LETTER TO SHAREHOLDERS
================================================================================
MARKET BACKDROP
1999's market environment was characterized by arguably the greatest collective
dismissal of the relevance of risk factors to investment decision making in
history. Not so the market of the first half of 2000. It appears that at least
some of the excess of the internet-driven investing mania may be coming home to
roost. The sound heard `round the world this past March may heretofore be marked
as the pop of a history-making bubble of capital market speculation.
Market turmoil clearly spilled over into the second quarter of this year, and
dimmed results across the equity market spectrum. Technology shares reversed
course and lost significant ground for the first time in many investors'
memories (or careers, for that matter). Consider this sampling as a barometer on
2nd quarter market conditions:
SELECTED SECOND QUARTER MARKET RESULTS
Chart Data:
Internet Stock Index* -20.8%
NASDAQ* -13.6%
Value Line Index* -5%
Dow Jones Industials * -4%
Average US Stock Mutual Fund (Lipper) -3%
S&P 500 -2.5%
Oak Value Fund 3.8%
* Not Including Dividends
Source: Lipper; Wall Street Journal Bloomberg
Evidence remains anecdotal, but the casualties are mounting. There are a growing
number of front-page headlines dedicated to the dot-com fallout, many asking
some version of, "what were we thinking?" IPOs have been delayed or cancelled,
advertising contracts are being abandoned, Ferraris are being resold on the
secondary market, and frequent reference is made to the `end of the beginning'
for internet shares' influence on the market. A plethora of stock options are
under water. Fewer people are making plans to retire in two years (at a ripe old
age of 33), and the archetypal "cocktail party" banter about investments around
the punch bowl is generally a bit less ebullient."P2P" (path to profits) has
supplanted "B2B" as the latest rage. Reports are heard of young people slaving
long hours not in the hope of reaping obscene sums via options, but rather to
pay off crushing tax liabilities from previously exercised (and now much lower
priced) shares.
"I know you're lookin' for a ruby in a mountain
of rocks, but there ain't no Coupe de Ville,hidin'
at the bottom of a Cracker Jack box" - Meatloaf
We're labeling recent market activity "the death throes of irrationality."
Hopefully. For a time, the world appeared to stop making sense, as the market
valuations of all kinds of obviously half-baked (at best) business "ideas" were
levitated, and gobs of money were made by those chasing performance ever higher.
Prices went up because they went up, and in many cases were clearly disconnected
from any sense of underlying economic support. Not all examples of this behavior
have disappeared (they never do) and irrational pricing nonsense could hang
around a while longer yet. But if, as we surmise, there has been a shift away
from an investment environment centered around "sand castles", all investors who
care about sound fundamentals, as we do, should bid good riddance. We should all
definitely be more excited about a rational backdrop in which stocks are valued
based on their business characteristics and not on hype, dreams, euphoria, and
rampant speculation.
It is true that early third-quarter activity has been characterized by a partial
retracing of the downward path of technology shares from a 30-SOMETHING PERCENT
SELL-OFF from peak to trough. Of late, some of the leading large technology
companies have recovered and helped bootstrap the broad averages back up into
respectable territory year-to-date. BUT THE REALLY SPECULATIVE STUFF HASN'T COME
BACK, AND IT MAY WELL NEVER. Lots of companies recently traded 50-70% off their
highs; somebody owned these things at their peaks. The second quarter market has
added an alternate, contrary theory to the popular opinion that
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"Investors' biggest risk is missing opportunities." Well, maybe. Something in
the market seems to have changed in the past quarter, in a fashion that was
nearly palpable. Risk matters again; it has become real and tangible. Real money
has been lost, particularly since we suspect that the broad averages likely mask
even more carnage among individual investors' (or day traders') portfolios. The
weighting scheme and timing of investment actions of many investors is likely to
reflect a more stark reality than simply extrapolating broad benchmark results.
For example, consider the following example of the effect on capital for a
beginning $10,000 portfolio of "Mr. Hypothetical."
Action Time Result Portfolio
Period Value
Hire Value
Manager Begin n/a $10,000
1999
Value Manager
Returns 1999 -3.10% $9,690
Hang in There Jan -6.00% $9,109
2000
" Feb -9.63% $8,231
2000
Throw in Towel End Feb n/a $8,231
2000
Hire Technology March n/a $8,231
Manager 2000
Technology Fund March
2000 -
2Q
2000 -11.89% $7,253
Cumulative Loss 18 mos. -27.47% $7,253
reigned until recently. Perhaps companies that don't earn returns for
shareholders are just bad businesses, rather than "lost opportunities" to ride
the gravy train; generating "buzz" does not equate to a gainful business.
PORTFOLIO PERFORMANCE - 2Q 2000 RESULTS
The Oak Value Fund's +3.8% posting in the second quarter of 2000 stacks up well.
The results are especially satisfying in light of an S&P 500 Index that lost
ground to the tune of -2.7%, and tech stocks that generally fell (for internet
shares, plummeted is more descriptive) to earth. In a sweeping sense,
handicapping performance versus the broad market benchmarks boils down to that
one factor: TECHNOLOGY EXPOSURE. The market benchmarks have lots of it (roughly
one third in the S&P 500), while the Oak Value Fund has maintained a minimal
nominal exposure in that sector.
We have maintained a purposeful, essentially price-discipline-driven lack of
technology exposure in the portfolio (only Compaq and the newly added Sabre
Group are classified as technology, though other holdings have technology
aspects to them). That factor has generally held the Oak Value Fund's portfolio
back in a technology-driven market ascent, but fortunately also helped us to
sidestep the free-fall that began in the first quarter and exacted a painful
toll from investors to close out the first half of 2000. That outcome shouldn't
be much of a surprise, since we've been telling anyone who will listen that our
essential trepidation about technology companies is, by and large, not their
quality as businesses but rather valuation - their shares reflect all the good
news about those businesses (and in many cases then some).
All in all, it was an odd quarter from the perspective of reviewing the three
months of raw investment performance just posted. The Fund's results relative to
benchmarks were strong as we've indicated, and the absolute posting itself is
respectable for a three-month period. Nonetheless, we can't help but feel that
if stock prices were tracking business progression and valuations on portfolio
companies were more rational, results would be even better. The second quarter's
reported results are nice to have, but they represent only selected pockets of
improvement. We continue to believe that truly impressive results lie ahead of
us for a number of reasons.
For starters, the stock price of the largest portfolio holding, Berkshire
Hathaway, lost ground again during the quarter (though our attendance at Berk-
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shire's annual meeting in Omaha leaves us little doubt that its business has
improved during the period of stock price weakness). We have written extensively
about our admiration for the strength of Berkshire's businesses, including three
separate research notes (posted on www.oakvaluefund.com - hard copies also
available) covering various aspects of our opinion about Berkshire. Our plan is
to continue to wait for investors to care about this great company and its
bright future. To put it succinctly, we continue in our belief that Berkshire is
substantially undervalued by the market relative to its intrinsic value; we
expect to be amply rewarded over time for our patience.
In recent history, the Fund's large portfolio commitment to financial holdings,
broadly defined, has been a handicap. We maintain the commitment to that area in
the belief that substantial value lies within. Financials held up surprisingly
well in the second quarter, despite a continued negative interest rate
environment.
But on balance, these holdings have been little help to us (to say the least) in
the past 18 months, as most are being held back at least partially under a cloud
of interest rate worries. Conversely, in terms of business momentum and/or a
path to unlocking the value we feel is there, the news for these holdings
remains primarily positive, however masked it may be by macro concerns and
short-term challenges. Company by company, which is how we think about things,
we ultimately expect significant improvement in stock prices that have
mysteriously failed to track business strengths and advances. Progress reports
for several underlying financial businesses include:
o Solid performances going on at Ambac, Household, and AFLAC that,
unfortunately, continue to go largely ignored and not properly reflected in
their stock prices. We have profiled Ambac a little further on in this document
(see Finance-Related-Ambac) as representative of this group of quality
businesses that are not being given their due under current market conditions.
o Growing intrinsic value (especially courtesy of great results at the Moody's
unit) at Dun and Bradstreet that is admittedly, to put it kindly, a little too
well kept a secret. An expected late year separation of Moody's from the core
D&B operating business should provide greater clarity about a value we believe
is substantially greater than currently indicated in the two businesses as
joined together. We remain frustrated with the current stock price.
o Short term political and interest rate challenges are cloaking great business
progress of the financial machine that is Freddie Mac. Freddie and sister
organization Fannie Mae have both come under some political pressure of late.
For brevity's sake, suffice it to say that we think the political risk, while
clearly weighing on Freddie's stock price, is overstated, based on the important
societal function it serves in the form of broadening home ownership while
efficiently and properly channeling mortgage market credit risk. The path of
consequences associated with significant changes to the current system is, we
believe, fraught with many more serious perils than the ills Freddie's critics
currently cite. In our view, there would be dire outcomes stemming from
legislation that would meaningfully inhibit Freddie's growth; we think the very
seriousness of the potential consequences makes such legislation politically
unpalatable, and therefore unlikely.
o We appear poised for the Pyrrhic victory of a buyout offer for UAM that
recently raised the trading price of the stock to roughly the average cost
basis. The offer is short of the value we hoped for and what we think the
company's cash flow indicates it is worth. Nonetheless, a $25 bird in the hand
(the tender offer amount from a South African insurance concern) beats the
recent-memory price of $14.
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PORTFOLIO SUMMARY
There have been additional developments for a number of portfolio companies that
bear reporting, in our view, in order to add our voice to what may (or may not)
be coming through via traditional media. We think it is important to provide
updates on some of the information we evaluate in deciding to maintain an
allocation to these investments. After all, the Fund's shareholders are
essentially partners with these businesses in managing some portion of their
personal investment capital. Financial updates and other important milestones
are summarized below. In order to provide updates across the spectrum of the
portfolio, we have presented one company from each business category for a
detailed focus.
Pie Chart with Business Category slices
Technology Cash Telecom
Insurance Consumer Goods Advertising
Finance Related Media Diversified
Retai
ADVERTISING - VALASSIS COMMUNICATIONS
Valassis recently reported second quarter earnings 27% ahead of the comparable
period last year. The company is aggressively buying back its stock (authorized
to buy an additional 3.3 million shares on a base of 54.8 million shares, or 6%
of the company), has added plant capacity and is paying down debt. We believe
that at a recent stock price of $34 (14x expected consensus 2000 earnings of
$2.43), the market is grossly undervaluing Valassis's long term business
potential.
DIVERSIFIED - BERKSHIRE HATHAWAY
Detailed above and in our separate research notes (posted on
www.oakvaluefund.com - hard copies also available). (AS AN ASIDE, WE THINK THE
RESEARCH REPORT FOUND ON THE MOTLEY FOOL WEBSITE IS A GOOD SOURCE FOR GATHERING
AN UNDERSTANDING ABOUT THE CONTEXT AND BUSINESSES IN WHICH BERKSHIRE HATHAWAY
OPERATES. WE ADD A "READER BEWARE" CAVEAT ABOUT THE OVERALL "FOOL" FORUM, WHICH
LENDS ALL COMERS EQUAL CREDENCE AND WHEREIN PRETTY MUCH ANYONE CAN WEIGH IN WITH
AN OPINION (AND THEY USUALLY DO). NONETHELESS, THE BERKSHIRE PIECE IS SOLID. THE
EDUCATIONAL BACKGROUND GATHERED WITHIN OUTWEIGHS THE POTENTIAL PITFALLS
AVAILABLE AT ITS SOURCE AND IS WELL WORTH THE $12 PRICE TAG. YOU CAN ACCESS THE
BERKSHIRE PIECE ON THE RESEARCH AREA OF THE MOTLEY FOOL WEBSITE AT:
WWW.FOOLMART.COM/MARKET/PRODUCT.ASP?PFID=MF+4100)
MEDIA - EW SCRIPPS
Scripps announced during the quarter that it has asked the U.S. Attorney General
to approve a joint operating agreement (JOA) between the Scripps-owned Denver
Rocky Mountain News and The Denver Post (privately held by MediaNews Group
Inc.). Such an agreement, provided for under the Newspaper Preservation Act of
1970, would end the "newspaper war" in Denver, losses from which have certainly
pinched earnings for Scripps during its duration. Scripps's recently reported
second quarter 2000 earnings increased 14%, excluding the Denver losses, which
would diminish following the JOA. Growth in Scripps category television (Home
and Garden, Food Network, Do It Yourself) has been phenomenal; 2Q operating cash
flow in those businesses increased 76% to $25 million and Scripps announced the
launch of a fourth network, Fine Living.
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INSURANCE - AFLAC
In addition to having some of the funniest commercials on television (the AFLAC
duck is the most hilarious fowl since Daffy), the company continues to
strengthen its market position through product development, enhanced
distribution, and efficiency-adding technology investments. In fact, for the
second year in a row, AFLAC was named to Computerworld magazine's annual listing
of the "100 Best Places to Work in Information Technology." To us, that a
Columbus, GA insurance concern makes this list is only one demonstration of the
consistency with which AFLAC innovates. Their 1999 annual report theme was "If
it ain't broke, fix it anyway", a motto that has likely helped them grow
earnings at nearly 17% compounded over the past five years. As they prepare for
a deregulated insurance market in Japan, we view AFLAC as extremely well
positioned to take advantage of their unique strengths in that environment.
AFLAC has stated confidence in its ability to continue to meet its stated
financial objective of increasing operating earnings per share 15% to 17% for
2000 through 2002, excluding the impact of currency fluctuations.
CONSUMER GOODS - COCA COLA
Growth is starting to become visible, as evidenced by Coke's recent posting of a
5% increase in unit case volume - in line with its expectations. With management
shakeups, corporate restructuring, and the product contamination problems of the
past year behind them, Coke is focusing on its long-term targets of 7-8 percent
for average annual volume growth and 15 percent for average annual earnings
growth. Should they prove achievable, those growth figures imply a healthy
amount of upside for Coke's stock price, based on our internal valuation work.
TELECOM - AT&T
AT&T was the weakest portfolio performer this quarter. Its stock price fell 44%
from around $56 to roughly $32, a move which, based on AT&T's 3.15 billion
shares outstanding, erased $37.8 billion in market value in a three month
period. Of course, we don't believe anything even remotely like that size
reduction occurred with regard to a change in the underlying intrinsic value. In
fact, we thought AT&T was roughly that under-valued when we initiated the
portfolio position. While AT&T does have some improvements to make in their
business, particularly in the Business Services area, our initial investment
thesis (reported in the fourth quarter portfolio commentary) remains valid. News
reports have been swirling about separate tracking stocks being issued for
various units of AT&T (consumer long distance, cable, etc.); these serve to
underscore the recognition by the company and others in the investment community
that substantial (currently unrealized) value exists in AT&T's collection of
assets.
RETAIL - TIFFANY
Strong same store revenue numbers continued for Tiffany (+28% in the fiscal
quarter through April 2000), but were inexplicably accompanied by recent share
price weakness. Tiffany has a strategy to open three to five new U.S. stores
each year; consistent with that goal, they opened a store in Skokie, Illinois in
May 2000 and plan to open stores in Greenwich, Connecticut and Maui, Hawaii in
late summer and late fall, respectively.
TECHNOLOGY - COMPAQ
Some level of concern exists in the investment community about retail
inventories of PCs. Compaq has been adamant that there are no excess inventories
in its retail sales channel. We note that retail PCs represent less than 20% of
Compaq's revenues (and less of profits) and that commercial PCs have been
reported as doing better than expected. There has been no change to our
investment thesis, detailed in our first quarter 2000 portfolio comments. In our
view, PC SERVERS will matter more to Compaq going forward than will PCs; the
enterprise division in which servers are reported recently posted over $300
million in revenue growth over the comparable quarter last year.
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FINANCE RELATED - AMBAC
In the Finance Related category, Ambac is a good example of a company that
continues to impress by growing their business in a fashion that should garner
attention should it continue, as we and the company both expect. Ambac recently
reported second quarter 2000 earnings that were 30% higher than the same time
last year. This is particularly impressive in light of a slowdown in their core
business of municipal bond insurance due to higher interest rates. They are more
than making up for it with great growth in structured finance products
(securities backed by collections of receivable assets such as credit cards,
auto loans, etc.) and international market growth (lending in Europe is moving
away from banks and toward public markets, a nascent but well-defined trend that
should benefit financial guarantors like Ambac for some time to come).
We believe the company maintains conservative accounting and has a highly
predictable revenue stream based on booking revenue over the life of insured
issues. Ambac is a business that maintains nearly 60% net profit margins, has a
premier reputation in their industry and very little debt, earns roughly 16%
return on equity capital, and has grown reported earnings in the past five years
from $1.98 in 1994 to $4.32 last year - a growth rate of 16.8%. Still and
inexplicably, the recent $60 stock price is just over 12x Ambac's expected $5.00
per share 2000 reported earnings, and just above ten times next year's expected
results. This is the Rodney Dangerfield of financial companies - no respect at
all.
For now, we remain mired in an environment in which many good financial
businesses continue to be shunned in terms of stock price progression despite
the success evidenced by the measures and milestones detailed above. In a
different kind of market environment, we suspect there is substantial stock
price upside for a company like Ambac. It just won't come in the same
progressive fashion as the reported business improvement. Such is the nature of
the stock market, where continuous developments of the business front are
coupled with discrete (i.e., un-smooth) moves in stock price. Past behavior
indicates that the makeup is sudden, and not predictable in advance. As value
investors, our job is to be diligent in observing business fundamentals (they
are clearly there), and to be patient in waiting for stock prices to reflect
underlying economic reality. We're willing to be patient with results like
Ambac's; we think its results clearly indicate it's a business worth owning.
While it's busy getting more valuable year by year, we're happy to be
shareholders.
PURCHASE AND SALE SUMMARY
In the realm of new ideas, we added four new names to the Oak Value Fund
portfolio in the second quarter (on top of five new names to begin 2000). We
purchased positions in Comcast Communications, Sabre Group Holdings, Tellabs,
Inc., and XL Capital. A brief investment thesis for each appears below.
2Q00 PORTFOLIO PURCHASE ACTIVITY
Position
(Business) Summary Investment Thesis
COMCAST Strong cable operator with good cash flow, selling cheaply
------- in sympathy with a weak cable sector. Also own valuable
properties for e-commerce (50% of QVC) and entertainment
(CABLE TV) content (sports franchises in their geographic base, a
compelling competitive weapon to help fend off satellite
incursions). Comcast also maintains a valuable portfolio of
industry-related marketable securities investments.
SABRE GROUP Leader in electronic distribution of travel services through
----------- its proprietary Sabre reservation system for airlines and
HOLDINGS travel agencies. This former American Airlines subsidiary is
-------- also the majority owner of Travelocity.com, the exclusive
(TRAVEL reservation provider behind AOL's travel section, and third
INFORMATION most visited website (after Amazon and Ebay) in an important
SERVICES AND sector of the economy.
ELECTRONIC
COMMERCE)
XL CAPITAL Opportunity to upgrade quality of insurance exposure through
---------- the addition of this Bermuda-based insurer and reinsurer
(INSURANCE) prior to anticipated strengthening in the insurance cycle.
TELLABS Highly profitable producer of communications equipment that
------- is the enabling infrastructure of the high growth
(TELECOMMUN- marketplace for world- class telecommunications networks.
ICATIONS Important equipment supplier to companies we know well
EQUIPMENT) (cable and regional telecom).
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During the quarter, we eliminated two long held positions, Disney and
Progressive, both on price strength, though Disney traded out at well above
average cost while Progressive was eliminated at a loss. We think both companies
continue as quality businesses; however, we felt it was appropriate to exit them
at this time, for different reasons (a summary is provided in the table below,
with more detail following under the heading "A Tale of Two Stock Trades").
2Q00 PORTFOLIO SALE ACTIVITY
Position
(Business) Summary Reason for Sale
PROGRESSIVE First trimmed then eliminated the position based on near
----------- term price price strength that we did not believe is
warranted by current business fundamentals. Little reason
(AUTOMOBILE for near term confidence in a company with reduced earnings
INSURANCE) in the highly competitive auto industry. Essentially,
selling what we view as a good business, albeit working
though difficulties, for better businesses, i.e., the new
ideas that our research and the market's behavior have
offered (see above - Sabre Group, Comcast, XL Capital,
Tellabs, etc.).
DISNEY Aggressive stock price appreciation DISNEY from late 1999
------ through late first and early second quarter 2000 caused us
(ENTERTAINMENT to trim, then eliminate the Disney position. Re-deploying
MEDIA) proceeds into newer ideas with greater margin of safety and
upside potential.
CONCLUSION
In summation, we'd say that we are happy for a successful second quarter from a
reported return perspective but are even more encouraged toward long-term
optimism by the fundamental strength of the businesses we own. We look forward
to the results we expect to post at some point, particularly when the rising
interest rate shackles come off and we don't have roughly 40% (finance +
insurance + Berkshire) of the portfolio figuratively tied behind our backs.
Those should be returns worth talking about.
/S/ David R. Carr, Jr.
David R. Carr, Jr.
Co-Manager
/S/ George W. Brumley, III
George W. Brumley, III
Co-Manager
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THE BEST OF TRADES, THE WORST (WELL, AT LEAST NOT THE BEST)
OF TRADES - A TALE OF TWO STOCK SALES
One catalyst for action on Progressive was a poor first quarter 2000 earnings
report, one which indicated inferior results from what management had
anticipated during relatively recent meetings. The unanticipated change in
fortunes is an early warning indicator to us in a company that had been
previously very predictable, or at least had plausible explanations for prior
deviations in its business. We were neither comforted nor assuaged by
Progressive's recent stock price strength.
We took advantage of a better exit price for shares sold recently vis-a-vis the
lows witnessed earlier in the first quarter. It isn't much of a victory for us
to have exited Progressive where we did, but we felt it was the best decision to
make in light of Progressive's position and other available investment options.
It is always possible that we may (no guarantees; an attractive entry price is
always a motivating factor for us) get a future opportunity to come back to
Progressive, at a time of greater earnings clarity and a better risk/reward
tradeoff. The Oak Value Fund portfolio has no shortage of exposure to auto
insurance through GEICO inside of Berkshire. In fact GEICO's competitive
strength is part of Progressive's woe, and is no small part of our evaluation of
Progressive's merits. Via a 10% position in Berkshire we may well already own
the very best auto insurance company in the industry, bar none. Given that, we
should participate meaningfully when returns in that industry improve, and we
have less propensity to be invested in a company that is a competitor in GEICO's
path.
With Disney, the rationale for trading out is simply a continuation of that
which we began last quarter when we reduced our position. We repeat here our
investment rationale from last quarter's summary. "...early 2000 seems to have
brought a turnaround in sentiment from the investment community at large. The
Disney franchise remains intact, strategy appears focused and sound across
business lines, a recast video/DVD release approach seems rational, and Disney's
strong management has generally responded to challenges in the positive way good
managements do. Little of this is substantive or new since last fall in our
view. Nonetheless, Wall Street analysts who found little hope in this very same
business a scant five months ago (at a then price of under $25 per share), have
moved to BUY recommendations begun in the mid to high $30 range, after a 30-40%
run in stock price since November (subsequent note: since up another 13% or so).
Can WHO WANTS TO BE A MILLIONAIRE be that good? We took the opportunity early in
the fourth quarter to add to our existing position in a climate of doubt and
then during the first quarter to reduce the Disney holding and take some gains
off the table, courtesy of a growing chorus of surety."
We also wrote three months ago that "AT SOME VERY HIGH PRICE, WE MAY NOT WANT TO
BE OWNERS AT ALL; YOU CAN EXPECT THAT PHILOSOPHICAL STATEMENT TO TRANSLATE INTO
ACTION WHEN PRICES RUN WELL ABOVE OUR INTRINSIC VALUE ESTIMATES. We can still
like and admire the business, but in terms of our responsibility as stewards of
capital, it behooves us to re-deploy into fresher ideas with greater margins of
safety and more appreciation potential relative to intrinsic value." As Disney's
price ran ahead, we put into practice that which we had previously preached
about valuation, i.e., we are less attracted to making larger commitments (or
sometimes keeping any at all) to businesses as their prices increase toward, and
occasionally exceed, intrinsic value.
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IMPORTANT INFORMATION:
Authorized for distribution only if preceded or accompanied by a prospectus.
Where shown or quoted, recent company returns (for example calendar quarter or
trailing twelve months) are stock price changes only, and reflect neither
dividends nor any fees associated with an investment in the Oak Value Fund. This
commentary seeks to describe our current views of the market and to highlight
selected activity in the Oak Value Fund. Any discussion of specific securities
is intended to help shareholders understand the Fund's investment style, and
should not be regarded as a recommendation of any security. Displays detailed a
summary of holdings (e.g., best and worst stocks, business category
distribution, etc.) are based on the Oak Value Fund holdings on June 30, 2000 or
held during the second quarter of 2000.
The performance shown in the chart "Selected Second Quarter Market Results" for
Internet Stock Index is the Inter@ctive Week Internet Index.
We do not attempt to address specifically how individual shareholders have
fared, since shareholders also receive account statements showing their holdings
and transactions. Information concerning the performance of the Oak Value Fund
and our recommendations over the last year are available upon request. Past
performance is no indication of future performance. You should not assume that
future recommendations will be as profitable or will equal the performance of
past recommendations.
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 various sources, including company management. These
statements are not guarantees of future performance, and actual events and
results may differ materially from those discussed herein. References to
securities purchased or held are only as of the date of this letter to
shareholders. Although the Fund's investment adviser focuses on long-term
investments, holdings are subject to change.
This letter to shareholders may include statistical and other factual
information obtained from third-party sources. We believe those sources to be
accurate and reliable; however, we are not responsible for errors by them on
which we reasonably rely. In addition, our comments are is influenced by our
analysis of information from a wide variety of sources and may contain
syntheses, synopses, or excerpts of ideas from written or oral viewpoints
provided to us by investment, industry, press and other public sources about
various economic, political, central bank, and other suspected influences on
investment markets.
Although our comments focus on the most recent quarter, we use this perspective
only because it reflects industry convention. The Oak Value Fund and its
investment adviser do not subscribe to the notion that three month calendar
periods or other short-term periods are either appropriate for making judgments
or useful in setting long-term expectations for returns from our, or any other,
investment strategy. The Oak Value Fund and its investment advisor do not
subscribe to any particular viewpoint about causes and effects of events in the
broad capital markets, other than that they are not predictable in advance.
Specifically, nothing contained in the portfolio commentary should be construed
as a forecast of overall market movements, either in the short or long term.
The references to other web sites contained in this material are provided for
your convenience and information. We do not assume any responsibility or
liability for any information referenced in third party web sites. The existence
of these references is not an endorsement, approval or verification by us of any
content available on any third party site. In providing references to other web
sites, we are not recommending the purchase or sale of the stock issued by any
company, nor are we endorsing products or services made available by the sponsor
of any third party web site.
FOR MORE INFORMATION ABOUT OAK VALUE FUND, PLEASE CALL 800-622-2474 OR VISIT THE
FUND'S WEBSITE - WWW.OAKVALUEFUND.COM. A FULL COLOR VERSION OF THIS COMMENTARY
IS AVAILABLE UNDER THE "WHAT'S NEW" AND "MANAGER COMMENTARY" SECTIONS OF THE
SITE.
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OAK VALUE FUND
PERFORMANCE INFORMATION
================================================================================
Comparison of the Change in Value of a $10,000 Investment
in the Oak Value Fund and Standard & Poor's 500 Index
Oak Value Fund
Average Annual Total Returns
As of June 30, 2000
1 Year 5 Years Since Inception*
-7.91% 18.98% 16.80%
[Line chart]
Oak Value Fund S&P 500 Index
1/93 $10000.00 $10000.00
$10350.00 $10400.90
6/93 $10360.00 $10451.50
$11440.00 $10721.60
12/93 $12205.00 $10970.10
$11614.60 $10554.10
6/94 $11818.20 $10598.50
$12469.70 $11116.70
12/94 $12020.70 $11115.00
$13158.20 $12197.20
6/95 $13333.20 $13361.50
$14711.40 $14423.40
12/95 $15486.90 $15291.70
$16632.40 $16112.40
6/96 $17205.20 $16835.60
$18482.90 $17356.60
12/96 $19976.00 $18802.70
$20044.50 $19306.70
6/97 $24019.10 $22678.90
$25812.10 $24375.90
12/97 $27507.10 $25075.90
$31255.30 $28574.10
6/98 $32319.00 $29517.70
$26295.00 $26581.30
12/98 $32713.00 $32242.30
$33204.50 $33849.80
6/99 $34515.80 $36238.40
$28874.20 $33971.80
12/99 $31691.10 $39026.80
$30635.50 $39921.60
6/00 $31786.50 $38861.10
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURNS
-----------------------------------------------------------------------------------------------------------------------
YEAR-TO-DATE SINCE
CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR 2000 INCEPTION*
1993* 1994 1995 1996 1997 1998 1999 (AS OF 6/30/00) (AS OF 6/30/00)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oak Value Fund 22.04% -1.54% 28.89% 28.99% 37.70% 18.93% -3.12% 0.30% 217.87%
S&P 500 Index 9.60% 1.32% 37.58% 22.96% 33.36% 28.58% 21.04% -0.44% 289.78%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED JUNE 30, 2000
--------------------------------------------------------------------------
SIX ONE THREE FIVE SINCE
MONTHS(A) YEAR YEARS YEARS INCEPTION*
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oak Value Fund 0.30% -7.91% 9.79% 18.98% 16.80%
S&P 500 Index -0.44% 7.22% 19.66% 23.80% 19.92%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Inception date of the Oak Value Fund was January 18, 1993.
(A) Unannualized.
10
<PAGE>
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
================================================================================
<TABLE>
<S> <C>
ASSETS
Investment securities at market value
(acquisition cost of $256,688,703) (Note 2).................................... $ 280,860,521
Dividends receivable............................................................. 480,961
Other assets..................................................................... 116,206
-------------
TOTAL ASSETS................................................................ 281,457,688
-------------
LIABILITIES
Payable for securities purchased................................................. 268,083
Payable for capital shares redeemed.............................................. 133,791
Accrued expenses and other payables:
Investment advisor fees....................................................... 208,684
Administrator fees............................................................ 9,507
Accounting services fees...................................................... 4,637
-------------
TOTAL LIABILITIES........................................................... 624,702
-------------
NET ASSETS....................................................................... $ 280,832,986
=============
Net assets consist of:
Paid-in capital.................................................................. $ 257,660,774
Distributions in excess of net realized gains.................................... (999,606)
Net unrealized appreciation on investments....................................... 24,171,818
-------------
Net assets....................................................................... $ 280,832,986
=============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value)..................................................... 11,176,959
=============
Net asset value, offering price and redemption price per share (Note 2).......... $ 25.13
=============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
OAK VALUE FUND
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
================================================================================
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends.................................................................... $ 5,263,647
Interest..................................................................... 399,684
-------------
TOTAL INVESTMENT INCOME.................................................... 5,663,331
-------------
EXPENSES
Investment advisory fees (Note 4)............................................ 3,607,979
Administrative services fees (Note 4)........................................ 254,327
Shareholder services and transfer agent fees (Note 4)........................ 200,708
Accounting services fees (Note 4)............................................ 66,584
Professional fees............................................................ 137,264
Printing fees................................................................ 81,885
Registration fees ........................................................... 67,764
Custodian fees............................................................... 62,195
Trustees' fees and expenses.................................................. 60,655
Miscellaneous fees........................................................... 24,661
Insurance expense............................................................ 15,495
-------------
TOTAL EXPENSES............................................................. 4,579,517
-------------
Less: fees paid by third party (Note 2)................................. (38,085)
-------------
NET EXPENSES............................................................... 4,541,432
-------------
NET INVESTMENT INCOME........................................................... 1,121,899
-------------
REALIZED AND UNREALIZED GAINS/LOSSES ON INVESTMENTS
Net realized gains from security transactions................................ 6,275,284
Net change in unrealized appreciation/depreciation on investments............ (67,451,289)
-------------
NET REALIZED AND UNREALIZED GAINS/LOSSES ON INVESTMENTS......................... (61,176,005)
-------------
NET DECREASE IN NET ASSETS FROM OPERATIONS...................................... $ (60,054,106)
=============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................................. $ 1,121,899 $ 1,443,100
Net realized gains from investment transactions....................... 6,275,284 18,511,197
Net change in unrealized appreciation/depreciation on investments..... (67,451,289) 23,144,708
------------- -------------
Net increase/decrease in net assets from operations...................... (60,054,106) 43,099,005
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............................................ (1,121,899) (1,463,037)
In excess of net investment income.................................... (414) --
From net realized gains from security transactions.................... (6,275,284) (17,498,045)
In excess of net realized gains....................................... (244,657) (754,949)
------------- -------------
Decrease in net assets from distributions to shareholders................ (7,642,254) (19,716,031)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold............................................. 129,614,288 485,772,850
Net asset value of shares issued in reinvestment of distributions
to shareholders..................................................... 7,377,186 18,577,671
Cost of shares redeemed............................................... (413,234,783) (336,863,855)
------------- -------------
Net increase/decrease in net assets from capital share transactions...... (276,243,309) 167,486,666
------------- -------------
NET INCREASE/DECREASE IN NET ASSETS...................................... (343,939,669) 190,869,640
NET ASSETS:
Beginning of year..................................................... 624,772,655 433,903,015
------------- -------------
End of year........................................................... $ 280,832,986 $ 624,772,655
============= =============
SUMMARY OF CAPITAL SHARE ACTIVITY:
Shares sold........................................................... 5,203,161 18,644,142
Shares issued in reinvestment of distributions to shareholders........ 292,323 667,046
Shares redeemed.......................................................... (16,660,660) (13,015,998)
------------- -------------
Net increase/decrease in shares outstanding........................... (11,165,176) 6,295,190
Shares outstanding, beginning of year................................. 22,342,135 16,046,945
------------- -------------
Shares outstanding, end of year....................................... 11,176,959 22,342,135
============= =============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
================================================================================
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year................... $ 27.96 $ 27.04 $ 20.63 $ 15.62 $ 12.19
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss)..................... 0.11 0.07 0.05 (0.02) (0.04)
Net realized and unrealized gains (losses)
on investments................................. (1.48) 1.76 6.98 6.06 3.57
-------- -------- -------- -------- --------
Total from investment operations.................... (1.37) 1.83 7.03 6.04 3.53
-------- -------- -------- -------- --------
Less distributions:
From net investment income....................... (0.11) (0.07) (0.05) -- --
From net realized gains from
security transactions.......................... (1.30) (0.81) (0.44) (1.03) (0.10)
In excess of net realized gains.................. (0.05) (0.03) (0.13) -- --
-------- -------- -------- -------- --------
Total Distributions................................. (1.46) (0.91) (0.62) (1.03) (0.10)
-------- -------- -------- -------- --------
Net asset value at end of year...................... $ 25.13 $ 27.96 $ 27.04 $ 20.63 $ 15.62
======== ======== ======== ======== ========
Total Return........................................ (7.91%) 6.80% 34.56% 39.60% 29.04%
======== ======== ======== ======== ========
Net Assets at end of year (000's)................... $280,833 $624,773 $433,903 $ 82,661 $ 22,066
======== ======== ======== ======== ========
Ratio of expenses to average net assets(a).......... 1.13% 1.10% 1.22% 1.59% 1.90%
Ratio of net investment income (loss) to average
net assets..................................... 0.28% 0.27% 0.41% (0.16%) (0.43%)
Portfolio turnover rate............................. 22% 38% 15% 22% 58%
</TABLE>
(a) Absent fee waivers and/or expense reimbursements by the Advisor, or the use
of earnings credits on cash balances, the ratios of expenses to average net
assets would have been 1.14% and 2.15% for the years ended June 30, 2000
and June 30, 1996, respectively.
See accompanying notes to financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
==============================================================================================================
MARKET
SHARES COMMON STOCKS -- (96.0%): VALUE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVERTISING (7.6%):
321,800 Interpublic Group Companies, Inc...................................... $ 13,837,400
197,700 Valassis Communications, Inc. (b)..................................... 7,537,313
-------------
21,374,713
-------------
BEVERAGE (5.3%):
259,075 Coca-Cola Company..................................................... 14,880,620
-------------
CABLE TV (7.1%):
429,850 Charter Communications, Inc. (b)...................................... 7,065,659
233,525 Comcast Corp., Special Class A........................................ 9,457,763
160,000 USA Networks, Inc. (b)................................................ 3,460,000
-------------
19,983,422
-------------
COMPUTER (2.0%):
217,300 Compaq Computer Corporation........................................... 5,554,731
-------------
CONGLOMERATE (10.5%):
100 Berkshire Hathaway, Inc., Class A(b).................................. 5,380,000
13,804 Berkshire Hathaway, Inc., Class B(b).................................. 24,295,039
-------------
29,675,039
-------------
FINANCE-CONSUMER LOANS (5.4%):
362,000 Household International, Inc.......................................... 15,045,625
-------------
INFORMATION SERVICES (4.2%):
410,100 Dun & Bradstreet Corporation.......................................... 11,739,113
-------------
INSURANCE-ACCIDENT & HEALTH (4.4%):
270,800 AFLAC, Inc............................................................ 12,439,875
-------------
INSURANCE-FINANCIAL GUARANTEE (7.0%):
357,675 Ambac Financial Group, Inc............................................ 19,605,061
-------------
INSURANCE-PROPERTY & CASUALTY (2.1%):
78,800 RLI Corporation....................................................... 2,738,300
56,550 XL Capital Ltd. ...................................................... 3,060,769
-------------
5,799,069
-------------
INVESTMENT MANAGEMENT /ADVISORY SERVICES (5.0%):
596,975 United Asset Management Corporation .................................. 13,954,291
-------------
MEDIA (11.1%):
350,935 Scripps (E.W.) Company................................................ 17,283,548
29,440 Washington Post Company - Class B .................................... 14,072,320
-------------
31,355,868
-------------
15
<PAGE>
OAK VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
==============================================================================================================
MARKET
SHARES COMMON STOCKS -- (96.0%) (CONTINUED) VALUE
--------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING (1.6%):
113,850 Federal Home Loan Mortgage Corporation................................ $ 4,610,925
-------------
PERSONAL CARE/COSMETICS (9.7%):
342,100 Avon Products, Inc. .................................................. 15,223,450
342,295 Gillette Company...................................................... 11,958,932
-------------
27,182,382
-------------
PHOTOGRAPHIC EQUIPMENT AND SUPPLIES (3.6%):
169,200 Eastman Kodak Company ................................................ 10,067,400
-------------
RETAIL (2.7%):
113,170 Tiffany & Company..................................................... 7,638,975
-------------
TELECOMMUNICATION EQUIPMENT (1.1%):
43,800 Tellabs, Inc.(b)...................................................... 2,997,563
-------------
TELEPHONE - INTEGRATED (3.4%):
145,975 AT&T Corporation...................................................... 4,616,459
80,850 GTE Corporation....................................................... 5,032,913
-------------
9,649,372
-------------
TRAVEL SERVICES (2.2%):
217,600 Sabre Group Holdings, Inc.(b)......................................... 6,201,600
-------------
TOTAL COMMON STOCKS (COST $245,583,826)............................... $ 269,755,644
-------------
INVESTMENT COMPANY (4.0%):
11,104,877 Valiant General Money Market Fund, Class A............................ 11,104,877
-------------
TOTAL INVESTMENT COMPANY (COST $11,104,877)........................... 11,104,877
-------------
TOTAL INVESTMENTS (COST $256,688,703)(A) -- 100.0%.................... $ 280,860,521
LIABILITIES IN EXCESS OF OTHER ASSETS -- 0.0%......................... (27,535)
-------------
NET ASSETS-- 100.0%................................................... $ 280,832,986
=============
</TABLE>
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $999,606. Cost for federal tax purposes differs from value
by net unrealized appreciation of securities as follows:
Unrealized appreciation.................... $ 38,381,204
Unrealized depreciation.................... (15,208,992)
==============
Net unrealized appreciation................ $ 23,172,212
==============
(b) Non-income producing security.
See accompanying notes to financial statements.
16
<PAGE>
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
================================================================================
1. ORGANIZATION
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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Fund's significant accounting policies
followed by the Trust in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles in the United
States. The preparation of financial statements 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 for the period. Actual results could differ from those
estimates.
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.
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. Investments in investment companies are
valued at their respective net asset values as reported by such companies.
REPURCHASE AGREEMENTS -- The Fund may acquire repurchase agreements from
financial institutions such as banks and broker-dealers which the Trust's
investment adviser deems creditworthy under the guidelines approved by the Board
of Trustees, subject to the seller's agreement to repurchase such securities at
a mutually agreed-upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller, under a repurchase agreement, is required to
maintain the value of collateral held pursuant to the agreement at not less than
the repurchase price (including accrued interest). Repurchase agreements are
considered to be loans under the 1940 Act.
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.
DISTRIBUTIONS TO SHAREHOLDERS -- 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. The amount of
dividends from net investment income and distributions from net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. The "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the components of net assets based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions to shareholders which exceed net investment income and realized
capital gains for financial reporting purposes but not tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized gains. To the extent they exceed net investment income and net
realized gains for tax purposes, they are reported as distributions of capital.
17
<PAGE>
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on trade date basis. Net realized gains or losses from sales of
securities are determined on the specific identification cost method. Interest
income is recognized on an accrual basis and dividends are recorded on the
ex-dividend date.
FEDERAL INCOME TAX -- It is the policy of the Fund to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal Revenue
Code, and to make distributions of net investment income and net realized
capital gains sufficient to relieve it from all , or substantially all, federal
income taxes.
OTHER -- The Fund may maintain a cash balance with the custodian and receive a
reduction of its custody fees and expenses for the amount of interest earned on
such uninvested cash balances. For financial reporting purposes for the year
ended June 30, 2000, custodian fees and expenses paid by third parties were
$38,085. There was no effect on net investment income since the Fund would
otherwise have invested such cash amounts in a short term interest-bearing
asset.
3. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment
securities, other than short-term investments, amounted to $84,193,713 and
$337,154,189 respectively, for the year ended June 30, 2000.
4. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by Oak Value Capital Management, Inc. (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, TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENTS
Effective November 22, 1999, BISYS Fund Services Ohio, Inc. (BISYS) assumed the
role of administrator, transfer agent and accounting services agent for the
Trust.
Under the terms of the Administration Agreement with the Trust, BISYS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services for the Fund.
BISYS 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, BISYS receives a monthly fee based on the Fund's
average daily net assets.
Under the terms of the Transfer Agency Agreement with the Trust, BISYS 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, BISYS receives a monthly fee
based on the number of shareholder accounts in the Fund. In addition, the Fund
pays BISYS out-of-pocket expenses including, but not limited to, postage and
supplies.
Under the terms of the Fund Accounting Agreement with the Trust, BISYS
calculates the daily net asset value per share and maintains the financial books
and records of the Fund. For these services, BISYS 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 BISYS in obtaining valuations for the Fund's
portfolio securities.
Prior to November 22, 1999, Administrator, Transfer Agency, and Fund Accounting
Services were provided to the Trust under the terms of corresponding agreements
between the Trust and Countrywide Fund Services, Inc.
Certain trustees and officers of the Trust are also officers of the Adviser or
BISYS. Such trustees and officers receive no direct payments or fees from the
Trust for serving as officers.
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the taxable year ended June 30, 2000, 100% of income dividends paid by the
Fund qualify for the dividends received deduction available to corporations.
Additionally, during the year ended June 30, 2000, the Fund had $4,809,786 in
long-term capital gain distributions.
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
To the Shareholders and Board of Trustees
of the Oak Value Fund of the
Tuscarora Investment Trust:
We have audited the accompanying statement of assets and liabilities of the Oak
Value Fund of the Tuscarora Investment Trust (a Massachusetts business trust),
including the schedule of portfolio investments, as of June 30, 2000, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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, 2000, by correspondence with the custodian and brokers or
by other appropriate auditing procedures where replies from brokers were not
received. 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 the Oak Value Fund of the Tuscarora Investment Trust as of June 30,
2000, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Columbus, Ohio
July 28, 2000
19
<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 Annual Report
BISYS Fund Services Ohio, Inc. June 30, 2000
3435 Stelzer Rd.
Columbus, OH 43219
INDEPENDENT AUDITORS
Arthur Andersen LLP
41 South High Street
Columbus, Ohio 43215
CUSTODIAN
The Bank of New York
100 Church St.
New York, NY 10286 [LOGO]
--------------------
BOARD OF TRUSTEES OAK VALUE FUND
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
Georgette Prigal, Vice President
Nadeem Yousaf, Treasurer
Paige C. Spurbeck, Secretary
This report is for information of the
shareholders of the Oak Value Fund. It
may not be distributed to prospective www.oakvaluefund.com
investors unless it is preceded or
accompanied by the current fund
prospectus.
