Semi-Annual Report
December 31, 1998
(Unaudited)
[LOGO]
==============
OAK VALUE FUND
--------------
=================
NO-LOAD
100% MUTUAL FUND
COUNCIL
=================
<PAGE>
LETTER TO SHAREHOLDERS January 27, 1999
================================================================================
The Oak Value Fund (the Fund) continued its trend of growth during the first
half of the 1999 fiscal year. The Fund achieved several major milestones during
the most recent six month period including:
o CONTINUED ASSET GROWTH-- The net assets of the Fund have increased from
$433.9 million on June 30, 1998 to $562.7 million on December 31, 1998. As
of this writing, net assets in the Fund are in excess of $570 million.
o RESEARCH COVERAGE-- In late January, Morningstar issued its first written
report on the Fund. Though the Fund has been included in Morningstar's
rankings for nearly three years, its editorial staff had not commented on
the Fund until recently. The Fund is also followed by Value Line's Mutual
Fund Survey and S&P FundScope.
o CONTINUED TAX EFFICIENCY-- The Fund's long-term investment strategy proved
to be very tax efficient again in 1998. The Oak Value Fund distributed
capital gains which represented only a small fraction of the total return
the Fund experienced during the 1998 calendar year. The Fund paid a
short-term capital gain distribution of $0.06 per share and a long-term
capital gain distribution of $0.14 per share in 1998. The closing net asset
value per share on December 31, 1998 was $27.29.
The following table summarizes the Fund's performance for the recent and longer
term periods. While the Fund did underperform its peer group, as measured by the
Lipper Growth Fund Index, and the S&P 500 Index in the recent six month and one
year periods, the Fund's longer term history of above average performance
remains intact.
Six One Three Five Since
Months Year Years* Years* Inception*
------ ---- ------ ------ ----------
Oak Value Fund ...... 1.22% 18.93% 28.30% 21.80% 22.03%
Lipper Growth
Fund Index ....... 8.75% 25.69% 23.67% 19.82% 18.30%
S&P 500 Index ....... 9.23% 28.58% 28.23% 24.06% 21.72%
*Annualized.
The Oak Value Fund has experienced significant growth over the past several
years. While many of the Fund's original investors have demonstrated a long term
outlook, a significant portion of the Fund's shares are held by investors who
have invested in the Fund within the past two years. Accordingly, we are
compelled to use this letter as both an update of the Fund's recent activities
and experiences, and a review of many of the philosophical tenets which define
our approach to investing in "good businesses with good management at attractive
prices." For our longer term shareholders, we trust that you will find the
review portion of this discussion timely. For our more recent investors, we hope
you find this commentary both interesting and informative.
We began the first half of the Fund's fiscal year in July with more than fifteen
percent of the Fund invested in cash and equivalents. Our commentary to our
shareholders in August addressed the ongoing challenges we as portfolio managers
face in periods of rising valuations and continued flows of new funds into our
portfolios. We indicated at that writing that the general market correction had
provided us with "selective" opportunities to commit the Fund's cash. The broad
and indiscriminant declines of the weeks that followed that commentary provided
us with increasingly attractive opportunities to add to our positions. We took
advantage of many of those opportunities and are pleased to report that cash and
equivalents represented less than four percent of the Fund's assets at the end
of December.
MORE OF THE SAME
A few shareholders have called and written us over the past few months to
inquire as to whether we have changed our philosophy or approach to investing in
light of the extreme volatility the markets have recently experienced. We are
pleased to report to you that we have changed absolutely nothing. On the
contrary, our experience during this period has served to further confirm our
commitment to the principles, philosophy and analytical process that define
value investing for Oak Value.
Those investors who have inquired as to whether we have changed our philosophy
or analytical process may be interested to know that the total number of
holdings in the Fund was reduced from twenty-nine to twenty-three during this
period. Among the positions eliminated during the period were the final remnants
of the Federal Home Loan Mortgage and Nike positions. Additionally, we did not
add a single new company to the portfolio during the period. We were able to
commit your cash to investments in companies that we knew and understood at
extremely attractive valuations. We significantly increased the Fund's exposure
to several companies including Tiffany & Co., Progressive Corp., A.H. Belo,
Interpublic Group, Sealed Air, Chubb, Gillette, Coca-Cola and Berkshire
Hathaway. A few of these companies had been added to the portfolio
1
<PAGE>
within the past year while companies like Tiffany and Sealed Air were added just
before the beginning of the period. Coca-Cola, Gillette, Interpublic and
Berkshire Hathaway, on the other hand, have long been part of the Fund's
portfolio and we were pleased to have the opportunity to invest more of our
collective capital in these truly great companies.
INCLUDING BERKSHIRE
Berkshire Hathaway is now the single largest position in the Fund and represents
(including both classes of shares) more than nine percent of the Fund's assets.
The deliberate decision to allow nearly one tenth of the Fund's assets to be
allocated to one company is a decision that reflects many years of research and
analysis on the part of our investment team. Though the Fund has owned Berkshire
since its inception in 1993, we first wrote extensively to our shareholders
about our rationale for buying Berkshire in our August, 1996 Letter to
Shareholders. (A copy of this Letter is available upon request.)
In our opinion, the case for investment in Berkshire Hathaway is as attractive
today as it was then. Though the share price of Berkshire has advanced
handsomely since that writing, we believe its intrinsic value has grown even
more rapidly. Since that writing, GEICO's growth has accelerated and far
outperformed our expectations. Additionally, Berkshire has purchased Dairy
Queen, Flight Safety International, Executive Jet and General Re Insurance. The
most recent acquisition, General Re, is the largest acquisition Berkshire has
ever made and has the potential to provide an extremely powerful engine for
future growth. Very importantly, we also believe the addition of General Re will
serve to increase Berkshire's long-term predictability. These acquisitions have
further strengthened our proposition that Berkshire Hathaway is a "great
business with great management".
While "great businesses with great management" are certainly key ingredients to
a great investment, history has taught us that purchasing such companies at an
attractive price can often be the difference between a good investment and a
great investment. As has often been the case with Berkshire Hathaway,
significant value creation in the long run has met with uninformed shareholders
in the short run. Berkshire Hathaway's shareholder base has historically been
dominated by individual (though increasingly wealthy) investors. General Re's
shareholder base was predominantly institutional and included S&P 500 Index
Funds. As Berkshire's purchase of General Re approached its closing date in
December, S&P announced that General Re would be removed from the Index and
that, for the time being, Berkshire Hathaway would not be added to the Index.
This event lead to the required disposition of General Re shares from the Index
funds as they would not be allowed to hold shares of Berkshire. What an
interesting confluence of events. We responded accordingly and again increased
the Fund's exposure to Berkshire. Nonetheless, Berkshire did contribute to the
Fund's underperformance for the period.
AND SOME FAVORITES
Global leaders in superior businesses with proven business models -- How better
could we describe Coca-Cola, Gillette and Interpublic Group? Our greatest
challenge with respect to these companies is typically that of price. As one
would expect, companies that meet this definition are seldom available to us at
valuations that we consider attractive. Consequently, we find ourselves waiting
for seemingly devastating news to present us with the opportunity to buy these
companies, and fortunately, "Mr. Market" tends to accommodate every so often.
Our task is to know what they are worth; to have the patience to wait; and to
have the discipline to act. We recently met that challenge again as concerns of
a global financial meltdown led to significant declines in the share prices of
companies. We responded accordingly and have once again increased the Fund's
exposure to these extraordinary businesses.
THE BLUE BOX
Our extensive research effort often uncovers "value" in unexpected places. On a
trip to New York earlier this year we decided to visit the management of Tiffany
& Co. Though we were aware of the company and had a general appreciation for the
business as a result of our exposure to Borsheims (through Berkshire), we were
surprised to find in Tiffany a great brand name company disguised as a retailer.
We were particularly impressed with Tiffany's management team which is clearly
focused on protecting and preserving the power of this great brand while
prudently leveraging its economic potential. We believe Tiffany could easily
grow faster, broaden its product line and be more profitable. We applaud
management's decision to move more slowly and deliberately as they remain
focused on keeping this brand distinctive and relevant in the mind of the
consumer. Seldom do we find management teams so focused on protecting and
building a brand. We were also amazed at the portability of this brand as we
visited Tokyo in September where Tiffany is considered the "Brand of Brands."
Ironically, it was in part due to this exposure in Japan that afforded us the
opportunity to increase the Fund's exposure to Tiffany during the past six
months at very attractive prices.
2
<PAGE>
AND "BUBBLE WRAP"
Sealed Air returned to the Fund portfolio earlier this year. This company
manufactures the product commonly referred to as "bubble wrap." Though the
company itself is far from a household name, its products tend to show up in
millions of homes and businesses every day. We actually owned this company
during the Fund's inaugural year and liquidated that position based on its
shares reaching our price target at that time. We have since watched with
interest as this management team has continued to execute its business plan. The
company recently acquired the Cryovac division of W.R. Grace in a transaction
that will broaden the company's product offering and expand its distribution
network domestically and internationally. A solid niche, great management,
significant international growth opportunities and a very compelling valuation
have attracted us again, after several years, to Sealed Air.
THE OTHER SIDE OF THE COIN --
Simply put, there are always two sides to any coin. As long term value
investors, we are dependent on periods such as these to invest new flows of
capital. On the other hand, lower valuations can lead to underperformance in the
short term. Such was clearly the case during the most recent period as the
Fund's performance lagged that of the S&P 500 by a wide margin. In addition to
the declines in the shares of Berkshire Hathaway (now the Fund's largest
position) during the period, much of the Fund's short-term underperformance is
attributable to its exposure to the newspaper and television broadcasting
businesses.
Newspaper and television broadcasting businesses collectively represent slightly
more than twenty percent of the Fund's portfolio. Our attraction to these
businesses is driven by the long-term predictable cash flow they generate and
the defined defensible franchises they command. Among these companies, E.W.
Scripps, Washington Post and A.H. Belo posted negative share price performance
for the period. We believe the recent disparity between their market and
intrinsic values can be explained by a difference between short-term perception
and long term reality. In the short term, investors appear concerned that an
impending recession as a result of the global economic unrest will lead to
earnings pressure for many of these companies. History has shown that we have no
ability to predict economic cycles. If we do experience a recession, components
of many of these companies will face short-term challenges. In the long term,
they have demonstrated their ability to generate predictable, growing, excess
cash flow. Suffice it to say that we remain committed to these businesses and
confident in the prospects they hold for us as investors.
We feel it necessary to comment on the disappointing performance of Oakwood
Homes. Oakwood shares posted a sharp decline during the period in further
reaction to the changes in the accounting treatment of Oakwood's securitized
mortgage business. The company continues to produce unit volume growth and
margin improvements in its retail and manufacturing businesses. The Fund has
owned Oakwood for several years and your advisors have continued to allocate a
significant amount of time understanding, analyzing and valuing this business.
Though patience will be required, we remain confident in the underlying value of
this business.
IN CLOSING
We have repeatedly cautioned about having a short term time horizon. Our
investment perspective is decidedly long-term. We view ourselves as partial
owners of businesses, not traders of pieces of paper. We do not focus on
short-term fluctuations in price but rather on the long-term creation of value
at the business level. We remain confident in the long-term opportunities
provided by the Fund's portfolio of companies and will continue to be
opportunistic buyers of these and other businesses when appropriate. These
companies are run by able management teams, who continually focus on building
shareholder value. We welcome investors who share our perspective. Thank you for
the confidence you have placed in us.
Sincerely,
/s/ David R. Carr, Jr.
David R. Carr, Jr.
Co-Manager
/s/ George W. Brumley, III
George W. Brumley, III
Co-Manager
3
<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
12/31/98
--------
Oak Value Fund $32,714
Lipper Growth Fund Index $27,241
S&P 500 Index $32,214
-----------------------------------
Oak Value Fund
Average Annual Total Returns
As of December 31, 1998
1 Year 5 Years Since Inception*
18.93% 21.80% 22.03%
-----------------------------------
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Non-Standardized Total Returns
- -------------------------------------------------------------------------------------------------------------------------
Since
Calendar Calendar Calendar Calendar Calendar Calendar Inception*
1993* 1994 1995 1996 1997 1998 (as of 12/31/98)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oak Value Fund 22.04% -1.54% 28.89% 28.99% 37.70% 18.93% 227.14%
Lipper Growth Fund Index 10.30% -1.57% 32.65% 17.53% 28.03% 25.69% 172.41%
S&P 500 Index 9.60% 1.32% 37.58% 22.96% 33.36% 28.58% 222.14%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Average Annual Total Returns
- -------------------------------------------------------------------------------------------------------
For the Periods Ended December 31, 1998
-------------------------------------------------------------------------
Since
Six Months(A) One Year Three Years Five Years Inception*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oak Value Fund 1.22% 18.93% 28.30% 21.80% 22.03%
Lipper Growth Fund Index 8.75% 25.69% 23.67% 19.82% 18.30%
S&P 500 Index 9.23% 28.58% 28.23% 24.06% 21.72%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Inception date of the Oak Value Fund was January 18, 1993.
(A) Unannualized.
4
<PAGE>
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (Unaudited)
================================================================================
ASSETS
Investment securities at market value (Note 1)
(acquisition cost of $461,726,191) ....................... $ 540,325,904
Investments in repurchase agreements (Note 1) ............... 19,311,000
Cash ........................................................ 173
Receivable for capital shares sold .......................... 4,539,788
Dividends receivable ........................................ 476,914
Interest receivable ......................................... 2,682
Other assets ................................................ 88,181
-------------
TOTAL ASSETS ........................................... 564,744,642
-------------
LIABILITIES
Dividends payable ........................................... 85,273
Payable for capital shares redeemed ......................... 1,470,543
Payable to affiliates (Note 3) .............................. 459,172
Other accrued expenses and liabilities ...................... 28,391
-------------
TOTAL LIABILITIES ...................................... 2,043,379
-------------
NET ASSETS .................................................. $ 562,701,263
=============
Net assets consist of:
Paid-in capital ............................................. $ 484,845,669
Undistributed net investment income ......................... 3,867
Distributions in excess of net realized gains ............... (747,986)
Net unrealized appreciation on investments .................. 78,599,713
-------------
Net assets .................................................. $ 562,701,263
=============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) .... 20,615,789
=============
Net asset value, offering price and
redemption price per share (Note 1) ...................... $ 27.29
=============
See accompanying notes to financial statements.
5
<PAGE>
OAK VALUE FUND
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1998 (Unaudited)
================================================================================
INVESTMENT INCOME
Dividends .................................................. $ 2,360,271
Interest ................................................... 1,100,049
-----------
TOTAL INVESTMENT INCOME ................................. 3,460,320
-----------
EXPENSES
Investment advisory fees (Note 3) .......................... 2,109,663
Administrative services fees (Note 3) ...................... 206,114
Registration fees .......................................... 83,491
Shareholder services and transfer agent fees (Note 3) ...... 53,001
Accounting services fees (Note 3) .......................... 31,017
Trustees' fees and expenses ................................ 25,810
Custodian fees ............................................. 20,114
Postage and supplies ....................................... 18,332
Professional fees .......................................... 12,579
Insurance expense .......................................... 10,009
Reports to shareholders .................................... 8,350
-----------
TOTAL EXPENSES .......................................... 2,578,480
-----------
NET INVESTMENT INCOME ......................................... 881,840
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions .............. 971,171
Net change in unrealized appreciation/
depreciation on investments ............................. 10,121,314
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS .............. 11,092,485
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................... $11,974,325
===========
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1998 and June 30, 1998
=======================================================================================================
Six Months
Ended Year
December 31, Ended
1998 June 30,
(Unaudited) 1998
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income ........................................... $ 881,840 $ 797,831
Net realized gains from security transactions ................... 971,171 3,469,532
Net change in unrealized appreciation/depreciation on investments 10,121,314 52,455,109
------------- -------------
Net increase in net assets from operations ......................... 11,974,325 56,722,472
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ...................................... (897,910) (781,643)
From net realized gains from security transactions .............. (706,005) (3,481,530)
In excess of net realized gains ................................. -- (1,013,152)
------------- -------------
Decrease in net assets from distributions to shareholders .......... (1,603,915) (5,276,325)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ....................................... 296,389,222 407,315,606
Net asset value of shares issued in reinvestment
of distributions to shareholders ............................. 1,452,053 4,879,353
Payments for shares redeemed .................................... (179,413,437) (112,399,503)
------------- -------------
Net increase in net assets from capital share transactions ......... 118,427,838 299,795,456
------------- -------------
TOTAL INCREASE IN NET ASSETS ....................................... 128,798,248 351,241,603
NET ASSETS:
Beginning of period ............................................. 433,903,015 82,661,412
------------- -------------
End of period ................................................... $ 562,701,263 $ 433,903,015
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME ................................ $ 3,867 $ 19,937
============= =============
SUMMARY OF CAPITAL SHARE ACTIVITIY:
Shares sold ..................................................... 11,810,665 16,291,306
Shares issued in reinvestment of distributions to shareholders .. 54,542 197,253
Shares redeemed ................................................. (7,296,363) (4,448,327)
------------- -------------
Net increase in shares outstanding .............................. 4,568,844 12,040,232
Shares outstanding, beginning of period ......................... 16,046,945 4,006,713
------------- -------------
Shares outstanding, end of period ............................... 20,615,789 16,046,945
============= =============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout Each Period
=================================================================================================================================
Six
Months
Ended Year Year Year Ten Months Year
Dec. 31, Ended Ended Ended Ended Ended
1998 June 30, June 30, June 30, June 30, Aug. 31,
(Unaudited) 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) ..................... 0.04 0.05 (0.02) (0.04) (0.05) (0.02)
Net realized and unrealized gains on investments . 0.28 6.98 6.06 3.57 0.55 1.78
--------- --------- --------- --------- --------- ---------
Total from investment operations .................... 0.32 7.03 6.04 3.53 0.50 1.76
--------- --------- --------- --------- --------- ---------
Less distributions:
From net investment income ....................... (0.04) (0.05) -- -- -- --
From net realized gains from security transactions (0.03) (0.44) (1.03) (0.10) (0.81) (0.22)
In excess of net realized gains .................. -- (0.13) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions ................................. (0.07) (0.62) (1.03) (0.10) (0.81) (0.22)
--------- --------- --------- --------- --------- ---------
Net asset value at end of period .................... $ 27.29 $ 27.04 $ 20.63 $ 15.62 $ 12.19 $ 12.50
========= ========= ========= ========= ========= =========
Total return ........................................ 2.42%(c) 34.56% 39.60% 29.04% 5.78%(c) 16.07%
========= ========= ========= ========= ========= =========
Net assets at end of period (000's) ................. $ 562,701 $ 433,903 $ 82,661 $ 22,066 $ 10,250 $ 8,769
========= ========= ========= ========= ========= =========
Ratio of net expenses to average net assets(b) ...... 1.10%(c) 1.22% 1.59% 1.90% 1.89%(c) 1.89%
Ratio of net investment income (loss)
to average net assets ............................ 0.38%(c) 0.41% (0.16%) (0.43%) (0.53%)(c) (0.58%)
Portfolio turnover rate ............................. 27%(c) 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.
8
<PAGE>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
================================================================================
Market
Shares COMMON STOCKS -- 96.0% Value
- --------------------------------------------------------------------------------
ADVERTISING -- 4.6%
324,250 Interpublic Group Companies, Inc. ............ $ 25,858,937
-------------
BEVERAGE -- 3.8%
317,475 Coca-Cola Company ............................ 21,231,141
-------------
BROADCASTING - RADIO -- 0.3%
21,800 Jacor Communications, Inc.(a) ................ 1,403,375
-------------
BROADCASTING - TELEVISION -- 2.2%
89,000 Hearst-Argyle Television, Inc.(a) ............ 2,937,000
229,600 Young Broadcasting, Inc., Class A(a) ......... 9,614,500
-------------
12,551,500
-------------
CONGLOMERATE -- 9.2%
263 Berkshire Hathaway, Inc., Class A(a) ......... 18,410,000
14,148 Berkshire Hathaway, Inc., Class B(a) ......... 33,248,564
-------------
51,658,564
-------------
ENTERTAINMENT -- 3.6%
680,303 The Walt Disney Company ...................... 20,409,090
-------------
INFORMATION SERVICES -- 4.7%
844,550 Dun & Bradstreet Corporation ................. 26,656,109
-------------
INSURANCE - ACCIDENT & HEALTH -- 4.5%
569,050 AFLAC, Inc. .................................. 25,038,200
-------------
INSURANCE - PROPERTY & CASUALTY -- 12.3%
363,050 Chubb Corporation ............................ 23,552,869
34,865 Markel Corporation(a) ........................ 6,310,565
179,015 Progressive Corporation ...................... 30,320,666
279,000 RLI Corporation .............................. 9,276,750
-------------
69,460,850
-------------
INVESTMENT MANAGEMENT/ADVISORY SERVICES -- 5.3%
1,139,550 United Asset Management Corporation .......... 29,628,300
-------------
MANUFACTURED HOUSING -- 4.8%
1,787,325 Oakwood Homes Corporation .................... 27,144,998
-------------
9
<PAGE>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS (Continued)
================================================================================
Market
Shares COMMON STOCKS -- 96.0% (Continued) Value
- --------------------------------------------------------------------------------
MEDIA -- 21.1%
1,404,825 Belo (A.H.) Corporation, Class A ............. $ 28,008,698
264,353 Pulitzer Publishing Company .................. 22,899,579
845,135 Scripps (E.W.) Company ....................... 42,045,466
44,579 Washington Post Company, Class B ............. 25,763,876
-------------
118,717,619
-------------
PACKAGING -- 4.2%
467,000 Sealed Air Corporation ....................... 23,846,188
-------------
PERSONAL CARE/COSMETICS-- 8.6%
593,200 Avon Products, Inc. .......................... 26,249,100
455,495 Gillette Company ............................. 22,006,102
-------------
48,255,202
-------------
RETAIL -- 6.8%
741,510 Tiffany & Company ............................ 38,465,831
-------------
TOTAL COMMON STOCKS (Cost $461,726,191) ...... $ 540,325,904
-------------
================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(b) -- 3.4% Value
- --------------------------------------------------------------------------------
$ 19,311,000 Donaldson, Lufkin & Jenrette Securities Corp.,
5.00%, dated 12/31/1998, due 01/04/1999,
repurchase proceeds $19,321,728
(Cost $19,311,000) ........................ $ 19,311,000
-------------
TOTAL COMMON STOCKS AND
REPURCHASE AGREEMENTS -- 99.4% ............ $ 559,636,904
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.6% 3,064,359
-------------
NET ASSETS -- 100.0% ......................... $ 562,701,263
=============
(a) Non-income producing security.
(b) Repurchase agreements are fully collateralized by U.S. Government
obligations.
See accompanying notes to financial statements.
10
<PAGE>
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 (Unaudited)
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Oak Value Fund (the Fund) is a diversified series of shares of The Tuscarora
Investment Trust (the Trust). The Trust, registered as an open-end management
investment company under the Investment Company Act of 1940, was organized as a
Massachusetts business trust on March 3, 1995. The Fund itself began operations
on January 18, 1993 as a series of the Albemarle Investment Trust.
The investment objective of the Fund is to seek capital appreciation primarily
through investments in equity securities, consisting of common and preferred
stocks and securities convertible into common stocks. Current income is of
secondary importance.
The following is a summary of the Fund's significant accounting policies:
Securities valuation-- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(currently 4:00 p.m., Eastern time). Securities which are traded
over-the-counter are valued at the last sales price, if available, otherwise, at
the last quoted bid price. Securities traded on a national stock exchange are
valued based upon the closing price on the principal exchange where the security
is traded.
Repurchase agreements-- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement. In addition, the Fund actively monitors and
seeks additional collateral, as needed.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
are equal to the net asset value per share.
Investment income and distributions to shareholders-- Interest income is accrued
as earned. Dividend income is recorded on the ex-dividend date. Dividends
arising from net investment income, if any, are declared and paid annually. Net
realized short-term capital gains, if any, may be distributed throughout the
year and net realized long-term capital gains, if any, are distributed at least
once each year. Income distributions and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
generally accepted accounting principles.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax-- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
11
<PAGE>
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments of the Fund as of December 31, 1998:
- --------------------------------------------------------------------------------
Gross unrealized appreciation ......................... $ 100,742,352
Gross unrealized depreciation ......................... (22,897,588)
-------------
Net unrealized appreciation ........................... $ 77,844,764
-------------
Federal income tax cost ............................... $ 462,481,140
=============
- --------------------------------------------------------------------------------
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 $222,415,031 and
$58,117,891 respectively, for the six months ended December 31, 1998.
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of Oak Value
Capital Management, Inc. (the Adviser) or Countrywide Fund Services, Inc. (CFS),
the administrator, transfer agent and accounting services agent for the Trust.
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser under the terms of an
Investment Advisory Agreement. Under the Investment Advisory Agreement, the Fund
pays the Adviser a fee, which is computed and accrued daily and paid monthly, at
an annual rate of 0.90% of the Fund's average daily net assets.
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement with the Trust, CFS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services for the Fund. CFS
supervises the preparation of tax returns, reports to shareholders of the Fund,
reports to and filings with the Securities and Exchange Commission and state
securities commissions, and materials for meetings of the Board of Trustees. For
these services, CFS receives a monthly fee based on the Fund's average daily net
assets.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with the Trust, CFS maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee based on the
number of shareholder accounts in the Fund. In addition, the Fund pays
out-of-pocket expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement with the Trust, CFS
calculates the daily net asset value per share and maintains the financial books
and records of the Fund. For these services, CFS receives a monthly fee based on
the Fund's average daily net assets. In addition, the Fund pays certain
out-of-pocket expenses incurred by CFS in obtaining valuations for the Fund's
portfolio securities.
12
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
13
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
14
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
15
<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.
312 Walnut Street
P.O. Box 5354
Cincinnati, Ohio 45201-5354
1-800-622-2474
INDEPENDENT AUDITORS
Arthur Andersen LLP
425 Walnut Street
Cincinnati, Ohio 45202
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
BOARD OF TRUSTEES
George W. Brumley III
C. Russell Bryan
David R. Carr, Jr.
John M. Day
Joseph T. Jordan, Jr.
OFFICERS
George W. Brumley III, President
David R. Carr, Jr., Vice President and Treasurer
John F. Splain, Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000941722
<NAME> OAK VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 481,037,191
<INVESTMENTS-AT-VALUE> 559,636,904
<RECEIVABLES> 5,019,384
<ASSETS-OTHER> 173
<OTHER-ITEMS-ASSETS> 88,181
<TOTAL-ASSETS> 564,744,642
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,043,379
<TOTAL-LIABILITIES> 2,043,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 484,845,669
<SHARES-COMMON-STOCK> 20,615,789
<SHARES-COMMON-PRIOR> 16,046,945
<ACCUMULATED-NII-CURRENT> 3,867
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 747,986
<ACCUM-APPREC-OR-DEPREC> 78,599,713
<NET-ASSETS> 562,701,263
<DIVIDEND-INCOME> 2,360,271
<INTEREST-INCOME> 1,100,049
<OTHER-INCOME> 0
<EXPENSES-NET> 2,578,480
<NET-INVESTMENT-INCOME> 881,840
<REALIZED-GAINS-CURRENT> 971,171
<APPREC-INCREASE-CURRENT> 10,121,314
<NET-CHANGE-FROM-OPS> 11,974,325
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 897,910
<DISTRIBUTIONS-OF-GAINS> 706,005
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,810,665
<NUMBER-OF-SHARES-REDEEMED> 7,296,363
<SHARES-REINVESTED> 54,542
<NET-CHANGE-IN-ASSETS> 128,798,248
<ACCUMULATED-NII-PRIOR> 19,937
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,013,152
<GROSS-ADVISORY-FEES> 2,109,663
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,578,480
<AVERAGE-NET-ASSETS> 465,692,721
<PER-SHARE-NAV-BEGIN> 27.04
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .28
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.29
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
