UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21073
Bragg Capital Trust
(Exact name of registrant as specified in charter)
100 Queens Road
Charlotte, North Carolina 28204
(Address of principal executive offices)
(Zip code)
Steven Scruggs
100 Queens Road
Charlotte, North Carolina 28204
(Name and address of agent for service)
With copy to:
Stephanie A. Djinis, Esq.
Law Offices of Stephanie A. Djinis
1749 Old Meadow Road Suite 310
McLean, Virginia 22102
Registrant's telephone number, including area code: (704) 714-7711
Date of fiscal year end: 5/31
Date of reporting period: 5/31/03
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
ANNUAL REPORT
Queens Road Large Cap Value Fund
Queens Road Small Cap Value Fund
Each a series of the
Bragg Capital Trust
May 30, 2003
Dear Fellow Shareholders:
It was the worst of times; it was the best of times….
The first year of operations was a year of contrasts for the Queens Road Funds. The funds began operations in June of 2002, amid one of the worst performing markets for value stocks in recent memory. They finished the year on May 31, 2003, in one of the best markets for value stocks in over a decade. Throughout this volatile year (in both performance and sentiment), one thing remained constant, our commitment to our fundamental investment philosophy and its guiding principles of Diligence, Discipline and Patience.
“The are known knowns…; there are known unknowns…; and there are unknown unknowns…”
Donald Rumsfeld
While this paraphrased quote attributed to Donald Rumsfeld may not make much sense at first reading, it can be applied to our investment philosophy at the Queens Road Funds. We know there are certain fundamental relationships in the equity markets. For instance, the economic profits of businesses drive their valuations. Fundamental relationships such as this are the known knowns. We also know that neither we nor anyone else can predict certain things, such as the direction of interest rate movements or the level of future economic growth. These are the known unknowns. And lastly, history has shown us that, in the short run, stock prices may be driven irrationally by the so called “animal spirits” or what Benjamin Graham referred to as the manic-depressive “Mr. Market”. These unpredictable and inexplicable phenomena are the unknown unknowns.
At Queens Road Funds, we spend our time focusing on things we can reasonably predict and control, the “known knowns”. We diligently search for companies in the most profitable industries, with the most capable managements, and the most attractive valuations. We maintain our discipline by not trying to use a crystal ball to predict things we know are unpredictable, the things we know we can’t know, the known unknowns. And we remain patient throughout the periods when the unknown unknowns seem to be driving individual stock prices or the overall markets.
This thoughtful and deliberate approach to identifying attractive investments has served us well in our first year of operations. Over the next year, the markets may rise, or they may fall, it’s entirely uncertain. Regardless, the Queens Road Funds will stick to its sound investment principles and remain invested in companies which we know have proven the ability to allocate capital to profitable enterprise, of this you can be sure.
We appreciate your support.
Sincerely,
/s/Steve Scruggs
/s/Benton Bragg
/s/Mark Thompson
Steve Scruggs, CFA
Benton Bragg, CFA
Mark Thompson, CFA
President, Portfolio Manager
Chairman
Portfolio Manager
Queens Road Large Cap Value Fund
Manager’s Discussion
We are happy to report that in an extremely volatile investment environment, the Queens Road Large Cap Value Fund showed an 8.43% cumulative total return since beginning operations on June 13, 2202 through May 31, 2003. This is compared to a –5.16% total return for the S&P/Barra 500 Value Index over the same period.
The fund outperformed each of these indices in both halves of our reporting year, from inception through November 30, 2002, and from November 30, 2002 through May 31, 2003. This strong performance is attributable to both the timing of our purchases and the fund’s philosophy of buying companies with strong long-term track records at reasonable prices, with the intention of holding them for an extended period. A comparison of the fund’s monthly performance against the S&P/Barra Large Value Index and the S&P 500 Index is provided below.
QRLCV | S&P/Barra Large Value | S&P 500 | |
December 2002 | -3.87% | -5.20% | -5.87% |
January 2003 | -2.97% | -2.74% | -2.61% |
February 2003 | -1.80% | -2.72% | -1.50% |
March 2003 | .86% | -.13% | .97% |
April 2003 | 8.42% | 9.89% | 8.23% |
May 2003 | 5.60% | 6.72% | 5.19% |
6 Month | 5.77% | 5.05% | 3.80% |
One Year* | 8.43% | -9.26% | -8.13% |
Source: Morningstar Principia Pro
*Fund Operations commenced 6/13/02, for fiscal year 2003 QRLCV performance is 6/13/2002-5/31/2003.
Queens Road Large Cap Value Fund |
|
| |
Schedule of Investments | |||
May 31, 2003 | |||
Shares/Principal Amount |
| Market Value | % of Assets |
COMMON STOCKS |
|
|
|
Aerospace & Defense | |||
160 | Boeing Co. | $ 4,907 |
|
100 | United Technologies | 6,825 | |
|
| 11,732 | 3.30% |
Air Freight & Couriers | |||
130 | Federal Express Corp. | 8,317 | 2.34% |
Aluminum |
|
|
|
180 | Aluminum Co. of America | 4,430 | 1.25% |
|
|
|
|
Automobile Manufacturers | |||
150 | General Motors Corp. | 5,300 | 1.49% |
Banks |
|
|
|
175 | Bank of America Corp. | 12,985 | |
200 | BB&T Corp. | 6,838 |
|
250 | National City Corp. | 8,455 | |
375 | US Bancorp | 8,888 |
|
225 | Wachovia Corp. | 9,041 | |
200 | Washington Mutual | 8,156 |
|
235 | Wells Fargo | 11,351 | |
|
| 65,714 | 18.49% |
Broadcasting & Cable TV | |||
290 | Comcast Corp. CL A Special NON-VTG * | 8,384 | 2.36% |
Building Products |
|
|
|
300 | Masco Corp | 7,380 | 2.08% |
|
|
|
|
Communications Equipment | |||
700 | Motorola Inc. | 5,964 | 1.68% |
Computer Hardware |
|
|
|
80 | International Business Machine Corp. | 7,043 | 1.98% |
|
|
|
|
Computer Peripherals | |||
350 | Hewlett-Packard Co. | 6,825 | 1.92% |
Construction & Farm Machinery |
|
|
|
150 | Caterpillar Inc. | 7,823 | 2.20% |
|
|
|
|
Department Stores | |||
190 | Federated Department Stores | 6,175 | 1.74% |
Distillers & Vintners |
|
|
|
75 | Brown Forman Corporation "B" | 5,915 | 1.66% |
|
|
|
|
Diversified Chemicals | |||
195 | DuPont (E.I.) de Nemours & Co. | 8,217 | 2.31% |
Diversified Financial Services |
|
|
|
300 | Citigroup Corp. | 12,306 | |
160 | Fedl National Mortgage Assoc. | 11,840 |
|
200 | Merrill Lynch & Co. Inc. | 8,660 | |
185 | Morgan Stanley | 8,463 |
|
41,269 | 11.61% | ||
|
|
|
|
Electric Utilities | |||
100 | Exelon Corp. | 5,730 |
|
175 | Southern Co. | 5,509 | |
350 | Duke Energy Corp. | 6,783 |
|
18,022 | 5.07% | ||
|
|
|
|
Food Retail | |||
160 | Safeway Inc. * | 3,014 | 0.85% |
General Merchandise Stores |
|
|
|
200 | Costco Wholesale Corp. * | 7,450 | 2.10% |
|
|
|
|
Industrial Gases | |||
110 | Air Products & Chemical Inc. | 4,795 | 1.35% |
Integrated Oil & Gas |
|
|
|
100 | ChevronTexaco Corp | 7,094 | |
140 | ConocoPhillips | 7,556 |
|
300 | Exxon Mobil | 10,920 | |
|
| 25,570 | 7.20% |
Integrated Telecommunication Services | |||
160 | ALLTEL Corp. | 7,661 |
|
340 | Bellsouth Corp. | 9,013 | |
350 | SBC Communications | 8,911 |
|
25,585 | 7.19% | ||
Life & Health Insurance |
|
|
|
300 | MetLife Inc. | 8,391 | |
100 | Wellpoint Health Networks Inc. * | 8,534 |
|
16,925 | 4.75% | ||
|
|
|
|
Movies & Entertainment | |||
170 | Viacom Inc. CL B * | 7,738 | 2.18% |
Multi-line Insurance |
|
|
|
190 | American International Group Inc. | 10,997 | 3.09% |
|
|
|
|
Oil & Gas Equipment & Services | |||
250 | Baker Hughes Inc. | 8,262 | 2.33% |
Oil & Gas Exploration & Production |
|
|
|
180 | Anadarko Petroleum | 8,870 | 2.50% |
|
|
|
|
Property & Casualty Insurance | |||
8 | Travelers Class A | 131 |
|
17 | Travelers Class B | 275 | |
|
| 406 | 0.11% |
Publishing | |||
95 | Gannett Inc. | 7,505 | 2.11% |
Restaurants |
|
|
|
325 | McDonalds Corp. | 6,087 | 1.71% |
|
|
|
|
Total for Common Stock ($326,676) | 351,714 | 98.98% | |
|
|
|
|
CASH AND EQUIVALENTS | |||
2,364 | First American Prime Obligation Fund CL S .60% | 2,364 | 0.67% |
|
|
|
|
Total Investments | 354,078 | 99.65% | |
(Identified Cost $ 329,040) | |||
|
|
|
|
| Other Assets Less Liabilities | 1,250 | 0.35 % |
|
|
|
|
Net Assets | $355,328 | 100.00% | |
|
|
|
|
The accompanying notes are an integral part of the financial statements.
Queens Road Large Cap Value Fund |
|
Statement of Assets and Liabilities | |
May 31, 2003 | |
Assets |
|
Investment Securities at Market Value | $354,078 |
(Identified Cost $ 329,040) | |
Cash | 500 |
Receivables: | |
Dividends and Interest | 750 |
Total Assets | 355,328 |
Liabilities |
|
Total Liabilities | 0 |
Net Assets | $355,328 |
Net Assets Consist of: | |
Capital Paid In | 329,601 |
Accumulated Net Investment Income (Loss) | 3,164 |
Accumulated Realized Gain (Loss) | (2,475) |
Unrealized Appreciation in Value | |
of Investments Based on Identified Cost - Net | 25,038 |
Net Assets, for 33,070 Shares Outstanding | $355,328 |
Net Asset Value Per Share ($355,328/33,070 shares) | $ 10.74 |
The accompanying notes are an integral part of the financial statements.
Queens Road Large Cap Value Fund |
|
Statement of Operations | |
For the period ending May 31, 2003 | |
Investment Income: |
|
Dividends | $ 5,327 |
Interest | 438 |
Total Investment Income | 5,765 |
Expenses: (Note 3) |
|
Advisory Fees | 2,663 |
Total Expenses | 2,663 |
Less: Advisory fees waived | (2,663) |
Net Investment Income | 5,765 |
Realized and Unrealized Gain (Loss) on Investments: |
|
Realized Gain (Loss) on Investments | (2,475) |
Unrealized Appreciation (Depreciation) on Investments | 25,038 |
Net Realized and Unrealized Gain (Loss) on Investments and Options | 22,563 |
|
|
Net Increase (Decrease) in Net Assets from Operations | $ 28,328 |
|
|
The accompanying notes are an integral part of the financial statements.
Queens Road Large Cap Value Fund |
|
Statement of Changes in Net Assets | |
6/13/2002* | |
to | |
5/31/2003 | |
From Operations: |
|
Net Investment Income | $ 5,765 |
Net Realized Gain (Loss) on Investments | (2,475) |
Net Unrealized Appreciation (Depreciation) | 25,038 |
Increase (Decrease) in Net Assets from Operations | 28,328 |
From Distributions to Shareholders: | |
Net Investment Income | (2,601) |
Net Realized Gain from Security Transactions | 0 |
Change in Net Assets from Distributions | (2,601) |
From Capital Share Transactions: | |
Proceeds From Sale of Shares | 227,000 |
Shares Issued on Reinvestment of Dividends | 2,601 |
Cost of Shares Redeemed | 0 |
Net Increase from Shareholder Activity | 229,601 |
|
|
Net Increase in Net Assets | 255,328 |
|
|
Net Assets at Beginning of Period | 100,000 |
Net Assets at End of Period |
|
(including accumulated undistributed net investment income (loss) of $3,164) | $ 355,328 |
Share Transactions: |
|
Issued | 22,802 |
Reinvested | 268 |
Redeemed | 0 |
Net increase (decrease) in shares | 23,070 |
Shares outstanding beginning of period | 10,000 |
Shares outstanding end of period | 33,070 |
The accompanying notes are an integral part of the financial statements.
Queens Road Large Cap Value Fund |
| |
Financial Highlights | ||
Selected data for a share outstanding throughout the period: | 6/13/2002* | |
to | ||
5/31/2003 | ||
Net Asset Value - |
|
|
Beginning of Period | $10.00 | |
Net Investment Income | 0.19 |
|
Net Gains or Losses on Securities | ||
(realized and unrealized) | 0.64 | |
Total from Investment Operations | 0.83 |
|
Distributions | ||
(from net investment income) | (0.09) |
|
(from capital gains) | 0.00 | |
Total from Distributions | (0.09) |
|
Net Asset Value - | ||
End of Period | $10.74 |
|
Total Return | 8.43% | (a) |
Ratios/Supplemental Data | ||
Net Assets - End of Period (Thousands) | $355 |
|
Net Assets Before Reimbursement |
|
|
Ratio of Expenses to Average Net Assets | 0.95% | (b) |
Ratio of Net Income to Average Net Assets | 1.10% | (b) |
Net Assets After Reimbursement | ||
Ratio of Expenses to Average Net Assets | 0.00% | (b) |
Ratio of Net Income to Average Net Assets | 2.04% | (b) |
Portfolio Turnover Rate | 1.73% | (b) |
(a) For a period of less than one year , total return is not annualized | ||
(b) Annualized | ||
* Commencement of Operations |
The accompanying notes are an integral part of the financial statements.
BRAGG CAPITAL TRUST
QUEENS ROAD LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2003
Note 1. Organization
The Queens Road Large Cap Value Fund (the “Fund”), a managed portfolio of the Bragg Capital Trust, is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management company. The Fund is one of a series of Funds of the Bragg Capital Trust, which also includes the Queens Road Small Cap Value Fund. The Fund’s investment objective is to seek growth of capital. It invests primarily (under normal market conditions, at least 80% of its total assets) in large capitalization (greater than $5 billion market cap at the time of purchase) common stocks which are believed by the Manager to be undervalued and have good prospects for capital appreciation. The Funds’ registration statement was declared effective on June 13, 2002 and operations began on that date.
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security Valuation: Securities, which are traded on any exchange or on the NASDAQ over-the-counter market, are valued at the last quoted sales price. Investments for which have no sale is reported are valued at the last bid price. Short-term obligations having remaining maturities of 60 days or less, are valued at amortized cost. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by and under the direction of the Fund’s Board of Directors.
Federal Income Taxes: The Fund intends to comply with requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its net investment income as dividends to its shareholders. The Fund intends to distribute its net long-term capital gains and its net short-term capital gains at least once a year. Therefore no provision for income taxes is required.
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, and to disclosure contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Other: The Fund follows industry practice and records security transactions on the trade date. The specific identification method is used for determining gains or losses for the financial statement and income tax purposes. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as information is available to the Fund. Interest income is recorded on an accrual basis. Discounts and premiums on securities purchased are amortized over the life of the Fund. Interest income is recorded on an accrual basis. Discounts and premiums on securities purchased are amortized over the life of the respective securities. General accepted accounting principles require that permanent financial reporting tax differences relating to shareholder distributions be reclassified to paid in capital.
Note 3. Investment Advisory Fee and Other Transactions with Affiliates
The Fund retains Bragg Financial Advisors, Inc. (the “Advisor”) as its Investment Advisor. Under the terms of the management agreement, the Advisor provides investment management and administrative services for the Fund. For its services as Advisor, the Fund pays a fee, computed daily and payable monthly at the annual rate of .95% of the Fund’s average daily net asset value. For the time period ended May 31, 2003, the Advisor earned $2,663. From these fees and its own resources the Advisor agrees to pay other operating expenses of the Fund including transfer agent fees, fund accountant fees, registration fees, custodial fees, and other ordinary expenses of the Fund. However the agreement does not require the Advisor to pay interest, taxes, brokerage commissions and extraordinary expenses of the Fund. For the time period ending May 31, 2003, the Advisor waived $2,663 of the management fee.
Certain Trustees and officers of the Trust are “interested persons” (as defined in the Investment Company Act of 1940) of the Trust. Each “non-interested” Trustee is entitled to receive an annual fee of $500 plus expenses for services relating to the Trust.
Note 4. Capital Share Transactions
At May 31, 2003, there were an unlimited number of shares authorized and 33,070 shares outstanding, each with no par value, and capital paid-in amounted to $329,601 for the Fund.
Note 5. Investments
For the time period ended May 31, 2003, the cost of purchases and the proceeds from sales, other than short-term securities, aggregated $333,779 and $4,628, respectively. As of May 31, 2003, the gross unrealized appreciation for all securities totaled $33,886 and the gross unrealized depreciation for all securities totaled $8,848, for an unrealized appreciation of $25,038. The aggregate cost of securities for federal income tax purposes at May 31, 2003 was $329,040.
Note 6. Distributions to Shareholders
During the fiscal year ended May 31, 2003, distributions of $0.09 aggregating $2,601 were declared from net investment income.
The tax character of distributions paid during the fiscal years ended May 31, 2003 and were as follows:
Distributions from: | Large Cap 2003 |
Ordinary Income | $2,601 |
Short-Term Capital Gain | 0 |
Long-Term Capital Gain | 0 |
Return of Capital | 0 |
$2,601 |
As of May 31, 2003 the components of distributable earnings/ (accumulated losses) on a tax basis were as follows:
Undistributed Ordinary income/ (accumulated losses) | $3,164 |
Undistributed capital gain/ (accumulated losses) | (2,475) |
Unrealized appreciation/ (depreciation) | 25,038 |
$25,727 |
There were no differences between book basis and tax-basis unrealized appreciation (depreciation).
Note 7. Capital Loss Carryforwards
At May 31, 2003, the Large Cap Value Fund had available for federal income tax purposes an unused capital loss carryforward of $2,475, which expires in 2011.
.
Note 8. Control
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under section 2 (a) (9) of the Investment Company Act of 1940. As of May 31, 2003, the Bragg family owned over 90% of the Fund.
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and Board of Trustees:
Queens Road Large Cap Value Fund (a series of Bragg Capital Trust)
We have audited the accompanying statement of assets and liabilities of the Queens Road Large Cap Value Fund, including the schedule of portfolio investments, as of May 31, 2003, and the related statement of operations, changes in net assets and financial highlights for the period June 13, 2002 (commencement of operations) through May 31, 2003 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments and cash held by the custodian as of May 31, 2003, by correspondence with the custodian. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Queens Road Large Cap Value Fund (a series of Bragg Capital Trust.) as of May 31, 2003, the results of its operations, changes in net assets and financial highlights for the period June 13, 2002 (commencement of operations) through May 31, 2003 in the period then ended, in conformity with accounting principles generally accepted in the United States.
/s/McCurdy & Associates CPA's, Inc.
Westlake, Ohio
June 14, 2003
Queens Road Small Cap Value
Manager’s Discussion –
The Small Cap Value Fund had an outstanding year. Total Return from inception (6/13/2003) through fiscal year end (5/31/2003) was 9.02% vs. –6.00% for the Russell 2000 Value.
Among our best performing stocks were John B Sanfillipo & Son, a nut processor/distributor and snack food producer; Ansys, a maker of engineering application software; and Monro Muffler Brake, an automobile repair chain. These three very different companies have many similar characteristics. Excellent managements, strong balance sheets, and substantial free cash flow generation are but a few.
Some of our poor performers were the insurance broker Arthur Gallagher; international contract driller Atwood Oceanics; and funeral home operator Stewart Enterprises. These disparate companies share the same qualities as the three strong performers above, excellent managements, strong balance sheets, and substantial free cash flow generation. Specific, short term (we believe) and identifiable issues are hurting these companies. Recent accounting standards changes will have a near term negative impact on Gallagher’s reported earnings, Atwood has some rig contracts coming up, with no replacements yet and Stewart changed accounting principles which clarified some balance sheet issues regarding prepaid funeral trust performance. We view these as “things that happen when you run a business”. Our belief is these three fine managements will guide their companies passed these problems as they have seen them past countless other problems in the past. Of course, we could be wrong (which is why we make sure the portfolio is prudently diversified). I point out these particular companies to illustrate our indifference toward short-term problems and our focus on fundamentally sound businesses that have long term records of creating value. We anticipate over long periods of time all the stocks we own will appreciate in value (we will obviously be wrong in some cases), but we resign ourselves to the fact that in the near term, we can not predict what any individual stock or the overall market will do. We’ll promise to continue to seek out attractive investment opportunities for our funds assets.
Our performance comparison with both the Russell 2000 Value and the Russell 2000 are:
| QRSCV | Russell 2000 Value | Russell 2000 |
December 2002 | -.60% | -4.27% | -5.57% |
January 2003 | -2.29% | -2.82% | -2.77% |
February 2003 | -.32% | -3.36% | -3.02% |
March 2003 | 1.39% | 1.07% | 1.29% |
April 2003 | 7.79% | 9.50% | 9.48% |
May 2003 | 5.47% | 10.21% | 10.73% |
6 Months | 11.59% | 9.66% | 9.33% |
One Year* | 9.02% | -7.49% | -8.18% |
Source: Morningstar Principia Pro
*Fund Operations commenced 6/13/02, for fiscal year 2003 QRSCV performance is 6/13/2002-5/31/2003.
Queens Road Small Cap Value Fund |
|
| |
Schedule of Investments | |||
May 31, 2003 | |||
Shares/Principal Amount |
| Market Value | % of Assets |
COMMON STOCKS |
|
|
|
Aerospace & Defense | |||
79 | Alliant Techsystems, Inc. * | $3,987 | 1.04% |
Apparel Retail |
|
|
|
447 | Cato Corporation "A" | 8,815 | 2.31% |
|
|
|
|
Application Software | |||
488 | ANSYS, Inc. * | 13,952 | 3.65% |
Automobile Manufacturers |
|
|
|
118 | Winnebago Industries | 4,692 | 1.23% |
|
|
|
|
Banks | |||
184 | City National Corporation | 8,280 |
|
336 | First Federal Capital | 6,602 | |
408 | Greater Bay Bancorp | 8,168 |
|
380 | Sterling Bancshares, Inc. | 4,545 | |
423 | Trustco Bank Corp. New York | 4,848 |
|
174 | Wilmington Trust Corp. | 5,046 | |
|
| 37,489 | 9.80% |
Business Services |
|
|
|
520 | Monro Muffler Brake, Inc. * | 13,104 | 3.43% |
|
|
|
|
Casinos & Gambling | |||
538 | Aztar Corporation * | 8,231 | 2.15% |
Communications Equipment |
|
|
|
375 | Plantronics, Inc. * | 8,074 | 2.11% |
|
|
|
|
Construction & Engineering | |||
280 | Instituform Technologies * "A" | 4,522 | 1.18% |
Construction & Farm Machinery |
|
|
|
154 | Oshkosh Truck Corporation | 8,536 | 2.23% |
|
|
|
|
Construction Materials | |||
281 | Florida Rock Industries | 11,951 | 3.13% |
Distillers & Vintners |
|
|
|
335 | Constellation Brands, Inc. * "A" | 9,236 | 2.42% |
|
|
|
|
Electrical Utilities | |||
150 | Black Hills Corp. | 4,507 | 1.18% |
Electronic Components & Equipment |
|
|
|
597 | Deswell Industries | 10,388 | 2.72% |
|
|
|
|
Electronic Equipment & Instruments | |||
114 | Franklin Electric Co. | 6,410 |
|
572 | Raven Industries, Inc. | 11,188 | |
|
| 17,598 | 4.60% |
Fertilizers & Agricultural Chemicals |
|
|
|
513 | American Vanguard Corp. | 9,460 | 2.47% |
|
|
|
|
Footwear | |||
372 | K-Swiss, Inc. Class A | 12,760 | 3.34% |
Gas Utilities |
|
|
|
295 | New Jersey Resources | 10,434 | |
375 | UGI Corp. Holdings | 12,825 |
|
23,259 | 6.08% | ||
Health Care Distributors & Services |
|
|
|
517 | Owens & Minor, Inc. | 10,986 | |
323 | Renal Care Group, Inc. * | 10,976 |
|
21,962 | 5.74% | ||
Home Furnishings |
|
|
|
203 | La-Z-Boy Chair, Co. | 4,447 | 1.15% |
|
|
|
|
Housewares & Specialities | |||
241 | Lancaster Colony Corp. | 9,324 |
|
323 | Libbey, Inc. | 6,945 | |
|
| 16,269 | 4.25% |
Industrial Machinery |
|
|
|
355 | Graco Incorporated | 10,920 | 2.86% |
|
|
|
|
Oil & Gas Drilling | |||
145 | Atwood Oceanics, Inc. * | 4,313 | 1.13% |
Packaged Foods |
|
|
|
533 | John B Sanfilippo & Son * | 8,400 | |
526 | Smithfield Foods, Inc. * | 11,041 |
|
19,441 | 5.08% | ||
|
|
|
|
Personal Services | |||
900 | Stewart Enterprises, Inc. * "A" | 3,780 | 0.99% |
Property & Casualty Insurance |
|
|
|
161 | Arthur J Gallagher & Co. | 4,387 | |
809 | CNA Surety Corporation * | 7,928 |
|
135 | Commerce Group, Inc. | 5,049 | |
226 | Triad Guaranty, Inc. * | 8,656 |
|
26,020 | 6.81% | ||
Real Estate Investment Trusts |
|
|
|
208 | Amli Residential Properties Trust | 4,736 | |
263 | The Macerich Company | 9,074 |
|
177 | Prentiss Properties Trust | 5,108 | |
|
| 18,918 | 4.95% |
Recreational Products |
|
|
|
295 | Russ Berrie & Co. | 10,166 | 2.66% |
|
|
|
|
Restaurants | |||
790 | Ryan's Family Steak House * | 10,136 | 2.65% |
Semiconductors |
|
|
|
291 | DSP Group, Inc. * | 6,772 | |
97 | Parthus, Inc. * | 669 |
|
7,441 | 1.95% | ||
|
|
|
|
Software & Programming | |||
350 | Hummingbird Ltd. * | 7,350 | 1.92% |
Specialty Chemicals |
|
|
|
308 | Lubrizol Corp. | 9,825 | 2.57% |
|
|
|
|
Total for Common Stock ($355,057) | 381,549 | 99.79% | |
|
|
|
|
CASH AND EQUIVALENTS | |||
203 | First American Prime Obligation Fund CL S .60% | 203 | 0.05% |
|
|
|
|
Total Investments | 381,752 | 99.84% | |
| (Identified Cost $ 355,260) |
|
|
| Other Assets Less Liabilities | 611 | 0.16 % |
| |||
| Net Assets | $382,363 | 100.00% |
The accompanying notes are an integral part of the financial statements.
Queens Road Small Cap Value Fund |
|
Statement of Assets and Liabilities | |
May 31, 2003 | |
Assets |
|
Investment Securities at Market Value | $381,752 |
(Identified Cost $ 355,260) | |
Cash | 66 |
Receivables: | |
Dividends and Interest | 545 |
Total Assets | 382,363 |
Liabilities |
|
Total Liabilities | 0 |
Net Assets | $382,363 |
Net Assets Consist of: | |
Capital Paid In | 350,385 |
Accumulated Net Investment Income (Loss) | 2,358 |
Accumulated Realized Gain (Loss) | 3,128 |
Unrealized Appreciation in Value | |
of Investments Based on Identified Cost - Net | 26,492 |
Net Assets, for 35,420 Shares Outstanding | $382,363 |
Net Asset Value Per Share ($382,363/35,420 shares) | $ 10.80 |
The accompanying notes are an integral part of the financial statements.
Queens Road Small Cap Value Fund |
|
Statement of Operations | |
For the period ending May 31, 2003 | |
Investment Income: |
|
Dividends | $ 4,557 |
Interest | 186 |
Total Investment Income | 4,743 |
Expenses: (Note 3) |
|
Advisory Fees | 3,607 |
Total Expenses | 3,607 |
Less: Advisory fees waived | (3,607) |
Net Investment Income | 4,743 |
Realized and Unrealized Gain (Loss) on Investments: |
|
Realized Gain (Loss) on Investments | 3,128 |
Unrealized Appreciation (Depreciation) on Investments | 26,492 |
Net Realized and Unrealized Gain (Loss) on Investments and Options | 29,620 |
|
|
Net Increase (Decrease) in Net Assets from Operations | $ 34,363 |
|
|
The accompanying notes are an integral part of the financial statements.
Queens Road Small Cap Value Fund |
|
Statement of Changes in Net Assets | |
6/13/2002* | |
to | |
5/31/2003 | |
From Operations: |
|
Net Investment Income | $4,743 |
Net Realized Gain (Loss) on Investments | 3,128 |
Net Unrealized Appreciation (Depreciation) | 26,492 |
Increase (Decrease) in Net Assets from Operations | 34,363 |
From Distributions to Shareholders: | |
Net Investment Income | (2,385) |
Net Realized Gain from Security Transactions | 0 |
Change in Net Assets from Distributions | (2,385) |
From Capital Share Transactions: | |
Proceeds From Sale of Shares | 248,000 |
Shares Issued on Reinvestment of Dividends | 2,385 |
Cost of Shares Redeemed | 0 |
Net Increase from Shareholder Activity | 250,385 |
|
|
Net Increase in Net Assets | 282,363 |
|
|
Net Assets at Beginning of Period | 100,000 |
Net Assets at End of Period |
|
(including accumulated undistributed net investment income (loss) of $2,358) | $382,363 |
Share Transactions: |
|
Issued | 25,172 |
Reinvested | 248 |
Redeemed | 0 |
Net increase (decrease) in shares | 25,420 |
Shares outstanding beginning of period | 10,000 |
Shares outstanding end of period | 35,420 |
The accompanying notes are an integral part of the financial statements.
Queens Road Small Cap Value Fund |
| |
Financial Highlights | ||
Selected data for a share outstanding throughout the period: | 6/13/2002* | |
to | ||
5/31/2003 | ||
Net Asset Value - |
|
|
Beginning of Period | $10.00 | |
Net Investment Income | 0.16 |
|
Net Gains or Losses on Securities | ||
(realized and unrealized) | 0.73 | |
Total from Investment Operations | 0.89 |
|
Distributions | ||
(from net investment income) | (0.09) |
|
(from capital gains) | 0.00 | |
Total from Distributions | (0.09) |
|
Net Asset Value - | ||
End of Period | $10.80 |
|
Total Return | 9.02% | (a) |
Ratios/Supplemental Data | ||
Net Assets - End of Period (Thousands) | $382 |
|
Net Assets Before Reimbursement |
|
|
Ratio of Expenses to Average Net Assets | 1.34% | (b) |
Ratio of Net Income to Average Net Assets | 0.42% | (b) |
Net Assets After Reimbursement | ||
Ratio of Expenses to Average Net Assets | 0.00% | (b) |
Ratio of Net Income to Average Net Assets | 1.76% | (b) |
Portfolio Turnover Rate | 13.26% | (b) |
(a) For a period of less than one year , total return is not annualized | ||
(b) Annualized | ||
* Commencement of Operations |
The accompanying notes are an integral part of the financial statements.
BRAGG CAPITAL TRUST
QUEENS ROAD SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2003
Note 1. Organization
The Queens Road Small Cap Value Fund (the “Fund”), a managed portfolio of the Bragg Capital Trust, is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management company. The Fund is one of a series of Funds of the Bragg Capital Trust, which also includes the Queens Road Large Cap Value Fund. The Fund’s investment objective is to seek growth of capital. It invests primarily (under normal market conditions, at least 80% of its total assets) in small capitalization (less than $2 billion market cap at the time of purchase) common stocks which are believed by the Manager to be undervalued and have good prospects for capital appreciation. The Funds’ registration statement was declared effective on June 13, 2002 and operations began on that date.
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security Valuation: Securities, which are traded on any exchange or on the NASDAQ over-the-counter market, are valued at the last quoted sales price. Investments for which have no sale is reported are valued at the last bid price. Short-term obligations having remaining maturities of 60 days or less, are valued at amortized cost. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by and under the direction of the Fund’s Board of Directors.
Federal Income Taxes: The Fund intends to comply with requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its net investment income as dividends to its shareholders. The Fund intends to distribute its net long-term capital gains and its net short-term capital gains at least once a year. Therefore no provision for income taxes is required.
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, and to disclosure contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Other: The Fund follows industry practice and records security transactions on the trade date. The specific identification method is used for determining gains or losses for the financial statement and income tax purposes. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as information is available to the Fund. Interest income is recorded on an accrual basis. Discounts and premiums on securities purchased are amortized over the life of the Fund. Interest income is recorded on an accrual basis. Discounts and premiums on securities purchased are amortized over the life of the respective securities. General accepted accounting principles require that permanent financial reporting tax differences relating to shareholder distributions be reclassified to paid in capital.
Note 3. Investment Advisory Fee and Other Transactions with Affiliates
The Fund retains Bragg Financial Advisors, Inc. (the “Advisor”) as its Investment Advisor. Under the terms of the management agreement, the Advisor provides investment management and administrative services for the Fund. For its services as Advisor, the Fund pays a fee, computed daily and payable monthly at the annual rate of 1.35% of the Fund’s average daily net asset value. For the time period ended May 31, 2003, the Advisor earned $3,607. From these fees and its own resources the Advisor agrees to pay other operating expenses of the Fund including transfer agent fees, fund accountant fees, registration fees, custodial fees, and other ordinary expenses of the Fund. However the agreement does not require the Advisor to pay interest, taxes, brokerage commissions and extraordinary expenses of the Fund. For the time period ending May 31, 2003, the Advisor waived $3,607 of the management fee.
Certain Directors and officers of the Corporation are “interested persons” (as defined in the Investment Company Act of 1940) of the Corporation. Each “non-interested” Director is entitled to receive an annual fee of $500 plus expenses for services relating to the Corporation.
Note 4. Capital Share Transactions
At May 31, 2003, there were an unlimited number of shares authorized and 35,420 shares outstanding, each with no par value, and capital paid-in amounted to $350,385 for the Fund.
Note 5. Investments
For the time period ended May 31, 2003, the cost of purchases and the proceeds from sales, other than short-term securities, aggregated $387,807 and $35,877, respectively. As of May 31, 2003, the gross unrealized appreciation for all securities totaled $46,369 and the gross unrealized depreciation for all securities totaled $19,877 for an unrealized appreciation of $26,492. The aggregate cost of securities for federal income tax purposes at May 31, 2003 was $355,260.
Note 6. Distributions to Shareholders
During the fiscal year ended May 31, 2003, distributions of $0.09 aggregating $2,385 were declared from net investment income.
The tax character of distributions paid during the fiscal years ended May 31, 2003 and were as follows:
Distributions from: | Small Cap 2003 |
Ordinary Income | $2,385 |
Short-Term Capital Gain | 0 |
Long-Term Capital Gain | 0 |
Return of Capital | 0 |
$2,385 |
As of May 31, 2003 the components of distributable earnings/ (accumulated losses) on a tax basis were as follows:
Undistributed Ordinary income/ (accumulated losses) | $2,358 |
Undistributed capital gain/ (accumulated losses) | 3,128 |
Unrealized appreciation/ (depreciation) | 26,492 |
$31,978 |
There were no differences between book basis and tax-basis unrealized appreciation (depreciation).
Note 7. Control
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under section 2 (a) (9) of the Investment Company Act of 1940. As of May 31, 2003, the Bragg family owned over 78% of the Fund.
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and Board of Trustees:
Queens Road Small Cap Value Fund (a series of Bragg Capital Trust)
We have audited the accompanying statement of assets and liabilities of the Queens Road Small Cap Value Fund, including the schedule of portfolio investments, as of May 31, 2003, and the related statement of operations, changes in net assets and financial highlights for the period June 13, 2002 (commencement of operations) through May 31, 2003 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments and cash held by the custodian as of May 31, 2003, by correspondence with the custodian. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Queens Road Small Cap Value Fund (a series of Bragg Capital Trust.) as of May 31, 2003, the results of its operations, changes in net assets and financial highlights for the period June 13, 2002 (commencement of operations) through May 31, 2003 in the period then ended, in conformity with accounting principles generally accepted in the United States.
/s/McCurdy & Associates CPA's, Inc.
Westlake, Ohio
June 14, 2003
Board of Trustees
Benton Bragg
Steve Scruggs
Phil Blount
Tim Ignasher
Chris Brady
Harold Smith
Investment Adviser
Bragg Financial Advisors, Inc.
100 Queens Road
Charlotte, NC 28204
Dividend Paying Agent,
Shareholders’ Servicing Agent,
Transfer Agent
Mutual Shareholder Services
8869 Brecksville Rd, Suite C
Brecksville, Ohio 44141
Custodian
US Bank, NA
425 Walnut Street
P.O. Box 1118
Cincinnati, OH 45201
Independent Auditors
McCurdy & Associates CPA’s, Inc.
27955 Clemens Rd
Westlake, Ohio 44145
Shares of the Queens Road Large Cap Value and Queens Road Small Cap Value Fund are distributed by Queens Road Securities, L.L.C, an affiliate of the Investment Adviser. This report has been prepared for the general information of the shareholders. It is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. The Funds’ prospectus contains more complete information about the objectives, policies, expenses and risks of the Funds. Please read the prospectus carefully before investing or sending money.
Bragg Capital Trust
Trustee Information
May 31, 2003 (Unaudited)
Interested Trustees Name (Age) | Position with Fund | Term of Office and Length of Time Served | Principal Occupations During Past Five Years |
Steve Scruggs, 34 | Trustee, President Secretary | Unlimited 1 yr | Bragg Financial Advisors, Portfolio Manager/Analyst (2000- present) Reliance Insurance Product Manager(1999-2000); Integon Insurance Product Manager (1995-1999) |
Benton Bragg, 35 | Trustee, Chairman Treasurer | Unlimited 1 yr | Bragg Financial Advisors, President, CEO (1996-present) |
Unaffiliated Trustees | |||
Phil Blount, 49 | Trustee | Unlimited 1 yr | Icons, Inc., President (2001- present) Marketing Merchandise Halo, Inc., Vice President (1996-2001) Marketing Merchandise |
Chris Brady, 33 | Trustee | Unlimited 1 yr | Brady Distributing, Vice President (1995-present) Machinery Distribution |
Harold Smith, 37 | Trustee | Unlimited 1 yr | Raftelis Financial, Vice President (1996 – present) Public Finance Consulting |
Tim Ignasher, 41 | Trustee | Unlimited 1 yr | Scottish Bank, Vice President (1998 – present) Commercial Loan Officer |
All Trustees may be reached by mail, care of the Funds, at:
Queens Road Mutual Funds
100 Queens Road
Charlotte, NC 28204
The Statement of Additional Information has additional information about the Trustees and is available at without charge upon request by calling (440) 922-0066 (collect).
Item 2. Code of Ethics. Not applicable.
Item 3. Audit Committee Financial Expert. Not applicable.
Item 4. Principal Accountant Fees and Services. Not applicable.
Item 5. Audit Committee of Listed Companies. Not applicable.
Item 6. Reserved.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds. Not applicable.
Item 8. Reserved.
Item 9. Controls and Procedures.
(a)
Not applicable.
(b)
There were no significant changes in the registrant’s internal controls or in other factors that could affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 10. Exhibits.
(a) Not applicable.
(b) Certifications required by Item 10(b) of Form N-CSR are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Bragg Capital Trust
By /s/Steven Scruggs President
*Steven Scruggs President
Date August, 8 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/Steven Scruggs President
*Steven Scruggs President
Date August, 8 2003
By /s/Benton Bragg Treasurer
*Benton Bragg Treasurer
Date August 8, 2003
* Print the name and title of each signing officer under his or her signature.