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)
1031 South Caldwell Street, Suite 200 Charlotte, NC 28203
(Address of principal executive offices)(Zip code)
1031 South Caldwell Street, Suite 200 Charlotte, NC 28203
(Name and address of agent for service)
Registrant's telephone number, including area code: 704-714-7711
Date of fiscal year end:
May 31
Date of reporting period:
May 31, 2010
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-CSRS 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-CSRS 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 Small Cap Value Fund
Queens Road Value Fund
Each a series of the
Bragg Capital Trust
May 31, 2010
QUEENS ROAD FUNDS
SHAREHOLDER LETTER
May 31, 2010 (UNAUDITED)
Dear Fellow Shareholders:
For the fiscal year ending May 31, 2010, the Queens Road Value Fund returned 18.64% and the Queens Road Small Cap Value Fund returned 27.47% (see each fund’s section below for more detailed performance information).
Stocks have continued their strong run from the March 2009 lows. When the rally began, stocks appeared remarkably undervalued. Today valuations appear reasonable and earnings growth has been robust as the economy improves. Companies continue to maintain strong cash positions and post earnings numbers that, in general, beat analysts’ estimates.
However, there are some headwinds facing the economy that may make future earnings growth more difficult to achieve. Continued high unemployment and the resulting lack of growth in consumer spending are major obstacles. Slack consumer demand and the uncertainty created by new health care reform (the Patient Protection and Affordable Care Act) and financial regulatory reform (Wall Street Reform and Consumer Protection Act) are causing many companies to proceed slowly in hiring new permanent full time employees as we emerge from recession. Scheduled tax increases for 2011 due to the expiration of the “Bush Tax Cuts” could prove yet another obstacle endangering earnings growth. While the increase in tax rates should help our woeful fiscal situation, the increases will take more money out of consumers’ pockets and will not be available for individuals to spend or invest.
Lastly, regulatory loopholes and abnormally low interest rates are masking a lot of problems in the banking/finance sector. In our opinion the current shape of the interest rate yield curve is due more to government intervention than to market forces. We acknowledge that though this is necessary in the near term, it clouds the true picture of our financial system and the economy in general.
We could fill our days worrying about these concerns, but instead we continue to look for healthy, profitable businesses trading at attractive valuations. The headwinds will probably make earnings growth more difficult, but we’re confident that well-managed businesses in attractive industries will be able to expand even in this difficult economic environment. While the challenges are great, when we look back to where we were in the autumn of 2008, we are glad to be where we are now, gaining jobs and heading in the right direction albeit slowly.
As always, we appreciate your investment in the Queens Road Funds.
Sincerely,
Steve Scruggs, CFA
Benton Bragg, CFA
President, Portfolio Manager
Chairman
QUEENS ROAD VALUE FUND
PERFORMANCE
May 31, 2010 (UNAUDITED)
The Queens Road Value Fund achieved a total return of 18.64% for the fiscal year ending 5/31/2010. Our primary benchmark, the S&P 500/Citi Value Index, was up 22.86% and the S&P 500 was up 20.99%.
Among the best-performing stocks in our portfolio were imaging company Lexmark International, media giant CBS, and diversified industrial manufacturer Ingersoll Rand. Energy giant Exxon Mobil and custody bank State Street Corp. were two of our worst-performing investments.
The chart below shows the Fund’s performance for the fiscal year ended 5/31/2010, along with the returns for the S&P 500/Citi Value Index and the Standard and Poor’s 500 Index. We try to outperform the index through security selection, investing only in those companies we believe are trading at attractive valuations and have the best prospects for long-term performance.
| QRVLX | S&P 500/Citi Value | S&P 500 |
June 2009 | 0.78% | -0.50% | 0.20% |
July 2009 | 5.42% | 8.42% | 7.56% |
August 2009 | 3.94% | 5.45% | 3.61% |
September 2009 | 3.53% | 3.16% | 3.73% |
October 2009 | -1.53% | -3.62% | -1.86% |
November 2009 | 4.24% | 6.26% | 6.00% |
December 2009 | 3.62% | 1.76% | 1.93% |
January 2010 | -3.08% | -2.02% | -3.60% |
February 2010 | 2.09% | 2.75% | 3.10% |
March 2010 | 3.85% | 6.37% | 6.03% |
April 2010 | 1.58% | 1.88% | 1.58% |
May 2010 | -6.52% | -7.92% | -7.99% |
One Year | 18.64% | 22.86% | 20.99% |
QUEENS ROAD VALUE FUND
PERFORMANCE ILLUSTRATION
May 31, 2010 (UNAUDITED)
Cumulative Performance Comparison $10,000 Investment Since Inception*
* The Queens Road Value Fund commenced operations on June 13, 2002. Past performance is not predictive of future performance. The value of shares will fluctuate and will be worth more or less than their original cost at the time of redemption.
QUEENS ROAD VALUE FUND
GRAPHICAL ILLUSTRATION
May 31, 2010 (UNAUDITED)
The following chart gives a visual breakdown of the Fund by the industry sectors the underlying securities represent as a percentage of the portfolio of investments.
Shares | Value | |
COMMON STOCKS - 85.64% | ||
Aerospace & Defense - 1.36% | ||
3,600 | United Technologies Corp. | $ 242,568 |
Alternative Carriers - 0.90% | ||
5,166 | Time Warner, Inc. | 160,094 |
Apparel & Accessories - 1.52% | ||
3,500 | V.F. Corp. | 270,725 |
Beverages - 1.34% | ||
4,287 | Brown Forman Corp. | 237,757 |
Banks - 0.27% | ||
2,000 | US Bancorp | 47,920 |
Broadcasting & Cable TV - 3.94% | ||
35,490 | CBS Corp. Class-B | 516,735 |
8,800 | Dish Network Corp. Class-A | 183,480 |
700,215 | ||
Computer Communications Equipment - 1.30% | ||
10,000 | Cisco Systems Inc. * | 231,600 |
Computer Hardware - 5.26% | ||
20,000 | Dell Inc. * | 266,600 |
5,000 | Hewlett-Packard Co. | 230,050 |
3,500 | International Business Machine, Inc. | 438,410 |
935,060 | ||
Computer Storage & Peripherals - 4.15% | ||
20,000 | EMC Corporation * | 372,400 |
4,600 | Lexmark International Group * | 172,730 |
12,500 | Seagate Technology * | 192,000 |
737,130 |
* Non-income producing security during the period.
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
Electric Utilites - 3.46% | ||
10,900 | Duke Energy Corp. | $ 173,964 |
7,700 | Progress Energy, Inc. | 297,143 |
4,400 | Southern Co. | 143,880 |
614,987 | ||
Environmental Services - 1.28% | ||
7,000 | Waste Management, Inc. | 227,570 |
Finance Services - 1.79% | ||
8,000 | American Express Co. | 318,960 |
Financials-Asset Management & Custody Banks - 3.44% | ||
7,000 | Bank of New York Co. Inc. | 190,400 |
3,900 | T. Rowe Price Group, Inc. | 193,128 |
6,000 | State Street Corp. | 229,020 |
612,548 | ||
Food & Kindred Products - 1.62% | ||
4,000 | Kraft Foods Inc. | 114,400 |
6,400 | Unilever PLC | 173,056 |
287,456 | ||
Healthcare Distributors & Services - 1.24% | ||
4,300 | WellPoint, Inc. * | 220,590 |
Healthcare Facilities - 1.43% | ||
6,500 | Community Health Systems * | 253,370 |
Household Products - 3.80% | ||
5,900 | Clorox Co. | 370,638 |
5,000 | Procter & Gamble Co. | 305,450 |
676,088 | ||
Housewares & Specialties - 1.70% | ||
6,380 | Fortune Brands, Inc. | 302,731 |
* Non-income producing security during the period.
PLC - Public Limited Company
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
Industrial Conglomerates - 2.62% | ||
3,162 | Covidien Ltd. | $ 134,037 |
9,162 | Tyco International Ltd. | 331,573 |
465,610 | ||
Industrial Instruments For Measurement, Display And Control - 0.51% | ||
1,150 | Danaher Corp. | 91,287 |
Industrial Machinery - 1.09% | ||
5,200 | Ingersoll-Rand Co. Ltd. | 194,012 |
Insurance Brokers - 0.68% | ||
5,500 | Marsh & McLennan Companies, Inc. | 119,955 |
Integrated Oil & Gas - 1.60% | ||
4,700 | Exxon Mobil Corp. | 284,162 |
Integrated Telecommunication Services - 4.31% | ||
11,100 | AT&T, Inc. | 269,730 |
6,000 | CenturyTel, Inc. | 205,980 |
27,333 | Windstream Corp. | 291,643 |
767,353 | ||
Internet Software & Services - 3.22% | ||
16,000 | Intel Corp. | 342,720 |
15,000 | Yahoo! Inc. * | 230,100 |
572,820 | ||
Leisure Products - 1.29% | ||
5,700 | Hasbro, Inc. | 228,855 |
Movies & Entertainment - 4.97% | ||
11,500 | Microsoft Corp. | 296,700 |
44,500 | News Corp. Class-A * | 587,400 |
884,100 | ||
Multi-Sector Holdings - 2.32% | ||
18,800 | Leucadia National Corp. * | 412,096 |
* Non-income producing security during the period.
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
National Commercial Banks - 2.00% | ||
9,000 | JPMorgan Chase & Co. | $ 356,220 |
Pharmaceuticals - 7.17% | ||
9,000 | Glaxosmithkline, PLC ADR | 301,140 |
5,050 | Johnson & Johnson | 294,415 |
13,820 | Merck & Co., Inc. | 465,596 |
14,000 | Pfizer, Inc. | 213,220 |
1,274,371 | ||
Property & Casualty Insurance - 4.74% | ||
2 | Berkshire Hathaway Inc. Class A * | 211,820 |
21,400 | Progressive Corp. | 419,226 |
4,300 | Travelers Companies, Inc. | 212,721 |
843,767 | ||
Publishing & Printing - 0.73% | ||
3,300 | John Wiley & Sons, Inc. Class-A | 130,680 |
Reinsurance - 1.25% | ||
4,100 | RenaissanceRe Holdings Ltd. | 221,646 |
Restaurants - 1.59% | ||
4,225 | McDonalds Corp. | 282,526 |
Services-Electronic Information - 2.36% | ||
11,900 | Thomson Reuters Corp. | 420,189 |
Surgical & Medical Instruments & Apparatus - 2.27% | ||
5,100 | 3M Co. | 404,481 |
Systems Software - 1.12% | ||
14,000 | Symantec Corp. * | 198,380 |
TOTAL FOR COMMON STOCKS (Cost $14,438,572) - 85.64% | $15,229,878 |
* Non-income producing security during the period.
ADR - American Depository Receipt
PLC - Public Limited Company
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
EXCHANGE TRADED FUND - 2.67% | ||
Gold & Silver Ores - 2.67% | ||
4,000 | iShares Comex Gold * (Cost $394,359) | $ 475,560 |
SHORT TERM INVESTMENTS - 11.55% | ||
2,053,140 | AIM Short Term Investment Company Prime Portfolio 0.18% ** (Cost $2,053,140) | 2,053,140 |
TOTAL INVESTMENTS (Cost $16,886,071) - 99.86% | 17,758,578 | |
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.14% | 24,157 | |
NET ASSETS - 100.00% | $17,782,735 |
* Non-income producing security during the period.
** Variable rate security; the coupon rate shown represents the yield at May 31, 2010.
The accompanying notes are an integral part of these financial statements.
Assets: | ||
Investments, at Value (Cost $16,886,071) | $17,758,578 | |
Receivables: | ||
Dividends and Interest | 38,868 | |
Total Assets | 17,797,446 | |
Liabilities: | ||
Accrued Management Fees (Note 3) | 14,711 | |
Total Liabilities | 14,711 | |
Net Assets | $17,782,735 | |
Net Assets Consist of: | ||
Paid In Capital | 18,704,932 | |
Accumulated Undistributed Net Investment Income | 72,131 | |
Accumulated Undistributed Realized Loss on Investments | (1,866,835) | |
Unrealized Appreciation in Value of Investments | 872,507 | |
Net Assets, for 1,475,921 Shares Outstanding (Unlimited number | ||
of shares authorized with a par value of $0.001) | $17,782,735 | |
Net Asset Value, Offering and Redemption Price Per Share ($17,782,735/1,475,921) | $ 12.05 |
The accompanying notes are an integral part of these financial statements.
Investment Income: | ||
Dividends (net of foreign witholding taxes of $496) | $ 325,336 | |
Interest | 3,434 | |
Total Investment Income | 328,770 | |
Expenses: | ||
Advisory Fees (Note 3) | 154,036 | |
Total Expenses | 154,036 | |
Net Investment Income | 174,734 | |
Realized and Unrealized Gain/(Loss) on Investments: | ||
Realized Loss on Investments | (1,219) | |
Net Change in Unrealized Appreciation on Investments | 2,244,357 | |
Net Realized and Unrealized Gain/(Loss) on Investments | 2,243,138 | |
Net Increase in Net Assets Resulting from Operations | $ 2,417,872 |
The accompanying notes are an integral part of these financial statements
Year | Year | ||
Ended | Ended | ||
5/31/2010 | 5/31/2009 | ||
Increase (Decrease) in Net Assets From Operations: | |||
Net Investment Income | $ 174,734 | $ 189,864 | |
Net Realized Gain/(Loss) on Investments | (1,219) | (1,712,893) | |
Net Change in Unrealized Appreciation/ (Depreciation) on Investments | 2,244,357 | (2,045,399) | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | 2,417,872 | (3,568,428) | |
Distributions to Shareholders From: | |||
Net Investment Income | (174,854) | (187,792) | |
Realized Gains | - | (199) | |
Net Change in Net Assets from Distributions | (174,854) | (187,991) | |
Capital Share Transactions: | |||
Proceeds from Sale of Shares | 4,757,991 | 5,676,262 | |
Shares Issued on Reinvestment of Dividends | 112,260 | 94,784 | |
Cost of Shares Redeemed | (1,754,299) | (1,114,743) | |
Net Increase in Net Assets from Shareholder Activity | 3,115,952 | 4,656,303 | |
Net Assets: | |||
Net Increase in Net Assets | 5,358,970 | 899,884 | |
Beginning of Period | 12,423,765 | 11,523,881 | |
End of Period (Including Accumulated Undistributed Net Investment Income of $72,131 and $73,659, Respectively) | |||
$17,782,735 | $12,423,765 | ||
Share Transactions: | |||
Shares Sold | 401,912 | 554,655 | |
Shares Issued on Reinvestment of Dividends | 9,031 | 9,564 | |
Shares Redeemed | (145,716) | (115,238) | |
Net Increase in Shares | 265,227 | 448,981 | |
Outstanding at Beginning of Period | 1,210,694 | 761,713 | |
Outstanding at End of Period | 1,475,921 | 1,210,694 |
The accompanying notes are an integral part of these financial statements.
For the Years Ended | |||||||
5/31/ 2010 | 5/31/ 2009 | 5/31/ 2008 | 5/31/ 2007 | 5/31/ 2006 | |||
Net Asset Value, at Beginning of Period | $10.26 | $15.13 | $ 16.65 | $14.17 | $13.00 | ||
Income From Investment Operations: | |||||||
Net Investment Income * | 0.13 | 0.20 | 0.27 | 0.33 | 0.15 | ||
Net Gain (Loss) on Securities (Realized and Unrealized) | 1.79 | (4.88) | (1.30) | 2.46 | 1.15 | ||
Total from Investment Operations | 1.92 | (4.68) | (1.03) | 2.79 | 1.30 | ||
Distributions from: | |||||||
Net Investment Income | (0.13) | (0.19) | (0.27) | (0.21) | (0.05) | ||
Capital Gains | - | - | *** | (0.22) | (0.10) | (0.08) | |
Total Distributions | (0.13) | (0.19) | (0.49) | (0.31) | (0.13) | ||
Net Asset Value, at End of Period | $12.05 | $10.26 | $ 15.13 | $16.65 | $14.17 | ||
Total Return ** | 18.64% | (30.90)% | (6.34)% | 19.83% | 10.03% | ||
Ratios/Supplemental Data: | |||||||
Net Assets at End of Period (Thousands) | $17,783 | $12,424 | $11,524 | $9,730 | $4,946 | ||
Ratio of Expenses to Average Net Assets | 0.95% | 0.95% | 0.95% | 0.95% | 0.95% | ||
Ratio of Net Investment Income to Average Net Assets | 1.08% | 1.83% | 1.75% | 2.12% | 1.05% | ||
Portfolio Turnover | 6.39% | 37.64% | 14.05% | 8.66% | 6.54% |
* Net Investment Income per share amounts were calculated using the average share method.
** Total return in the above table represents the rate that the investor would have earned or lost on
an investment in the fund assuming reinvestment of dividends.
*** Amount is less than $0.005
The accompanying notes are an integral part of these financial statements.
QUEENS ROAD VALUE FUND
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2010
Note 1. Organization
The Queens Road Value Fund (the “Fund”), a managed portfolio of the Bragg Capital Trust (the “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 in common stocks which are believed by the Advisor to be undervalued and have good prospects for capital appreciation. The Fund’s 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 accounting policies followed by the Fund in the preparation of its financial statements.
Federal Income Taxes: The Fund’s policy is to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no provision for income taxes is required. The Fund intends to distribute its net long-term capital gains and its net short-term capital gains at least once a year.
As of and during the year ended May 31, 2010, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to recognized tax benefits as income tax expense on the statement of operations. During the year, the Fund did not incur any interest or penalties. The Fund is not subject to examination by the U.S. federal tax authorities for the tax years before 2006.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. 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 financial statement and income tax purposes. Dividend income is
QUEENS ROAD VALUE FUND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2010
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 respective securities.
Distributions to shareholders: Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. The treatment for financial reporting purposes of distributions made to shareholders during the year from net investment income or net realized capital gains may differ from their ultimate treatment for federal income taxes purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expense or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of the net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value per share of the Fund. For the year ended May 31, 2010 the Fund re classified $1,408 from accumulated net investment income to accumulated undistributed realized loss on investments.
Security Valuation: Securities, including common stocks and exchange traded funds, which are traded on a national securities exchange or on the NASDAQ over-the-counter market, are valued at the last quoted sales price, and generally classified as a Level 1 investment. Investments in mutual funds, including money market funds, are valued at the ending net asset value provided by the funds, and generally classified as a Level 1 investment. If there are no sales reported the Fund’s portfolio securities will be valued using the last reported bid price. Short-term obligations having remaining maturities of 60 days or less are valued at amortized cost, and generally classified as a Level 2 investment. 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 Trust’s Board of Trustees, and generally classified as a Level 3 i nvestment.
In accordance with GAAP, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP also establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-tier hierarchy of inputs is summarized below.
| • |
| Level 1 – quoted prices in active markets for identical investments |
| • |
| Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • |
| Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of May 31, 2010:
Assets (b) | Level 1 | Level 2 | Level 3 | Total |
Common Stocks | $15,229,878 | - | - | $15,229,878 |
Exchange Traded Fund | 475,560 | 475,560 | ||
Short-Term Investments | 2,053,140 | - | - | 2,053,140 |
Total | $17,758,578 | - | - | $17,758,578 |
(b) Refer to the Fund’s Schedule of Investments for a listing of securities by security type and industry.
The Fund did not hold any Level 3 assets during the year ended May 31, 2010.
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 0.95% of the Fund’s average daily net asset value. For the year ended May 31, 2010, the Advisor earned $154,036. From these fees and its own resources the Advisor agreed 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. The amount due to the Advisor at May 31, 2010, is $14,711.
Certain Trustees and officers of the Advisor and Trust are also “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 $1,000 plus expenses for services relating to the Trust which is paid by the Advisor.
Queens Road Securities (“QRS”) acts as the principal underwriter in the continuous public offering of the Fund’s shares. Certain officers of the Trust are also officers of QRS. QRS did not receive or waive any brokerage fees on executions of purchases and sales of the Fund’s portfolio investments during the year ended May 31, 2010.
Note 4. Capital Stock
At May 31, 2010, there were an unlimited number of shares authorized and 1,475,921 shares outstanding, each with a par value of $0.001, and paid-in capital amounted to $18,704,932 for the Fund.
Note 5. Investment Transactions
For the year ended May 31, 2010, the cost of purchases and the proceeds from sales, other than short-term securities, aggregated $4,591,616 and $849,154, respectively.
Note 6. Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended May 31, 2009, and May 31, 2010 was as follows:
Distributions paid from: | May 31, 2010 | May 31, 2009 |
Ordinary Income | $174,854 | $187,792 |
Short-Term Capital Gain | - | - |
Long-Term Capital Gain | - | 199 |
$174,854 | $187,991 |
As of May 31, 2010, the components of distributable earnings on a tax basis were as follows:
Undistributed Ordinary Income | $ 72,131 |
Undistributed Capital Losses | (1,847,727) |
Unrealized Appreciation | 853,399 |
Net Total | $ (922,197) |
At May 31, 2010, the composition of unrealized appreciation (excess of value over tax cost) and depreciation (the excess of tax cost over value) on a tax basis was as follows:
Appreciation | Depreciation | Net Appreciation (Depreciation) |
$1,790,597 | $(937,198) | $853,399 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) at May 31, 2010, resulted from the deferral of Post-October losses of $11,887 and wash sales of $8,635, and adjustments from a grantor trust held of $(1,414).
The aggregate cost of securities for federal income tax purposes at May 31, 2010, was $16,905,179.
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, 2010, Pershing, LLC., for the benefit of its customers, owned 98.28% of the Fund.
Note 8. Capital Loss Carryforwards
At May 31, 2010, the Fund had available for federal tax purposes an unused capital loss carryforward of $1,847,727, of which $639,656 expires in 2017 and $1,208,071 expires in 2018. To the extent that these carryforwards are used to offset future capital gains, it is possible that the amount which is offset will not be distributed to shareholders.
QUEENS ROAD VALUE FUND
AUDIT OPINION
To The Shareholders and Board of Trustees of
Bragg Capital Trust
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Bragg Capital Trust (the “Funds”), comprising the Queens Road Value Fund and the Queens Road Small Cap Value Fund, as of May 31, 2010, and the related statements 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 Fund 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 2010 by correspondence with the custodian and broker. 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 referred to above present fairly, in all material respects, the financial position of each of the funds constituting the Bragg Capital Trust, as of May 31, 2010, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
COHEN FUND AUDIT SERVICES, LTD.
Westlake, Ohio
August 11, 2010
QUEENS ROAD VALUE FUND
EXPENSE ILLUSTRATION
May 31, 2010 (UNAUDITED)
ABOUT YOUR FUND’S EXPENSES
Expense Example
As a shareholder of the Queens Road Value Fund, you incur ongoing costs which typically consist of management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, December 1, 2009 through May 31, 2010.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in this Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Beginning Account Value | Ending Account Value | Expenses Paid During the Period * | |
December 1, 2009 | May 31, 2010 | December 1,2009 to May 31, 2010 | |
Actual | $1,000.00 | $1,011.00 | $4.76 |
Hypothetical (5% Annual Return before | |||
expenses) | $1,000.00 | $1,020.19 | $4.78 |
* Expenses are equal to the Fund's annualized expense ratio of 0.95%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). |
QUEENS ROAD VALUE FUND
ADDITIONAL INORMATION
May 31, 2010 (UNAUDITED)
Proxy Voting - A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies during the most recent 12 month period, are available without charge upon request by (1) calling the Fund at (800) 595-3088 and (2) from Fund documents filed with the Securities and Exchange Commission ("SEC") on the SEC's website at www.sec.gov.
Portfolio Holdings - The Fund files a complete schedule of investments with the SEC for the first and third quarter of each fiscal year on Form N-Q. The Fund’s first and third fiscal quarters end on August 31 and February 28. The Form N-Q filing must be made within 60 days of the end of the quarter, and the Fund’s first Form N-Q was filed with the SEC on October 8, 2004. The Fund’s Forms N-Q are available on the SEC’s website at http://sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC (call 1-800-732-0330 for information on the operation of the Public Reference Room). You may also obtain copies by calling the Fund at 1-800-595-3088.
QUEENS ROAD VALUE FUND
TRUSTEES INFORMATION
May 31, 2010 (UNAUDITED)
Interested Trustees
Name (Age) | Position with Fund | Term of Office and Length of Time Served | Principal Occupations During Past Five Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held By Trustee |
Steve Scruggs, 41 | Trustee, President Secretary | Unlimited; 7 years | Bragg Financial Advisors, Portfolio Manager/CCO (2000- present) Reliance Insurance, Product Manager(1999-2000) | Two | None |
Benton Bragg, 42 | Trustee, Chairman Treasurer | Unlimited; 7 years | Bragg Financial Advisors, President, CEO (1996-present) | Two | None |
Name (Age) | Position with Fund | Term of Office and Length of Time Served | Principal Occupations During Past Five Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held By Trustee |
Independent Trustees |
|
|
|
| |
Philip Blount, 55 2 | Trustee | Unlimited; 7 years | Icons, Inc., President (2001- present) Marketing Merchandise Halo, Inc., Vice President (1996-2001) Marketing Merchandise | Two | None |
Christopher Brady, 401,2 | Trustee | Unlimited; 7 years | Resort Capital Partners, Vice President (2009-Present) Hospitality Financial Advisory Brady Distributing, Vice President (1995-2009) Machinery Distribution | Two | None |
Harold Smith, 452 | Trustee | Unlimited; 7 years | Raftelis Financial, Vice President (1996 – present) Public Finance Consulting | Two | None |
Timothy Ignasher, 491 | Trustee | Unlimited; 7 years | Citizens South Bank, Exec Vice President (2008 – Present) Colony Signature Bank, Exec. Vice President (2007-2008) Scottish Bank, Vice President (1998 – 2007) Commercial Loan Officer | Two | None |
Steve Scruggs and Benton Bragg are Interested Trustees of the Funds (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940) by reason of their affiliation with the Funds’ adviser, Bragg Financial Advisers, Inc. and their affiliation as registered principals with the Funds’ underwriter, Queens Road Securities, LLC. Benton Bragg and Steve Scruggs are brothers-in-law.
(1) Member of the Audit Committee of the Board of Trustees, which makes recommendations regarding the selection of the Fund’s independent public accountant and meets with representatives of the accountants to determine the scope of and review the results of each audit.
(2) Member of the Nominating Committee of the Board of Trustees, which identifies qualified candidates and recommends nominees for the election as Trustees.
QUEENS ROAD SMALL CAP VALUE FUND
PERFORMANCE
May 31, 2010 (UNAUDITED)
For the twelve-month period ending 5/31/2010, the total return for the Queens Road Small Cap Value Fund was 27.47%. This compares with returns of 36.60% for the Russell 2000 Value Index and 33.62% for the Russell 2000 Index.
The Fund’s best performers for the year were Valassis Communications, Oshkosh Corp., and Delta Apparel. Among our worst performing investments were grocery retailer Arden Group, insurer Hilltop Holdings and sugar processor Imperial Sugar. Over the course of the year we held more cash than normal, which caused a drag on performance.
Below is our month-by-month performance comparison with both the Russell 2000 Value Index and the Russell 2000 Index.
| QRSVX | Russell 2000 Value | Russell 2000 |
June 2009 | 1.08% | -0.32% | 1.47% |
July 2009 | 9.94% | 11.56% | 9.63% |
August 2009 | 0.97% | 4.73% | 2.87% |
September 2009 | 3.52% | 5.02% | 5.77% |
October 2009 | -2.35% | -6.64% | -6.79% |
November 2009 | 1.64% | 3.18% | 3.14% |
December 2009 | 5.04% | 7.57% | 8.05% |
January 2010 | -2.07% | -2.93% | -3.68% |
February 2010 | 2.90% | 4.64% | 4.50% |
March 2010 | 5.23% | 8.32% | 8.14% |
April 2010 | 4.53% | 7.00% | 5.66% |
May 2010 | -5.02% | -8.45% | -7.59% |
One Year | 27.47% | 36.60% | 33.62% |
QUEENS ROAD SMALL CAP VALUE FUND
PERFORMANCE ILLUSTRATION
May 31, 2010 (UNAUDITED)
Cumulative Performance Comparison $10,000 Investment Since Inception*
* The Queens Road Small Cap Value Fund commenced operations on June 13, 2002. Past performance is not predictive of future performance. The value of shares will fluctuate and will be worth more or less than their original cost at the time of redemption.
QUEENS ROAD SMALL CAP VALUE FUND
GRAPHICAL ILLUSTRATION
May 31, 2010 (UNAUDITED)
The following chart gives a visual breakdown of the Fund by the industry sectors the underlying securities represent as a percentage of the portfolio of investments.
.
Shares | Value | |
COMMON STOCKS - 74.65% | ||
Aircraft Parts & Auxiliary Equipment - 0.59% | ||
11,200 | Ducommun, Inc. | $ 221,424 |
Application Software - 1.81% | ||
72,900 | Epicor Software Corporation * | 677,970 |
Auto Parts & Equipment - 1.39% | ||
27,769 | ATC Technology Corp. * | 519,280 |
Computer Peripheral Equipment, NEC - 1.82% | ||
58,300 | Imation Corp. * | 599,324 |
8,700 | Radisys Corporation * | 81,606 |
680,930 | ||
Construction & Farm Machinery - 0.73% | ||
7,626 | Oshkosh Corp. * | 270,952 |
Crude Petroleum & Natural Gas - 0.56% | ||
38,900 | Vaalco Energy, Inc. * | 207,726 |
Data Processing Services - 1.06% | ||
27,200 | Total System Services Inc. | 397,120 |
Electric Utilites - 1.17% | ||
12,350 | MGE Energy, Inc. | 436,202 |
Fats & Oils - 1.50% | ||
70,000 | Darling International, Inc. * | 559,300 |
Fire, Marine & Casulty Insurance - 1.44% | ||
50,700 | Hilltop Holdings, Inc. * | 537,927 |
* Non-income producing securities during the period.
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
Food Retail - 1.41% | ||
2,317 | Arden Group, Inc. Class-A | $ 206,329 |
11,948 | Village Super Market, Inc. Class-A | 321,162 |
527,491 | ||
Footwear - 1.75% | ||
52,400 | K-Swiss Inc. Class A * | 653,428 |
Gas Utilities - 3.33% | ||
18,900 | Piedmont Natural Gas Co., Inc. | 480,249 |
29,300 | UGI Corp. | 765,902 |
1,246,151 | ||
Healthcare Distributors & Services - 1.29% | ||
16,080 | Owens & Minor, Inc. | 480,310 |
Healthcare Supplies - 0.99% | ||
2,703 | Atrion Corp. | 368,554 |
Home Health Care Services - 0.93% | ||
6,100 | Chemed Corp | 347,151 |
In Vitro & In Vivo Diagnostic Substances - 1.05% | ||
20,000 | Immucor, Inc. * | 392,800 |
Industrial Machinery - 4.49% | ||
24,278 | Chart Industries, Inc.* | 447,201 |
20,875 | Graco, Inc. | 661,529 |
33,202 | Hurco Companies, Inc. * | 570,410 |
1,679,140 | ||
Information Technology, Electronic Manufacturing Services - 3.08% | ||
15,400 | Park Electrochemical Corp. | 398,552 |
65,100 | TTM Technologies, Inc. * | 753,207 |
1,151,759 | ||
Insurance Brokers - 0.43% | ||
10,000 | American Safety Insurance Holdings Ltd. * | 159,700 |
* Non-income producing securities during the period.
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
Measuring & Controlling Devices, NEC - 1.22% | ||
12,500 | Cubic Corp. | $ 454,750 |
Metal Mining 0.48% | ||
20,000 | Jaguar Mining Inc. * | 180,600 |
Mining & Quarrying of Nonmetallic Minerals - 1.82% | ||
128,650 | Usec, Inc. * | 679,272 |
Multi-Line Insurance - 1.41% | ||
34,300 | Horace Mann Educators Corp. | 527,191 |
National Commercial Banks - 0.88% | ||
6,000 | Cullen Frost Bankers, Inc. | 329,280 |
Natural Gas Distribution - 0.81% | ||
8,520 | New Jersey Resources Corp. | 302,034 |
Networking Equipment - 0.61% | ||
12,850 | Bel Fuse, Inc. Class B | 226,417 |
Office Services & Supplies - 1.46% | ||
9,371 | United Stationers, Inc. * | 547,454 |
Oil & Gas Exploration & Production - 1.55% | ||
13,400 | St. Mary Land & Exploration Co. | 579,416 |
Orthopedic, Prosthetic &Surgical Appliances & Supplies - 0.85% | ||
10,000 | Steris Corporation | 318,300 |
Packaged Foods - 1.87% | ||
12,774 | Sanderson Farms, Inc. | 700,654 |
Personal Products - 1.33% | ||
31,700 | Inter Parfums, Inc. | 495,471 |
* Non-income producing securities during the period.
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
Pharmaceutical Preparations - 1.60% | ||
77,600 | Prestige Brands Holdings Inc. * | $ 599,072 |
Primary Smelting & Refining of Nonferrous Metals - 0.81% | ||
29,100 | Horsehead Holding Corp. * | 303,513 |
Property & Casualty Insurance - 1.50% | ||
9,500 | Proassurance Corp. * | 559,170 |
Publishing & Printing - 3.22% | ||
16,500 | Interactive Data CP | 537,075 |
25,545 | Scholastic Corp. | 668,002 |
1,205,077 | ||
Pumps & Pumping Equipment - 0.90% | ||
15,300 | Robbins & Meyers, Inc. | 337,977 |
Reinsurance - 2.31% | ||
6,000 | Endurance Specialty Holdings, Ltd. | 222,600 |
17,400 | Platinum Underwriters Holdings, Ltd. | 640,494 |
863,094 | ||
Retail-Miscellaneous Shopping Goods Stores - 0.08% | ||
4,100 | Books-A-Million Inc. | 28,905 |
Retail - Radio, TV & Consumer Electronics Stores - 2.11% | ||
38,500 | Radioshack Corp. | 786,940 |
Semi-Conductors & Related Devices - 1.20% | ||
40,300 | Micrel, Inc. | 447,532 |
Services-Advertising - 1.21% | ||
12,400 | Valassis Communications, Inc. * | 452,848 |
Services-Computer Processing & Data Preparation - 1.04% | ||
22,300 | Acxiom Corp. * | 388,243 |
* Non-income producing securities during the period.
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
Services-Prepackaged Software - 4.72% | ||
58,600 | Double-Take Software, Inc. * | $ 608,854 |
17,400 | Progress Software Corp. * | 555,756 |
52,500 | Tibco Software, Inc. * | 599,025 |
1,763,635 | ||
Specialized Consumer Services - 0.67% | ||
8,400 | Plantronics, Inc. | 251,496 |
Steel - 1.38% | ||
19,500 | Cleco Corp. | 516,165 |
Sugar & Confectionery Products - 0.54% | ||
19,203 | Imperial Sugar Co. | 202,784 |
Surgical & Medical Instruments & Apparatus - 0.28% | ||
7,000 | Angiodynamics, Inc. * | 103,390 |
Systems Software - 0.16% | ||
12,400 | Pervasive Software Inc. * | 59,768 |
Telephone & Telegraph Apparatus - 3.53% | ||
16,000 | Adtran, Inc. | 438,880 |
98,000 | Tellabs, Inc. | 882,000 |
1,320,880 | ||
Wholesale-Apparel, Piece Goods & Notions - 2.28% | ||
50,535 | Delta Apparel, Inc. * | 851,515 |
TOTAL FOR COMMON STOCKS (Cost $21,898,839) - 74.65% | $27,898,156 | |
EXCHANGE TRADED FUNDS - 2.84% | ||
8,000 | ISHARES Russell 2000 Index Fund | 530,000 |
8,500 | ISHARES Russell 2000 Value Index Fund | 531,845 |
TOTAL FOR EXCHANGE TRADED FUNDS (Cost $1,114,431) - 2.84% | 1,061,845 |
* Non-income producing securities during the period.
The accompanying notes are an integral part of these financial statements.
Shares | Value | |
CLOSED-END MUTUAL FUNDS - 1.89% | ||
46,900 | Central Fund of Canada Limited *** | $ 705,376 |
TOTAL FOR CLOSED-END MUTUAL FUNDS (Cost $622,900) - 1.89% | 705,376 | |
SHORT TERM INVESTMENTS - 20.50% | ||
7,659,703 | AIM Short Term Investment Company Prime Portfolio 0.18% ** (Cost $7,659,703) | 7,659,703 |
TOTAL INVESTMENTS (Cost $31,295,873) - 99.88% | $37,325,080 | |
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.12% | 44,497 | |
NET ASSETS - 100.00% | $37,369,577 |
** Variable rate security; the coupon rate shown represents the yield at May 31, 2010.
*** Passive foreign investment company
The accompanying notes are an integral part of these financial statements.
Assets: | ||
Investments, at Value (Cost $31,295,873) | $37,325,080 | |
Receivables: | ||
Securities Sold | 547,400 | |
Shareholder Subscriptions | 6,500 | |
Dividends and Interest | 15,512 | |
Total Assets | 37,894,492 | |
Liabilities: | ||
Accrued Management Fees (Note 3) | 39,299 | |
Shareholder Redemptions | 10,000 | |
Securities Purchased | 475,616 | |
Total Liabilities | 524,915 | |
Net Assets | $37,369,577 | |
Net Assets Consist of: | ||
Paid In Capital | $31,270,209 | |
Accumulated Undistributed Net Investment Loss | (81,672) | |
Accumulated Undistributed Realized Gain on Investments | 151,833 | |
Unrealized Appreciation in Value of Investments | 6,029,207 | |
Net Assets, for 2,102,432 Shares Outstanding | $37,369,577 | |
(Unlimited number of shares authorized with a par value of $0.001) | ||
Net Asset Value Per Share, Offering and Redemption Price ($37,369,577/2,102,432 shares) | $ 17.77 |
The accompanying notes are an integral part of these financial statements.
Investment Income: | ||
Dividends (net of foreign witholding taxes of $35) | $ 258,014 | |
Interest | 8,826 | |
Total Investment Income | 266,840 | |
Expenses: | ||
Advisory Fees (Note 3) | 382,473 | |
Total Expenses | 382,473 | |
Net Investment Loss | (115,633) | |
Realized and Unrealized Gain on Investments: | ||
Realized Gain on Investments | 1,137,216 | |
Net Change in Unrealized Appreciation on Investments | 5,700,042 | |
Net Realized and Unrealized Gain on Investments | 6,837,258 | |
Net Increase in Net Assets Resulting from Operations | $ 6,721,625 |
The accompanying notes are an integral part of these financial statements.
Years Ended | |||
5/31/2010 | 5/31/2009 | ||
Increase (Decrease) in Net Assets From Operations: | |||
Net Investment Income/(Loss) | $(115,633) | $ 56,004 | |
Net Realized Gain/(Loss) on Investments | 1,137,216 | (581,243) | |
Net Change in Unrealized Appreciation/ (Depreciation) on Investments | 5,700,042 | (669,693) | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | 6,721,625 | (1,194,932) | |
Distributions to Shareholders From: | |||
Net Investment Income | - | (76,749) | |
Realized Gains | - | (2,586) | |
Return of Capital | - | (16,701) | |
Net Change in Net Assets from Distributions | - | (96,036) | |
Capital Share Transactions: | |||
Proceeds from Sale of Shares | 13,226,755 | 11,055,055 | |
Shares Issued on Reinvestment of Dividends | - | 50,059 | |
Cost of Shares Redeemed | (3,257,179) | (2,110,300) | |
Net Increase in Net Assets from Shareholder Activity | 9,969,576 | 8,994,814 | |
Net Assets: | |||
Net Increase in Net Assets | 16,691,201 | 7,703,846 | |
Beginning of Period | 20,678,376 | 12,974,530 | |
End of Period (Including Accumulated Undistributed Net Investment Income/(Loss) of $(81,672) and $0, Respectively) | |||
$37,369,577 | $20,678,376 | ||
Share Transactions: | |||
Shares Sold | 811,945 | 887,820 | |
Shares Issued on Reinvestment of Dividends | - | 4,171 | |
Shares Redeemed | (192,901) | (164,524) | |
Net Increase in Shares | 619,044 | 727,467 | |
Outstanding at Beginning of Period | 1,483,388 | 755,921 | |
Outstanding at End of Period | 2,102,432 | 1,483,388 |
The accompanying notes are an integral part of these financial statements.
For the Years Ended | |||||||
5/31/ 2010 | 5/31/ 2009 | 5/31/ 2008 | 5/31/ 2007 | 5/31/ 2006 | |||
Net Asset Value, at Beginning of Period | $13.94 | $17.16 | $19.47 | $17.27 | $15.98 | ||
Income From Investment Operations: | |||||||
Net Investment Income/(Loss) * | (0.06) | 0.05 | 0.12 | 0.10 | 0.07 | ||
Net Gain/(Loss) on Securities (Realized and Unrealized) | 3.89 | (3.18) | (1.53) | 2.90 | 1.26 | ||
Total from Investment Operations | 3.83 | (3.13) | (1.41) | 3.00 | 1.33 | ||
Distributions from: | |||||||
Net Investment Income | - | (0.07) | (0.10) | (0.11) | (0.03) | ||
Capital Gains | - | - | *** | (0.80) | (0.69) | (0.01) | |
Return of Capital | - | (0.02) | - | - | - | ||
Total from Distributions | - | (0.09) | (0.90) | (0.80) | (0.04) | ||
Net Asset Value, at End of Period | $17.77 | $13.94 | $17.16 | $19.47 | $17.27 | ||
Total Return ** | 27.47% | (18.14)% | (7.15)% | 17.90% | 8.31% | ||
Ratios/Supplemental Data: | |||||||
Net Assets at End of Period (Thousands) | $37,370 | $20,678 | $12,975 | $9,835 | $8,038 | ||
Ratio of Expenses to Average Net Assets | 1.24% | 1.35% | 1.35% | 1.35% | 1.35% | ||
Ratio of Net Investment Income/(Loss) to Average Net Assets | (0.38)% | 0.41% | 0.69% | 0.56% | 0.42% | ||
Portfolio Turnover | 30.79% | 35.64% | 24.60% | 64.65% | 74.23% |
* Net Investment Income per share amounts were calculated using the average share method.
** Total return in the above table represents the rate that the investor would have earned or lost on an investment in the fund assuming reinvestment of dividends.
*** Amount is less than $0.005
The accompanying notes are an integral part of these financial statements.
QUEENS ROAD SMALL CAP VALUE FUND
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2010
Note 1. Organization
The Queens Road Small Cap Value Fund (the “Fund”), a managed portfolio of the Bragg Capital Trust, (the “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 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 Advisor to be undervalued and have good prospects for capital appreciation. The Fund’s 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.
Federal Income Taxes: The Fund’s policy is to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no provision for income taxes is required. The Fund intends to distribute its net long-term capital gains and its net short-term capital gains at least once a year.
As of and during the year ended May 31, 2010, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to recognized tax benefits as income tax expense on the statement of operations. During the year, the Fund did not incur any interest or penalties. The Fund is not subject to examination by the U.S. federal tax authorities for the tax years before 2006.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
QUEENS ROAD SMALL CAP VALUE FUND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2010
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 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 respective securities.
Distributions to shareholders: Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. The treatment for financial reporting purposes of distributions made to shareholders during the year from net investment income or net realized capital gains may differ from their ultimate treatment for federal income taxes purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expense or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of the net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value per share of the Fund. For the year ended May 31, 2010, the Fund reclass ified $33,961 from accumulated undistributed net investment loss to accumulated undistributed realized gain on investments.
Security Valuation: Securities, including common stocks and exchange traded funds, which are traded on a national securities exchange or on the NASDAQ over-the-counter market, are valued at the last quoted sales price, and generally classified as a Level 1 investment. Investments in mutual funds, including money market funds, are valued at the ending net asset value provided by the funds, and generally classified as a Level 1 investment. If there are no sales reported the Fund’s portfolio securities will be valued using the last reported bid price. Short-term obligations having remaining maturities of 60 days or less are valued at amortized cost, and generally classified as a Level 2 investment. 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 Trust’s Board of Trustees, and generally classified as a Level 3 i nvestment.
In accordance with GAAP, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP also establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-tier hierarchy of inputs is summarized below.
| • |
| Level 1 – quoted prices in active markets for identical investments |
| • |
| Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • |
| Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of May 31, 2010:
Assets (b) | Level 1 | Level 2 | Level 3 | Total |
Common Stocks | $27,898,156 | - | - | $27,898,156 |
Exchange Traded Funds | 1,061,845 | - | - | 1,061,845 |
Closed-End Mutual Funds | 705,376 | - | - | 705,376 |
Short-Term Investments | 7,659,703 | - | - | 7,659,703 |
Total | $ 37,325,080 | - | - | $ 37,325,080 |
(b) Refer to the Fund’s Schedule of Investments for a listing of securities by security type and industry.
The Fund did not hold any Level 3 assets during the year ended May 31, 2010.
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 1.24% as of July 1, 2009, of the Fund’s average daily net asset value. Prior to July 1, 2009, the rate was 1.35%. For the year ended May 31, 2010, the Advisor earned $382,473. From these fees and its own resources the Advisor agreed 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. The amount o wed to the Advisor at May 31, 2010 is $39,299.
Certain Trustees and officers of the Advisor and Trust are also “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 $1,000 plus expenses for services relating to the Trust which is paid by the Advisor.
Queens Road Securities (“QRS”) acts as the principal underwriter in the continuous public offering of the Fund’s shares. Certain officers of the Trust are also officers of QRS. QRS did not receive or waive any brokerage fees on execution of purchases and sales of the Fund’s investments during the year ended May 31, 2010.
Note 4. Capital Stock
At May 31, 2010, there were an unlimited number of shares authorized and 2,102,432 shares outstanding, each with a par value of $.001, and paid-in capital amounted to $31,270,209 for the Fund.
Note 5. Investment Transactions
For the year ended May 31, 2010, the cost of purchases and the proceeds from sales, other than short-term securities aggregated $13,058,736 and $7,164,947, respectively.
Note 6. Distributions to Shareholders
The tax character of distributions paid during fiscal years ended May 31, 2009, and May 31, 2010, was as follows:
Distributions paid from: | May 31, 2010 | May 31, 2009 |
Ordinary Income | $ - | $ 76,749 |
Short-Term Capital Gain | - | - |
Long-Term Capital Gain | - | 2,586 |
Return of Capital | - | 16,701 |
$ - | $ 96,036 |
As of May 31, 2010, the components of distributable earnings on a tax basis were as follows:
Undistributed Ordinary Income | 233,248 |
Unrealized Appreciation | 5,866,120 |
Net Total | $ 6,099,368 |
At May 31, 2010, the composition of unrealized appreciation (excess of value over tax cost) and depreciation (the excess of tax cost over value) on a tax basis was as follows:
Appreciation | Depreciation | Net Appreciation (Depreciation) |
$6,589,407 | $(723,287) | $5,866,120 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) at May 31, 2010 resulted from wash sales of $80,611 and $82,476 of income recognized from PFIC’s.
The aggregate cost of securities for federal income tax purposes at May 31, 2010 was $31,458,960.
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, 2010, Pershing, LLC., for the benefit of its customers, owned 73.29% of the Fund.
QUEENS ROAD SMALL CAP VALUE FUND
AUDIT OPINION
To The Shareholders and Board of Trustees of
Bragg Capital Trust
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Bragg Capital Trust (the “Funds”), comprising the Queens Road Value Fund and the Queens Road Small Cap Value Fund, as of May 31, 2010, and the related statements 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 Fund 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 2010 by correspondence with the custodian and broker. 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 referred to above present fairly, in all material respects, the financial position of each of the funds constituting the Bragg Capital Trust, as of May 31, 2010, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
COHEN FUND AUDIT SERVICES, LTD.
Westlake, Ohio
August 11, 2010
QUEENS ROAD SMALL CAP VALUE FUND
EXPENSE ILLUSTRATION
May 31, 2010 (UNAUDITED)
ABOUT YOUR FUND’S EXPENSES
Expense Example
As a shareholder of the Queens Road Small Cap Value Fund, you incur ongoing costs which typically consist of management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, December 1, 2009 through May 31, 2010.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in this Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Beginning Account Value | Ending Account Value | Expenses Paid During the Period * | |
December 1, 2009 | May 31, 2010 | December 1,2009 to May 31,2010 | |
Actual | $1,000.00 | $1,105.79 | $6.51 |
Hypothetical (5% Annual Return before | |||
expenses) | $1,000.00 | $1,018.75 | $6.24 |
* Expenses are equal to the Fund's annualized expense ratio of 1.25%, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
QUEENS ROAD SMALL CAP VALUE FUND
ADDITIONAL INFORMATION
May 31, 2010 (UNAUDITED)
Proxy Voting - A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies during the most recent 12 month period, are available without charge upon request by (1) calling the Fund at (800) 595-3088 and (2) from Fund documents filed with the Securities and Exchange Commission ("SEC") on the SEC's website at www.sec.gov.
Portfolio Holdings - The Fund files a complete schedule of investments with the SEC for the first and third quarter of each fiscal year on Form N-Q. The Fund’s first and third fiscal quarters end on August 31 and February 28. The Form N-Q filing must be made within 60 days of the end of the quarter, and the Fund’s first Form N-Q was filed with the SEC on October 8, 2004. The Fund’s Forms N-Q are available on the SEC’s website at http://sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC (call 1-800-732-0330 for information on the operation of the Public Reference Room). You may also obtain copies by calling the Fund at 1-800-595-3088.
QUEENS ROAD SMALL CAP VALUE FUND
TRUSTEES INFORMATION
May 31, 2010 (UNAUDITED)
Interested Trustees
Name (Age) | Position with Fund | Term of Office and Length of Time Served | Principal Occupations During Past Five Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held By Trustee |
Steve Scruggs, 41 | Trustee, President Secretary | Unlimited; 7 years | Bragg Financial Advisors, Portfolio Manager/CCO (2000- present) Reliance Insurance, Product Manager(1999-2000) | Two | None |
Benton Bragg, 42 | Trustee, Chairman Treasurer | Unlimited; 7 years | Bragg Financial Advisors, President, CEO (1996-present) | Two | None |
Independent Trustees | |||||
Name (Age) | Position with Fund | Term of Office and Length of Time Served | Principal Occupations During Past Five Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held By Trustee |
Philip Blount, 55 2 | Trustee | Unlimited; 7 years | Icons, Inc., President (2001- present) Marketing Merchandise Halo, Inc., Vice President (1996-2001) Marketing Merchandise | Two | None |
Christopher Brady, 401,2 | Trustee | Unlimited; 7 years | Resort Capital Partners, Vice President (2009-Present) Hospitality Financial Advisory Brady Distributing, Vice President (1995-2009) | Two | None |
Harold Smith, 452 | Trustee | Unlimited; 7 years | Raftelis Financial, Vice President (1996 – present) Public Finance Consulting | Two | None |
Timothy Ignasher, 491 | Trustee | Unlimited; 7 years | Citizens South Bank, Exec Vice President (2008 – Present) Colony Signature Bank, Exec. Vice President (2007-2008) Scottish Bank, Vice President (1998 – 2007) Commercial Loan Officer | Two | None |
Steve Scruggs and Benton Bragg are Interested Trustees of the Funds (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940) by reason of their affiliation with the Funds’ adviser, Bragg Financial Advisers, Inc. and their affiliation as registered principals with the Funds’ underwriter, Queens Road Securities, LLC. Benton Bragg and Steve Scruggs are brothers-in-law.
(1) Member of the Audit Committee of the Board of Trustees, which makes recommendations regarding the selection of the Fund’s independent public accountant and meets with representatives of the accountants to determine the scope of and review the results of each audit.
(2) Member of the Nominating Committee of the Board of Trustees, which identifies qualified candidates and recommends nominees for the election as Trustees.
Board of Trustees
Benton Bragg
Steve Scruggs
Phil Blount
Tim Ignasher
Chris Brady
Harold Smith
Investment Adviser
Bragg Financial Advisors, Inc.
1031 Caldwell Street, Suite 200
Charlotte, NC 28203
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
Cohen Fund Audit Services, Ltd.
800 Westpoint Parkway, Suite 1100
Westlake, Ohio 44145
Shares of the Queens Road 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. The Funds are not bank deposits, not FDIC insured and may lose value. Please read the prospectus carefully before investing or sending money.
This report contains certain forward looking statements which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Forward looking statements generally include words such as “believes”, “expects”, “anticipates” and other words of similar import. Such risks and uncertainties include, among other things, the Risk Factors noted in the Funds’ filings with the Securities and Exchange Commission. The Funds undertake no obligation to update any forward looking statement.
Item 2. Code of Ethics.
(a)
As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(b)
For purposes of this item, “code of ethics” means written standards that are reasonably designed to deter wrongdoing and to promote:
(1)
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(2)
Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant;
(3)
Compliance with applicable governmental laws, rules, and regulations;
(4)
The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
(5)
Accountability for adherence to the code.
(c)
Amendments:
During the period covered by the report, there have not been any amendments to the provisions of the code of ethics.
A copy of registrant's code of ethics will be provided to any person without charge, upon request. Please send requests to:
Bragg Capital Trust
100 Queens Road
Charlotte, NC 28204
(d)
Waivers:
During the period covered by the report, the registrant has not granted any express or implicit waivers from the provisions of the code of ethics.
Item 3. Audit Committee Financial Expert.
(a)
The registrant’s board of trustees has determined that the registrant does not have an audit committee financial expert. This is because no one on the board of trustees is deemed to be a financial expert.
Item 4. Principal Accountant Fees and Services.
(a)
Audit Fees
FY 2009
$ 19,500
FY 2010
$ 20,000
(b)
Audit-Related Fees
Registrant
FY 2009
$ 0
FY 2010
$ 0
Nature of the fees:
Not applicable.
(c)
Tax Fees
Registrant
FY 2009
$ 5,000
FY 2010
$ 5,000
Nature of the fees:
1120-RIC & Excise Tax Return
(d)
All Other Fees
Registrant
FY 2009
$ 1,305
FY 2010
$ 1,150
Nature of the fees:
Out of pocket expenses and consents
(e)
(1) Audit Committee’s Pre-Approval Policies
The Audit Committee reviews the auditor engagement letter and recommends to the Board of Trustees whether or not to adopt the engagement letter and appoint the independent auditor to perform the services described in the engagement letter.
(2) Percentages of Services Approved by the Audit Committee
Registrant
Audit-Related Fees:
100 %
Tax Fees:
100 %
All Other Fees:
0 %
(f)
During audit of registrant's financial statements for the most recent fiscal year, less than 50 percent of the hours expended on the principal accountant's engagement were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
(g)
The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant:
Registrant
FY2010
$ 0
FY2009
$ 0
(h)
The registrant's audit committee has considered whether the provision of non-audit services to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Companies.
Not applicable.
Item 6. Schedule of Investments.
Not applicable – schedule filed with Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds.
Not applicable.
Item 8. Portfolio Managers of Closed-End Funds.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Funds.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant has not adopted procedures by which shareholders may recommend nominees to the registrant's board of trustees.
Item 11. Controls and Procedures.
(a) Based on an evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of filing date of this Form N-CSR, the principal executive officer and principal financial officer of the Registrant have concluded that the Registrant's disclosure controls and procedures are reasonably designed to ensure that the information required in filings on Form N-CSR is recorded, processed, summarized, and reported by the filing date, except as disclosed below. These internal controls and procedures include processes and controls designed to ensure that information required to be disclosed is accumulated and communicated to the Registrant’s management, including the Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Controls and procedures over the accounting for corporate actions and related pricing of the Registrant's corporate action-effected securities were found to be not operating effectively and have been corrected as described below.
(b)
There were no significant changes in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1)
EX-99.CODE ETH. See Item 2.
(a)(2)
EX-99.CERT. Filed herewith.
(a)(3)
Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b)
EX-99.906CERT. 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 H. Scruggs, President
* Steven H Scruggs, President
Date August 25, 2010
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/Benton S. Bragg, Treasurer
* Benton S Bragg, Treasurer
Date August 25, 2010
By /s/Steven H Scruggs, President
* Steven H Scruggs, President
Date August 25, 2010
* Print the name and title of each signing officer under his or her signature.