STATEMENT OF ADDITIONAL INFORMATION
OAK VALUE FUND
November 1, 1999
As Supplemented December 28, 1999
A series of
THE TUSCARORA INVESTMENT TRUST
3435 Stelzer Road
Columbus, Ohio 43219
Telephone 1-800-622-2474
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES.................................... 2
DESCRIPTION OF BOND RATINGS.......................................... 5
INVESTMENT LIMITATIONS............................................... 8
TRUSTEES AND OFFICERS................................................ 10
INVESTMENT ADVISER................................................... 11
ADMINISTRATOR........................................................ 12
TRANSFER AGENT AND FUND ACCOUNTING SERVICES.......................... 12
OTHER SERVICES....................................................... 13
BROKERAGE............................................................ 14
SPECIAL SHAREHOLDER SERVICES......................................... 14
PURCHASE OF SHARES................................................... 16
REDEMPTION OF SHARES................................................. 16
NET ASSET VALUE DETERMINATION........................................ 17
ADDITIONAL TAX INFORMATION........................................... 17
DESCRIPTION OF THE TRUST............................................. 18
CALCULATION OF PERFORMANCE DATA...................................... 19
FINANCIAL STATEMENTS AND REPORTS..................................... 22
This Statement of Additional Information ("SAI") is not a prospectus
and should only be read in conjunction with the Prospectus of the Oak Value Fund
dated November 1, 1999. The Financial Statements included in the Fund's Annual
Report dated June 30, 1999 are incorporated by reference to this SAI. The
Prospectus and Annual Report may be obtained at no charge by contacting the Fund
at the address shown above or calling 1-800-622-2474.
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INVESTMENT OBJECTIVE AND POLICIES
The Oak Value Fund (the "Fund") is a No-Load, diversified series of The
Tuscarora Investment Trust, a registered open-end management investment company
commonly known as a "mutual fund." The investment objective and policies of the
Fund are described in the Prospectus. Supplemental information about these
policies is set forth below. Certain capitalized terms used herein are defined
in the Prospectus.
Description of Money Market Instruments. Money market instruments may
be purchased for temporary defensive purposes, in an amount up to 100% of the
Fund's assets, when the Adviser believes the prospect for capital appreciation
in the equity securities markets is not attractive. Money market instruments
will typically represent a portion of the Fund's portfolio, as funds awaiting
investment, to accumulate cash for anticipated purchases of portfolio securities
and to provide for shareholder redemptions and operational expenses of the Fund.
Money market instruments mature in thirteen months or less from the date of
purchase and may include U.S. Government Securities (defined below) and
corporate debt securities (including those subject to repurchase agreements),
bankers' acceptances and certificates of deposit of domestic branches of U.S.
banks, and commercial paper (including variable amount demand master notes). At
the time of purchase, money market instruments will have a short-term rating in
the highest category from any nationally recognized statistical rating
organization ("NRSRO") or, if not rated, issued by a corporation having an
outstanding unsecured debt issue rated in the three highest categories of any
NRSRO or, if not so rated, of equivalent quality in the Adviser's opinion.
BANKERS' ACCEPTANCES are time drafts drawn on and "accepted" by a bank, are the
customary means of effecting payment for merchandise sold in import-export
transactions and are a source of financing used extensively in international
trade. When a bank "accepts" such a time draft, it assumes liability for its
payment. When the Fund acquires a Bankers' Acceptance, the bank which "accepted"
the time draft is liable for payment of interest and principal when due. The
Bankers' Acceptance, therefore, carries the full faith and credit of such bank.
A CERTIFICATE OF DEPOSIT ("CD") is an unsecured interest-bearing debt obligation
of a bank. CDs acquired by the Fund would generally be in amounts of $100,000 or
more. COMMERCIAL PAPER is an unsecured, short-term debt obligation of a bank,
corporation or other borrower. Commercial Paper maturity generally ranges from
two to 270 days and is usually sold on a discounted basis rather than as an
interest-bearing instrument. The Fund will invest in Commercial Paper only if it
is rated in the highest rating category by any "NRSRO" or, if not rated, the
issuer must have an outstanding unsecured debt issue rated in the three highest
categories by any NRSRO or, if not so rated, be of equivalent quality in the
Adviser's assessment. Commercial Paper may include Master Notes of the same
quality. Master Notes are unsecured obligations which are redeemable upon demand
of the holder and which permit the investment of fluctuating amounts at varying
rates of interest. MASTER NOTES are acquired by the Fund only through the Master
Note program of the Fund's custodian, acting as administrator thereof. The
Adviser will monitor, on a continuous basis, the earnings power, cash flow and
other liquidity ratios of the issuer of a Master Note held by the Fund.
Repurchase Agreements. The Fund may acquire U.S. Government Securities
or other high-grade debt securities subject to repurchase agreements. The Fund
will not enter into a repurchase agreement which will cause more than 10% of its
assets to be invested in repurchase agreements which extend beyond seven days
and other illiquid securities. A repurchase transaction occurs when, at the time
the Fund purchases a security (normally a U.S. Treasury obligation), it also
resells it to the vendor (normally a member bank of the Federal Reserve System
or a registered Government Securities dealer) and must deliver the security
(and/or securities substituted for them under the repurchase agreement) to the
vendor on an agreed upon date in the future. Such securities, including any
securities so substituted, are referred to as the "Repurchase Securities." The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect.
The majority of these transactions run day to day, and the delivery
pursuant to the resale typically will occur within one to five days of the
purchase. The Fund's risk is limited to the ability of the vendor to pay the
agreed upon sum upon the delivery date. In the event of bankruptcy or other
default by the vendor, there may be possible delays and expenses in liquidating
the instrument purchased, decline in its value and loss of interest. These risks
are minimized when the Fund holds a perfected security interest in the
Repurchase Securities and can therefore sell the instrument promptly. Under
guidelines issued by the Trustees, the Adviser will carefully consider the
creditworthiness of a vendor during the term of the repurchase agreement.
Repurchase agreements are considered as loans collateralized by the Repurchase
Securities, such agreements being defined as "loans" under the Investment
Company Act of 1940 (the "1940 Act"). The return on such "collateral" may be
more or less than that from the repurchase agreement. The market value of the
resold securities will be monitored so that the value of the "collateral" is at
all times as least equal to the value of the loan, including the accrued
interest earned thereon. The Fund's custodian will hold all Repurchase
Securities either directly or through a securities depository.
U.S. Government Securities. The Fund may invest a portion of its assets
in U.S. Government Securities, which include direct obligations of the U.S.
Treasury, securities guaranteed as to interest and principal by the U.S.
Government such as Government National Mortgage Association certificates, as
well as securities issued or guaranteed as to interest and principal by U.S.
Government authorities, agencies and instrumentalities such as Federal National
Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Home
Administration, Federal Farm Credit Bank, Federal Home Loan Bank, Student Loan
Marketing Association, Resolution Funding Corporation, Financing Corporation,
and Tennessee Valley Authority. U.S. Government Securities may be acquired
subject to repurchase agreements. While obligations of some U.S. Government
sponsored entities are supported by the full faith and credit of the U.S.
Government, several are supported by the right of the issuer to borrow from the
U.S. Government, and still others are supported only by the credit of the issuer
itself. The guarantee of the U.S. Government does not extend to the yield or
value of the U.S. Government Securities held by the Fund or to the Fund's
shares.
Foreign Securities. The Fund may invest in foreign securities if the
Adviser believes such investment would be consistent with the Fund's investment
objective. The same factors would be considered in selecting foreign securities
as with domestic securities, as discussed in the Prospectus. Foreign securities
investment presents special considerations not typically associated with
investments in domestic securities. Foreign taxes may reduce income. Currency
exchange rates and regulations may cause fluctuation in the value of foreign
securities. Foreign securities are subject to different regulatory environments
than in the United States and, compared to the United States, there may be a
lack of uniform accounting, auditing and financial reporting standards, less
volume and liquidity and more volatility, less public information, and less
regulation of foreign issuers. Countries have been known to expropriate or
nationalize assets, and foreign investments may be subject to political,
financial or social instability or adverse diplomatic developments. There may be
difficulties in obtaining service of process on foreign issuers and difficulties
in enforcing judgments with respect to claims under the U.S. securities laws
against such issuers. Favorable or unfavorable differences between U.S. and
foreign economies could affect foreign securities values. The U.S. Government
has, in the past, discouraged certain foreign investments by U.S. investors
through taxation or other restrictions and it is possible that such restrictions
could be imposed again. The Fund may invest in foreign issuers directly or
through the purchase of American Depository Receipts (ADRs). ADRs, which are
traded domestically, are receipts issued by a U.S. bank or trust company
evidencing ownership of securities of a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. The
prices of ADRs are denominated in U.S. dollars while the underlying security may
be denominated in a foreign currency. Direct investments in foreign securities
will generally be limited to foreign securities traded on foreign securities
exchanges.
Illiquid Investments. The Fund may invest up to 10% of its net assets
in illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Adviser determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Fund to sell illiquid securities promptly at an acceptable
price.
Forward Commitment and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash or liquid
securities in an amount sufficient to meet the purchase price. In such purchase
transactions the Fund will not accrue interest on the purchased security until
the actual settlement. Similarly, if a security is sold for a forward date, the
Fund will accrue the interest until the settlement of the sale. When-issued
security purchases and forward commitments have a higher degree of risk of price
movement before settlement due to the extended time period between the execution
and settlement of the purchase or sale. As a result, the exposure to the
counterparty of the purchase or sale is increased. Although the Fund would
generally purchase securities on a forward commitment or when-issued basis with
the intention of taking delivery, the Fund may sell such a security prior to the
settlement date if the Adviser felt such action was appropriate. In such a case
the Fund could incur a short-term gain or loss.
Short Sales "Against the Box." The Fund may sell securities short
"against the box." Selling securities short involves selling securities the
seller (e.g., the Fund) has borrowed in anticipation of a decline in the market
price of such securities. A short sale is "against the box" if, at all times
during which the short position is open, the Fund owns at least an equal amount
of the securities or securities convertible into, or exchangeable without
further consideration for, securities of the same issuer as the securities that
are sold short. To deliver the securities to the buyer, the seller must arrange
through a broker to borrow the securities and, in so doing, the seller becomes
obligated to replace the securities borrowed at their market price at the time
of the replacement. The seller may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
Writing Covered Call Options. When the Adviser believes that individual
portfolio securities are approaching the Adviser's growth and price
expectations, covered call options (calls) may be written (sold) against such
securities in a disciplined approach to selling portfolio securities.
If the Fund writes a call, it receives a premium and agrees to sell the
underlying security to a purchaser of a corresponding call at a specified price
("strike price") by a future date ("exercise date"). To terminate its obligation
on a call the Fund has written, it may purchase a corresponding call in a
"closing purchase transaction". A profit or loss will be realized, depending
upon whether the price of the closing purchase transaction is more or less than
the premium (net of transaction costs) previously received on the call written.
The Fund may also realize a profit if the call it has written lapses
unexercised, in which case the Fund keeps the premium and retains the underlying
security as well. If a call written by the Fund is exercised, the Fund forgoes
any possible profit from an increase in the market price of the underlying
security over the exercise price plus the premium received. The Fund writes
options only for hedging purposes and not for speculation where the aggregate
value of the underlying obligations will not exceed 25% of the Fund's net
assets. If the Adviser is incorrect in its expectations and the market price of
a stock subject to a call option rises above the exercise price of the option,
the Fund will lose the opportunity for further appreciation of that security.
Profits on closing purchase transactions and premiums on lapsed calls
written are considered capital gains for financial reporting purposes and are
short term gains for federal income tax purposes. When short-term gains are
distributed to shareholders, they are taxed as ordinary income. If the Fund
desires to enter into a closing purchase transaction, but there is no market
when it desires to do so, it would have to hold the securities underlying the
call until the call lapses or until the call is exercised. The writing of call
options by the Fund is subject to limitations established by each of the
exchanges governing the maximum number of options which may be written or held
by a single investor or group of investors acting in concert, regardless of
whether the options were written or purchased on the same or different exchanges
or are held in one or more accounts or through one or more different exchanges
or through one or more brokers. Therefore the number of calls the Fund may write
(or purchase in closing transactions) may be affected by options written or held
by other entities, including other clients of the Adviser. An exchange may order
the liquidation of positions found to be in violation of these limits and may
impose certain other sanctions.
Warrants and Rights. Warrants are essentially options to purchase
equity securities at specific prices and are valid for a specific period of
time. Prices of warrants do not necessarily move in concert with the prices of
the underlying securities. Rights are similar to warrants but generally have a
short duration and are distributed directly by the issuer to its shareholders.
Rights and warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer.
Borrowing. The Fund may borrow, temporarily, up to 5% of its total
assets for extraordinary purposes and may increase this limit to 33-1/3% of its
total assets to meet redemption requests which might otherwise require untimely
disposition of portfolio holdings. To the extent the Fund borrows for these
purposes, the effects of market price fluctuations on portfolio net asset value
will be exaggerated. If, while such borrowing is in effect, the value of the
Fund's assets declines, the Fund would be forced to liquidate portfolio
securities when it is disadvantageous to do so. The Fund would incur interest
and other transaction costs in connection with such borrowing. The Fund will not
make any additional investments while its borrowings are outstanding.
DESCRIPTION OF BOND RATINGS
The Fund will normally be invested in equities, although the percentage
of its assets fully invested in equities may vary based on market and economic
conditions. The Fund may invest a portion of its assets in fixed-income
securities, including corporate debt securities and U.S. Government Securities.
As a temporary defensive position, however, the Fund may invest up to 100% of
its assets in money market instruments. When the Fund invests in money market
instruments, it is not pursuing its investment objective. Under normal
circumstances, however, the Fund may invest in money market instruments or
repurchase agreements as described in the Prospectus. When the Fund invests in
fixed-income securities or money market instruments, it will limit itself to
debt securities within the rating categories described below or, if unrated, of
equivalent quality.
The various ratings used by the NRSROs are described below. A rating by
an NRSRO represents the organization's opinion as to the credit quality of the
security being traded. However, the ratings are general and are not absolute
standards of quality or guarantees as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of fixed-income securities
in which the Fund may invest should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or hold a security
because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
NRSRO, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the NRSROs from other sources
that they consider reliable. Ratings may be changed, suspended or withdrawn as a
result of changes in or unavailability of such information, or for other
reasons.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS:
The following summarizes the highest three ratings used by Moody's
Investors Service, Inc. ("Moody's") for bonds:
Aaa: Bonds rated Aaa are judged to be of the best quality. These bonds
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large in Aa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements that make the long term
risks appear somewhat larger than in Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are
to be considered upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. MIG-1 and V-MIG-1 are the highest ratings used by Moody's for
short-term notes and variable rate demand obligations. Obligations bearing these
designations are of the best quality, enjoying strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S RATINGS:
The following summarizes the highest three ratings used by Standard &
Poor's Ratings Group ("S&P") for bonds:
AAA: This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. To provide more detailed indications of
credit quality, the AA and A ratings may be modified by the addition of a plus
or minus sign to show relative standing within these major rating categories.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. The rating SP-1 is the highest
rating assigned by S&P to short-term notes and indicates very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
DESCRIPTION OF FITCH INVESTORS SERVICE INC.'S RATINGS:
The following summarizes the highest three ratings used by Fitch
Investors Service, Inc. ("Fitch") for bonds:
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA.
A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A
ratings may be modified by the addition of a plus or minus sign to show relating
standing within a rating category.
The following summarizes the highest ratings used by Fitch for
short-term notes, variable rate demand instruments and commercial paper:
F-1+: Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1: Instruments assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated
F-1+.
DESCRIPTION OF DUFF & PHELPS CREDIT RATING CO.'S RATINGS:
The following summarizes the highest three ratings used by Duff &
Phelps Credit Rating Co. ("D&P") for bonds:
AAA: This is the highest rating credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA: Bonds rated AA are considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A: Bonds rated A have average protection factors. However risk factors
are more variable and greater in periods of economic stress.
The rating Duff 1 is the highest rating assigned by D&P for short-term
debt, including commercial paper. D&P employs three designations, Duff 1+, Duff
1 and Duff 1- within the highest rating category. Duff 1+ indicates highest
certainty of timely payment. Short-term liquidity, including internal operating
factors and/or access to alternative sources of funds, is judged to be
"outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations." Duff 1 indicates very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are considered to be minor. Duff 1- indicates high certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
INVESTMENT LIMITATIONS
The Fund has adopted the following investment limitations which cannot
be changed without approval by holders of a majority of the outstanding voting
shares of the Fund. A "majority" for this purpose, means the lesser of (i) 67%
of the Fund's outstanding shares represented in person or by proxy at a meeting
at which more than 50% of its outstanding shares are represented, or (ii) more
than 50% of its outstanding shares.
Under these limitations, the Fund MAY NOT:
(1) Purchase more than 10% of the outstanding voting securities or
any class of securities of any one issuer;
(2) Invest 25% or more of the value of its total assets in any one
industry or group of industries (except that securities of the
U.S. Government, its agencies and instrumentalities are not
subject to this limitation);
(3) Issue senior securities, borrow money or pledge its assets,
except that it may borrow from banks as a temporary measure (a)
for extraordinary or emergency purposes, in amounts not
exceeding 5% of the Fund's total assets, or (b) in order to meet
redemption requests that might otherwise require untimely
disposition of portfolio securities if, immediately after such
borrowing, the value of the Fund's assets, including all
borrowings then outstanding, less its liabilities (excluding all
borrowings), is equal to at least 300% of the aggregate amount
of borrowings then outstanding, and may pledge its assets to
secure all such borrowings;
(4) Invest for the purpose of exercising control or management of
another issuer;
(5) Invest in interests in real estate, real estate mortgage loans,
oil, gas or other mineral exploration or development programs,
except that the Fund may invest in the securities of companies
(other than those which are not readily marketable) which own or
deal in such things;
(6) Underwrite securities issued by others except to the extent the
Fund may be deemed to be an underwriter under the federal
securities laws in connection with the disposition of portfolio
securities;
(7) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions);
(8) Make short sales of securities or maintain a short position,
except short sales "against the box." (A short sale is made by
selling a security the Fund does not own. A short sale is
"against the box" to the extent that the Fund contemporaneously
owns or has the right to obtain at no added cost securities
identical to those sold short.);
(9) Participate on a joint or joint and several basis in any trading
account in securities;
(10) Make loans of money or securities, except that the Fund may
invest in repurchase agreements (but repurchase agreements
having a maturity of longer than seven days, together with other
securities which are not readily marketable, are limited to 10%
of the Fund's net assets);
(11) Invest in securities of issuers which have a record of less than
three years' continuous operation (including predecessors and,
in the case of bonds, guarantors);
(12) Write, purchase or sell commodities, commodities contracts,
futures contracts or related options; or
(13) Invest more than 5% of the value of its net assets in warrants,
valued at the lower of cost or market; included within that
amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants which are not listed on the New York or
American Stock Exchange; warrants acquired by the Fund in units
or attached to securities may be deemed to be without value.
Percentage restrictions stated as an investment policy or investment
limitation apply at the time of investment; if a later increase or decrease in
percentage beyond the specified limits results from a change in securities
values or total assets, it will not be considered a violation. However, in the
case of the borrowing limitation (limitation number 3, above), the Fund will, to
the extent necessary, reduce its existing borrowings to comply with the
limitation.
<PAGE>
TRUSTEES AND OFFICERS
Following are the Trustees and current executive officers of The Tuscarora
Investment Trust (the "Trust"), their present position with the Trust, age,
principal occupation during the past 5 years:
NAME, AGE, POSITION PRINCIPAL OCCUPATION
AND ADDRESS DURING PAST 5 YEARS
- --------------------------------- -------------------------------------
*George W. Brumley III (39) Chairman and CEO of
Trustee and President Oak Value Capital
3100 Tower Blvd., Ste. 700 Management, Inc.
Durham, NC 27707
C. Russell Bryan (39) Managing Director
Trustee Brookwood Associates, Inc.
100 North Tryon Street,
suite 1500
Charlotte, NC 28284
*David R. Carr, Jr. (39) President of Oak Value
Trustee, Vice President Capital Management, Inc.
and Treasurer
3100 Tower Blvd., Ste. 700
Durham, NC 27707
John M. Day (45) Managing Partner, Maynard
Trustee Capital Partners LLC (an
5151 Glenwood Avenue Investment firm); prior to March
Raleigh, NC 27612 1996, Vice President of Investors
Management Corp.
(a holding company).
Joseph T. Jordan, Jr. (53) President of Practice
Trustee Management Services, Inc.
3310 Croasdaile Drive, (a medical practice management
Suite 400 firm);
Durham, NC 27705
Tina D. Hosking (age 31) Associate Counsel and Assist
Secretary Ant Vice President of Countrywide
312 Walnut Street Fund Services, Inc. (a registered
Cincinnati, OH 45202 transfer agent) and CW Fund
Distributors, Inc. (a registered
broker-dealer)
*Indicates that Trustee is an "interested person" for purposes of the 1940 Act.
Messrs. Bryan, Day and Jordan constitute the Trust's Audit Committee.
The Audit Committee reviews annually the nature and cost of the professional
services rendered by the Trust's independent accountants, the results of their
year-end audit and their findings and recommendations as to accounting and
financial matters, including the adequacy of internal controls. On the basis of
this review the Audit Committee makes recommendations to the Trustees as to the
appointment of independent accountants for the following year. The Trustees have
not appointed a compensation committee or a nominating committee.
Trustees of the Trust who are not trustees, officers or employees of
the Adviser or the Administrator receive from the Trust an annual retainer of
$12,000(plus $2,500 for serving on the Board's Audit Committee) and a fee of
$2,500 for each Board of Trustees and Board committee meeting of the Trust
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are trustees, officers or employees of
the Adviser or the Administrator do not receive compensation from the Trust. The
table below sets forth the compensation received by each independent Trustee
from the Trust for the fiscal year ended June 30, 1999.
<TABLE>
<CAPTION>
Pension
or
Retirement
Aggregate Benefits Accrued Estimated
Name of Person, Compensation as a Part of Annual Benefits
Position From Fund Fund Expenses Upon Retirement
- ---------------------- -------------------- ------------------------- -----------------------
<S> <C> <C> <C>
C. Russell Bryan $17,500 -0- -0-
John M. Day $17,500 -0- -0-
Joseph T. Jordan, Jr. $17,500 -0- -0-
</TABLE>
Principal Holders of Voting Securities. As of October 4, 1999, the
Trustees and officers of the Trust as a group owned beneficially (i.e., had
voting and/or investment power) less than 1% of the then outstanding shares of
the Fund.
INVESTMENT ADVISER
Oak Value Capital Management, Inc. (the "Adviser") supervises the
Fund's investments pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") described in the Prospectus. The Advisory Agreement is dated May 23,
1995 and is subject to annual approval by the Board of Trustees or by vote of a
majority of the Fund's outstanding voting securities, provided the continuance
is also approved by a majority of the Trustees who are not "interested persons"
of the Trust or the Adviser by vote cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement is terminable without
penalty on sixty days notice by the Board of Trustees of the Trust or by the
Adviser. The Advisory Agreement provides that it will terminate automatically in
the event of its assignment.
Compensation of the Adviser is at the annual rate of 0.90% of the
Fund's average daily net assets. For the fiscal years ended June 30, 1999, 1998
and 1997, the Fund paid the Adviser advisory fees of $4,723,434, $1,740,919 and
$349,761, respectively.
The Adviser, organized as a North Carolina corporation in 1992, is
controlled by its controlling shareholders, George W. Brumley III and David R.
Carr, Jr. Messrs. Brumley and Carr may be deemed to be affiliates of the Adviser
and may directly or indirectly receive benefits from the advisory fees paid to
the Adviser. In addition to acting as Adviser to the Fund, the Adviser also
provides investment advice to corporations, trusts, pension and profit sharing
plans, other business and institutional accounts and individuals.
The Adviser provides a continuous investment program for the Fund,
including investment research and management with respect to all securities,
investments, cash and cash equivalents of the Fund. The Adviser determines what
securities and other investments will be purchased, retained or sold by the
Fund, and does so in accordance with the investment objective and policies of
the Fund as described herein and in the Prospectus. The Adviser places all
securities orders for the Fund, determining with which broker, dealer, or issuer
to place the orders. The Adviser must adhere to the brokerage policies of the
Fund in placing all orders, the substance of which policies are that the Adviser
must seek at all times the most favorable price and execution for all securities
brokerage transactions.
The Adviser also provides, at its own expense, certain executive
officers to the Trust, and pays the entire cost of distributing Fund shares.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. ("BISYS Ohio") , 3435 Stelzer Road,
Columbus, Ohio 43219, serves as Administrator to the Fund pursuant to an
administration agreement dated August 23, 1999(the "Administration Agreement").
The Administration Agreement continues in effect until November 13, 2002, and is
renewed automatically thereafter , unless terminated , for successive one year
terms. This Agreement may be terminated at any time without penalty under terms
set forth in the Administration Agreement. The Administration Agreement contains
provisions limiting the liability of BISYS Ohio and requiring its
indemnification by the Fund. Pursuant to the Administration Agreement, BISYS
Ohio provides the Fund with general office facilities and supervises the overall
administration of the Fund, including among other responsibilities, assisting in
the preparation and filing of all documents required for compliance by the Fund
with applicable laws and regulations and arranging for the maintenance of books
and records of the Fund. BISYS Ohio provides persons (including directors,
officers or other employees of BISYS Ohio or its affiliates) satisfactory to the
Board of Trustees to serve as officers of the Fund. BISYS Ohio is a wholly owned
indirect subsidiary of The BISYS Group, Inc., which is headquartered in Little
Falls, New Jersey, and through its subsidiaries provides a comprehensive array
of products and services to financial institutions and corporate clients
including: mutual fund distribution and administration, retirement plan
services, insurance distribution and support services and image and data
processing outsourcing.
Pursuant to the Administration Agreement, the Fund pays BISYS Ohio an
annual fee, computed daily and paid monthly, at the following annualized rates:
.041% for portfolio assets of $500 million and less
.03% for the next $500 million through $1 billion of
portfolio assets; and
.015% for portfolio assets greater than $1 billion
For the fiscal year ended June 30, 1999, Countrywide Fund Services,
Inc..("Countrywide"), the Fund's previous administrator, received from the Fund,
accounting and pricing fees of $60,774 and administrative fees of $446,379. For
the fiscal year ended June 30, 1998, Countrywide received from the Fund
accounting and pricing fees of $43,000 and administrative fees of $213,152. For
the fiscal year ended June 30, 1997, Countrywide received from the Fund
accounting and pricing fees of $25,000 and administrative fees of $70,604.
TRANSFER AGENT AND FUND ACCOUNTING SERVICES
BISYS Ohio also provides certain accounting services pursuant to a Fund
Accounting Agreement dated August 23, 1999 (the "Fund Accounting Agreement").
The Fund Accounting Agreement continues in effect until November 13, 2002 and is
renewed automatically, unless terminated, for successive one year periods. The
Agreement's provisions for termination, limitation of liability and
indemnification are similar to those of the Fund's Administration Agreement.
Under the Fund Accounting Agreement, BISYS Ohio maintains all Fund books and
records required under Rule 31a-1 under the Investment Company Act, performs
daily accounting services and satisfies additional Fund reporting and record
keeping requirements.
Pursuant to the Fund Accounting Agreement, the Fund pays BISYS Ohio an
annual fee, computed daily and paid monthly, at the following annualized rates:
.02% for the Trust's assets of $500 million and less;
.015% for the next $500 million through $1 billion
of the Trust's assets; and
.01% for the Trust's assets greater than $1 billion. Fund
accounting fees paid by Countrywide for the past
three years are disclosed above.
BISYS Ohio also serves as transfer agent and dividend disbursing agent
for the Fund pursuant to a separate agreement.
OTHER SERVICES
The firm of Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio
45202, has been retained by the Board of Trustees to perform an independent
audit of the books and records of the Trust and to consult with the Trust as to
matters of accounting and federal and state income taxation.
The Custodian of the Fund's assets is The Bank of New York, 100 Church
St, New York NY 10286. The Custodian holds all cash and securities of the Fund
(either in its possession or in its favor through "book entry systems"
authorized by the Trustees in accordance with the 1940 Act), collects all income
and effects all securities transactions on behalf of the Fund.
Morgan, Lewis & Bockius, LLP, 1800 M Street, N.W., Washington, D.C.
20036, passes upon certain legal matters in connection with shares offered by
the Trust and also acts as Counsel to the Trust.
OTHER FUND COSTS
The Fund pays all expenses not assumed by the Adviser, including its
advisory fees. Fund expenses include, among others, the fees and expenses, if
any, of the Trustees and officers who are not "affiliated persons" of the
Adviser, fees of the Custodian, interest expense, taxes, brokerage fees and
commissions, fees and expenses of the Fund's shareholder servicing operations,
fees and expenses of qualifying and registering the Fund's shares under federal
and state securities laws, expenses of preparing, printing and distributing
prospectuses and reports to existing shareholders, auditing and legal expenses,
insurance expenses, association dues, and the expense of shareholders' meetings
and proxy solicitations. The fund is also liable for any nonrecurring expenses
as may arise such as litigation to which the Fund may be a party. The Fund may
be obligated to indemnify the Trustees and officers with respect to such
litigation. All expenses of the Fund are accrued daily on the books of the Fund
at a rate which, to the best of its belief, is equal to the actual expenses
expected to be incurred by the Fund in accordance with generally accepted
accounting practices.
The Fund and the Adviser have arrangements with certain brokerage firms
and financial institutions to provide administrative, shareholder subaccounting
and other services, including sales-related services. The Adviser, not the Fund,
compensates these organizations for their services based on the amount of
customer assets maintained in the Fund by such organizations. The payment of
such compensation by the Adviser will not affect the expense ratio of the Fund.
BROKERAGE
It is the Fund's practice to seek the best price and execution for all
portfolio securities transactions. The Adviser (subject to the general
supervision of the Board of Trustees) directs the execution of the Fund's
portfolio transactions. The Trust has adopted a policy which prohibits the
Adviser from effecting Fund portfolio transactions with broker-dealers which may
be interested persons of the Trust, any Trustee, officer or director of the
Trust or the Adviser or any interested person of such persons.
The Fund's fixed-income portfolio transactions will normally be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer markup. The Fund's common stock
portfolio transactions will normally be exchange traded and will be effected
through broker-dealers who will charge brokerage commissions. Options will also
normally be exchange traded involving the payment of commissions. With respect
to securities traded only in the over-the-counter market, orders will be
executed on a principal basis with primary market makers in such securities
except where better prices or executions may be obtained on an agency basis or
by dealing with other than a primary market maker.
During the fiscal years ended June 30, 1999, 1998 and 1997, the total
amount of brokerage commissions paid by the Fund was $608,524, $306,718 and
$59,862, respectively. The increase in brokerage commissions paid by the Fund
during the fiscal year ended June 30, 1998 was due to the substantial increase
in net assets of the Fund.
While there is no formula, agreement or undertaking to do so, the
Adviser may allocate a portion of the Fund's brokerage commissions to persons or
firms providing the Adviser with research services, which may typically include,
but are not limited to, investment recommendations, financial, economic,
political, fundamental and technical market and interest rate data, and other
statistical or research services. Much of the information so obtained may also
be used by the Adviser for the benefit of the other clients it may have.
Conversely, the Fund may benefit from such transactions effected for the benefit
of other clients. In all cases, the Adviser is obligated to effect transactions
for the Fund based upon obtaining the most favorable price and execution.
Factors considered by the Adviser in determining whether the Fund will receive
the most favorable price and execution include, among other things: the size of
the order, the broker's ability to effect and settle the transaction promptly
and efficiently and the Adviser's perception of the broker's reliability,
integrity and financial condition. During the fiscal year ended June 30, 1999,
the amount of brokerage transactions and related commissions directed to brokers
because of research services provided was $100,962,427 and $103,135,
respectively.
Portfolio turnover rates for the fiscal years ended June 30, 1998 and
1999 were 15% and 38%, respectively.
SPECIAL SHAREHOLDER SERVICES
As noted in the Prospectus, the Fund offers the following shareholder
services:
Regular Account. The regular account allows for voluntary investments
to be made at any time. Available to individuals, custodians, corporations,
trusts, estates, corporate retirement plans and others, shareholders are free to
make additions and withdrawals to or from their account as often as they wish.
When a shareholder makes an initial investment in the Fund, a shareholder
account is opened in accordance with the shareholder's registration
instructions. Each time there is a transaction in a shareholder account, such as
an additional investment or the reinvestment of a dividend or distribution, the
shareholder will receive a statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year to date.
Automatic Investment Plan. The automatic investment plan enables
shareholders to make regular monthly or bimonthly investments in shares through
automatic charges to their checking account. With shareholder authorization and
bank approval, the Transfer Agent will automatically charge the checking account
for the amount specified ($100 minimum) which will be automatically invested in
shares at the net asset value on or about the fifteenth and/or the last business
day of the month as indicated on the Account Application. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Transfer Agent.
Automatic Withdrawal Plan. Shareholders owning shares with a value of
$10,000 or more may establish an Automatic Withdrawal Plan. A shareholder may
receive monthly, quarterly or annual payments, in amounts of not less than $100
per payment, by authorizing the Fund to redeem the necessary number of shares
periodically (each month, quarterly in the months of March, June, September and
December or annually as specified on the Account Application). Payments may be
made directly to an investor's account with a commercial bank or other
depository institution via an Automated Clearing House ("ACH") transaction.
Instructions for establishing this service are included in the Application
contained in the Prospectus or are available by calling the Fund. Payment may
also be made by check made payable to the designated recipient and mailed within
three business days of the valuation date. If the designated recipient is other
than the registered shareholder, the signature of each shareholder must be
guaranteed on the application (see "Redemptions In Writing Required" in the
Prospectus). A corporation (or partnership) must also submit a "Corporate
Resolution" (or "Certification of Partnership") indicating the names, titles and
required number of signatures authorized to act on its behalf. The application
must be signed by a duly authorized officer(s) and the corporate seal affixed.
No redemption fees are charged to shareholders under this plan. Costs in
conjunction with the administration of the plan are borne by the Fund.
Shareholders should be aware that such automatic withdrawals may deplete or use
up entirely their initial investment and may result in realized long-term or
short-term capital gains or losses. The Automatic Withdrawal Plan may be
terminated at any time by the Fund upon sixty days' written notice or by a
shareholder upon written notice to the Fund. Applications and further details
may be obtained by calling the Fund at 1-800-622-2474, or by writing to:
The Oak Value Fund
Shareholder Services
P.O. Box 182287
Columbus, Ohio 43219
Purchases In Kind. The Fund may accept securities in lieu of cash in
payment for the purchase of shares of the Fund. The acceptance of such
securities is at the sole discretion of the Adviser based upon the suitability
of the securities accepted for inclusion as a long term investment of the Fund,
the marketability of such securities, and other factors which the Adviser may
deem appropriate. If accepted, the securities will be valued using the same
criteria and methods as described in " Net Asset Value Determination."
Redemptions In Kind. The Fund does not intend, under normal
circumstances, to redeem its securities by payment in kind. It is possible,
however, that conditions may arise in the future which would, in the opinion of
the Trustees, make it undesirable for the Fund to pay for all redemptions in
cash. In such case, the Board of Trustees may authorize payment to be made in
portfolio securities or other property of the Fund. Securities delivered in
payment of redemptions would be valued at the same value assigned to them in
computing the net asset value per share. Shareholders receiving them would incur
brokerage costs when these securities are sold. The Trust has filed an
irrevocable election with the SEC under Rule 18f-1 of the 1940 Act, wherein the
Fund has committed itself to pay redemptions in cash, rather than in kind, to
any shareholder of record of the Fund who redeems during any ninety day period,
the lesser of (a) $250,000 or (b) one percent (1%) of the Fund's net assets at
the beginning of such period.
Transfer Of Registration. To transfer shares to another owner, send a
written request to the Transfer Agent at the address shown herein. Your request
should include the following: (1) the existing account registration; (2)
signature(s) of the registered owner(s) exactly as the signature(s) appear(s) on
the account registration; (3) the new account registration, address, social
security or taxpayer identification number and how dividends and capital gains
are to be distributed; (4) signature guarantees (see the Prospectus under the
heading "Redemptions in Writing Required"); and (5) any additional documents
which are required for transfer by corporations, administrators, executors,
trustees, guardians, etc. If you have any questions about transferring shares,
call or write the Administrator.
PURCHASE OF SHARES
The purchase price of shares of the Fund is the net asset value next
determined after the order is received. An order received prior to the close of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time) will
be executed at the price computed on the date of receipt; and an order received
after that time will be executed at the price computed on the next Business Day.
An order to purchase shares is not binding on the Fund until confirmed in
writing (or unless other arrangements have been made with the Fund, for example
in the case of orders utilizing wire transfer of funds) and payment has been
received.
The Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund and its
shareholders, and (iii) to reduce or waive the minimum for initial and
subsequent investments under some circumstances, including circumstances where
certain economies can be achieved in sales of Fund shares.
Employees and Affiliates of the Fund. The Fund has adopted initial
investment minimums for the purpose of reducing the cost to the Fund (and
consequently to the shareholders) of communicating with and servicing its
shareholders. However, the minimum initial investment requirement does not apply
to Trustees, officers and employees of the Fund, the Adviser and certain parties
related thereto, including clients of the Adviser or any sponsor, officer,
committee member thereof, or the immediate family of any of them. In addition,
accounts having the same mailing address may be aggregated for purposes of the
minimum investment if shareholders consent in writing to share a single mailing
of shareholder reports, proxy statements (but each such shareholder would
receive his/her own proxy) and other Fund literature.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the SEC,
(ii) during any period when an emergency exists as defined by the rules of the
SEC as a result of which it is not reasonably practicable for the Fund to
dispose of securities owned by it, or to fairly determine the value of its
assets, and (iii) for such other periods as the SEC may permit.
No charge is made by the Fund for redemptions, although the Trustees
could impose a redemption charge in the future. Any redemption may be more or
less than the amount of the shareholder's investment depending on the market
value of the securities held by the Fund.
NET ASSET VALUE DETERMINATION
Under the 1940 Act, the Trustees are responsible for determining in
good faith the fair value of the securities and other assets of the Fund, and
they have adopted procedures to do so, as follows. The net asset value of the
Fund is determined as of the close of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on each "Business Day." A Business Day means
any day, Monday through Friday, except for the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Fourth of July, Labor Day, Thanksgiving Day and
Christmas. Net asset value per share is determined by dividing the total value
of all Fund securities and other assets, less liabilities, by the total number
of shares then outstanding. Net asset value includes interest on fixed-income
securities, which is accrued daily.
Securities which are traded over-the-counter are priced at the last
sale price, if available, otherwise, at the last quoted bid price. Securities
traded on a national stock exchange will be valued based upon the closing price
on the valuation date on the principal exchange where the security is traded.
Fixed-income securities will ordinarily be traded in the over-the-counter market
and common stocks will ordinarily be traded on a national securities exchange,
but may also be traded in the over-the-counter market. When market quotations
are not readily available, fixed-income securities may be valued on the basis of
prices provided by an independent pricing service. The prices provided by the
pricing service are determined with consideration given to institutional bid and
last sale prices and take into account securities prices, yields, maturities,
call features, ratings, institutional trading in similar groups of securities
and developments related to specific securities. The Trustees will satisfy
themselves that such pricing services consider all appropriate factors relevant
to the value of such securities in determining their fair value. Calls written
by the Fund are valued at the then current market quotation, using the ask
price, as of the close of each day on the principal exchanges on which they are
traded. Securities and other assets for which no quotations are readily
available will be valued in good faith at fair value using methods determined by
the Board of Trustees.
ADDITIONAL TAX INFORMATION
Taxation of The Fund. The Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Among the requirements to qualify under Subchapter M, the
Fund must distribute annually at least 90% of its net investment income. In
addition to this distribution requirement, the Fund must derive at least 90% of
its gross income each taxable year from dividends, interest, payments with
respect to securities' loans, gains from the disposition of stock or securities,
and certain other income.
While the above requirements are aimed at qualification of the Fund as
a regulated investment company under Subchapter M of the Code, the Fund also
intends to comply with certain requirements of the Code to avoid liability for
federal income and excise tax. If the Fund remains qualified under Subchapter M,
it will not be subject to federal income tax to the extent it distributes its
taxable net investment income and net realized capital gains. A nondeductible 4%
federal excise tax will be imposed on the Fund to the extent it does not
distribute at least 98% of its ordinary taxable income for a calendar year, plus
98% of its capital gain net taxable income for the one year period ending each
October 31, plus certain undistributed amounts from prior years. While the Fund
intends to distribute its taxable income and capital gains in a manner so as to
avoid imposition of the federal excise and income taxes, there can be no
assurance that the Fund indeed will make sufficient distributions to avoid
entirely imposition of federal excise or income taxes. Should additional series,
or funds, be created by the Trustees, each fund would be treated as a separate
tax entity for federal income tax purposes.
Tax Status of the Fund's Dividends and Distributions. Dividends paid by
the Fund derived from net investment income or net short-term capital gains are
taxable to shareholders as ordinary income, whether received in cash or
reinvested in additional shares. Distributions, if any, of long-term capital
gains are taxable to shareholders as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held. For information on "backup" withholding, see "Avoid 31% Tax
Withholding" in the Prospectus.
For corporate shareholders, the dividends received deduction, if
applicable, should apply to dividends from the Fund. The Fund will send
shareholders information each year on the tax status of dividends and
disbursements. A dividend or capital gains distribution paid shortly after
shares have been purchased, although in effect a return of investment, is
subject to federal income taxation. Dividends from net investment income, along
with capital gains, will be taxable to shareholders, whether received in cash or
shares and no matter how long you have held Fund shares, even if they reduce the
net asset value of shares below your cost and thus in effect result in a return
of a part of your investment.
DESCRIPTION OF THE TRUST
The Declaration of Trust of The Tuscarora Investment Trust currently
provides for the issuance of shares of the Fund as sole series of the Trust. The
Trustees are permitted to create additional series, or funds, at any time. The
Trust was organized as a Massachusetts business trust pursuant to an Agreement
and Declaration of Trust. Shares of the Fund are freely transferable, have no
preemptive or conversion rights and, when issued, are fully paid and
non-assessable. Upon liquidation of the Trust or a particular Fund of the Trust,
holders of the outstanding shares of the Fund being liquidated shall be entitled
to receive, in proportion to the number of shares of the Fund held by them, the
excess of that Fund's assets over its liabilities. Shareholders are entitled to
one vote for each full share and a fractional vote for each fractional share
held. On any matter submitted to a vote of shareholders, all shares of the Trust
then issued and outstanding and entitled to vote, irrespective of the Fund,
shall be voted in the aggregate and not by Fund, except (i) when required by the
1940 Act, shares shall be voted by individual Fund; and (ii) when the matter
does not affect any interest of a particular Fund, then only shareholders of the
affected Fund or Funds shall be entitled to vote thereon. Examples of matters
which affect only a particular Fund could be a proposed change in the
fundamental investment objectives or policies of that Fund or a proposed change
in the investment advisory agreement for a particular Fund. Shares have
noncumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees
and, in this event, the holders of the remaining shares voting will not be able
to elect any Trustees. The Trustees will hold office indefinitely, except that:
(1) any Trustee may resign or retire and (2) any Trustee may be removed with or
without cause at any time (a) by a written instrument, signed by at least
two-thirds of the number of Trustees prior to such removal; or (b) by vote of
shareholders holding not less than two-thirds of the outstanding shares of the
Trust, cast in person or by proxy at a meeting called for that purpose; or (c)
by a written declaration signed by shareholders holding not less than two-thirds
of the outstanding shares of the Trust and filed with the Trust. Shareholders
have certain rights, as set forth in the Declaration of Trust, including the
right to call a meeting of the shareholders for the purpose of voting on the
removal of one or more Trustees. Shareholders holding not less than ten percent
(10%) of the shares then outstanding may require the Trustees to call such a
meeting and the Trustees are obligated to provide certain assistance to
shareholders desiring to communicate with other shareholders in such regard
(e.g., providing access to shareholder lists, etc.). Shareholder inquiries may
be made in writing, addressed to the Fund at the address contained in this
Statement of Additional Information. In case a vacancy or an anticipated vacancy
shall for any reason exist, the vacancy shall be filled by the affirmative vote
of a majority of the remaining Trustees, subject to the provisions of Section
16(a) of the 1940 Act. The Trust does not expect to have an annual meeting of
shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the Trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability.
Prior to May 19, 1995, the Fund was a series of Albemarle Investment
Trust.
As of October 4, 1999, the following were five percent or greater
shareholders of the Fund:
Share Balance Percentage
------------- ----------
Charles Schwab & Co., Inc. 8,461,489.904 43.97% *
101 Montgomery Street
San Francisco, CA 94104
NFSC, Attn: S Chattengoon, 3,913,784.099 20.34%
Mutual Funds/Reconciliation
FBO S Vella
200 Liberty Street 5th Floor
One World Financial Center
New York, NY 10281
*Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, California
94104, owned of record, for the exclusive benefit of its customers, more than
25% of the shares of the Fund. Accordingly, this entity may be deemed to be a
"controlling person" of the Fund within the meaning of the 1940 Act.
CALCULATION OF PERFORMANCE DATA
The Fund may, from time to time, advertise certain total return and
yield information. The "total return" of the Fund refers to the average annual
compounded rates of return over 1, 5 and 10 year periods that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of total return assumes the
reinvestment of all dividends and distributions, includes all recurring fees
that are charged to all shareholder accounts and deducts all nonrecurring
charges at the end of each period. If the Fund has been operating less than 1, 5
or 10 years, the time period during which the Fund has been operating is
substituted. The average annual total return of the Fund for a period is
computed by subtracting the net asset value per share at the beginning of the
period from the net asset value per share at the end of the period (after
adjusting for the reinvestment of any income dividends and capital gain
distributions), and dividing the result by the net asset value per share at the
beginning of the period. In particular, the average annual total return of the
Fund ("T") is computed by using the redeemable value at the end of a specified
period of time ("ERV") of a hypothetical initial investment of $1,000 ("P") over
a period of time ("n") according to the formula P(l+T)n=ERV. The average annual
total return quotations for the Fund for the one year and five year periods
ended June 30, 1999 and for the period since inception (January 18, 1993) to
June 30, 1999 are 6.80%, 23.91% and 21.18%, respectively.
In addition, the Fund may advertise other total return performance data
("Nonstandardized Return"). Nonstandardized Return shows as a percentage rate of
return encompassing all elements of return (i.e., income and capital
appreciation or depreciation); it assumes reinvestment of all dividends and
capital gain distributions. Nonstandardized Return may consist of a cumulative
percentage of return, actual year-by-year rates or any combination thereof. The
Nonstandardized Returns of the Fund for each year and since inception, as
compared to the performance of the Lipper Growth Fund Index and the S&P 500
Index for such periods, are as follows:
<PAGE>
<TABLE>
<CAPTION>
Since
Year-to-Date 1999 Inception*
Calendar Calendar Calendar Calendar Calendar Calendar (as of (as of
1993* 1994 1995 1996 1997 1998 6/30/99) 6/30/99)
-------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oak Value Fund............ 22.04% -1.54% 28.89% 28.99% 37.70% 18.93% 5.51% 21.18%
Lipper Growth Fund Index.. 10.30% -1.57% 32.65% 17.53% 28.03% 25.69% 11.89% 18.83%
S&P 500 Index............. 9.60% 1.32% 37.58% 22.96% 33.36% 28.58% 12.38% 22.07%
</TABLE>
* Inception date of the Fund was January 18, 1993.
From time to time, the Fund may advertise its yield. A yield quotation
is based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
Yield = 2[a-b/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is
recognized by accruing 1/360 of the stated dividend rate of the security each
day that the Fund owns the security. Generally, interest earned (for the purpose
of "a" above) on debt obligations is computed by reference to the yield to
maturity of each obligation held based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day prior to the start of the 30-day (or one month) period for which
yield is being calculated, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest).
The Fund's performance may be compared in advertisements, sales
literature and other communications to the performance of other mutual funds
having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Index, which is generally considered to be representative of the
performance of unmanaged common stocks that are publicly traded in the United
States securities markets. Comparative performance may also be expressed by
reference to a ranking prepared by a mutual fund monitoring service, such as
Lipper, Inc. or Morningstar, Inc., or published by one or more newspapers,
newsletters or financial periodicals such as FORBES, MONEY, THE WALL STREET
JOURNAL, BUSINESS WEEK, BARRON'S, AND FORTUNE. Performance comparisons may be
useful to investors who wish to compare the Fund's past performance to that of
other mutual funds and investment products. Of course, past performance is not a
guarantee of future results.
-- Lipper, Inc. ranks funds in various fund categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific
period of time.
-- Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Investors may use such indices in addition to the Fund's Prospectus to
obtain a more complete view of the Fund's performance before investing. Of
course, when comparing the Fund's performance to any index, factors such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing funds using
reporting services, or total return, investors should take into consideration
any relevant differences in funds such as permitted portfolio compositions and
methods used to value portfolio securities and compute offering price.
Advertisements and other sales literature for the Fund may quote total returns
that are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). The Fund may also depict the historical performance of
the securities in which the Fund may invest over periods reflecting a variety of
market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Fund may also present its performance and other investment characteristics,
such as volatility or a temporary defensive posture, in light of the Adviser's
view of current or past market conditions or historical trends. The Fund may
also include in advertisements and in materials furnished to present and
prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
The Fund may also disclose from time to time information about IRAs and
the benefits of IRAs, including the potential tax deduction and tax-deferred
growth. The Fund may also provide examples of the accumulated amounts that would
be available in an IRA with specified contributions over a specified amount of
time with a specified annual return. For example, a $2,000 IRA contribution each
year for 30 years earning a 10% average annual return would be worth
approximately $360,000 at the end of 30 years. Such examples will be used for
illustration purposes only and will not be indicative of past or future
performance of the Fund.
<PAGE>
FINANCIAL STATEMENTS AND REPORTS
The books of the Fund will be audited at least once each year by
independent public accountants. Shareholders will receive annual audited and
semiannual (unaided) reports when published, and will receive written
confirmation of all conformable transactions in their account. A copy of the
Annual Report will accompany the SAI whenever the SAI is requested by a
shareholder or prospective investor.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THE SAI OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS, THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN
OFFERING BY THE FUND IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT
LAWFULLY BE MADE.
