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OMB APPROVAL
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OMB Number: 3235-0570
Expires: September 30, 2007
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hours per response: 19.4
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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 811-09000
----------------------------------------
Oak Value Trust
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
3100 Tower Boulevard, Suite 700 Durham, North Carolina 27707
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Larry D. Coats, Jr.
Oak Value Capital Management, Inc. 3100 Tower Blvd., Suite 700 Durham, NC 27707
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (919) 419-1900
----------------------
Date of fiscal year end: June 30, 2006
--------------------------------------------
Date of reporting period: December 31, 2005
--------------------------------------------
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. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL REPORT
DECEMBER 31, 2005
(UNAUDITED)
[GRAPHIC OMITTED]
OAK VALUE FUND
--------------
WWW.OAKVALUEFUND.COM
LETTER TO SHAREHOLDERS February, 2006
================================================================================
Dear Fellow Oak Value Fund Shareholders:
We have included the Oak Value Fund's financial statements for the six month
period ended December 31, 2005 as well as other financial and portfolio data in
the pages that follow. During the most recent six months, we added positions in
three new companies and eliminated one position during the same period. The
recent market environment, while challenging, has allowed our team to bring to
bear what we believe to be an increasingly productive research effort in a
period of opportunity.
Consistent with our practice established two years ago, we have intentionally
chosen to limit the level of portfolio commentary in this semi-annual report to
a basic overview of relevant observations. As has become our custom, we provide
ongoing and detailed information and updates on investment activities of the Oak
Value Fund at WWW.OAKVALUEFUND.COM. We encourage your review of this information
on a periodic basis and specifically refer you to the Investment Adviser's
Review for additional commentary with regard to the activities of the Oak Value
Fund.
We thank you for your continued interest and partnership and welcome your
questions and comments.
Oak Value Fund Co-Managers,
/s/ David R. Carr, Jr. /s/ Larry D. Coats, Jr. /s/ Matthew F. Sauer
David R. Carr, Jr. Larry D. Coats, Jr. Matthew F. Sauer
1
- -------------------------------------------------------------------------------------------------------
TOP TEN HOLDINGS1
As of December 31, 2005
- -------------------------------------------------------------------------------------------------------
COMPANY PRIMARY BUSINESS S&P SECTOR
- -------------------------------------------------------------------------------------------------------
AFLAC Supplemental Heath & Life Insurance Financials
- -------------------------------------------------------------------------------------------------------
Berkshire Hathaway Insurance, Reinsurance & Capital Allocation Financials
- -------------------------------------------------------------------------------------------------------
Cadbury Schweppes Int'l Confectionery & Beverages Manufacturer/Licensor Consumer Staples
- -------------------------------------------------------------------------------------------------------
Comcast Entertainment & Information Services Consumer Discretionary
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Constellation Brands Wine, Beer & Spirits Production/Distribution Consumer Staples
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E.W. Scripps Entertainment & Information/Media Consumer Discretionary
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IMS Health Prescription Medication Data Provider Health Care
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Time Warner Entertainment & Information/Media Consumer Discretionary
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United Technologies Diversified Manufacturing and Services Industrials
- -------------------------------------------------------------------------------------------------------
Zale Fine Jewelry Retailing Consumer Discretionary
- -------------------------------------------------------------------------------------------------------
1 Top Ten Holdings are presented to illustrate examples of the securities in which the Fund may
invest. Because they are presented as of the dates indicated and change from time to time, they
may not be representative of the Fund's current or future investments. Top Ten Holdings do not
include money market investments.
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
JULY 1 - DECEMBER 31, 2005 PURCHASE/SALE ACTIVITY
- -------------------------------------------------------------------------------------------------------
POSITION (SYMBOL) PRIMARY BUSINESS SECTOR CLASSIFICATION
- -------------------------------------------------------------------------------------------------------
PURCHASED: Estee Lauder (EL) Personal Care - Beauty Products Consumer Discretionary
- -------------------------------------------------------------------------------------------------------
PURCHASED: Harley Davidson (HDI) Motorcycles Consumer Discretionary
- -------------------------------------------------------------------------------------------------------
PURCHASED: Praxair (PX) Industrial Gases Basic Materials
- -------------------------------------------------------------------------------------------------------
SOLD: AMBAC (ABK) Financial Guarantee Insurance Financials
- -------------------------------------------------------------------------------------------------------
IMPORTANT INFORMATION:
THE OAK VALUE FUND IS DISTRIBUTED BY ULTIMUS FUND DISTRIBUTORS, LLC. THE
INFORMATION PRESENTED ABOVE IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION
TO PURCHASE THE OAK VALUE FUND (THE "FUND"), WHICH IS OFFERED ONLY BY
PROSPECTUS. AN INVESTOR SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS,
CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE FUND'S
PROSPECTUS CONTAINS THIS AND OTHER IMPORTANT INFORMATION. TO OBTAIN A COPY OF
THE OAK VALUE FUND'S PROSPECTUS PLEASE VISIT OUR WEBSITE AT WWW.OAKVALUEFUND.COM
OR CALL 1-800-622-2474 AND A COPY WILL BE SENT TO YOU FREE OF CHARGE. PLEASE
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
2
OAK VALUE FUND
PERFORMANCE INFORMATION (UNAUDITED)
================================================================================
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE OAK VALUE FUND AND THE S&P 500 INDEX
[GRAPHIC OMITTED]
OAK VALUE FUND: S&P 500 INDEX:
--------------- --------------
12/31/95 $10,000 12/31/95 $10,000
06/30/96 11,110 06/30/96 11,010
12/31/96 12,899 12/31/96 12,296
06/30/97 15,509 06/30/97 14,830
12/31/97 17,762 12/31/97 16,398
06/30/98 20,869 06/30/98 19,303
12/31/98 21,123 12/31/98 21,085
06/30/99 22,287 06/30/99 23,696
12/31/99 20,463 12/31/99 25,521
06/30/00 20,525 06/30/00 25,413
12/31/00 24,181 12/31/00 23,198
06/30/01 25,312 06/30/01 21,644
12/31/01 24,068 12/31/01 20,441
06/30/02 21,057 06/30/02 17,751
12/31/02 18,209 12/31/02 15,924
06/30/03 21,615 06/30/03 17,796
12/31/03 24,057 12/31/03 20,491
06/30/04 24,521 06/30/04 21,196
12/31/04 25,975 12/31/04 22,720
06/30/05 26,042 06/30/05 22,537
12/31/05 25,620 12/31/05 23,836
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS(A)
- ------------------------------------------------------------------------------------------------------------------------------------
SINCE
CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR INCEPTION*
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (AS OF 12/31/05)
- ------------------------------------------------------------------------------------------------------------------------------------
Oak Value Fund 28.89% 28.99% 37.70% 18.93% -3.12% 18.17% -0.47% -24.34% 32.11% 7.97% -1.37% 296.77%(B)
S&P 500 Index 37.58% 22.96% 33.36% 28.58% 21.04% -9.12% -11.90% -22.10% 28.68% 10.88% 4.91% 264.48%(B)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(A)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED DECEMBER 31, 2005
------------------------------------------------------------------------
SINCE
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS INCEPTION*
- ------------------------------------------------------------------------------------------------------------------------------------
Oak Value Fund ......................................... -1.37% 12.05% 1.16% 9.86% 11.23%
S&P 500 Index .......................................... 4.91% 14.39% 0.54% 9.07% 10.50%
- ------------------------------------------------------------------------------------------------------------------------------------
* Inception date of the Oak Value Fund was January 18, 1993.
(A) The returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
(B) Not annualized.
3
OAK VALUE FUND
PORTFOLIO INFORMATION
DECEMBER 31, 2005 (UNAUDITED)
================================================================================
DISTRIBUTION BY BUSINESS CATEGORY
Basic Materials - 1.7%
Consumer Related - 25.9%
Diversified - 20.7%
[GRAPHIC OMITTED] Finance Related - 11.9%
Healthcare - 1.8%
Insurance - 4.7%
Media - 20.7%
Technology - 5.5%
Telecommunications - 4.4%
Cash Equivalents - 2.7%
TEN LARGEST ISSUERS
% OF
COMPANY NET ASSETS
-------------------------------------------------
Berkshire Hathaway, Inc. 9.73%
E.W. Scripps Co. (The) - Class A 6.82%
Constellation Brands, Inc. - Class A 6.69%
Cadbury Schweppes PLC - ADR 6.02%
Zale Corp. 5.96%
Time Warner, Inc. 5.95%
IMS Health, Inc. 5.48%
AFLAC, Inc. 4.74%
Comcast Corp. - Class A Special 4.47%
United Technologies Corp. 4.33%
4
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005 (UNAUDITED)
================================================================================
ASSETS
Investments in securities:
At cost ...................................................... $ 186,892,849
=============
At market value (Note 1) ..................................... $ 245,587,307
Receivable for capital shares sold ............................. 56,805
Dividends receivable ........................................... 161,121
Other assets ................................................... 54,728
-------------
TOTAL ASSETS ................................................. 245,859,961
-------------
LIABILITIES
Payable for investment securities purchased .................... 7,269,396
Payable for capital shares redeemed ............................ 378,268
Accrued investment advisory fees (Note 3) ...................... 185,310
Payable to affiliate (Note 3) .................................. 29,250
Other accrued expenses and liabilities ......................... 34,172
-------------
TOTAL LIABILITIES ............................................ 7,896,396
-------------
NET ASSETS ..................................................... $ 237,963,565
=============
Net assets consist of:
Paid-in capital ................................................ $ 172,208,587
Accumulated net investment loss ................................ (285,866)
Accumulated net realized gains from security transactions ...... 7,346,386
Net unrealized appreciation on investments ..................... 58,694,458
-------------
Net assets ..................................................... $ 237,963,565
=============
Shares of beneficial interest outstanding (unlimited number of
shares authorized, no par value) ............................. 7,910,036
=============
Net asset value, offering price and redemption price per share (A)$ 30.08
=============
(A) Redemption price may differ from the net asset value per share depending
upon the length of time the shares are held (Note 1).
See accompanying notes to financial statements.
5
OAK VALUE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (UNAUDITED)
================================================================================
INVESTMENT INCOME
Dividends ...................................................... $ 1,282,168
-------------
EXPENSES
Investment advisory fees (Note 3) .............................. 1,111,495
Transfer agent and shareholder services fees (Note 3) .......... 122,155
Administration fees (Note 3) ................................... 92,750
Trustees' fees and expenses .................................... 64,404
Postage and supplies ........................................... 42,959
Professional fees .............................................. 30,885
Insurance expense .............................................. 27,125
Fund accounting fees (Note 3) .................................. 24,243
Registration fees .............................................. 18,396
Compliance service fees (Note 3) ............................... 16,329
Custodian fees ................................................. 11,908
Other expenses ................................................. 5,385
-------------
TOTAL EXPENSES ............................................... 1,568,034
-------------
NET INVESTMENT LOSS ............................................ (285,866)
-------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions .................. 9,631,243
Net change in unrealized appreciation/depreciation on investments (13,338,466)
-------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS .............. (3,707,223)
-------------
NET DECREASE IN NET ASSETS FROM OPERATIONS ..................... $ (3,993,089)
=============
See accompanying notes to financial statements.
6
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
======================================================================================================
SIX MONTHS
ENDED YEAR
DECEMBER 31, ENDED
2005 JUNE 30,
(UNAUDITED) 2005
- ------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss ............................................. $ (285,866) $ (973,073)
Net realized gains from security transactions ................... 9,631,243 14,409,303
Net change in unrealized appreciation/depreciation on investments (13,338,466) 1,545,330
------------- -------------
Net increase (decrease) in net assets from operations ............. (3,993,089) 14,981,560
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains from security transactions .............. (1,891,602) --
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ....................................... 22,321,234 45,708,435
Net asset value of shares issued in reinvestment
of distributions to shareholders .............................. 1,742,993 --
Proceeds from redemption fees collected (Note 1) ................ 6,388 38,230
Payments for shares redeemed .................................... (29,004,621) (71,433,511)
------------- -------------
Net decrease in net assets from capital share transactions ........ (4,934,006) (25,686,846)
------------- -------------
NET DECREASE IN NET ASSETS ........................................ (10,818,697) (10,705,286)
NET ASSETS
Beginning of period ............................................. 248,782,262 259,487,548
------------- -------------
End of period ................................................... $ 237,963,565 $ 248,782,262
============= =============
ACCUMULATED NET INVESTMENT LOSS ................................... $ (285,866) $ --
============= =============
SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold ..................................................... 731,655 1,535,973
Shares reinvested ............................................... 57,926 --
Shares redeemed ................................................. (950,574) (2,405,843)
------------- -------------
Net decrease in shares outstanding .............................. (160,993) (869,870)
Shares outstanding, beginning of period ......................... 8,071,029 8,940,899
------------- -------------
Shares outstanding, end of period ............................... 7,910,036 8,071,029
============= =============
See accompanying notes to financial statements.
7
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
====================================================================================================================================
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
DECEMBER 31, ENDED ENDED ENDED ENDED ENDED
2005 JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(UNAUDITED) 2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .. $ 30.82 $ 29.02 $ 25.58 $ 24.92 $ 30.74 $ 25.13
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment loss ................... (0.04) (0.12) (0.15) (0.07) (0.10) (0.03)
Net realized and unrealized gains
(losses) on investments .............. (0.46) 1.92 3.59 0.73 (5.05) 5.88
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ........ (0.50) 1.80 3.44 0.66 (5.15) 5.85
---------- ---------- ---------- ---------- ---------- ----------
Less distributions:
From net realized gains from
security transactions ............... (0.24) -- -- -- (0.67) (0.24)
---------- ---------- ---------- ---------- ---------- ----------
Proceeds from redemption
fees collected (Note 1) ............... 0.00(A) 0.00(A) 0.00(A) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net asset value at end of period ........ $ 30.08 $ 30.82 $ 29.02 $ 25.58 $ 24.92 $ 30.74
========== ========== ========== ========== ========== ==========
Total return(C) ......................... (1.62%)(B) 6.20% 13.45% 2.65% (16.81%) 23.32%
========== ========== ========== ========== ========== ==========
Net assets at end of period (000's) ..... $ 237,964 $ 248,782 $ 259,488 $ 272,582 $ 279,736 $ 346,405
========== ========== ========== ========== ========== ==========
Ratio of expenses to
average net assets (D) ................ 1.27%(E) 1.25% 1.25% 1.36% 1.23% 1.22%
Ratio of net investment
loss to average net assets ............ (0.23%)(E) (0.39%) (0.52%) (0.33%) (0.36%) (0.12%)
Portfolio turnover rate ................. 21%(E) 29% 24% 28% 63% 52%
(A) Amount rounds to less than $0.01 per share.
(B) Not annualized.
(C) Total return is a measure of the change in value of an investment in the Fund over the periods covered, which assumes any
dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(D) Absent the use of earnings credits on cash balances, the ratios of expenses to average net assets would have been 1.24% and
1.23% for the years ended June 30, 2002 and June 30, 2001, respectively.
(E) Annualized.
See accompanying notes to financial statements.
8
OAK VALUE FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005 (UNAUDITED)
================================================================================
SHARES COMMON STOCKS -- 97.3% VALUE
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 1.7%
75,900 Praxair, Inc. .................................... $ 4,019,664
------------
CONSUMER RELATED -- 25.9%
373,850 Cadbury Schweppes PLC - ADR ...................... 14,314,717
606,500 Constellation Brands, Inc. - Class A (A) ......... 15,908,495
171,350 Diageo PLC - ADR ................................. 9,989,705
108,750 Estee Lauder Cos. - Class A ...................... 3,640,950
69,600 Harley Davidson, Inc. ............................ 3,583,704
563,750 Zale Corp. (A) ................................... 14,178,312
------------
61,615,883
------------
DIVERSIFIED -- 20.7%
115 Berkshire Hathaway, Inc. - Class A (A) ........... 10,191,300
4,413 Berkshire Hathaway, Inc. - Class B (A) ........... 12,954,361
345,925 Cendant Corp. .................................... 5,967,206
344,300 Tyco International Ltd. .......................... 9,936,498
184,100 United Technologies Corp. ........................ 10,293,031
------------
49,342,396
------------
FINANCE RELATED -- 11.9%
221,150 Certegy, Inc. .................................... 8,969,844
260,450 Equifax, Inc. .................................... 9,902,309
255,025 Willis Group Holdings Ltd. ....................... 9,420,624
------------
28,292,777
------------
HEALTHCARE -- 1.8%
172,875 Boston Scientific Corp. (A) ...................... 4,233,709
------------
INSURANCE -- 4.7%
243,125 AFLAC, Inc. ...................................... 11,285,863
------------
MEDIA -- 20.7%
214,550 Entercom Communications Corp. (A) ................ 6,365,698
337,970 E.W. Scripps Co. (The) - Class A ................. 16,229,319
812,425 Time Warner, Inc. ................................ 14,168,692
86,900 Viacom, Inc. - Class B (A) (B) ................... 3,575,935
271,175 Viacom, Inc. - Non-Voting Class B ................ 8,840,305
------------
49,179,949
------------
TECHNOLOGY -- 5.5%
523,550 IMS Health, Inc. ................................. 13,046,866
------------
TELECOMMUNICATIONS -- 4.4%
413,650 Comcast Corp. - Class A Special (A) .............. 10,626,669
------------
TOTAL COMMON STOCKS (Cost $172,949,318)........... $231,643,776
------------
9
OAK VALUE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
================================================================================
SHARES CASH EQUIVALENTS -- 5.9% VALUE
- --------------------------------------------------------------------------------
13,943,531 First American Government Obligations Fund - Class Y
(Cost $13,943,531)................................ $ 13,943,531
------------
TOTAL INVESTMENTS AT VALUE -- 103.2%
(Cost $186,892,849) ............................ $245,587,307
LIABILITIES IN EXCESS OF OTHER ASSETS -- (3.2%)... (7,623,742)
------------
NET ASSETS -- 100.0%.............................. $237,963,565
============
(A) Non-income producing security.
(B) When-issued security.
See accompanying notes to financial statements.
10
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 (UNAUDITED)
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Oak Value Fund (the "Fund") is a diversified series of Oak Value Trust (the
"Trust"). The Trust, registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), was
organized as a Massachusetts business trust on March 3, 1995. The Fund began
operations on January 18, 1993 as a series of the Albemarle Investment Trust.
The Fund's investment objective is to seek capital appreciation primarily
through investments in equity securities, consisting of common and preferred
stocks and securities convertible into common stocks traded in domestic and
foreign markets.
The following is a summary of the Fund's significant accounting policies:
SECURITIES VALUATION -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the principal exchange where the
security is traded. Securities traded on a national stock exchange are valued
based upon the closing price on the principal exchange where the security is
traded. Securities which are quoted by NASDAQ are valued at the NASDAQ Official
Closing Price. Securities which are traded over-the-counter are valued at the
last sales price, if available, otherwise, at the last quoted bid price. In the
event that market quotations are not readily available, securities are valued at
fair value as determined in accordance with procedures adopted in good faith by
the Board of Trustees. Such methods of fair valuation may include, but are not
limited to: multiple of earnings, discount from market of a similar freely
traded security, or a combination of these or other methods. The fair value of
securities with remaining maturities of 60 days or less has been determined in
good faith by the Board of Trustees to be represented by amortized cost value,
absent unusual circumstances.
SHARE VALUATION -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
of the Fund is equal to the net asset value per share, except that shares of the
Fund are subject to a redemption fee of 2.00% if redeemed within 90 days of the
date of purchase. For the periods ended December 31, 2005 and June 30, 2005,
proceeds from redemption fees totaled $6,388 and $38,230, respectively.
REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements from
financial institutions such as banks and broker-dealers that the Trust's
investment adviser deems creditworthy under the guidelines approved by the Board
of Trustees, subject to the seller's agreement to repurchase such securities at
a mutually agreed-upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller, under a repurchase agreement, is required to
maintain the value of collateral held pursuant to the agreement at not less than
the repurchase price (including accrued interest).
INVESTMENT INCOME -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date.
DISTRIBUTIONS TO SHAREHOLDERS -- Dividends arising from net investment income,
if any, are declared and paid semi-annually to shareholders of the Fund. Net
realized short-term capital gains, if any, may be distributed throughout the
year and net realized long-term capital gains, if any, are distributed at least
once each year. The amount of distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from accounting principles generally accepted in
the United States (GAAP). These "book/tax" differences are either temporary or
permanent in nature and are primarily due to losses deferred due to wash sales.
The tax character of distributions paid during the six months ended December 31,
2005 was long-term capital gains. There were no distributions during the year
ended June 30, 2005.
SECURITY TRANSACTIONS -- Security transactions are accounted for on trade date.
Gains and losses on securities sold are determined on a specific identification
basis.
11
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
ESTIMATES -- The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
FEDERAL INCOME TAX -- It is the Fund's policy to comply with the special
provisions of Subchapter M of the Internal Revenue Code applicable to regulated
investment companies. As provided therein, in any fiscal year in which the Fund
so qualifies and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is computed on a tax basis for each item as of
December 31, 2005:
- --------------------------------------------------------------------------------
Cost of portfolio investments .................................. $ 186,893,152
=============
Gross unrealized appreciation .................................. $ 64,060,869
Gross unrealized depreciation .................................. (5,366,714)
-------------
Net unrealized appreciation .................................... $ 58,694,155
Capital loss carryforward ...................................... (392,952)
Other gains .................................................... 7,453,775
-------------
Total distributable earnings ................................... $ 65,754,978
=============
- --------------------------------------------------------------------------------
The difference between the federal income tax cost of portfolio of investments
and the financial statement cost is due to the tax deferral of losses on wash
sales.
As of June 30, 2005, the Fund had a capital loss carryforward of $392,952, which
expires June 30, 2012. The capital loss carryforward may be utilized in the
current and future years to offset net realized capital gains, if any, prior to
distributing such gains to shareholders.
2. INVESTMENT TRANSACTIONS
During the six months ended December 31, 2005, cost of purchases and proceeds
from sales and maturities of investment securities, excluding short-term
investments, amounted to $24,917,264 and $25,982,571, respectively.
3. TRANSACTIONS WITH AFFILIATES
The Fund's investments are managed by Oak Value Capital Management, Inc. (the
"Adviser") under the terms of an Investment Advisory Agreement. Under the
Investment Advisory Agreement, the Fund pays the Adviser a fee, which is
computed and accrued daily and paid monthly, at an annual rate of 0.90% of the
Fund's average daily net assets.
Certain trustees and officers of the Trust are also officers of the Adviser or
of Ultimus Fund Solutions, LLC ("Ultimus"), the Fund's administrator, transfer
agent and fund accounting services agent. Such trustees and officers receive no
direct payments or fees from the Trust for serving as officers.
Under the terms of an Administration Agreement with the Trust, Ultimus provides
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. Ultimus
supervises the preparation of tax returns, reports to shareholders of the Fund,
reports to and filings with the Securities and Exchange Commission and state
securities commissions, and materials for meetings of the
12
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Board of Trustees. For the performance of these services, the Fund pays Ultimus
a fee at the annual rate of .10% of the average value of its daily net assets up
to $50 million, .075% of such assets from $50 million to $200 million and .05%
of such assets in excess of $200 million, provided, however, that the minimum
fee is $2,000 per month. For the six months ended December 31, 2005, Ultimus was
paid $92,750 for administration fees.
Under the terms of a Transfer Agent and Shareholder Services Agreement with the
Trust, Ultimus maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. Ultimus receives from
the Fund for its services as transfer agent a fee payable monthly at an annual
rate of $16 per account, provided, however, that the minimum fee is $2,000 per
month. In addition, the Fund pays out-of-pocket expenses, including but not
limited to, postage and supplies. Accordingly, during the six months ended
December 31, 2005, Ultimus was paid $43,268 for transfer agent and shareholder
services fees.
The Fund has entered into agreements with certain financial intermediaries to
provide record keeping, processing, shareholder communications and other
services to the Fund. These services would be provided by the Fund if the shares
were held in accounts registered directly with the Fund's transfer agent.
Accordingly, the Fund pays a fee to such service providers in an amount
equivalent to or less than the per account fee paid to the transfer agent.
During the six months ended December 31, 2005, the Fund paid $78,887 for such
services. These fees are included as "Transfer agent and shareholder services
fees" on the Statement of Operations.
Under the terms of a Fund Accounting Agreement with the Trust, Ultimus
calculates the daily net asset value per share and maintains such books and
records as are necessary to enable Ultimus to perform its duties. For these
services, the Fund pays Ultimus a base fee of $2,000 per month, plus an
asset-based fee at the annual rate of .01% of the average value of its daily net
assets up to $500 million and .005% of such assets in excess of $500 million.
During the six months ended December 31, 2005, the Fund paid Ultimus $24,243 in
fund accounting fees. In addition, the Fund pays all costs of external pricing
services.
Under the terms of a Compliance Consulting Agreement with the Trust, Ultimus
provides an individual with the requisite background and familiarity with the
Federal Securities Laws to serve as the Chief Compliance Officer and to
administer the Trust's compliance policies and procedures. For these services,
the Fund pays Ultimus a base fee of $1,500 per month, plus an asset-based fee at
the annual rate of .01% of the average value of its daily net assets from $100
million to $500 million, .005% of such assets from $500 million to $1 billion
and .0025% of such assets in excess of $1 billion. During the six months ended
December 31, 2005, Ultimus was paid $16,329 for such services. In addition, the
Fund reimburses Ultimus for its reasonable out-of-pocket expenses relating to
these compliance services.
4. BANK LINE OF CREDIT
The Fund has an unsecured $25,000,000 bank line of credit. Borrowings under this
arrangement bear interest at a rate per annum equal to the Prime Rate minus
0.50% at the time of borrowing. During the six months ended December 31, 2005,
the Fund had no outstanding borrowings under the line of credit.
5. CONTINGENCIES AND COMMITMENTS
The Fund indemnifies the Trust's officers and trustees for certain liabilities
that might arise from their performance of their duties to the Fund.
Additionally, in the normal course of business the Fund enters into contracts
that contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the
Fund that have not yet occurred. However, based on experience, the Fund expects
the risk of loss to be remote.
13
OAK VALUE FUND
ABOUT YOUR FUND'S EXPENSES (UNAUDITED)
================================================================================
We believe it is important for you to understand the impact of costs on your
investment. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, including redemption fees; and (2) ongoing costs, including
management fees and other Fund expenses. The following examples are 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.
A fund's expenses are expressed as a percentage of its average net assets. This
figure is known as the expense ratio. The expenses in the table below are based
on an investment of $1,000 made at the beginning of the period shown and held
for the entire period.
The table below illustrates the Fund's costs in two ways:
ACTUAL FUND RETURN - This section helps you to estimate the actual expenses that
you paid over the period. The "Ending Account Value" shown is derived from the
Fund's actual return, and the third column shows the dollar amount of operating
expenses that would have been paid by an investor who started with $1,000 in the
Fund. You may use the information here, together with the amount you invested,
to estimate the expenses that you paid over the period.
To do so, 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
given for the Fund under the heading "Expenses Paid During Period."
HYPOTHETICAL 5% RETURN - This section is intended to help you compare the Fund's
costs with those of other mutual funds. It assumes that the Fund had an annual
return of 5% before expenses during the period shown, but that the expense ratio
is unchanged. In this case, because the return used is not the Fund's actual
returns, the results do not apply to your investment. The example is useful in
making comparisons because the Securities and Exchange Commission requires all
mutual funds to calculate expenses based on a 5% return. You can assess the
Fund's costs by comparing this hypothetical example with the hypothetical
examples that appear in shareholder reports of other funds.
Note that expenses shown in the table are meant to highlight and help you
compare ongoing costs only. The Fund does not charge a front-end sales load.
However, a redemption fee of 2% is applied on the sale of shares held within 90
days of the date of purchase and does not apply to the redemption of shares
acquired through reinvestment of dividends and other distributions.
The calculations assume no shares were bought or sold during the period. Your
actual costs may have been higher or lower, depending on the amount of your
investment and the timing of any purchases or redemptions.
More information about the Fund's expenses, including annual expense ratios for
the prior five fiscal years, can be found in this report. For additional
information on operating expenses and other shareholder costs, please refer to
the Fund's prospectus.
- --------------------------------------------------------------------------------
Beginning Ending
Account Value Account Value Expenses Paid
July 1, 2005 December 31, 2005 During Period*
- --------------------------------------------------------------------------------
Based on Actual Fund Return $1,000.00 $983.80 $6.35
Based on Hypothetical 5% Return
(before expenses) $1,000.00 $1,018.80 $6.46
- --------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 1.27% for the period,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
14
OAK VALUE FUND
OTHER INFORMATION (UNAUDITED)
================================================================================
A description of the policies and procedures the Fund uses to determine how to
vote proxies relating to portfolio securities is available without charge upon
request by calling toll-free 1-800-622-2474, or on the Securities and Exchange
Commission's ("SEC") website at http://www.sec.gov. Information regarding how
the Fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is also available without charge upon request by
calling toll-free 1-800-622-2474, or on the SEC's website http://www.sec.gov.
The Trust files a complete listing of portfolio holdings for the Fund with the
SEC as of the first and third quarters of each fiscal year on Form N-Q. The
filings are available upon request, by calling 1-800-622-2474. Furthermore, you
will be able to obtain a copy of the filing on the SEC's website at
http://www.sec.gov. The Trust's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC, and information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
15
OAK VALUE FUND
APPROVAL OF ADVISORY AGREEMENT (UNAUDITED)
================================================================================
The Board of Trustees of the Trust, with the Independent Trustees voting
separately, has approved the continuance of the Fund's Investment Advisory
Agreement (the "Agreement") with the Adviser. Approval took place at an
in-person meeting, held on November 8, 2005 at which all of the Trustees were
present.
The Independent Trustees were advised by counsel of their fiduciary obligations
in approving the Agreement, and the Trustees requested such information from the
Adviser as they deemed reasonably necessary to evaluate the terms of the
Agreement and whether the Agreement will continue to be in the best interests of
the Fund and its shareholders. The Trustees reviewed: (i) the nature, extent and
quality of the services provided by the Adviser; (ii) the investment performance
of the Fund and the Adviser; (iii) the costs of the services provided and the
profits realized by the Adviser from its relationship with the Fund; (iv) the
extent to which economies of scale would be realized as the Fund grows; and (v)
whether fee levels reflect these economies of scale for the benefit of the
Fund's shareholders. The Trustees reviewed the background, qualifications,
education and experience of the Adviser's portfolio managers, research staff and
support personnel and the operations and ownership of the Adviser. The Trustees
also reviewed the responsibilities of the Adviser under the Agreement and
considered the quality of the advisory services provided to the Trust, including
the Adviser's intensive research process and its practices with regards to
shareholder protection, shareholder services and communications, and compliance.
The Independent Trustees were advised and supported by counsel experienced in
securities matters throughout the process. Prior to voting, the Independent
Trustees reviewed and discussed the proposed continuance of the Agreement with
management of the Adviser.
The Adviser provided the Board with extensive information to assist the Trustees
with analyzing the Fund's performance over various periods. The Fund's returns
were compared to the returns of relevant indices and similarly managed mutual
funds. These analyses and comparisons showed that, although the more recent
performance of the Fund has lagged its benchmark (the S&P 500 Index), the Fund's
longer term performance has been superior to both the S&P 500 Index and the
average of Large Cap Blend Funds as categorized by Morningstar. Based upon their
review, the Trustees found that the Adviser has provided high-quality advisory
services and has consistently adhered to the stated investment objective and
strategies of the Fund.
In reviewing the advisory fees and the total expense ratio of the Fund, the
Trustees were provided with comparative expense and advisory fee information for
other similarly situated mutual funds, categorized both by fund size and by
investment style. The Trustees noted that the Adviser is paid an advisory fee at
an annual rate of .90% of the Fund's daily net assets and that the Fund's total
expenses for each of the past two fiscal years was 1.25% of daily net assets.
The Trustees also considered the "fallout benefits" received by the Adviser in
its management of the Fund, including certain research services received as a
result of placement of the Fund's brokerage, but, given the amounts involved,
viewed these as secondary factors in connection with the reasonableness of the
advisory fees being paid by the Fund. The Trustees concluded that, based upon
the investment strategies and the long-term performance of the Fund, the
advisory fees paid by the Fund are reasonable.
16
OAK VALUE FUND
APPROVAL OF ADVISORY AGREEMENT (UNAUDITED)
(CONTINUED)
================================================================================
The Trustees reviewed a recent balance sheet of the Adviser and a statement of
the Adviser's revenues and expenses with respect to its management of the Fund
for the period from January 1, 2004 through June 30, 2005. The Trustees also
reviewed the Fund's brokerage costs and determined that the brokerage
commissions negotiated by the Adviser on behalf of the Fund are competitive with
industry averages.
The Independent Trustees concluded that: (i) based on the long-term performance
and risk characteristics of the Fund, the effectiveness of the Fund in achieving
its stated objective, and the Adviser's proactive stance regarding shareholder
protections, compliance and communication to shareholders, they believe the
Adviser has provided high quality services; (ii) given the goals of the
investment program of the Fund to provide attractive returns over a full market
cycle, and the fact that the Adviser does not manage the Fund to "track" the
market and has consistently adhered to its mandate and stated strategy in
managing the Fund, the short-term performance of the Fund relative to mutual
fund industry averages and broad market indices is generally not of significant
relevance to the assessment of the overall quality of services provided by the
Adviser to the Fund; (iii) in their view, the nature of the research services
provided by the Adviser, which are broad and sophisticated, are necessary to
manage the Fund; (iv) although the advisory fees and overall operating expenses
of the Fund are in the higher range of fees and expenses for mutual funds of
similar size investing in similar securities, the Trustees believe that the
scope and quality of services provided by the Adviser, which exceed the norm,
support the appropriateness of the advisory fees payable by the Fund; and (v) at
current assets levels, it would not be relevant to consider the extent to which
economies of scale would be realized as the Fund grows, and whether fee levels
reflect these economies of scale. The Independent Trustees also reviewed and
considered the profitability of the Adviser with regards to its management of
the Fund, concluding that the Adviser's profitability was not excessive, given
the high quality and scope of services provided by the Adviser and the
investment performance of the Fund. The Independent Trustees also agreed that it
is not appropriate to introduce fee breakpoints at the present time. The
Trustees noted, however, that if the Fund grows significantly in assets, it may
become necessary for the Adviser to consider adding fee breakpoints to the
Agreement.
No single factor was considered in isolation or to be determinative to the
decision of the Independent Trustees to approve continuance of the Agreement.
Rather, the Independent Trustees concluded, in light of a weighing and balancing
of all factors considered, that the advisory fees payable by the Fund under the
Agreement are fair and reasonable. The Independent Trustees determined that it
would be in the best interests of the Fund and its shareholders for the Adviser
to continue to serve as investment adviser and voted to renew the Agreement for
an additional annual period.
17
OAK VALUE FUND
INVESTMENT ADVISER
Oak Value Capital Management, Inc.
3100 Tower Boulevard, Suite 700
Durham, North Carolina 27707
1-800-680-4199
www.oakvaluefund.com
ADMINISTRATOR
Ultimus Fund Solutions, LLC
225 Pictoria Drive, Suite 450
Cincinnati, Ohio 45246
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
250 East Fifth Street
Suite 1900
Cincinnati, Ohio 45202
CUSTODIAN
US Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
BOARD OF TRUSTEES
Joseph T. Jordan, Jr., Chairman
C. Russell Bryan
Larry D. Coats, Jr.
John M. Day
Charles T. Manatt
OFFICERS
Larry D. Coats, Jr., President
Matthew F. Sauer, Vice President
Robert G. Dorsey, Vice President
Mark J. Seger, Treasurer
John F. Splain, Secretary
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS OF THE OAK VALUE FUND. IT
MAY NOT BE DISTRIBUTED TO PROSPECTIVE INVESTORS UNLESS IT IS PRECEDED OR
ACCOMPANIED BY THE CURRENT FUND PROSPECTUS.
ITEM 2. CODE OF ETHICS.
Not required
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
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
MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant's governance, nomination and compensation committee shall review
shareholder recommendations to fill vacancies on the registrant's board of
trustees if such recommendations are submitted in writing, addressed to the
committee at the registrant's offices and meet any minimum qualifications
adopted by the committee. The committee may adopt, by resolution, a policy
regarding its procedures for considering candidates for the board of trustees,
including any recommended by shareholders.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures are reasonably designed
and are operating effectively to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in which this
report is being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not required
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): Attached hereto
(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) Certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)): Attached hereto
Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act
Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act
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.
(Registrant) Oak Value Trust
---------------------------------------------------------
By (Signature and Title)* /s/ Larry D. Coats, Jr.
-------------------------------------------
Larry D. Coats, Jr., President
Date February 21, 2006
--------------------------------------
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 (Signature and Title)* /s/ Larry D. Coats, Jr.
-------------------------------------------
Larry D. Coats, Jr., President
Date February 21, 2006
--------------------------------------
By (Signature and Title)* /s/ Mark J. Seger
-----------------------------------------------------
Mark J. Seger, Treasurer
Date February 21, 2006
--------------------------------------
* Print the name and title of each signing officer under his or her signature.