Annual Report
June 30, 1999
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OAK VALUE FUND
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<PAGE>
LETTER TO SHAREHOLDERS July 27, 1999
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The Oak Value Fund (the Fund) continued its trend of growth during the 1999
fiscal year as represented by the following milestones:
o CONTINUED ASSET GROWTH-- The net assets of the Fund have increased from
$433 million on June 30, 1998 to $625 million on June 30, 1999.
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
1.10% of average net assets for the fiscal year ended June 30, 1999.
Listed below is a comparison of the Fund's average annual total returns versus
the Lipper Growth Fund Index and the S&P 500 Index for the period ending June
30, 1999.
Six One Three Five Since
Months Year Years* Years* Incept.*
------ ---- ----- ----- ------
Oak Value Fund....5.51% 6.80% 26.12% 23.91% 21.18%
Lipper Growth
Fund Index....11.89% 21.69% 25.15% 23.34% 18.83%
S&P 500 Index....12.38% 22.76% 29.11% 27.87% 22.07%
*Annualized.
Our objective is to achieve superior returns over the long term. While we want
to outperform the broad market and our peer group in the short term, we believe
it would be imprudent to abandon the principles and philosophy that define us as
value investors. We believe these principles have stood the test of time and
their disciplined application is as important today as any time in history. Even
though our recent performance has lagged the broader market averages, the Fund
has outperformed its peer group as measured by the Lipper Growth Fund Index over
the three- and five-year time periods ending June 30, 1999.
Significant portions of indices' returns over the past twelve months have come
from companies involved in technology and the Internet. It is tempting at times
to throw in the towel and venture into these businesses. Each time we experience
such temptation, we begin the process with a very simple question -- "Do these
businesses have the ability to produce predictable, growing, excess cash flow?"
Thus far, we have found that the answer to this question provides the necessary
strength to avoid the urge. Indeed, the short-term returns these companies have
produced are of interest as they may portend changes in business models. As
students of business models, our challenge is to assess the potential economic
benefit of such changes and the extent to which those benefits will result in
increased value for owners of those businesses. The long term viability and
value of a business still depends on its ability to produce economic profits. At
the end of the day, we are buying businesses, not pieces of paper.
The potential benefits of technology are indisputable. Business models are
evolving and emerging more rapidly than perhaps ever in the history of our
country. We believe the great management of the businesses we own will utilize
the best technology available to naturally extend and protect their core
franchises. Tiffany should benefit from its ability to attract additional
customers through on-line shopping. As it possesses one of the greatest brands
in the world, Tiffany should gather additional revenues without being subject to
price competition from "me too" sites. Additionally, Avon Products should
eliminate major costs by allowing its representatives to place their orders
online. Both Progressive and Geico (a wholly-owned subsidiary of Berkshire
Hathaway) already offer their automobile insurance policies over the Internet at
competitive prices. This additional distribution outlet should further leverage
their low cost provider status. Furthermore, our newspaper companies have
established positions as local portals serving as the destination point for
daily users of the web. Their goal is to create a must-visit site for persons
embarking on their daily travels on the web. Little, if any, of the incremental
value being created by these uses of technology is reflected in the current
market values of these companies. We are hopeful that this value will be
realized for us as owners of great businesses when rationality returns to the
market.
Despite our concerns about the valuation of certain companies in the market, we
remain enthusiastic about the Fund's holdings. We believe these companies
possess defined, defensible franchises which have the ability to produce
predictable, growing excess cash flow. Their managers are focused on creating
shareholder value over the long term. In an effort to share our
<PAGE>
enthusiasm with our shareholders, we have chosen to identify and comment on
every company in the portfolio. We trust you will find these comments both
interesting and informative and that they will reflect to you some portion of
our confidence in the companies' abilities to produce above average returns.
o AFLAC -- Based on premiums and profits, AFLAC is the largest foreign insurance
company operating in Japan. Additionally, it is a leading provider of
supplemental insurance in the U.S. The company has dominated its niche of cancer
insurance in Japan for more than two decades. Despite Japan's stagnant economy,
the company has continued to increase revenues and profits in Japan while
expatriating over $1 billion in excess capital this decade. The repurchase of
nearly 25 percent of its outstanding shares since 1995 has contributed
dramatically to per share earnings growth. Meanwhile, AFLAC's domestic
supplemental insurance business has grown steadily and now represents more than
one-third of the company's profitability.
o Ambac -- Ambac is the second largest Triple-A rated financial guarantee
insurer in the country with exposure to the municipal bond, structured debt and
international debt markets. Ambac has continued to grow its domestic exposure
through product innovations. The company has developed a viable and rapidly
growing international business as well. The European Monetary Unit is
encouraging cross border commerce in European markets as they experience
disintermediation. The development of these bond markets should increase the
need for financial guarantee insurance. Ambac is strategically positioned to
meet this need through a joint venture with its major U.S. competitor. This
company has produced consistent earnings growth and we expect this trend to
continue.
o Avon Products -- As the world's largest direct seller of beauty and related
products, Avon markets a broad line of products in 135 countries through 2.8
million sales representatives. Avon has proven its ability to effectively
execute its direct marketing distribution model in emerging markets. The
company's mature markets should experience further growth due to the
revitalization of the product line and the emphasis on global brands that
leverage advertising and image across borders. As measured in units, Avon now
sells more fragrance and cosmetics products than its competitors. We believe the
company will continue to leverage this leadership position and its proven
business model to take advantage of further growth opportunities.
o A.H. Belo -- This media company operates 17 television stations, 6 daily
newspapers, and 4 local and regional cable news channels. Its marquee property,
The Dallas Morning News, has recently suffered from its own successes. After the
elimination of its major competitor earlier this decade, the paper's management
significantly increased advertising rates in each of the past five years. Though
these actions have produced higher returns on equity for the paper, they also
appear to have reduced the rate at which the paper will likely be able to grow
in the near term. Despite these challenges, Belo trades at a substantial
discount to its private market value and comparable publicly traded media
properties.
o Berkshire Hathaway -- While previous readers of this letter are aware of our
opinions on this company, some facts may suffice. Berkshire is not a closed-end
fund. It is an insurance company that produces capital for investment as a
result of its various subsidiary insurance companies' ability to effectively
price risk. Berkshire now has more capital than any other insurance company in
the world. In recent years, the company has also purchased several great
operating businesses such as Executive Jet, Flight Safety and Dairy Queen. On a
stand-alone basis as measured by revenues, Berkshire's operating units would
constitute a Fortune 50 company.
o Campbell Soup -- As the world's leading soup producer, Campbell's management
team has focused its efforts on eliminating businesses and processes which
produced unacceptable returns on shareholder capital. This effort has resulted
in increasing margins, cash flow and return on equity. Approximately 80 percent
of the company's cash flow comes from leading global branded products. Campbell
should now be positioned to further increase its market share domestically and
abroad through acquisitions and product innovations and extensions.
o Chubb -- Chubb is a property and casualty insurer with 120 offices in 33
countries. The company operates in three distinct business lines (personal,
specialty commercial and standard commercial) though its personal line is
clearly the company's most profitable.
<PAGE>
In contrast, the standard commercial business has experienced significant
pricing pressure and adverse claims development. Management has increased rates
to reduce its exposure to this more competitive business. Chubb also recently
completed the acquisition of Executive Risk in an effort to further strengthen
and grow its specialty commercial line. Meanwhile, Chubb's growing international
platform should continue to provide selected growth opportunities in developing
insurance markets around the globe.
o Coca-Cola -- Coke is the world's largest provider of liquid refreshments. The
operating measurement of record for the company is the number of eight-ounce
servings sold each year. This number has continued to increase in virtually all
of Coke's markets during this decade. Although the company is 113 years old, its
products constitute only two percent of the annual worldwide beverage
consumption. Recent weak economic conditions abroad have temporarily slowed the
company's rate of unit growth. Its market share has, however, continued to
increase in nearly every market. We remain convinced that the long-term
attractiveness and predictability of the Coke business model should result in
continued increases in this company's intrinsic value for years to come.
o Disney -- While the company's recent growth has been muted by weak
international economies, Disney is the world's undisputed leader in children's
entertainment around the globe. The company's growth extends beyond the borders
of the movie industry. Disney's licensed characters generate $20 billion in
annual revenue. Furthermore, the company has continued to invest heavily in its
theme parks where returns on invested capital have historically been attractive.
The company's objective is to increase per capita spending on Disney licensed
products, videos and at Disney theme parks around the world. Despite ABC's
challenges at the network level, Disney's ESPN brand continues to expand its
already dominant global position in sports broadcasting. Disney has demonstrated
a unique ability to have an investment in one segment of their business generate
incremental returns across their multiple platforms of distribution.
o Dun and Bradstreet -- D&B is the world's leading provider of business credit,
marketing and purchasing information. Its wholly-owned subsidiary, Moody's
Investor Service, is the leading global provider of credit ratings, research and
analysis for debt instruments and other credit-sensitive securities issued in
the world's capital markets. After having divested many of its non-core
businesses, the company is positioned to experience significant growth in both
of these business units. The advent of the European Monetary Unit will create
increasing demand for credit information about customers and suppliers as cross
border commerce expands in Europe. The global capital markets demand credit
analysis from independent parties such as Moody's. D&B has a proprietary
database with 50 million businesses in 209 countries that is updated one million
times each day. We believe this database has significant value as the company
seeks to drive further revenue growth by increasing usage of this data.
o First Union -- First Union is the sixth largest banking company in the U.S.
with $237 billion in assets serving nearly 10 million households. This company's
stock has recently traded at a discount to other banks due to lingering
challenges of cost controls associated with the CoreStates acquisition. These
challenges are real, but manageable. Meanwhile, the company's market share and
long-term intrinsic value appear intact. The company has a solid capital base,
operates in growth markets and boasts an experienced management team.
o Gillette -- Gillette is the world's leading producer of razors and blades with
over 70 percent worldwide market share. The company's investments in new blade
systems are intended to increase its profit per shaver per day. The company
maintains that this objective will again be met with the launch last year of the
Mach 3. Gillette also owns Duracell, which it purchased to complement and
leverage its global distribution system for razors and blades. Though Wall
Street has recently focused on Gillette's other businesses, we believe its
long-term value and growth will be driven by the blade and battery businesses.
o Household International -- Household is the largest independent consumer
finance company in the U.S. with 1400 branches and assets in excess of $60
billion. The company continues to utilize technology to further penetrate its
large consumer base where it provides a mere 12 percent of consumer loan needs.
A one-percentage point increase in this share would result in a $5 billion
increase in Household's loans outstanding.
<PAGE>
o Interpublic Group Companies -- Interpublic is the third largest advertising
and marketing services company in the world. The advertising business benefits
from global growth as global commerce requires global marketing and advertising.
Interpublic is uniquely positioned to benefit from this globalization as it
serves clients in 130 countries worldwide. The company has produced internal
growth at a rate double that of the underlying economies in mature and emerging
markets in recent years. This effective tollbooth to an economy's growth has
created strong sales growth while cost controls further contributed to improving
margins. Anchored by McCann-Erickson, the company has produced excellent results
in all economic cycles and political environments and should continue to do so.
o Oakwood Homes -- Oakwood is a vertically integrated manufacturing, retail and
finance housing company. We originally purchased the company on the belief that
the retail business was growing at an above average rate and the financing side
of the business was not being fairly valued in the company's stock price.
However, due to an increase in prepayment speed during the fall and the nature
of accounting recognition for revenue, the finance portion of the business
reported substantially lower income than it actually receives in cash. A change
to more conservative accounting practices on the finance side as well as a
recent slowdown in their manufactured housing sales has only compounded the
problem. We have been disappointed with the valuation of the company and
management's handling of the situation. In an effort to maximize this value for
shareholders, the company's Board of Directors has hired an investment-banking
firm to pursue the potential sale of the business. Now that the catalyst for
change is in place, we are compelled to exercise further patience with this
investment in the near term.
o Progressive -- Progressive is the fifth largest private passenger automobile
insurer and the second largest non-standard automobile insurer in the country.
The company's economic model is predicated on growing premium revenue at a rate
in excess of the industry by lowering the cost of claims, improving customer
services and improving brand awareness. Progressive has increased its premium
income more than eight times the premium growth rate of the industry while
continuing to produce very high return on equity. Additionally, Progressive is a
beneficiary of technology as it rolls out its direct-to-consumer strategy over
the Internet and telephone. We believe Progressive's competitive advantages will
allow it to continue to increase its market share (now four percent) in a very
fragmented business.
o RLI -- This specialty insurance company utilizes a very interesting and highly
profitable business model. The company earns money through three streams of
income: underwriting profitability, interest income and capital appreciation of
equities held in the portfolio. RLI has produced superior returns on capital for
the past decade as a result of its ability to find niches such as surety and
personal umbrella insurance. During this period, the company's book value has
advanced at an average annual compound rate of approximately 15 percent.
Additionally, RLI has produced an underwriting profit in 10 of the past 12
years.
o E.W. Scripps -- Scripps operates 9 television stations and 19 daily newspapers
throughout the country. Its management has effectively used the excess cash flow
from these core media properties to fund its investments in the Home and Garden
Network and the Food Network. Both of these entities have experienced phenomenal
growth in subscribers, advertisers, cash flow and enterprise value.
Additionally, we believe these brands can be extended to the Internet as they
provide a unique combination of content and advertising for a multitude of
products and services. While the newspaper and cable network properties continue
to thrive, the broadcasting business has recently suffered for a variety of
reasons. Nonetheless, we remain confident in the company and the potential for
its businesses to continue to increase shareholder value.
o Tiffany -- The second largest jewelry retailer in the U.S., Tiffany enjoys one
of the most cherished and vibrant brands in the world. Despite its 162-year
heritage, the company was recently named a "Top 500 Innovator" by Information
Week. With only 37 stores in the U.S., Tiffany has significant opportunities to
further expand its domestic presence. The sales growth in the U.S. will continue
to be driven by same store sales increases, new store openings (three to five
per year) and catalog sales. While Tiffany has substantial (45 stores) and
growing exposure in Japan, we believe Europe and Latin America represent
significant growth opportunities as well for this great franchise. Finally, we
must comment on that which we believe to be yet another very significant
opportunity for this "branded product company disguised as a retailer." We
expect
<PAGE>
Tiffany to launch a new website later this year that will make Tiffany products
available for purchase online. Though the company has offered no predictions
with regard to expected volumes, we were intrigued by Warren Buffett's mention
at this year's Berkshire Hathaway meeting of Tiffany as a brand ideally
positioned for online distribution.
o United Asset Management -- UAM is one of the largest independent investment
management firms in the world. It owns 50 firms that collectively manage over
$200 billion for institutional and individual clients and mutual fund
shareholders. The parent company derives income from revenue sharing agreements
with the affiliates. We find this recurring stream of excess cash flow to be
very attractive. The company has historically used this excess cash flow to make
acquisitions of other firms. However, the recent market valuation has encouraged
UAM management to instead repurchase its own shares. As a result of this
repurchase activity, the company's total shares outstanding were reduced by
eleven percent during the 1998 calendar year.
o Washington Post -- The Post is the publisher of the nation's capital
newspaper. Additionally, the company owns six television stations, Kaplan
Education Centers, Newsweek Magazine and several cable properties. The Post's
business of gathering and disseminating content continues to demonstrate its
relevance in today's market. Proving to be a successful online extension of the
franchise, washingtonpost.com has become one of the top five news sites on the
web with 70 million page views per month. The company has demonstrated an
outstanding ability to operate properties and reinvest the excess cash flow in
selective acquisitions and stock repurchases. The newest division, Kaplan
Education Centers, has grown rapidly through "tuck in" acquisitions which
provide the opportunity to leverage the brand name and product offerings. In
addition to management producing an enviable track record of operating
businesses and allocating capital, we believe the stock to be significantly
undervalued at recent prices.
o Young Broadcasting -- Young is an owner and operator of 12 television stations
that collectively reach approximately 9.1% of television households in America.
The company has proven to be an effective operator with a strong emphasis on
local news and cost controls. Their broadcast cash flow margins are among the
highest in the industry. We have, however, sold our position since the end of
the fiscal year. After considerable appreciation of the company's stock price,
we felt there were better uses for the cash.
We believe these companies represent good businesses with good management. Our
challenge is to purchase them and other such companies that possess similar
characteristics when they are available at attractive prices. We remain diligent
in our search for other such companies and patient as we await more rational
valuations.
We are long-term believers in the growing value of great companies but feel a
bit awkward as these irrational valuations persist. The basic concept of "margin
of safety" plays an ever-increasing role in our decision-making process during
periods such as those of recent months. We would characterize our strategy as
the game of musical chairs. We want to make sure that when the music ends we and
our clients will have chairs.
We thank you for the confidence you have placed in us and our organization as
stewards of your capital.
Sincerely,
/s/ David R. Carr, Jr.
David R. Carr, Jr.
Co-Manager
/s/ George W. Brumley, III
George W. Brumley, III
Co-Manager
The views discussed above are those of the investment adviser as of the date of
this letter and are subject to change at any time. Any statements referring to
future actions or events, such as the future financial performance or ongoing
business strategies of the companies in which the Fund invests, are based on the
current expectations and projections about future events provided by the
management of each company. These statements are not guarantees of future
performance and actual events and results may differ materially from those
expressed above.
<PAGE>
OAK VALUE FUND
PERFORMANCE INFORMATION
================================================================================
Comparison of the Change in Value of a $10,000 Investment in the Oak Value Fund,
Lipper Growth Fund Index and Standard & Poor's 500 Index
[LINE CHART HERE]
Oak Value Fund
Average Annual Total Returns
As of June 30, 1999
1 Year 5 Years Since Inception*
6.80% 23.91% 21.18%
Oak Value Fund S&P 500 Index Lipper Growth Fund Index
1/93 10000 10000 10000
10353 10393 10127
6/93 10357 10443 10272
11442 10711 10765
12/93 12204 10960 11030
11611 10544 10700
6/94 11818 10588 10465
12472 11106 10978
12/94 12015 11104 10857
13157 12186 11642
6/95 13334 13350 12888
14712 14411 14058
12/95 15487 15278 14402
16633 16098 15051
6/96 17206 16821 15552
18483 17341 15991
12/96 19976 18786 16926
20045 19290 16864
6/97 24020 22657 19528
25813 24354 21529
12/97 27508 25054 21673
31256 28549 24357
6/98 32320 29491 25048
26296 26558 22190
12/98 32714 32214 27241
33205 33819 28622
6/99 34516 36202 30434
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------
Year-to-Date Since
Calendar Calendar Calendar Calendar Calendar Calendar 1999 Inception*
1993* 1994 1995 1996 1997 1998 (as of 6/30/99)(as of 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% 245.16%
Lipper Growth Fund
Index....... 10.30% -1.57% 32.65% 17.53% 28.03% 25.69% 11.89% 204.34%
S&P 500 Index.. 9.60% 1.32% 37.58% 22.96% 33.36% 28.58% 12.38% 262.02%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Periods Ended June 30, 1999
Since
Six Months(A) One Year Three Years Five Years Inception*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oak Value Fund.......................... 5.51% 6.80% 26.12% 23.91% 21.18%
Lipper Growth Fund Index................ 11.89% 21.69% 25.15% 23.34% 18.83%
S&P 500 Index........................... 12.38% 22.76% 29.11% 27.87% 22.07%
</TABLE>
* Inception date of the Oak Value Fund was January 18, 1993.
(A) Unannualized.
<PAGE>
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
================================================================================
ASSETS
Investment securities at market value (Note 1)
(acquisition cost of $492,269,017)........................ $ 583,892,124
Investments in repurchase agreements (Note 1)................ 56,596,000
Cash ........................................................ 569
Receivable for capital shares sold........................... 867,832
Dividends receivable......................................... 607,350
Interest receivable.......................................... 7,578
Other assets................................................. 66,303
---------------
TOTAL ASSETS............................................ 642,037,756
---------------
LIABILITIES
Dividends payable............................................ 31,724
Distributions payable........................................ 954,775
Payable for securities purchased............................. 15,190,513
Payable for capital shares redeemed.......................... 541,348
Payable to affiliates (Note 3)............................... 511,991
Other accrued expenses and liabilities....................... 34,750
---------------
TOTAL LIABILITIES....................................... 17,265,101
---------------
NET ASSETS .................................................. $ 624,772,655
===============
Net assets consist of:
Paid-in capital.............................................. $ 533,904,497
Distributions in excess of net realized gains................ (754,949)
Net unrealized appreciation on investments................... 91,623,107
---------------
Net assets................................................... $ 624,772,655
===============
Shares of beneficial interest outstanding
(unlimited number of shares
authorized, no par value)................................. 22,342,135
===============
Net asset value, offering price and redemption
price per share (Note 1).................................. $ 27.96
===============
See accompanying notes to financial statements.
<PAGE>
OAK VALUE FUND
STATEMENT OF OPERATIONS
Year Ended June 30, 1999
================================================================================
INVESTMENT INCOME
Dividends................................................. $ 4,997,494
Interest.................................................. 2,218,708
---------------
TOTAL INVESTMENT INCOME................................. 7,216,202
---------------
EXPENSES
Investment advisory fees (Note 3)......................... 4,723,434
Administrative services fees (Note 3)..................... 446,379
Registration fees......................................... 149,424
Shareholder services and transfer
agent fees (Note 3).................................... 113,588
Postage and supplies...................................... 78,249
Accounting services fees (Note 3)......................... 60,774
Trustees' fees and expenses............................... 56,410
Professional fees......................................... 51,469
Custodian fees............................................ 49,718
Reports to shareholders................................... 25,929
Insurance expense......................................... 17,728
---------------
TOTAL EXPENSES.......................................... 5,773,102
---------------
NET INVESTMENT INCOME ....................................... 1,443,100
---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions............. 18,511,197
Net change in unrealized appreciation/depreciation
on investments......................................... 23,144,708
---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ............ 41,655,905
---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................. $ 43,099,005
===============
See accompanying notes to financial statements.
<PAGE>
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
====================================================================================================================================
Year Year
Ended Ended
June 30, June 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income................................................. $ 1,443,100 $ 797,831
Net realized gains from security transactions......................... 18,511,197 3,469,532
Net change in unrealized appreciation/depreciation on investments..... 23,144,708 52,455,109
--------------- ---------------
Net increase in net assets from operations............................... 43,099,005 56,722,472
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............................................ ( 1,463,037 ) ( 781,643 )
From net realized gains from security transactions.................... ( 17,498,045 ) ( 3,481,530 )
In excess of net realized gains....................................... ( 754,949 ) ( 1,013,152 )
--------------- ---------------
Decrease in net assets from distributions to shareholders................ ( 19,716,031 ) ( 5,276,325 )
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold............................................. 485,772,850 407,315,606
Net asset value of shares issued in reinvestment
of distributions to shareholders.................................... 18,577,671 4,879,353
Payments for shares redeemed.......................................... ( 336,863,855 ) ( 112,399,503 )
--------------- ---------------
Net increase in net assets from capital share transactions............... 167,486,666 299,795,456
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................ 190,869,640 351,241,603
NET ASSETS:
Beginning of year..................................................... 433,903,015 82,661,412
--------------- ---------------
End of year........................................................... $ 624,772,655 $ 433,903,015
=============== ===============
UNDISTRIBUTED NET INVESTMENT INCOME ..................................... $ -- $ 19,937
--------------- ---------------
SUMMARY OF CAPITAL SHARE ACTIVITY:
Shares sold........................................................... 18,644,142 16,291,306
Shares issued in reinvestment of distributions to shareholders........ 667,046 197,253
Shares redeemed....................................................... ( 13,015,998 ) ( 4,448,327 )
--------------- ---------------
Net increase in shares outstanding.................................... 6,295,190 12,040,232
Shares outstanding, beginning of year................................. 16,046,945 4,006,713
--------------- ---------------
Shares outstanding, end of year....................................... 22,342,135 16,046,945
=============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
====================================================================================================================================
Year Year Year Year Ten Months Year
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, Aug. 31,
1999 1998 1997 1996 1995(a) 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 27.04 $ 20.63 $ 15.62 $ 12.19 $ 12.50 $ 10.96
---------- ---------- --------- --------- --------- ---------
Income from investment operations:
Net investment income (loss)............ 0.07 0.05 ( 0.02 ) ( 0.04 ) ( 0.05 ) ( 0.02 )
Net realized and unrealized
gains on investments................. 1.76 6.98 6.06 3.57 0.55 1.78
---------- ---------- --------- --------- --------- ---------
Total from investment operations........... 1.83 7.03 6.04 3.53 0.50 1.76
---------- ---------- --------- --------- --------- ---------
Less distributions:
From net investment income.............. ( 0.07) ( 0.05) -- -- -- --
From net realized gains from
security transactions................ ( 0.81) ( 0.44) ( 1.03) ( 0.10) ( 0.81) ( 0.22 )
In excess of net realized gains......... ( 0.03) ( 0.13) -- -- -- --
---------- ---------- --------- --------- --------- ---------
Total distributions........................ ( 0.91) ( 0.62) ( 1.03 ) ( 0.10 ) ( 0.81 ) ( 0.22 )
---------- ---------- --------- --------- --------- ---------
Net asset value at end of period........... $ 27.96 $ 27.04 $ 20.63 $ 15.62 $ 12.19 $ 12.50
---------- ---------- --------- --------- --------- ---------
Total return............................... 6.80% 34.56% 39.60% 29.04% 5.78%(c) 16.07%
---------- ---------- --------- --------- --------- ---------
Net assets at end of period (000's)........ $624,773 $433,903 $ 82,661 $ 22,066 $10,250 $ 8,769
---------- ---------- --------- --------- --------- ---------
Ratio of net expenses to average
net assets(b)........................... 1.10% 1.22% 1.59% 1.90% 1.89%(c) 1.89%
Ratio of net investment income (loss)
to average net assets................... 0.27% 0.41% ( 0.16%) ( 0.43%) ( 0.53%)(c)(0.58%)
Portfolio turnover rate ................... 38% 15% 22% 58% 103%(c) 91%
</TABLE>
(a) Effective July 1, 1995, the Fund was reorganized and changed its fiscal
year end from August 31 to June 30.
(b) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 2.15%, 2.38%(c) and 2.80%
for the periods ended June 30, 1996, June 30, 1995 and August 31, 1994,
respectively.
(c) Annualized.
See accompanying notes to financial statements.
<PAGE>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS
June 30, 1999
================================================================================
Market
Shares COMMON STOCKS -- 93.5% Value
- --------------------------------------------------------------------------------
ADVERTISING -- 4.5%
324,250 Interpublic Group Companies, Inc......... $ 28,088,156
---------------
BANKING -- 2.1%
272,650 First Union Corporation.................. 12,814,550
---------------
BEVERAGE -- 4.0%
398,625 Coca-Cola Company........................ 24,914,063
---------------
BROADCASTING - TELEVISION -- 0.5%
76,000 Young Broadcasting, Inc. - Class A(a) ... 3,234,750
---------------
CONGLOMERATE -- 9.1%
263 Berkshire Hathaway, Inc., Class A(a) .... 18,120,700
17,294 Berkshire Hathaway, Inc., Class B(a) .... 38,894,206
---------------
57,014,906
---------------
ENTERTAINMENT -- 3.4%
680,303 The Walt Disney Company.................. 20,961,836
---------------
FINANCE - CONSUMER LOANS -- 4.8%
631,375 Household International, Inc............. 29,911,391
---------------
FOOD -- 2.1%
285,550 Campbell Soup Company.................... 13,242,381
---------------
INFORMATION SERVICES -- 5.0%
875,100 Dun & Bradstreet Corporation............. 31,011,356
---------------
INSURANCE - ACCIDENT & HEALTH -- 3.0%
387,400 AFLAC, Inc............................... 18,546,775
---------------
INSURANCE - FINANCIAL GUARANTEE -- 5.7%
625,450 Ambac Financial Group, Inc............... 35,728,831
---------------
INSURANCE - PROPERTY & CASUALTY -- 11.0%
275,825 The Chubb Corporation.................... 19,169,838
95,200 Executive Risk, Inc...................... 8,097,950
212,990 Progressive Corporation.................. 30,883,550
279,000 RLI Corporation.......................... 10,811,250
---------------
68,962,588
---------------
INVESTMENT MANAGEMENT/ADVISORY
SERVICES -- 5.0%
1,379,550 United Asset Management Corporation...... 31,384,762
---------------
<PAGE>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS (continued)
================================================================================
Market
Shares COMMON STOCKS -- 93.5% (continued) Value
- --------------------------------------------------------------------------------
MANUFACTURED HOUSING -- 2.7%
1,308,000 Oakwood Homes Corporation................ $ 17,167,500
---------------
MEDIA -- 13.1%
1,081,825 Belo (A.H.) Corporation, Class A......... 21,298,430
640,135 Scripps (E.W.) Company................... 30,446,421
55,474 Washington Post Company - Class B........ 29,831,143
---------------
81,575,994
---------------
PERSONAL CARE/COSMETICS -- 9.7%
593,200 Avon Products, Inc....................... 32,922,600
671,970 Gillette Company......................... 27,550,770
---------------
60,473,370
---------------
RETAIL -- 7.8%
506,310 Tiffany & Company........................ 48,858,915
---------------
TOTAL COMMON STOCKS (COST $492,269,017) . $ 583,892,124
---------------
================================================================================
Face Market
Amount REPURCHASE AGREEMENTS-- 9.0%(b) Value
- --------------------------------------------------------------------------------
$ 56,596,000 Donaldson, Lufkin & Jenrette, Inc.,
4.82%, dated 6/30/99, due 7/01/99,
repurchase proceeds $56,603,578
(Cost $56,596,000).................... $ 56,596,000
---------------
TOTAL COMMON STOCKS AND REPURCHASE
AGREEMENTS-- 102.5% .................. $ 640,488,124
LIABILITIES IN EXCESS OF
OTHER ASSETS-- (2.5%) ................ ( 15,715,469)
---------------
NET ASSETS-- 100.0% ..................... $ 624,772,655
===============
(a) Non-income producing security.
(b) Repurchase agreements are fully collateralized by U.S. Government
obligations.
See accompanying notes to financial statements.
<PAGE>
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
================================================================================
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
(normally 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
semi-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.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are determined on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
<PAGE>
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments of the Fund as of June 30, 1999:
- --------------------------------------------------------------------------------
Gross unrealized appreciation...................... $ 110,798,557
Gross unrealized depreciation...................... ( 19,930,399 )
---------------
Net unrealized appreciation........................ $ 90,868,158
===============
Federal income tax cost............................ $ 493,023,966
---------------
- --------------------------------------------------------------------------------
The difference between the acquisition cost and the federal income tax cost of
portfolio investments is due to certain timing differences in the recognition of
capital losses under generally accepted accounting principles and income tax
regulations.
2. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment
securities, other than short-term investments, amounted to $360,838,374 and
$183,538,432 respectively, for the year ended June 30, 1999.
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Oak Value
Capital Management, Inc. (the Adviser) or Countrywide Fund Services, Inc. (CFS),
the administrator, transfer agent and accounting services agent for the Trust.
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser under the terms of an
Investment Advisory Agreement. Under the Investment Advisory Agreement, the Fund
pays the Adviser a fee, which is computed and accrued daily and paid monthly, at
an annual rate of 0.90% of the Fund's average daily net assets.
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement with the Trust, CFS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services for the Fund. CFS
supervises the preparation of tax returns, reports to shareholders of the Fund,
reports to and filings with the Securities and Exchange Commission and state
securities commissions, and materials for meetings of the Board of Trustees. For
these services, CFS receives a monthly fee based on the Fund's average daily net
assets.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with the Trust, CFS maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee based on the
number of shareholder accounts in the Fund. In addition, the Fund pays CFS
out-of-pocket expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement with the Trust, CFS
calculates the daily net asset value per share and maintains the financial books
and records of the Fund. For these services, CFS receives a monthly fee based on
the Fund's average daily net assets. In addition, the Fund pays certain
out-of-pocket expenses incurred by CFS in obtaining valuations for the Fund's
portfolio securities.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
Arthur Anderson LLP
[ARTHUR ANDERSON LLP LOGO]
To the Shareholders and Board of Trustees
of The Tuscarora Investment Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Oak Value Fund of The Tuscarora Investment
Trust (a Massachusetts business trust), as of June 30, 1999, and the related
statement of operations for the year then ended, and the statements of changes
in net assets for the two years then ended, and financial highlights for each of
the five periods in the period then ended. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended August 31, 1994 were audited
by other auditors whose report thereon dated October 20, 1994, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights audited by us
and referred to above present fairly, in all material respects, the financial
position of Oak Value Fund of The Tuscarora Investment Trust as of June 30,
1999, the results of its operations for the year then ended, and the changes in
its net assets for the two years then ended and the financial highlights for
each of the five periods in the period then ended, in conformity with generally
accepted accounting principles.
/s/ Arthur Anderson LLP
Cincinnati, Ohio
July 16,1999
<PAGE>
OAK VALUE FUND
INVESTMENT ADVISER
Oak Value Capital Management, Inc.
3100 Tower Boulevard, Suite 700
Durham, North Carolina 27707
1-800-680-4199
www.oakvaluefund.com
ADMINISTRATOR
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
1-800-622-2474
INDEPENDENT AUDITORS
Arthur Andersen LLP
425 Walnut Street
Cincinnati, Ohio 45202
CUSTODIAN
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
BOARD OF TRUSTEES
George W. Brumley III
C. Russell Bryan
David R. Carr, Jr.
John M. Day
Joseph T. Jordan, Jr.
OFFICERS
George W. Brumley III, President
David R. Carr, Jr., Vice President
Tina D. Hosking, Secretary
Robert L. Bennett, Treasurer
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000941722
<NAME> OAK VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 548,865,017
<INVESTMENTS-AT-VALUE> 640,488,124
<RECEIVABLES> 1,482,760
<ASSETS-OTHER> 569
<OTHER-ITEMS-ASSETS> 66,303
<TOTAL-ASSETS> 642,037,756
<PAYABLE-FOR-SECURITIES> 15,190,513
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,074,588
<TOTAL-LIABILITIES> 17,265,101
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 533,904,497
<SHARES-COMMON-STOCK> 22,342,135
<SHARES-COMMON-PRIOR> 16,046,945
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 754,949
<ACCUM-APPREC-OR-DEPREC> 91,623,107
<NET-ASSETS> 624,772,655
<DIVIDEND-INCOME> 4,997,494
<INTEREST-INCOME> 2,218,708
<OTHER-INCOME> 0
<EXPENSES-NET> 5,773,102
<NET-INVESTMENT-INCOME> 1,443,100
<REALIZED-GAINS-CURRENT> 18,511,197
<APPREC-INCREASE-CURRENT> 23,144,708
<NET-CHANGE-FROM-OPS> 43,099,005
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,463,037
<DISTRIBUTIONS-OF-GAINS> 18,252,994
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,644,142
<NUMBER-OF-SHARES-REDEEMED> 13,015,998
<SHARES-REINVESTED> 667,046
<NET-CHANGE-IN-ASSETS> 190,869,640
<ACCUMULATED-NII-PRIOR> 19,937
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,013,152
<GROSS-ADVISORY-FEES> 4,723,434
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,773,102
<AVERAGE-NET-ASSETS> 525,349,677
<PER-SHARE-NAV-BEGIN> 27.04
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 1.76
<PER-SHARE-DIVIDEND> .07
<PER-SHARE-DISTRIBUTIONS> .84
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.96
<EXPENSE-RATIO> 1.10
</TABLE>
