% 34.56% 34.33% 25.56% 24.02%
Lipper Growth
Fund Index.... 15.57% 28.27% 24.78% 19.50% 18.34%
S&P 500 Index.... 17.71% 30.16% 30.24% 23.07% 21.95%
*Unannualized.
We are particularly pleased with the Fund's performance during the last half of
the fiscal year as it outperformed the Lipper Growth Fund Index while
maintaining an average daily cash position in excess of seventeen percent. In
view of the Fund's growth and the resultant increase in its cash position, we
are also pleased that the Fund's performance nearly matched that of the S&P 500
Index for the same period. The Fund experienced significant growth during the
most recent period and during the past fiscal year as total assets grew from
$82.7 million to $433.9 million. Though our goal is to be fully invested at all
times, this objective is often challenged by the philosophical constraints of
our value-oriented investment philosophy. This challenge is further exaggerated
in periods of rising valuations and increasing cash flow such as those the Fund
experienced during the past year. The market correction of recent weeks has
provided us an opportunity to selectively put a portion of this cash to work. We
remain committed to the principles, philosophy and process that define value
investing for Oak Value as they have served our shareholders well in the past.
Leading the way...
The Fund's performance for the period was led by substantial share price
advances from three of its longer term holdings -- Berkshire Hathaway, Pulitzer
Publishing and R. P. Scherer. Shares of Berkshire advanced sharply during the
period as the fundamentals of many of the Berkshire held and controlled
companies continued to demonstrate their economic superiority. Our attraction
to, investment in and appreciation for Berkshire are both long standing and
extensively documented. As the end of the period approached, Berkshire announced
its agreement to purchase General Re Corp. (another of the Fund's holdings) in a
stock transaction likely to be valued at approximately $20 billion. Our visits
with General Re's management over the last eighteen months have convinced us
that their team is one of the most impressive we have ever encountered. General
Re has executed a long-term business plan of disciplined underwriting and
effective portfolio management. As part of the Berkshire group of companies,
they should be in a position to execute this plan in an even more aggressive
posture. We are excited about this transaction as it realizes a portion of the
hidden value we believe General Re shares represent. This transaction also
ensures that we, as long-term Berkshire shareholders, will continue to benefit
from the value that this great business with truly superior management will
create in the years to come. General Re adds a large and wonderful operating
business, a significant investment portfolio (approximately $80,000 in
investments for each share of Berkshire received by General Re shareholders) and
a diversified management team to Berkshire. In our opinion, these factors
overwhelmingly suggest that the future predictability of Berkshire Hathaway has
significantly increased.
Early in the period, Pulitzer Publishing announced that it would seek to
maximize the value of its broadcasting operations. In a very unusual situation,
shares of Pulitzer continued to trade at a substantial discount to our
assessment of their intrinsic value even after that announcement. Our response
was decisive -- we purchased additional shares at what has proven to be a very
attractive price. Our extensive efforts to understand the Pulitzer broadcasting
properties placed us in a position to both assess their value and to anticipate
potential purchasers. Our experience with the buyout of Lin Television earlier
this fiscal year had confirmed our belief that valuations of broadcasting
properties were attractive and that further consolidation in the industry was
highly probable. Our research and analysis had convinced us that Pulitzer's
intrinsic value was substantially above the prices at which we had accumulated
shares over the past two years. Pulitzer eventually chose Hearst Argyle
Television (yet another of the Fund's holdings) as the suitor who will purchase
these assets in exchange for Hearst shares. Not only does this transaction serve
to realize the value of these properties for Pulitzer shareholders, it does so
in an extremely tax efficient structure. When the transaction closes, the
Pulitzer broadcasting properties will become part of Hearst Argyle and the
Pulitzer newspapers will continue to operate under the Pulitzer name as a stand
alone, publicly traded company.
We were surprised to receive a buyout offer from Cardinal Healthcare for the
purchase of R. P. Scherer in a stock transaction. The Fund originally purchased
shares of Scherer just after the Fund's inception in early 1993. We have
dedicated a significant amount of time to understand the industry and business
of Scherer. Additionally, we have demonstrated extreme patience as its
short-term earnings were often volatile because of currency effects, product mix
shifts and the timing of new product launches. Nonetheless, we were very
comfortable with the global niche that Scherer had clearly developed. We believe
the company was just approaching the crest of a wave of product introductions
which would provide a powerful combination of ever widening margins and
increasing revenues. Though Cardinal has enjoyed much success in its ten year
history, we fail to see the long-term benefits of this transaction to us as
Scherer shareholders. Unlike the previously discussed transactions
(Berkshire/General Re and Hearst Argyle/Pulitzer), this transaction provides us
as Scherer shareholders with neither a fair valuation nor an acceptable business
through which to reap the rewards of Scherer's many investments. Despite our
obvious disappointment in the future prospects presented by this transaction,
Scherer was the third largest position in the Fund at the beginning of the
period and its shares advanced more than forty-five percent during the period.
As of this writing, we have sold the entire Scherer position.
Asian update
Our preference for achieving international exposure in the Fund by investing in
U.S. domiciled companies which are global leaders with dominant global positions
in their respective businesses has again rewarded our shareholders. At the end
of the previous period, we discussed the opportunities that the Asian crisis had
presented for us to increase the Fund's exposure to international powerhouses
such as Coca Cola, Avon, AFLAC and Interpublic. These companies have since
demonstrated, once again, they deserve this distinction. They have responded to
the continuing volatility in Asia and have positioned themselves to take
advantage of the long-term opportunities this turmoil presents. Additionally,
their share prices have also posted advances as other investors appear to have
recognized the long-term potential that this situation provides. Nike's
operations in the region, on the other hand, have not fared quite so well. An
inability to reduce prices sufficiently to offset currency adjustments combined
with recessionary consumer spending (or lack thereof) has led to disappointing
results from Nike's operations in the region. A very good business with a proven
track record, Nike has been hit hard. We continue to watch carefully for signs
that it can take advantage of this turmoil and emerge stronger. No sign so far.
Familiar territory, fertile soil...
Even in a rising market where few companies appear to represent "value," we have
identified selective new investments for the Fund. In many cases, those
investments that we casually reference as "new" are anything but new. We have
typically followed their industries and even the specific companies for years.
Additionally, we have often owned many of the companies or one or more of their
customers, suppliers or competitors in the past. One of the "new" companies
added to the portfolio during this period was United Asset Management. United
Asset Management (UAM) is a holding company that controls over fifty investment
management firms which, collectively, have more than $200 billion in assets
under management. While all is not rosy at UAM, this company continues to
produce predictable, growing, excess cash flow -- the defining characteristics
of a "good business," in our opinion. We have followed this industry, with more
than a cursory interest, for over ten years. We believe our familiarity with
this business and the very attractive valuation at which we have been afforded
the opportunity to make this investment will produce above average returns for
the Fund over time.
Still misunderstood ... yet compelling
Our commentary to the Fund's shareholders in this year's semi-annual report
(February 10, 1998) provided a discussion regarding the business and management
of Oakwood Homes. We specifically addressed the fact that though the management
continues to deliver solid operating results, the "market's" misunderstanding of
this company persists. Recent events and a precipitous decline in Oakwood's
share price further confirm this thesis. Over the past two quarters, Oakwood has
twice reported that it would incur non-cash charges against the residual value
of securitized mortgages its financing subsidiary had sold. The shares of
publicly traded companies are often penalized when the results that they report
vary from expectations. In the case of Oakwood, the penalty was far more severe
than the variation would warrant in our opinion. The day to day operations of
this fine company continue to perform extremely well. The company continues to
generate positive cash flow from its manufacturing, retailing and financing
activities. Fundamentally and economically, Oakwood continues to deliver. We
have responded aggressively to the most recent price decline, substantially
increasing the Fund's exposure to this "value." As in the past, we believe we
will be appropriately rewarded for our hard work, discipline and patience when
rationality returns to the valuation of Oakwood Homes.
On share repurchases
More than half of the Fund's holdings currently have active share repurchase
programs. For many companies, share repurchases are both an effective allocation
of capital and an equitable vehicle for capital distribution. A major tenet of
our investment philosophy requires that we invest in companies which are "good
businesses with good management." Good businesses which are undervalued have the
opportunity to further increase the wealth of their long-term shareholders by
repurchasing shares. One of our defining criteria of good management requires
that they demonstrate an ability to allocate the company's capital to the
maximum long-term benefit of its shareholders. This component which we term
"capital allocation" is particularly important to us as long-term investors.
Most investors would argue that capital allocation involves management's
analysis and decision-making relative to investments in the business. We believe
that good management views capital allocation more broadly and also takes into
consideration the prospect of returning capital to shareholders in the form of
dividends and share repurchases. While dividends present investors with both the
burden of income taxes and the challenge of reinvestment, share repurchases
require neither. Companies such as Coca-Cola, General Re, AFLAC and the
Washington Post have all demonstrated the long-term benefits of appropriately
executed share repurchase programs as they have repurchased a significant
portion of their outstanding shares over the past several years. Other
companies, such as United Asset Management and Dun & Bradstreet, have recently
established aggressive share repurchase programs as their share prices have
become, in our opinion, significantly undervalued. Share repurchase programs are
not necessarily indicative of a good business, good management or an attractive
investment opportunity. They can, however, be very valuable and effective
components of the capital allocation decisions of companies which already
possess these characteristics.
Thank you for your confidence in Oak Value Capital Management, Inc. and
the Oak Value Fund. We remind you that we have a long-term time horizon for
investing your capital. You should have a similar time horizon as investors in
the Oak Value Fund. This alignment is critical to our success as we invest
together.
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
===============================================================================
A Representation of the Graphic Material Contained in the June 30, 1998 Annual
Report for The Tuscarora Investment Trust 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
STANDARD & POOR'S 500 INDEX: OAK VALUE FUND:
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
01/18/93 10,000 01/18/93 10,000
03/31/93 3.93% 10,393 03/31/93 3.53% 10,353
06/30/93 0.49% 10,443 06/30/93 0.04% 10,357
09/30/93 2.56% 10,711 09/30/93 10.48% 11,442
12/31/93 2.32% 10,960 12/31/93 6.66% 12,204
03/31/94 -3.79% 10,544 03/31/94 -4.86% 11,611
06/30/94 0.42% 10,588 06/30/94 1.79% 11,818
09/30/94 4.89% 11,106 09/30/94 5.53% 12,472
12/31/94 -0.02% 11,104 12/31/94 -3.66% 12,015
03/31/95 9.74% 12,186 03/31/95 9.50% 13,157
06/30/95 9.55% 13,350 06/30/95 1.34% 13,334
09/30/95 7.95% 14,411 09/30/95 10.34% 14,712
12/31/95 6.02% 15,278 12/31/95 5.27% 15,487
03/31/96 5.37% 16,098 03/31/96 7.40% 16,633
06/30/96 4.49% 16,821 06/30/96 3.44% 17,206
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
09/30/97 7.49% 24,354 09/30/97 7.46% 25,813
12/31/97 2.87% 25,054 12/31/97 6.57% 27,508
03/31/98 13.95% 28,549 03/31/98 13.63% 31,256
06/30/98 3.30% 29,491 06/30/98 3.40% 32,320
LIPPER GROWTH FUND INDEX:
QTRLY
DATE RETURN BALANCE
01/18/93 10,000
03/31/93 1.27% 10,127
06/30/93 1.47% 10,272
09/30/93 4.80% 10,765
12/31/93 2.46% 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 5.85% 16,926
03/31/97 -0.37% 16,864
06/30/97 15.80% 19,528
09/30/97 10.25% 21,529
12/31/97 0.67% 21,673
03/31/98 12.38% 24,357
06/30/98 2.84% 25,048
<PAGE>
Oak Value Fund
Average Annual Total Returns
As of June 30, 1998
1 Year 5 Years Since Inception*
34.56% 25.56% 24.02%
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURNS
- -------------------------------------------------------------------------------------------------------------------
YEAR-TO-DATE SINCE
CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR 1998 INCEPTION*
1993* 1994 1995 1996 1997 (AS OF 6/30/98)(AS OF 6/30/98)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oak Value Fund........... 22.04% -1.54% 28.89% 28.99% 37.70% 17.49% 223.20%
Lipper Growth Fund Index. 10.30% -1.57% 32.65% 17.53% 28.03% 15.57% 150.48%
S&P 500 Index............ 9.60% 1.32% 37.58% 22.96% 33.36% 17.71% 194.91%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED JUNE 30, 1998
SINCE
SIX MONTHS(A) ONE YEAR THREE YEARS FIVE YEARS INCEPTION*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oak Value Fund.......................... 17.49% 34.56% 34.33% 25.56% 24.02%
Lipper Growth Fund Index................ 15.57% 28.27% 24.78% 19.50% 18.34%
S&P 500 Index........................... 17.71% 30.16% 30.24% 23.07% 21.95%
* Inception date of the Oak Value Fund was January 18, 1993.
(A) Unannualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
============================================================================================================
<S> <C>
ASSETS
Investment securities at market value (Note 1) (acquisition cost of $296,457,879)........... $ 364,936,278
Investments in repurchase agreements (Note 1)............................................... 60,205,000
Cash ....................................................................................... 500
Receivable for capital shares sold.......................................................... 12,829,474
Dividends receivable........................................................................ 345,752
Interest receivable......................................................................... 8,696
Other assets................................................................................ 59,977
---------------
TOTAL ASSETS........................................................................... 438,385,677
---------------
LIABILITIES
Distributions payable....................................................................... 273,974
Payable for securities purchased............................................................ 3,662,504
Payable for capital shares redeemed......................................................... 119,955
Payable to affiliates (Note 3).............................................................. 323,875
Other accrued expenses and liabilities...................................................... 102,354
---------------
TOTAL LIABILITIES........................................................................ 4,482,662
---------------
NET ASSETS ................................................................................. $ 433,903,015
===============
Net assets consist of:
Paid-in capital............................................................................. $ 366,417,831
Undistributed net investment income......................................................... 19,937
Distributions in excess of net realized gains............................................... ( 1,013,152)
Net unrealized appreciation on investments.................................................. 68,478,399
---------------
Net assets.................................................................................. $ 433,903,015
===============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value)................................................................ 16,046,945
===============
Net asset value, offering price and redemption price per share (Note 1)..................... $ 27.04
===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENT OF OPERATIONS
Year Ended June 30, 1998
==============================================================================================================
INVESTMENT INCOME
<S> <C>
Dividends................................................................................ $ 1,623,003
Interest................................................................................. 1,539,361
---------------
TOTAL INVESTMENT INCOME................................................................ 3,162,364
---------------
EXPENSES
Investment advisory fees (Note 3)........................................................ 1,740,919
Administrative services fees (Note 3).................................................... 213,152
Registration fees........................................................................ 117,518
Postage and supplies..................................................................... 52,306
Trustees' fees and expenses.............................................................. 49,615
Shareholder services and transfer agent fees (Note 3).................................... 48,072
Accounting services fees (Note 3)........................................................ 43,000
Professional fees........................................................................ 24,902
Report to shareholders................................................................... 22,057
Custodian fees........................................................................... 18,789
Insurance expense........................................................................ 14,986
Amortization of organization expenses (Note 1)........................................... 3,749
Other expenses........................................................................... 15,468
---------------
TOTAL EXPENSES......................................................................... 2,364,533
---------------
NET INVESTMENT INCOME ...................................................................... 797,831
---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions............................................ 3,469,532
Net change in unrealized appreciation/depreciation on investments........................ 52,455,109
---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........................................... 55,924,641
---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................................. $ 56,722,472
===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1998 and 1997
=============================================================================================================
Year Year
Ended Ended
June 30, June 30,
1998 1997
- -------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss).......................................... $ 797,831 $ ( 61,841)
Net realized gains from security transactions......................... 3,469,532 1,928,590
Net change in unrealized appreciation/depreciation on investments..... 52,455,109 12,758,225
--------------- ---------------
Net increase in net assets from operations............................... 56,722,472 14,624,974
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............................................ ( 781,643) --
From net realized gains from security transactions.................... ( 3,481,530) ( 2,635,872)
In excess of net realized gains....................................... ( 1,013,152) --
--------------- ---------------
Decrease in net assets from distributions to shareholders................ ( 5,276,325) ( 2,635,872)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold............................................. 407,315,606 51,487,814
Net asset value of shares issued in reinvestment
of distributions to shareholders.................................... 4,879,353 2,518,348
Payments for shares redeemed.......................................... ( 112,399,503) ( 5,399,389)
--------------- ---------------
Net increase in net assets from capital share transactions............... 299,795,456 48,606,773
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................ 351,241,603 60,595,875
NET ASSETS:
Beginning of year..................................................... 82,661,412 22,065,537
--------------- ---------------
End of year........................................................... $ 433,903,015 $ 82,661,412
=============== ===============
UNDISTRIBUTED NET INVESTMENT INCOME ..................................... $ 19,937 $ --
=============== ===============
Summary of capital share activity:
Shares sold........................................................... 16,291,306 2,752,396
Shares issued in reinvestment of distributions to shareholders........ 197,253 132,044
Shares redeemed....................................................... ( 4,448,327) ( 290,774)
--------------- ---------------
Net increase in shares outstanding.................................... 12,040,232 2,593,666
Shares outstanding, beginning of year................................. 4,006,713 1,413,047
--------------- ---------------
Shares outstanding, end of year....................................... 16,046,945 4,006,713
=============== ===============
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
================================================================================================================
For the
Period
Year Year Year Ten Months Year January 18,
Ended Ended Ended Ended Ended 1993(b) to
June 30, June 30, June 30, June 30, Aug. 31, Aug. 31,
1998 1997 1996 1995(a) 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 20.63 $ 15.62 $ 12.19 $ 12.50 $ 10.96 $ 10.00
---------- ---------- --------- --------- --------- ---------
Income from investment operations:
Net investment income (loss)............ 0.05 ( 0.02) ( 0.04) ( 0.05) ( 0.02) ( 0.03)
Net realized and unrealized
gains on investments 6.98 6.06 3.57 0.55 1.78 0.99
---------- ---------- --------- --------- --------- ---------
Total from investment operations........... 7.03 6.04 3.53 0.50 1.76 0.96
---------- ---------- --------- --------- --------- ---------
Less distributions:
From net investment income.............. ( 0.05) -- -- -- -- --
From net realized gains from
security transactions ( 0.44) ( 1.03) ( 0.10) ( 0.81) ( 0.22) --
In excess of net realized gains......... ( 0.13) -- -- -- -- --
---------- ---------- --------- --------- --------- ---------
Total distributions........................ ( 0.62) ( 1.03) ( 0.10) ( 0.81) ( 0.22) --
---------- ---------- --------- --------- --------- ---------
Net asset value at end of period........... $ 27.04 $ 20.63 $ 15.62 $ 12.19 $ 12.50 $ 10.96
========== ========== ========= ========= ========= =========
Total return............................... 34.56% 39.60% 29.04% 5.78%(d) 16.07% 16.11%(d)
========== ========== ========= ========= ========= =========
Net assets at end of period (000's)........ $433,903 $ 82,661 $ 22,066 $ 10,250 $ 8,769 $ 1,890
========== ========== ========= ========= ========= =========
Ratio of net expenses to average
net assets(c)........................... 1.22% 1.59% 1.90% 1.89%(d) 1.89% 2.19%(d)
Ratio of net investment income (loss)
to average net assets................... 0.41% ( 0.16%) (0.43%) (0.53%)(d) (0.58%) (0.81%)(d)
Portfolio turnover rate ................... 15% 22% 58% 103%(d) 91% 43%(d)
(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%(d), 2.80%, and 6.29%(d) for the periods ended June 30, 1996, June 30, 1995, August 31, 1994
and August 31, 1993, respectively.
(d) Annualized.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS
June 30, 1998
=============================================================================================================
Market
Shares COMMON STOCKS -- 84.1% Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADVERTISING -- 1.8%
132,150 Interpublic Group Companies, Inc........................................... $ 8,019,853
---------------
BEVERAGES -- 1.3%
65,800 Coca-Cola Company.......................................................... 5,625,900
---------------
BEVERAGES - WINE/SPIRITS -- 0.9%
97,225 The Seagram Company, Ltd................................................... 3,980,148
---------------
BROADCASTING -- 5.4%
448,900 A. H. Belo Corporation, Class A............................................ 10,941,937
140,200 Hearst-Argyle Television, Inc. (a) ....................................... 5,608,000
60,475 Jacor Communications, Inc. (a) ........................................... 3,568,025
52,725 Young Broadcasting, Inc., Class A (a) ..................................... 3,427,125
---------------
23,545,087
---------------
CONGLOMERATE -- 3.3%
128 Berkshire Hathaway, Inc., Class A(a) ...................................... 10,023,040
1,699 Berkshire Hathaway, Inc., Class B(a) ...................................... 4,439,487
---------------
14,462,527
---------------
CONSUMER PRODUCTS -- 5.4%
211,450 Avon Products, Inc......................................................... 16,387,375
143,125 Nike, Inc., Class B........................................................ 6,968,398
---------------
23,355,773
---------------
ENTERTAINMENT -- 3.3%
135,876 The Walt Disney Company.................................................... 14,275,472
---------------
HEALTHCARE/PHARMACEUTICAL -- 4.6%
226,875 R. P. Scherer Corporation(a) .............................................. 20,106,797
---------------
INFORMATION SERVICES -- 3.2%
381,875 Dun & Bradstreet Corporation .............................................. 13,795,234
---------------
INSURANCE - ACCIDENT & HEALTH -- 3.5%
502,050 AFLAC, Inc................................................................. 15,218,391
---------------
INSURANCE - PROPERTY & CASUALTY -- 8.6%
34,865 Markel Corporation(a) ..................................................... 6,205,970
82,300 Progressive Corporation ................................................... 11,604,300
279,000 RLI Corporation ........................................................... 11,351,812
99,775 The Chubb Corporation...................................................... 8,019,416
---------------
37,181,498
---------------
INSURANCE - REINSURANCE -- 4.4%
74,905 General Re Corporation .................................................... 18,988,418
---------------
<CAPTION>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS (Continued)
=============================================================================================================
Market
Shares COMMON STOCKS -- 84.1% (Continued) Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT MANAGEMENT/ADVISORY SERVICES -- 6.7%
1,109,550 United Asset Management Corporation........................................ $ 28,917,647
---------------
MANUFACTURED HOUSING -- 4.9%
704,125 Oakwood Homes Corporation.................................................. 21,123,750
---------------
MEDIA -- 18.0%
284,703 Pulitzer Publishing Company................................................ 25,409,743
671,685 Scripps (E.W.) Company..................................................... 36,816,734
27,854 Washington Post Company, Class B........................................... 16,043,904
---------------
78,270,381
---------------
485,000 MISCELLANEOUS-- 3.2% ...................................................... 13,646,563
---------------
MORTGAGE BANKING -- 0.2%
20,200 Freddie Mac................................................................ 950,663
---------------
PERSONAL CARE/COSMETICS -- 0.9%
71,820 Gillette Company........................................................... 4,071,296
---------------
RETAIL -- 4.5%
404,185 Tiffany & Company.......................................................... 19,400,880
---------------
TOTAL COMMON STOCKS (COST $296,457,879) ................................... $ 364,936,278
---------------
<CAPTION>
=============================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(b)-- 13.9% Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 60,205,000 Star Bank, N.A., 5.20%, dated 06/30/1998, due 07/01/1998,
repurchase proceeds $60,213,696 (Cost $60,205,000)...................... $ 60,205,000
---------------
TOTAL COMMON STOCKS AND REPURCHASE AGREEMENTS-- 98.0% ..................... $ 425,141,278
OTHER ASSETS IN EXCESS OF LIABILITIES-- 2.0% .............................. 8,761,737
---------------
NET ASSETS-- 100.0% ....................................................... $ 433,903,015
===============
(a) Non-income producing security.
(b) Repurchase agreements are fully collateralized by U.S. Government
obligations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
===============================================================================
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, were capitalized and have been 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 income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments of the Fund as of June 30, 1998:
- -------------------------------------------------------------------------------
Gross unrealized appreciation.................................. $ 72,503,853
Gross unrealized depreciation................................ ( 5,041,155)
--------------
Net unrealized appreciation.................................... $ 67,462,698
==============
Federal income tax cost.........................................$ 297,473,580
==============
- -------------------------------------------------------------------------------
The difference between acquisition cost and federal income tax cost of portfolio
investments is due to certain timing differences in the recognition of capital
losses under generally accepted accounting principles and income tax
regulations.
2. Investment Transactions
Purchases and proceeds from sales and maturities of investment securities, other
than short-term investments, amounted to $263,960,378 and $25,863,808
respectively, for the year ended June 30, 1998.
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),
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
these 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 based on
the Fund's average daily net assets. 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
===============================================================================
LOGO HERE: ARTHUR ANDERSEN LLP
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, 1998, the related
statement of operations for the year then ended, and the statements of changes
in net assets for the two years then ended, and financial highlights for each of
the four 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, 1998, 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, 1998, the results of
its operations for the year then ended, and the changes in its net assets for
the two years then ended and the financial highlights for each of the four
periods in the period then ended, in conformity with generally accepted
accounting principles.
/s/ARTHUR ANDERSEN LLP
Cincinnati, Ohio
July 17, 1998
<PAGE>
OAK VALUE FUND
INVESTMENT ADVISER
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, Ohio 45201-5354
1-800-622-2474
INDEPENDENT AUDITORS
Arthur Andersen LLP
425 Walnut Street
Cincinnati, Ohio 45202
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 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> OAK VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 356,662,879
<INVESTMENTS-AT-VALUE> 425,141,278
<RECEIVABLES> 13,183,922
<ASSETS-OTHER> 500
<OTHER-ITEMS-ASSETS> 59,977
<TOTAL-ASSETS> 438,385,677
<PAYABLE-FOR-SECURITIES> 3,662,504
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 820,158
<TOTAL-LIABILITIES> 4,482,662
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 366,417,831
<SHARES-COMMON-STOCK> 16,046,945
<SHARES-COMMON-PRIOR> 4,006,713
<ACCUMULATED-NII-CURRENT> 19,937
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,013,152
<ACCUM-APPREC-OR-DEPREC> 68,478,399
<NET-ASSETS> 433,903,015
<DIVIDEND-INCOME> 1,623,003
<INTEREST-INCOME> 1,539,361
<OTHER-INCOME> 0
<EXPENSES-NET> 2,364,533
<NET-INVESTMENT-INCOME> 797,831
<REALIZED-GAINS-CURRENT> 3,469,532
<APPREC-INCREASE-CURRENT> 52,455,109
<NET-CHANGE-FROM-OPS> 56,722,472
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 781,643
<DISTRIBUTIONS-OF-GAINS> 3,481,530
<DISTRIBUTIONS-OTHER> 1,013,152
<NUMBER-OF-SHARES-SOLD> 16,291,306
<NUMBER-OF-SHARES-REDEEMED> 4,448,327
<SHARES-REINVESTED> 197,253
<NET-CHANGE-IN-ASSETS> 351,241,603
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 11,998
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,740,919
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,364,533
<AVERAGE-NET-ASSETS> 194,397,996
<PER-SHARE-NAV-BEGIN> 20.63
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 6.98
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> .13
<PER-SHARE-NAV-END> 27.04
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
