Investment Advisor
Oak Value Capital Management, Inc.
3100 Tower Boulevard, Suite 800
Durham, North Carolina 27707
1-800-680-4199
Administrator SEMI-ANNUAL REPORT
Countrywide Fund Services, Inc. December 31, 1997
312 Walnut Street (Unaudited)
P.O. Box 5354
Cincinnati, Ohio 45201-5354
1-800-622-2474
Independent Auditors ====================
Arthur Andersen LLP OAK VALUE FUND
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.
Member of
Officers ======================
George W. Brumley III, President 100% No-LOAD
David R. Carr, Jr., Vice President MUTUAL FUND
and Treasurer COUNCIL
John F. Splain, Secretary =======================
<PAGE>
LETTER TO SHAREHOLDERS February 10, 1998
===============================================================================
The Oak Value Fund continued its trend of superior performance and growth during
the first half of the 1998 fiscal year. The Fund achieved several major
milestones during the period including:
o CONTINUED ASSET GROWTH -- The net assets of the Fund have increased from
$82.6 million on June 30, 1997 to $141.8 million on December 31, 1997. At
this writing, net assets in the Fund exceed $200 million. Total direct
shareholders in the Fund increased from 1703 to 2245 during the first half
of the fiscal year. Additionally, the Fund has several thousand shareholders
which have invested through various mutual fund marketplaces.
o CONTINUED REDUCTION OF THE EXPENSE RATIO -- As a result of the continued
growth of the Fund, the total expense ratio of the Fund has been reduced to
1.30% of average net assets on an annualized basis for the six month period
ended December 31, 1997. This compares to an expense ratio of 1.75% for the
comparable period ended December 31, 1996. The current accrual rate for
expenses of the Fund is 1.20%.
o EXPANDED AVAILABILITY THROUGH MUTUAL FUND MARKETPLACES -- Effective October
13, 1997 the Fund became available through the Jack White & Co. mutual fund
marketplace on a no transaction fee basis. This relationship further
increases the Fund's availability to individual investors and investment
advisors across the country. Other such programs in which the Fund is
available include Fidelity's Funds Network and the Schwab Mutual Fund
OneSource service.
o 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 period. The
Fund also outperformed these benchmarks for the one year, three year and
since inception periods ended December 31, 1997.
Listed below is a comparison of the Fund's performance versus the Lipper Growth
Fund Index and the S&P 500 Index (with dividends) for the periods ended
December 31, 1997.
Six One Three Since
Months Year Years* Inception*
----- ----- ------ --------
Oak Value Fund.... 14.52% 37.70% 31.79% 22.67%
Lipper Growth
Fund Index..... 10.99% 28.08% 25.91% 16.90%
S&P 500 Index..... 10.56% 33.36% 31.15% 20.37%
*Annualized.
At this writing, the Fund has reached its five year anniversary. As the Fund's
advisors, our goal has been and will continue to be to produce above average
returns for the Fund's shareholders. We are very pleased to report that the
Fund's performance through December 31, 1997 has achieved that objective. Though
the past is certainly no guarantee of future results, we will continue our
pursuit of this goal through our search for "good businesses with good
management at attractive prices." The challenges of managing a growing mutual
fund in a rising market have persisted. The flow of new cash into the Fund has
increased in recent months as the total assets of the Fund reached $141 million
at the end of December.
Our last letter to our shareholders was at a time when relatively high
valuations for many of our larger companies prohibited additional allocations of
capital into those holdings. The market volatility of the past several months
has presented us with a somewhat different scenario. As the markets became
increasingly concerned about the turmoil in Asia, many of our smaller and
mid-sized companies which had little if any international exposure have produced
attractive returns. On the other hand, many of those larger global companies
into which we were interested in allocating additional capital have become more
reasonably valued. Our patience and valuation discipline were rewarded as we
were able to increase the Fund's exposure to Coca Cola, Avon Products, AFLAC and
Interpublic Group during the most recent period. These companies have superior
franchises with great management. We are pleased that we have again been
afforded the opportunity to purchase these businesses at attractive prices. For
our new shareholders we reiterate our preference for achieving international
exposure in the Fund by investing in U.S. domiciled companies which are global
leaders with dominant worldwide positions in their respective businesses. While
this approach is certainly not without risk, our experience continues to confirm
its prudence.
IN ASIA WITH COKE...
We visited Coke in Hong Kong and Shanghai in October and were again amazed at
the power of the Coke marketing machine, the quality of the Coke management team
in the field and this company's demonstrated ability to execute in local markets
around the globe. We have become increasingly convinced that Coca Cola is
perhaps the best company in the world in terms of its business model and its
demonstrated ability to execute that model. We believe this model presents Coke
with the opportunity to experience increasing unit volume while increasing
prices over much of the globe as emerging markets experience economic growth.
This model becomes even more attractive as one realizes Coke's potential to
experience these phenomenon while maintaining relatively stable costs on a per
unit basis. Increasing unit volume - increasing prices - stable (or perhaps
declining) unit costs - these are the makings of a powerful economic engine. The
time that we spent in China and Hong Kong confirmed our belief that the risk we
encounter in owning Coke as long term investors is much less than that of not
properly valuing Coke and missing an opportunity to purchase shares of this
"great business with great management" when attractive prices are available. We
continue to refine our valuation model for the Coca Cola Company so as not to
miss an opportunity to allocate additional capital to this great business when
we receive an adequate margin of safety. No company is so wonderful that the
investor should cast caution to the wind and buy blindly. Not even Coke.
AN UPDATE ON INSURANCE...
Over the course of the last several years, we have invested in a few high
quality niche property and casualty insurers. We have come to understand and
appreciate the significant financial leverage that a well run and properly
underwritten insurer can provide its shareholders. A disciplined approach to the
underwriting of risk becomes increasingly valuable in a "soft" pricing
environment such as that which the industry has recently experienced. The
property and casualty companies we own have all demonstrated an ability to write
business when pricing is attractive and the discipline to step aside when it is
not. These companies have also demonstrated their ability to effectively manage
their investment portfolios. This combination of disciplined underwriting and
effective investing is a very powerful economic combination. In soft markets,
these companies will tend to experience less top line growth from underwriting
while continuing to build value for shareholders through their investment
portfolios. Markel, Progressive Corp., RLI Corp. and General Re Corp. have all
demonstrated their abilities in this regard in recent months as their share
prices posted increases in excess of twenty percent during the six month period
that ended December 31, 1997. Capital flows into the insurance industry are
often rapid. Future pricing cycles will likely be different from those of the
present or the past. We remain confident that the business models these
companies employ will position them to continue to produce above average returns
for their shareholders over the long term.
We have also come to recognize the potential signs of deteriorating economics of
various lines of the property and casualty insurance business. Such signs were
the motivating factors for our sale of Acceptance Insurance during the period.
We have owned Acceptance for several years as the company evolved into a
stand-alone property and casualty insurer and one of the country's largest
providers of crop insurance. The crop insurance business was historically a
profitable business in which there were only a few competitors. Regulatory
changes a few years ago suggested potentially improving prospects for the crop
business. The crop insurance business at Acceptance was a major contributor to
the company's overall earnings. A less accommodating regulatory environment of
late, increased competition and margin pressures in the crop business, combined
with slower than anticipated progress in other lines of business lead to our
sale of this investment.
... AND BROADCASTING AND NEWSPAPERS
The Fund has held several positions in the newspaper and television broadcasting
businesses for some time. One of these companies, LIN Television became the
target for acquisition during the most recent period. The result of an
interesting bidding battle was a final offer that we believe to be fair to the
company's shareholders. As this broadcaster left our portfolio, we were afforded
the opportunity to add A.H. Belo and Hearst Argyle Television. We have followed
Belo for several years and were ultimately attracted to this fine newspaper and
broadcasting company because of its superior franchises and proven management.
Belo's Dallas Morning News is one of the country's most dominant newspapers in
terms of subscriber penetration. Hearst Argyle is a broadcasting company that
was created with the merging of the television stations of Argyle Televisions
with the television stations of the Hearst Corporation. The surviving entity is,
in our opinion, one of the most attractive pure plays in the broadcasting
business. These additions to our newspaper and broadcasting holdings exhibit
many of the characteristics present in our other holdings in these industries.
We continue to believe that these companies, along with the Washington Post,
Pulitzer Publishing and E. W. Scripps, will produce above average returns for
our shareholders in the future.
GREAT MANAGEMENT TENDS TO DELIVER...
The Fund has owned Oakwood Homes for several years. We have been handsomely
rewarded for our conviction that their vertically integrated business model was
superior to that of their competitors. While the mobile home industry remains
subject to cyclical swings, we continue to believe that Oakwood's integration
into retailing, financing and insuring the products they manufacture will result
in less operating volatility than might otherwise be the case. We have commented
about Oakwood's execution of the financing business on several occasions in
recent years. Yet, the "market" still seems to view this company as just another
manufacturing and retailing business. Nick St. George and his management team
have executed an impressive business plan in a business that has been viewed
historically as a very tough business. We appreciate their efforts.
A LITTLE MORE "MARGIN OF SAFETY"
We recently had an interesting discussion with one of our friends at a large
reinsurance company. The discussion focused on our fear of inflation and the
resultant impact that such a fear might have on our valuation process. He
postulated that perhaps we fear inflation much like our grandparents feared the
depression. It is an interesting concept that those of us who experienced those
periods of high inflation during the 1970s and early 1980s might be naturally
fearful of their return. His point was that perhaps we are too conservative in
our valuations since the discount rate we use in discounting cash flows exhibits
a bias toward higher rates. While the conversation was interesting and thought
provoking, we remain firm in our belief that, as value investors, any excess
conservatism only serves to increase our "margin of safety" in the investments
we pursue. By definition, our investment philosophy focuses on factors and
variables that can, and often do, serve to provide additional margin of safety.
This point is most appropriately addressed in our definition of "good
businesses." We believe that "good businesses" are businesses which have the
ability to produce predictable, growing excess cash flow. Our pursuit of
predictability within this definition is of paramount importance. We believe
that a company's ability to control its future is driven by its position
relative to its customers, suppliers, competitors and substitute products. To
borrow a Buffett analogy, we search for companies which have a "moat" around
themselves relative to these forces. Control of destiny means business decisions
such as pricing are controlled by the company in question and not by the
competitor. Companies with products that are easily substituted by another tend
to have little control over their destiny as pricing is determined by those
competitors and not by the company. We believe the Fund's portfolio is comprised
of companies that will increase the value of their business, over the long term,
in most economic environments. Fluctuations will occur and challenges are
certain. Companies in control of their own destiny because of superior
positioning and economics will find opportunities and will withstand
vicissitudes better than those who are not. Higher discount rates for valuation
purposes and businesses with greater predictability -- these are crucial
components of our value philosophy and central to our pursuit of "margin of
safety." They have made significant contributions to our investment results in
the past. We are confident of their potential contribution in the future.
A FRIENDLY REMINDER
In closing, we feel obligated to repeat a message from earlier letters. "Markets
will fluctuate and will decline, but you have entrusted your capital to managers
making informed rational business decisions based on proven principles. When
declines occur we will all suffer, but the soundness of our philosophy and the
quality of our businesses and their management should provide us comfort and
continued long term success." Thank you for your confidence and support.
Sincerely,
/s/ David R. Carr
David R. Carr, Jr.
Co-Manager
/s/ George W. Brumley
George W. Brumley, III
Co-Manager
<PAGE>
OAK VALUE FUND
PERFORMANCE INFORMATION
===============================================================================
A Representation of the Performance Information Contained in the
December 31, 1997 Semi-Annual Report is set forth below:
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE OAK VALUE
FUND, LIPPER GROWTH FUND INDEX AND STANDARD & POOR'S 500 INDEX
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
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 5.80% 16,919
03/31/97 -0.34% 16,861
06/30/97 15.80% 19,525
09/30/97 10.25% 21,527
12/31/97 0.67% 21,671
Oak Value Fund
Average Annual Total Returns
As of December 31, 1997
1 Year Since Inception*
37.70% 22.67%
Past performance is not predictive of future performance.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NON-STANDARDIZED TOTAL RETURNS
- -----------------------------------------------------------------------------------------------------------------------------------
Since
Calendar Calendar Calendar Calendar Calendar Inception*
1993* 1994 1995 1996 1997 (as of 12/31/97)
- -----------------------------------------------------------------------------------------------------------------------------------
Oak Value Fund............... 22.04% -1.54% 28.89% 28.99% 37.70% 175.08%
Lipper Growth Fund Index..... 10.30% -1.57% 32.65% 17.48% 28.08% 116.70%
S&P 500 Index................ 9.60% 1.32% 37.58% 22.96% 33.36% 150.52%
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------------------------------------------------------------------------
For the Periods Ended December 31, 1997
Since
Six Months(A) One Year Three Years Inception*
- -----------------------------------------------------------------------------------------------------------------------------------
Oak Value Fund..................................... 14.52% 37.70% 31.79% 22.67%
Lipper Growth Fund Index........................... 10.99% 28.08% 25.91% 16.90%
S&P 500 Index...................................... 10.56% 33.36% 31.15% 20.37%
* Inception date of the Oak Value Fund was January 18, 1993.
(A) Unannualized.
</TABLE>
<PAGE>
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997 (Unaudited)
<TABLE>
<S> <C>
===================================================================================================================================
ASSETS
Investments in securities at value (Note 1) (acquisition cost of $95,231,464)............... $ 123,768,322
Investments in repurchase agreements (Note 1)............................................... 16,771,000
Cash ....................................................................................... 670
Receivable for capital shares sold.......................................................... 2,916,688
Dividends receivable........................................................................ 42,864
Interest receivable......................................................................... 2,562
Organization expenses, net (Note 1)......................................................... 1,749
Other assets................................................................................ 14,502
---------------
TOTAL ASSETS........................................................................... 143,518,357
---------------
LIABILITIES
Payable for securities purchased............................................................ 1,477,189
Payable for capital shares redeemed......................................................... 89,703
Payable to affiliates (Note 3).............................................................. 109,568
Other accrued expenses and liabilities...................................................... 4,214
---------------
TOTAL LIABILITIES........................................................................ 1,680,674
---------------
NET ASSETS ................................................................................. $ 141,837,683
===============
Net assets consist of:
Paid-in capital............................................................................. $ 113,265,721
Accumulated net realized gains from security transactions................................... 3,079
Undistributed net investment income......................................................... 32,025
Net unrealized appreciation on investments.................................................. 28,536,858
---------------
Net assets.................................................................................. $ 141,837,683
===============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value)................................................................ 6,117,334
===============
Net asset value, offering price and redemption price per share (Note 1)..................... $ 23.19
===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OAK VALUE FUND
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1997 (Unaudited)
<TABLE>
<S> <C>
===================================================================================================================================
INVESTMENT INCOME
Dividends................................................................................ $ 332,210
Interest................................................................................. 374,130
---------------
TOTAL INVESTMENT INCOME................................................................ 706,340
---------------
EXPENSES
Investment advisory fees (Note 3)........................................................ 466,833
Administrative services fees (Note 3).................................................... 64,009
Registration fees........................................................................ 42,594
Trustees' fees and expenses.............................................................. 25,918
Shareholder services and transfer agent fees (Note 3).................................... 18,197
Accounting services fees (Note 3)........................................................ 18,000
Professional fees........................................................................ 13,251
Postage and supplies..................................................................... 12,646
Custodian fees........................................................................... 6,455
Amortization of organization expenses (Note 1)........................................... 2,000
Other expenses........................................................................... 4,412
---------------
TOTAL EXPENSES......................................................................... 674,315
---------------
NET INVESTMENT INCOME ...................................................................... 32,025
---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions............................................ 2,036,093
Net change in unrealized appreciation/depreciation on investments........................ 12,513,568
---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........................................... 14,549,661
---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................................. $ 14,581,686
===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1997 and June 30, 1997
<TABLE>
<S> <C> <C>
===================================================================================================================================
Six Months
Ended Year
December 31, Ended
1997 June 30,
(Unaudited) 1997
- ----------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income/(loss).......................................... $ 32,025 $ (61,841)
Net realized gains from security transactions......................... 2,036,093 1,928,590
Net change in unrealized appreciation/depreciation on investments..... 12,513,568 12,758,225
--------------- ---------------
Net increase in net assets from operations............................... 14,581,686 14,624,974
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains from security transactions.................... (2,045,012) (2,635,872)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS(a):
Proceeds from shares sold............................................. 60,732,658 51,487,814
Net asset value of shares issued in reinvestment
of distributions to shareholders.................................... 1,922,015 2,518,348
Payments for shares redeemed.......................................... (16,015,076) (5,399,389)
--------------- ---------------
Net increase in net assets from capital share transactions............... 46,639,597 48,606,773
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................ 59,176,271 60,595,875
NET ASSETS:
Beginning of period................................................... 82,661,412 22,065,537
--------------- ---------------
End of period......................................................... $ 141,837,683 $ 82,661,412
=============== ===============
(a)Summary of capital share activity:
Shares sold........................................................... 2,766,458 2,752,396
Shares issued in reinvestment of distributions to shareholders........ 87,884 132,044
Shares redeemed....................................................... (743,721) (290,774)
--------------- ---------------
Net increase in shares outstanding.................................... 2,110,621 2,593,666
Shares outstanding, beginning of period............................... 4,006,713 1,413,047
--------------- ---------------
Shares outstanding, end of period..................................... 6,117,334 4,006,713
=============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
For the
Six Months Period
Ended Year Year Ten Months Year January 18,
Dec. 31, Ended Ended Ended Ended 1993(b) to
1997 June 30, June 30, June 30, Aug. 31, Aug. 31,
(Unaudited) 1997 1996 1995(a) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
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)............ 0.01 (0.02) (0.04) (0.05) (0.02) (0.03)
Net realized and unrealized gains on 2.96 6.06 3.57 0.55 1.78 0.99
investments ---------- ---------- --------- --------- --------- ---------
Total from investment operations........... 2.97 6.04 3.53 0.50 1.76 0.96
---------- ---------- --------- --------- --------- ---------
Less distributions:
From net realized gains from security (0.41) (1.03) (0.10) (0.81) (0.22) --
transactions ---------- ---------- --------- --------- --------- ---------
Net asset value at end of period........... $ 23.19 $ 20.63 $ 15.62 $ 12.19 $ 12.50 $ 10.96
========== ========== ========= ========= ========= =========
Total return............................... 28.81%(d) 39.60% 29.04% 5.78%(d) 16.07% 16.11%(d)
========== ========== ========= ========= ========= =========
Net assets at end of period (000's)........ $141,838 $ 82,661 $ 22,066 $ 10,250 $ 8,769 $ 1,890
========== ========== ========= ========= ========= =========
Ratio of net expenses to average net 1.30%(d) 1.59% 1.90% 1.89%(d) 1.89% 2.19%(d)
assets(c)
Ratio of net investment income/(loss)
to average net assets................... 0.06%(d) (0.16%) (0.43%) (0.53%)(d) (0.58%) (0.81%)(d)
Portfolio turnover rate ................... 17%(d) 22% 58% 103%(d) 91% 43%(d)
Average commission rate per share.......... $ .0573 $ .0593 $ -- $ -- $ -- $ --
(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>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
<TABLE>
<S> <C> <C>
===================================================================================================================================
Market
Shares COMMON STOCKS -- 87.3% Value
- -----------------------------------------------------------------------------------------------------------------------------------
ADVERTISING -- 3.9%
111,975 Interpublic Group Companies, Inc........................................... $ 5,577,755
---------------
BEVERAGES -- 3.1%
65,800 Coca-Cola Company.......................................................... 4,383,925
---------------
BROADCASTING -- 10.5%
83,950 A. H. Belo Corporation, Class A............................................ 4,711,694
101,700 Hearst-Argyle Television, Inc. (a) ....................................... 3,025,575
60,475 Jacor Communications, Inc. (a) ........................................... 3,212,734
72,125 LIN Television Corporation(a) ............................................. 3,930,812
---------------
14,880,815
---------------
CONGLOMERATE -- 6.0%
128 Berkshire Hathaway, Inc., Class A(a) ...................................... 5,888,000
1,699 Berkshire Hathaway, Inc., Class B(a) ...................................... 2,614,761
---------------
8,502,761
---------------
CONSUMER PRODUCTS -- 9.5%
110,800 Avon Products, Inc......................................................... 6,800,350
170,825 Nike, Inc., Class B........................................................ 6,704,881
---------------
13,505,231
---------------
ENTERTAINMENT -- 4.2%
59,776 The Walt Disney Company.................................................... 5,921,560
---------------
HEALTHCARE/PHARMACEUTICAL -- 5.2%
121,275 R. P. Scherer Corporation(a) .............................................. 7,397,775
---------------
INFORMATION SERVICES -- 2.1%
95,425 Dun & Bradstreet Corporation .............................................. 2,952,211
---------------
INSURANCE - ACCIDENT & HEALTH -- 4.2%
115,775 AFLAC, Inc................................................................. 5,918,997
---------------
INSURANCE - PROPERTY & CASUALTY -- 12.5%
25,190 Markel Corporation(a) ..................................................... 3,932,789
35,900 Progressive Corporation ................................................... 4,303,512
189,100 RLI Corporation ........................................................... 9,419,544
---------------
17,655,845
---------------
INSURANCE - REINSURANCE -- 2.9%
19,600 General Re Corporation .................................................... 4,155,200
---------------
MANUFACTURED HOUSING -- 4.0%
170,950 Oakwood Homes Corporation.................................................. 5,673,403
---------------
</TABLE>
<PAGE>
OAK VALUE FUND (Continued)
<TABLE>
<S> <C> <C>
===================================================================================================================================
Market
Shares COMMON STOCKS -- 87.3% Value
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA -- 14.7%
105,308 Pulitzer Publishing Company................................................ $ 6,614,659
164,350 Scripps (E.W.) Company..................................................... 7,960,703
13,004 Washington Post Company, Class B........................................... 6,326,446
---------------
20,901,808
---------------
MORTGAGE BANKING -- 1.9%
65,200 Federal Home Loan Mortgage Corporation..................................... 2,734,325
---------------
PERSONAL CARE/COSMETICS -- 2.6%
35,910 Gillette Company........................................................... 3,606,711
---------------
TOTAL COMMON STOCKS (Cost $95,231,464) .................................... $ 123,768,322
---------------
===================================================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(b) -- 11.8% Value
- -----------------------------------------------------------------------------------------------------------------------------------
$ 16,771,000 Star Bank, N.A., 5.50%, dated 12/31/97, due 01/02/98,
repurchase proceeds $16,776,124 (Cost $16,771,000)...................... $ 16,771,000
---------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 99.1% .............. $ 140,539,322
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.9% .............................. 1,298,361
---------------
NET ASSETS-- 100.0% ....................................................... $ 141,837,683
===============
(a) Non-income producing security.
(b) Repurchase agreement is fully collateralized by U.S. Government obligations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (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, was organized as a
Massachusetts business trust on March 3, 1995. The Fund itself began operations
on January 18, 1993 as a series of the Albemarle Investment Trust.
The investment objective of the Fund is to seek capital appreciation primarily
through investments in equity securities, consisting of common and preferred
stocks and securities convertible into common stocks. Current income is of
secondary importance.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(currently 4:00 p.m., Eastern time). Securities which are traded
over-the-counter are valued at the last sales price, if available, otherwise, at
the last quoted bid price. Securities traded on a national stock exchange are
valued based upon the closing price on the principal exchange where the security
is traded.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement. In addition, the Fund actively monitors and
seeks additional collateral, as needed.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
are equal to the net asset value per share.
Investment income and distributions to shareholders -- Interest income is
accrued as earned. Dividend income is recorded on the ex-dividend date.
Dividends arising from net investment income, if any, are declared and paid
annually. Net realized short-term capital gains, if any, may be distributed
throughout the year and net realized long-term capital gains, if any, are
distributed at least once each year. Income distributions and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles.
Organization expenses -- Expenses of organization, net of certain expenses paid
by the Adviser, have been capitalized and are being amortized on a straight-line
basis over five years.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
<PAGE>
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments of the Fund as of December 31,1997:
- --------------------------------------------------------------------------------
Gross unrealized appreciation.................................. $ 30,824,414
Gross unrealized depreciation.................................. (2,290,529)
--------------
Net unrealized appreciation.................................... $ 28,533,885
===============
- --------------------------------------------------------------------------------
The tax basis of investments for the Fund as of December 31, 1997 was
$95,234,437. The difference between financial reporting and federal income tax
cost amounts is due to certain timing differences in recognizing capital losses
under generally accepted accounting principles and tax regulations.
2. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investment securities, other
than short-term investments, amounted to $45,972,000 and $7,668,407
respectively, for the six months ended December 31, 1997.
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Oak Value
Capital Management, Inc. (the Adviser) or Countrywide Fund Services, Inc. (CFS),
the administrator, transfer agent and accounting services agent for the Trust.
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser under the terms of an
Investment Advisory Agreement. Under the Investment Advisory Agreement, the Fund
pays the Adviser a fee, which is computed and accrued daily and paid monthly, at
an annual rate of 0.90% of the Fund's average daily net assets.
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement with the Trust, CFS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services for the Fund. CFS
supervises the preparation of tax returns, reports to shareholders of the Fund,
reports to and filings with the Securities and Exchange Commission and state
securities commissions, and materials for meetings of the Board of Trustees. For
the performance of these administrative services, CFS receives a monthly fee
based on the Fund's average daily net assets.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with the Trust, CFS maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee based on the
number of shareholder accounts in the Fund. In addition, the Fund pays
out-of-pocket expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement with the Trust, CFS
calculates the daily net asset value per share and maintains the financial books
and records of the Fund. For these services, CFS receives a monthly fee from the
Fund. In addition, the Fund pays certain out-of-pocket expenses incurred by CFS
in obtaining valuations for the Fund's portfolio securities.
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<NAME> OAK VALUE FUND
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