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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: June 30, 2006
---------------------------------------------
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.
ANNUAL REPORT
JUNE 30, 2006
[GRAPHIC OMITTED]
OAK VALUE FUND
--------------
WWW.OAKVALUEFUND.COM
LETTER TO SHAREHOLDERS August, 2006
================================================================================
Dear Fellow Shareholders,
The operating results and related information for the Oak Value Fund's (the
"Fund") fiscal year ended June 30, 2006 are presented in the pages that follow.
During the period, the Fund's performance lagged that of the benchmark S&P 500
Index and posted a net negative return (see page 8 for performance table). This
outcome - on a relative and absolute basis - is attributable to a combination of
factors ranging from adverse results for select securities to the Fund's ongoing
lack of exposure to energy-related businesses. Additional discussion of these
and other factors is provided in the MANAGEMENT DISCUSSION AND ANALYSIS section
of this report. From a timing standpoint, these results were most severely
impacted by the early quarters of the period. Though the Fund's performance
improved notably during the fourth fiscal quarter of the year, the extent of
this improvement was insufficient to compensate for the drag created in earlier
periods (see Table A on page 4).
In investments, it is important to remember that activity is not necessarily
related to nor a predictor of results. We have now been at this task for nearly
twenty years and have, from a market perspective, experienced many "seasons"
while remaining steadfast from a philosophical standpoint. Periods of
opportunity are seldom aligned with periods of great results. Furthermore, the
basic characteristics of the Fund portfolio are seldom aligned with broader
"benchmarks." Such periods of misalignment have often provided opportunity for
investors. In our opinion, this is one of those periods.
We remain committed to the disciplined pursuit of a proven investment
philosophy. Our execution has not been and will not be perfect. Even in the
midst of this current "season" in which we have found little favor in terms of
portfolio performance, we are confident that our execution has continued to
improve. We have allocated significant effort to the historical analysis of our
actions in the belief that all of these experiences can and should be
instructive. Where appropriate, we have continued to fine tune the analytical
process to support our goal of ever improving decision-making. We believe the
net effect of this effort will be more successes and fewer misteps. The late
year recovery in portfolio performance is encouraging in this regard as the
quality and value of portfolio businesses, in our view, was demonstrated.
As we previously reported to you in May of this year, Matthew F. Sauer has left
Oak Value Capital Management, Inc. to pursue other professional opportunities.
We wish him well in his future endeavors. We have communicated on various
occasions over the last couple of years that we were working diligently to
position our investment team for the most productive and effective long term
results. This transition took significant time and investment on our part and
has now largely been completed. Our team is more focused, more experienced and
more engaged than at any point in the firm's history.
1
In closing, we thank you, our fellow shareholders for your interest in the Oak
Value Fund and the confidence you have placed in us and our organization. We
welcome your questions/comments and encourage you to visit the Fund's website at
www.oakvaluefund.com for various periodic commentaries that we make available.
Our primary responsibility is that of making good investment decisions on behalf
of Fund shareholders. To that task, we remain fully committed.
Oak Value Fund Co-Managers,
/s/ David R. Carr, Jr. /s/ Larry D. Coats, Jr.
David R. Carr, Jr. Larry D. Coats, Jr.
Note: Please see the Important Information section of this report for disclosure
that applies to both this letter and the Management Discussion and Analysis that
follows.
2
MANAGEMENT DISCUSSION AND ANALYSIS
================================================================================
The Fund's absolute and relative results for the fiscal year ended June 30, 2006
can be most notably attributed to the following factors:
o Negative returns from two specific holdings - Cendant and Zale Corp. Both
of these holdings were multi-year positions of the Fund and had been noted
at various time-periods among significant contributors to the Fund's
performance throughout the years. Operating challenges and management
issues experienced at these companies led to the decision to sell the
positions during the period. Though these holdings negatively impacted
returns during the period, the sales contributed to the realized capital
gain generated by the Fund's operations. As the two most significant
individual detractors from performance, they cost the Fund almost 3% of
absolute returns during the period.
o Continued over-weighting and underperformance (relative to the S&P 500
Index) in media-related businesses. The single most significant contributor
to this underperformance during the period was E. W. Scripps, one of the
Fund's longest and largest holdings. Other media related businesses which
contributed to the underperformance were Entercom Communications, Comcast
and Viacom/CBS. Time Warner contributed positively to performance during
the period. In aggregate, the Fund's exposure to media-related businesses
(and the underperformance thereof) was the most significant detractor from
performance during the fiscal year.
o Lack of exposure to energy-related businesses. Energy and commodity-related
sectors led the returns of the overall market during the fiscal year as
energy stocks advanced nearly one quarter, in aggregate. The Fund's lack of
exposure to such businesses is one of the primary contributors to lagging
results in recent years.
o Selective positions in healthcare (IMS Health) and information technology
(Oracle) contributed positively to Fund results during the period as these
two S&P sectors were among the worst performers for the overall market.
The two most significant positive contributors to the Fund's performance during
the period were United Technologies and Berkshire Hathaway. We find this
combination interesting as United Technologies is one of the Fund's more recent
additions, having been added during the prior fiscal year, and Berkshire
Hathaway is one of the Fund's longest held positions. The balance of the most
significant individual contributors and detractors from performance during the
period are provided in Table B below.
Portfolio activity for the year is summarized in Table C below. Seven new
holdings were initiated during the period representing a diverse collection of
businesses across multiple industries and market sectors. Our analysis of these
businesses suggests that they qualify decidedly, as "GOOD BUSINESSES WITH GOOD
3
MANAGEMENT PURCHASED AT ATTRACTIVE PRICES." In terms of sale activity, we
eliminated seven holdings during the period. The reasons for their sale varied
on a case by case basis.
The Fund's portfolio composition is well within the range of its historical
experience, ending the year with the top ten holdings representing more than 50
percent of the portfolio and the total number of holdings at 21 companies.
Additionally, the Fund portfolio is predominately populated with
mid-to-large-cap businesses. On average, the portfolio consists of a collection
of businesses which we estimate to produce returns on equity and operating
margins in excess of 20 percent while maintaining relatively un-leveraged
balance sheets. Our assessment of their future prospects suggests that these
businesses' revenues and earnings should grow at above average rates over a
three-to-five year time horizon. Though the Fund portfolio consists primarily of
US based companies, a significant portion of them have substantial international
operations and should be viewed, in our opinion, as global businesses. Much of
the growth in the world's economy will continue to take place outside the United
States. This attraction to businesses that operate on a more global platform is
longstanding and we believe has served Fund shareholders well.
- -------------------------------------------------------------------------------------------
TABLE A
- -------------------------------------------------------------------------------------------
QUARTERLY PERFORMANCE - FISCAL YEAR 2006
- -------------------------------------------------------------------------------------------
2ND QUARTER 2006 1ST QUARTER 2006 4TH QUARTER 2005 3RD QUARTER 2005
- -------------------------------------------------------------------------------------------
Oak Value Fund 0.49% -0.53% -0.75% -0.88%
- -------------------------------------------------------------------------------------------
S&P 500 -1.44% 4.21% 2.09% 3.60%
- -------------------------------------------------------------------------------------------
THE PERFORMANCE INFORMATION QUOTED ABOVE REPRESENTS PAST PERFORMANCE AND PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PERFORMANCE
DATA, CURRENT TO THE MOST RECENT MONTH END, MAY BE FOUND AT THE OAK VALUE FUND
WEBSITE WWW.OAKVALUEFUND.COM. AN INVESTOR SHOULD CONSIDER THE FUND'S INVESTMENT
OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE
FUND'S PROSPECTUS CONTAINS THIS AND OTHER IMPORTANT INFORMATION.
The Fund imposes a 2% redemption fee on shares redeemed within 90 days of their
purchase date. See the Fund's current prospectus for more information on the
Fund's redemption fee. Please keep in mind the performance information above
does not reflect the imposition of a 2% redemption fee. You may obtain a copy of
the Fund's prospectus at www.oakvaluefund.com or by calling 1-800-622-2474.
Please read the prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------------------------
TABLE B
- ------------------------------------------------------------------------------------------------
LARGEST NET CONTRIBUTORS TO INVESTMENT RESULTS
YEAR ENDED JUNE 30, 2006
- ------------------------------------------------------------------------------------------------
6/30/06 % OF 6/30/06 % OF
POSITIVE CONTRIBUTORS NET ASSETS NEGATIVE CONTRIBUTORS NET ASSETS
- ------------------------------------------------------------------------------------------------
AFLAC, Inc. 5.61% Cendant Corp. Sold
- ------------------------------------------------------------------------------------------------
Berkshire Hathaway, Inc.1 10.41% Constellation Brands, Inc. 6.55%
- ------------------------------------------------------------------------------------------------
Diageo PLC - ADR 5.76% E. W. Scripps Co. (The) 6.72%
- ------------------------------------------------------------------------------------------------
IMS Health, Inc. 5.42% Entercom Communications Corp. 1.93%
- ------------------------------------------------------------------------------------------------
United Technologies Corp. 5.81% Zale Corp. Sold
- ------------------------------------------------------------------------------------------------
1 Class A and B Shares combined.
- ------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TABLE C
- ----------------------------------------------------------------------------------------------------------
PURCHASE AND SALE ACTIVITY - TWELVE MONTHS ENDED JUNE 30, 2006
- ----------------------------------------------------------------------------------------------------------
POSITION PRIMARY BUSINESS S&P SECTOR
- ----------------------------------------------------------------------------------------------------------
PURCHASED
- ----------------------------------------------------------------------------------------------------------
E.I. du Pont de Nemours & Co. Diversified Chemicals Basic Materials
- ----------------------------------------------------------------------------------------------------------
Estee Lauder Cos. (The) Skin Care/Cosmetics Consumer Staples
- ----------------------------------------------------------------------------------------------------------
Harley-Davidson, Inc. Motorcycles Consumer Discretionary
- ----------------------------------------------------------------------------------------------------------
Johnson & Johnson Healthcare Products Health Care
- ----------------------------------------------------------------------------------------------------------
Masco Corp. Home Improvement & Building Products Industrials
- ----------------------------------------------------------------------------------------------------------
Oracle Corp. Application Software Information Technology
- ----------------------------------------------------------------------------------------------------------
Praxair, Inc. Industrial Use Atmospheric and Process Gases Basic Materials
- ----------------------------------------------------------------------------------------------------------
SOLD
- ----------------------------------------------------------------------------------------------------------
Ambac Financial Group, Inc. Financial Guarantee Insurance Financials
- ----------------------------------------------------------------------------------------------------------
Boston Scientific Corp. Medical Devices Health Care
- ----------------------------------------------------------------------------------------------------------
CBS Corp. Media Broadcasting Consumer Discretionary
- ----------------------------------------------------------------------------------------------------------
Cendant Corp. Travel, Hospitality, & Mortgage Finance Industrials
- ----------------------------------------------------------------------------------------------------------
Fidelity National
Information Services, Inc. Financial Transaction Processing Services Information Technology
- ----------------------------------------------------------------------------------------------------------
Comcast Corp. Entertainment & Information Services Consumer Discretionary
- ----------------------------------------------------------------------------------------------------------
Zale Corp. Fine Jewelry Retailing Consumer Discretionary
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TABLE D
- ----------------------------------------------------------------------------------------------------------
TOP TEN HOLDINGS AS OF JUNE 30, 2006
- ----------------------------------------------------------------------------------------------------------
COMPANY PRIMARY BUSINESS S&P SECTOR
- ----------------------------------------------------------------------------------------------------------
AFLAC, Inc. Supplemental Heath & Life Insurance Financials
- ----------------------------------------------------------------------------------------------------------
Berkshire Hathaway, Inc. Insurance, Reinsurance & Capital Allocation Financials
- ----------------------------------------------------------------------------------------------------------
Cadbury Schweppes PLC - ADR Int'l Confectionery & Beverages
Manufacturer / Licensor Consumer Staples
- ----------------------------------------------------------------------------------------------------------
Constellation Brands, Inc. Wine, Beer & Spirits Production / Distribution Consumer Staples
- ----------------------------------------------------------------------------------------------------------
Diageo PLC - ADR Global Premium Alcohol Business Consumer Staples
- ----------------------------------------------------------------------------------------------------------
E.W. Scripps Co. (The) Entertainment & Information / Media Consumer Discretionary
- ----------------------------------------------------------------------------------------------------------
IMS Health, Inc. Information Solutions to Pharmaceutical/
Healthcare Industry Health Care
- ----------------------------------------------------------------------------------------------------------
Praxair, Inc. Industrial Use Atmospheric and Process Gases Basic Materials
- ----------------------------------------------------------------------------------------------------------
Time Warner, Inc. Entertainment & Information / Media Consumer Discretionary
- ----------------------------------------------------------------------------------------------------------
United Technologies Corp. Diversified Manufacturing and Service Industrials
- ----------------------------------------------------------------------------------------------------------
5
IMPORTANT INFORMATION
This Management Discussion and Analysis seeks to describe some of the Oak Value
Fund ("the Fund") managers' current views of the market that shareholders may
find relevant and to provide a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its latest fiscal year.
Any listing or discussion of specific securities is intended to help
shareholders understand the Fund's investment strategies and/or factors that
influenced the Fund's investment performance, and should not be regarded as a
recommendation of any security. We believe we have a reasonable basis for any
opinions expressed, though actual results may differ, sometimes significantly
so, from those we expect and express. Statements referring to future actions or
events, such as the future financial performance or ongoing business strategies
of the companies in which the Fund invests, are based on the current
expectations and projections about future events provided by various sources,
including company management. These statements are not guarantees of future
performance, and actual events and results may differ materially from those
discussed herein.
Any opinions and views expressed related to the prospects of any individual
portfolio holdings or grouping thereof or of the Fund itself are "forward
looking statements" which may or may not prove to be accurate over the long term
when viewed from the perspective of hindsight. Forward looking statements can be
identified by words, phrases, and expressions such as "believe," "expect,"
"anticipate," "in our view," "in our opinion," or similar terminology when
discussing prospects for particular Fund portfolio companies or groupings of
companies, and/or of the Fund itself. We cannot assure future results or
performance. You should not place undue reliance on forward looking statements,
which are effective only as of the date of this report. We recognize no
obligation to update or alter such forward looking statements, whether as a
result of changes in our opinion or analysis, subsequent information, future
events, or other circumstances.
Any displays detailing a summary of holdings (e.g., top holdings, purchases and
sales, largest net contributors, etc.) are based on the Fund's holdings on June
30, 2006 or held during the fiscal year ended June 30, 2006. References to
securities purchased or held are only as of the date of this communication to
shareholders. Although the Fund's investment adviser focuses on long-term
investments, holdings are subject to change.
This Letter to Shareholders and Management Discussion and Analysis may include
statistical and other factual information obtained from third-party sources. We
believe those sources to be accurate and reliable; however, we are not
responsible for errors by them on which we reasonably rely. In addition, our
comments are influenced by our analysis of information from a wide variety of
sources and may contain syntheses, synopses, or excerpts of ideas from written
or oral viewpoints provided to us by investment, industry, press and other
public
6
sources about various economic, political, central bank, and other suspected
influences on investment markets.
Although our comments focus on the most recent fiscal year, we use this
perspective only because it reflects industry convention and regulatory
expectations and requirements. The Fund and its investment adviser do not
subscribe to the notion that twelve-month periods or other short-term periods
are either appropriate for making judgments or useful in setting long-term
expectations for returns from our, or any other, investment strategy. The Fund
and its investment adviser do not subscribe to any particular viewpoint about
causes and effects of events in the broad capital markets, other than that they
are not predictable in advance. Specifically, nothing contained in the Letter to
Shareholders or Management Discussion and Analysis should be construed as a
forecast of overall market movements, either in the short or long term.
Any headings, titles, section dividers, quotations, or other devices used herein
are provided for the convenience of the reader and purposes of style. They are
not required elements of the presentation and may or may not be applied
identically in similar publications over time. Any references and/or hyperlinks
to other source material or web sites contained in this material are provided
for your convenience and information. We do not assume any responsibility or
liability for any information accessed via links to or referenced in third party
locations or web sites. The existence of these links and references is not an
endorsement, approval or verification by us of any content available on any
third party site. In providing access to other web sites, we are not
recommending the purchase or sale of the stock issued by any company, nor are we
endorsing products or services made available by the sponsor of any third party
web site.
We do not attempt to address specifically how individual shareholders have
fared, since shareholders also receive account statements showing their holdings
and transactions. Information concerning the performance of the Fund and our
recommendations over the last year are available upon request. You should not
assume that future recommendations will be as profitable as past
recommendations.
PAST PERFORMANCE IS NO INDICATION OF FUTURE PERFORMANCE. ANY PERFORMANCE DATA
QUOTED REPRESENTS PAST PERFORMANCE AND THE INVESTMENT RETURN AND PRINCIPAL VALUE
OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE QUOTED. PERFORMANCE DATA IS
UPDATED MONTHLY AND IS AVAILABLE ON THE FUND'S WEBSITE AT WWW.OAKVALUEFUND.COM.
AN INVESTOR SHOULD CONSIDER THE INVESTMENT OBJECTIVES, STRATEGIES, RISKS,
CHARGES AND EXPENSES OF THE FUND BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS
AND OTHER IMPORTANT INFORMATION ABOUT THE FUND. FOR A PROSPECTUS, PLEASE CALL 1
(800) 622-2474 OR VISIT THE FUND'S WEBSITE AT WWW.OAKVALUEFUND.COM. READ THE
PROSPECTUS CAREFULLY BEFORE YOU INVEST.
OAK VALUE FUND IS DISTRIBUTED BY ULTIMUS FUND DISTRIBUTORS, LLC.
7
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
-------------- --------------
DATE BALANCE DATE BALANCE
---- ------- ---- -------
06/30/96 $ 10,000 06/30/96 $ 10,000
12/31/96 11,610 12/31/96 11,168
06/30/97 13,960 06/30/97 13,470
12/31/97 15,988 12/31/97 14,895
06/30/98 18,784 06/30/98 17,533
12/31/98 19,013 12/31/98 19,151
06/30/99 20,061 06/30/99 21,522
12/31/99 18,419 12/31/99 23,181
06/30/00 18,475 06/30/00 23,083
12/31/00 21,766 12/31/00 21,070
06/30/01 22,784 06/30/01 19,659
12/31/01 21,664 12/31/01 18,566
06/30/02 18,954 06/30/02 16,123
12/31/02 16,391 12/31/02 14,463
06/30/03 19,456 06/30/03 16,164
12/31/03 21,654 12/31/03 18,611
06/30/04 22,072 06/30/04 19,252
12/31/04 23,381 12/31/04 20,637
06/30/05 23,441 06/30/05 20,470
12/31/05 23,061 12/31/05 21,650
06/30/06 23,051 06/30/06 22,236
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
TOTAL RETURNS(A)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR-TO-DATE SINCE
CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR CALENDAR 2006 INCEPTION*
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (AS OF 6/30/06)(AS OF 6/30/06)
- ------------------------------------------------------------------------------------------------------------------------------------
Oak Value Fund 28.99% 37.70% 18.93% -3.12% 18.17% -0.47% -24.34% 32.11% 7.97% -1.37% -0.04%(B) 296.60%(B)
S&P 500 Index 22.96% 33.36% 28.58% 21.04% -9.12% -11.90% -22.10% 28.68% 10.88% 4.91% 2.71%(B) 274.34%(B)
- ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(A)
- -------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED JUNE 30, 2006
- -------------------------------------------------------------------------------------------
SINCE
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS INCEPTION*
- -------------------------------------------------------------------------------------------
Oak Value Fund.............. -1.66% 5.82% 0.23% 8.71% 10.79%
S&P 500 Index............... 8.63% 11.22% 2.49% 8.32% 10.31%
- -------------------------------------------------------------------------------------------
* 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.
8
OAK VALUE FUND
PORTFOLIO INFORMATION
JUNE 30, 2006 (UNAUDITED)
================================================================================
DISTRIBUTION BY BUSINESS CATEGORY
Basic Materials - 7.9%
Consumer Related - 29.9%
Diversified - 19.9%
[GRAPHIC OMITTED] Finance Related - 9.0%
Healthcare - 2.2%
Insurance - 5.6%
Media - 16.0%
Technology - 8.8%
Cash Equivalents - 0.7%
TEN LARGEST HOLDINGS
% OF
COMPANY NET ASSETS
-------------------------------------------------------
Berkshire Hathaway, Inc.1 10.41%
Cadbury Schweppes PLC - ADR 7.22%
E.W. Scripps Co. (The) - Class A 6.72%
Constellation Brands, Inc. - Class A 6.55%
United Technologies Corp. 5.81%
Diageo PLC - ADR 5.76%
AFLAC, Inc. 5.61%
IMS Health, Inc. 5.42%
Praxair, Inc. 5.29%
Time Warner, Inc. 5.23%
1 Class A and Class B shares combined.
9
OAK VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2006
================================================================================
ASSETS
Investments in securities:
At cost ..................................................... $151,302,248
============
At market value (Note 1) .................................... $203,116,039
Receivable for capital shares sold ............................ 47,497
Dividends receivable .......................................... 102,948
Other assets .................................................. 80,085
------------
TOTAL ASSETS ................................................ 203,346,569
------------
LIABILITIES
Dividends payable ............................................. 50,067
Capital gains payable ......................................... 1,142,018
Payable for capital shares redeemed ........................... 922,418
Accrued investment advisory fees (Note 3) ..................... 152,056
Payable to affiliate (Note 3) ................................. 26,700
Other accrued expenses and liabilities ........................ 29,679
------------
TOTAL LIABILITIES ........................................... 2,322,938
------------
NET ASSETS .................................................... $201,023,631
============
Net assets consist of:
Paid-in capital ............................................... $149,209,373
Undistributed net investment income ........................... 446
Undistributed net realized gains from security
transactions ................................................ 21
Net unrealized appreciation on investments .................... 51,813,791
------------
Net assets .................................................... $201,023,631
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ....... 7,179,588
============
Net asset value, offering price and redemption price
per share(A)................................................. $ 28.00
============
(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.
10
OAK VALUE FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2006
================================================================================
INVESTMENT INCOME
Dividends ..................................................... $ 3,571,137
------------
EXPENSES
Investment advisory fees (Note 3) ............................. 2,101,022
Transfer agent and shareholder services fees (Note 3) ......... 236,621
Administration fees (Note 3) .................................. 179,187
Trustees' fees and expenses ................................... 133,312
Postage and supplies .......................................... 73,473
Insurance expense ............................................. 54,250
Professional fees ............................................. 54,245
Fund accounting fees (Note 3) ................................. 47,297
Registration fees ............................................. 36,479
Compliance service fees (Note 3) .............................. 31,347
Custodian fees ................................................ 23,537
Other expenses ................................................ 33,879
------------
TOTAL EXPENSES .............................................. 3,004,649
------------
NET INVESTMENT INCOME ......................................... 566,488
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions ................. 15,683,448
Net change in unrealized appreciation/depreciation on
investments ................................................. (20,219,133)
------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS ............. (4,535,685)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS .................... $ (3,969,197)
============
See accompanying notes to financial statements.
11
OAK VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
=======================================================================================
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
2006 2005
- ---------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) ................... $ 566,488 $ (973,073)
Net realized gains from security transactions .. 15,683,448 14,409,303
Net change in unrealized appreciation/
depreciation on investments .................. (20,219,133) 1,545,330
-------------- --------------
Net increase (decrease) in net assets from
operations ..................................... (3,969,197) 14,981,560
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ..................... (566,042) --
From net realized gains from security
transactions ................................. (15,290,172) --
-------------- --------------
Net decrease in net assets from distributions
to shareholders ................................ (15,856,214) --
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ...................... 37,744,165 45,708,435
Reinvestment of distributions to shareholders .. 14,515,519 --
Proceeds from redemption fees collected (Note 1) 11,580 38,230
Payments for shares redeemed ................... (80,204,484) (71,433,511)
-------------- --------------
Net decrease in net assets from capital
share transactions ............................. (27,933,220) (25,686,846)
-------------- --------------
NET DECREASE IN NET ASSETS ....................... (47,758,631) (10,705,286)
NET ASSETS
Beginning of year .............................. 248,782,262 259,487,548
-------------- --------------
End of year .................................... $ 201,023,631 $ 248,782,262
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME .............. $ 446 $ --
============== ==============
SUMMARY OF CAPITAL SHARE ACTIVITY
Shares sold .................................... 1,242,359 1,535,973
Shares reinvested .............................. 514,088 --
Shares redeemed ................................ (2,647,888) (2,405,843)
-------------- --------------
Net decrease in shares outstanding ............. (891,441) (869,870)
Shares outstanding, beginning of year .......... 8,071,029 8,940,899
-------------- --------------
Shares outstanding, end of year ................ 7,179,588 8,071,029
============== ==============
See accompanying notes to financial statements.
12
OAK VALUE FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 30.82 $ 29.02 $ 25.58 $ 24.92 $ 30.74
---------- ---------- ---------- ---------- ----------
Income (loss) from investment
operations:
Net investment income (loss) ..... 0.08 (0.12) (0.15) (0.07) (0.10)
Net realized and unrealized gains
(losses) on investments ........ (0.60) 1.92 3.59 0.73 (5.05)
---------- ---------- ---------- ---------- ----------
Total from investment operations ... (0.52) 1.80 3.44 0.66 (5.15)
---------- ---------- ---------- ---------- ----------
Less distributions:
From net investment income ....... (0.08) -- -- -- --
From net realized gains from
security transactions .......... (2.22) -- -- -- (0.67)
---------- ---------- ---------- ---------- ----------
Total distributions ................ (2.30) -- -- -- (0.67)
---------- ---------- ---------- ---------- ----------
Proceeds from redemption
fees collected (Note 1) .......... 0.00(A) 0.00(A) 0.00(A) -- --
---------- ---------- ---------- ---------- ----------
Net asset value at end of year ..... $ 28.00 $ 30.82 $ 29.02 $ 25.58 $ 24.92
========== ========== ========== ========== ==========
Total return(B) .................... (1.66%) 6.20% 13.45% 2.65% (16.81%)
========== ========== ========== ========== ==========
Net assets at end of period (000's) $ 201,024 $ 248,782 $ 259,488 $ 272,582 $ 279,736
========== ========== ========== ========== ==========
Ratio of expenses to
average net assets ............... 1.29% 1.25% 1.25% 1.36% 1.23%(C)
Ratio of net investment income
(loss) to average net assets ..... 0.24% (0.39%) (0.52%) (0.33%) (0.36%)
Portfolio turnover rate ............ 29% 29% 24% 28% 63%
(A) Amount rounds to less than $0.01 per share.
(B) 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.
(C) Absent the use of earnings credits on cash balances, the ratio of expenses
to average net assets would have been 1.24% for the year ended June 30,
2002.
See accompanying notes to financial statements.
13
OAK VALUE FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2006
================================================================================
SHARES COMMON STOCKS -- 99.3% VALUE
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 7.9%
124,325 E.I. du Pont de Nemours and Co. ................. $ 5,171,920
196,775 Praxair, Inc. ................................... 10,625,850
-------------
15,797,770
-------------
CONSUMER RELATED -- 29.9%
373,850 Cadbury Schweppes PLC - ADR ..................... 14,512,857
526,500 Constellation Brands, Inc. - Class A(a) ......... 13,162,500
171,350 Diageo PLC - ADR ................................ 11,574,693
108,750 Estee Lauder Cos. (The) - Class A ............... 4,205,362
158,475 Harley-Davidson, Inc. ........................... 8,698,693
266,250 Masco Corp. ..................................... 7,891,650
-------------
60,045,755
-------------
DIVERSIFIED -- 19.9%
115 Berkshire Hathaway, Inc. - Class A(a) ........... 10,540,785
3,413 Berkshire Hathaway, Inc. - Class B(a) ........... 10,385,759
267,050 Tyco International Ltd. ......................... 7,343,875
184,100 United Technologies Corp. ....................... 11,675,622
-------------
39,946,041
-------------
FINANCE RELATED -- 9.0%
260,450 Equifax, Inc. ................................... 8,943,853
284,175 Willis Group Holdings Ltd. ...................... 9,122,017
-------------
18,065,870
-------------
HEALTHCARE -- 2.2%
74,100 Johnson & Johnson ............................... 4,440,072
-------------
INSURANCE -- 5.6%
243,125 AFLAC, Inc. ..................................... 11,268,844
-------------
MEDIA -- 16.0%
148,150 Entercom Communications Corp. ................... 3,875,604
313,020 E.W. Scripps Co. (The) - Class A ................ 13,503,683
607,400 Time Warner, Inc. ............................... 10,508,020
122,487 Viacom, Inc. - Class B(a) ....................... 4,389,934
-------------
32,277,241
-------------
TECHNOLOGY -- 8.8%
405,625 IMS Health, Inc. ................................ 10,891,031
474,425 Oracle Corp.(a) ................................. 6,874,418
-------------
17,765,449
-------------
TOTAL COMMON STOCKS (Cost $147,793,251) ......... $ 199,607,042
-------------
14
OAK VALUE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
================================================================================
SHARES CASH EQUIVALENTS -- 1.7% VALUE
- --------------------------------------------------------------------------------
3,508,997 First American Government Obligations Fund -
Class Y (Cost $3,508,997) ....................... $ 3,508,997
-------------
TOTAL INVESTMENTS AT VALUE -- 101.0%
(Cost $151,302,248) ............................. $ 203,116,039
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.0)% (2,092,408)
-------------
NET ASSETS -- 100.0% ............................ $ 201,023,631
=============
(a) Non-income producing security.
ADR - American Depositary Receipt
See accompanying notes to financial statements.
15
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Oak Value Fund (the "Fund") is a diversified series of shares 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 years ended June 30, 2006 and 2005, proceeds from
redemption fees totaled $11,580 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 of America ("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 year ended June
30, 2006 was $566,042 of net investment income and $15,290,172 of long-term
capital gains. There were no distributions during the year ended June 30, 2005.
16
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
SECURITY TRANSACTIONS -- Security transactions are accounted for on trade date.
Gains and losses on securities sold are determined on a specific identification
basis.
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 June
30, 2006:
- --------------------------------------------------------------------------------
Cost of portfolio investments ................................. $ 151,302,248
=============
Gross unrealized appreciation ................................. $ 54,900,020
Gross unrealized depreciation ................................. (3,086,229)
-------------
Net unrealized appreciation ................................... $ 51,813,791
Undistributed net investment income ........................... 50,513
Undistributed long-term gains ................................. 1,142,039
Other temporary differences due to timing of
cash distributions .......................................... (1,192,085)
-------------
Total distributable earnings .................................. $ 51,814,258
=============
- --------------------------------------------------------------------------------
During the year ended June 30, 2006, the Fund utilized $392,952 of capital loss
carryforwards to offset current year realized gains.
2. INVESTMENT TRANSACTIONS
During the year ended June 30, 2006, cost of purchases and proceeds from sales
and maturities of investment securities, excluding short-term investments,
amounted to $63,971,874 and $96,203,295, 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
17
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
meetings of the 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 year ended June 30,
2006, Ultimus was paid $179,187 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 year ended June 30,
2006, Ultimus was paid $85,069 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 year ended June 30, 2006, the Fund paid $151,552 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 year ended June 30, 2006, the Fund paid Ultimus $47,297 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 year ended June
30, 2006, Ultimus was paid $31,347 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 Prime Rate minus 0.50%.
During the year ended June 30, 2006, 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.
18
OAK VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
6. ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 (FIN 48) "Accounting for Uncertainty in Income Taxes". FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken in the course of preparing the Fund's tax
returns to determine whether the tax positions are "more-likely-than-not" of
being sustained by the applicable tax authority. Tax benefits of positions not
deemed to meet the more-likely-than-not threshold would be booked as a tax
expense in the current year and recognized as: a liability for unrecognized tax
benefits; a reduction of an income tax refund receivable; a reduction of
deferred tax asset; an increase in deferred tax liability; or a combination
thereof. Adoption of FIN 48 is required for fiscal years beginning after
December 15, 2006. At this time, management is evaluating the implications of
FIN 48 and its impact in the financial statements has not yet been determined.
19
OAK VALUE FUND
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
================================================================================
To the Shareholders and Board of Trustees
of the Oak Value Fund of the Oak Value Trust:
We have audited the accompanying statement of assets and liabilities of the Oak
Value Fund (the "Fund"), a series of the Oak Value Trust, including the schedule
of investments, as of June 30, 2006, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of June 30, 2006, by correspondence with the custodian
and brokers. 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 the
Oak Value Fund as of June 30, 2006, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the 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.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
August 11, 2006
20
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 impose any sales charges. However,
a redemption fee of 2% is applied on the sale of shares sold within 90 days of
the date of purchase. The redemption fee 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
January 1, 2006 June 30, 2006 During Period*
- --------------------------------------------------------------------------------------
Based on Actual Fund Return $1,000.00 $999.60 $6.49
Based on Hypothetical 5% Return
(before expenses) $1,000.00 $1,018.30 $6.56
- --------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 1.31% for the period,
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period).
21
OAK VALUE FUND
TRUSTEES AND OFFICERS (UNAUDITED)
================================================================================
OFFICERS AND INTERESTED TRUSTEES. The table below sets forth certain information
about each of the Trust's Interested Trustees, as well as its executive
officers.
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
TERM OF PORTFOLIOS OTHER
POSITION(S) OFFICE; TERM IN FUND DIRECTORSHIPS1
HELD WITH SERVED IN PRINCIPAL OCCUPATION(S) COMPLEX HELD BY
NAME, ADDRESS, AND AGE TRUST OFFICE DURING PAST 5 YEARS OVERSEEN TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------
Larry D. Coats, Jr.* Trustee and Indefinite; President, Chief Executive 1 None
3100 Tower Blvd. President Since: Officer and Senior Portfolio
Suite 700 July 2003 Manager with Oak Value
Durham, NC 27707 Capital Management, Inc;
Age: 46 Prior to July 2003 Executive
Vice President and Portfolio
Manager with Oak Value
Capital Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Dorsey Vice President Indefinite; For more than the past five 1 None
225 Pictoria Drive Since: years, Mr. Dorsey has been a
Suite 450 June 2003 Managing Director of Ultimus
Cincinnati, OH 45246 Fund Solutions, LLC and
Age: 49 Ultimus Fund Distributors,
LLC, the Fund's principal
underwriter.
- ----------------------------------------------------------------------------------------------------------------------
Mark J. Seger Treasurer, Indefinite; For more than the past five 1 None
225 Pictoria Drive Chief Since: years, Mr. Seger has been a
Suite 450 Compliance June 2003 Managing Director of Ultimus
Cincinnati, OH 45246 Officer Fund Solutions, LLC and
Age: 44 Ultimus Fund Distributors, LLC.
- ----------------------------------------------------------------------------------------------------------------------
John F. Splain Secretary Indefinite; For more than the past five 1 None
225 Pictoria Drive Since: years, Mr. Splain has been a
Suite 450 June 2003 Managing Director of Ultimus
Cincinnati, OH 45246 Fund Solutions, LLC and
Age: 49 Ultimus Fund Distributors, LLC.
- ----------------------------------------------------------------------------------------------------------------------
* Mr. Coats is an "interested person," as defined by the 1940 Act, because of
his employment with Oak Value Capital Management, Inc., the investment
adviser to the Trust.
1 Directorships held in (1) any other investment companies registered under
the 1940 Act, (2) any company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or (3) any company subject to the requirements of
Section 15(d) of the Exchange Act.
22
OAK VALUE FUND
TRUSTEES AND OFFICERS (CONTINUED) (UNAUDITED)
================================================================================
INDEPENDENT TRUSTEES. The following table sets forth certain information about
the Trust's Independent Trustees.
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
TERM OF PORTFOLIOS OTHER
POSITION(S) OFFICE; TERM IN FUND DIRECTORSHIPS1
HELD WITH SERVED IN PRINCIPAL OCCUPATION(S) COMPLEX HELD BY
NAME, ADDRESS, AND AGE TRUST OFFICE DURING PAST 5 YEARS OVERSEEN TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------
Joseph T. Jordan, Jr. Chairman and Indefinite; For more than the past five 1 Director of
1816 Front Street Trustee Since: years, Mr. Jordan has served Cardinal
Suite 320 May 1995 as the President of Practice State Bank
Durham, NC 27705 Management Services, Inc.
Age: 60 (a medical practice
management firm).
- ----------------------------------------------------------------------------------------------------------------------
C. Russell Bryan Trustee; Indefinite; For more than the past five 1 None
121 W. Trade Street Chairman of Since: years, Mr. Bryan has been a
Suite 3000 Governance, May 1995 Managing Director of
Charlotte, NC 28202 Nomination and Brookwood Associates, L.L.C.
Age: 46 Compensation (an investment banking firm).
Committee
- ----------------------------------------------------------------------------------------------------------------------
John M. Day Trustee; Indefinite; For more than the past five 1 None
5151 Glenwood Ave. Chairman of Since: years, Mr. Day has been
Raleigh, NC 27612 Audit May 1995 Managing Partner, Maynard
Age: 52 Committee Capital Partners (an
investment firm).
- ----------------------------------------------------------------------------------------------------------------------
Charles T. Manatt, Esq. Trustee Indefinite; Founder, Manatt, Phelps & 1 Director of
700 12th Street, N.W. Since: Phillips, L.L.P. (a law firm); FedEx
Suite 1100 February 2002 from 1999-2001, served as Corporation
Washington, DC 20005 U.S. Ambassador to the
Age: 70 Dominican Republic.
- ----------------------------------------------------------------------------------------------------------------------
1 Directorships held in (1) any other investment companies registered under
the 1940 Act, (2) any company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or (3) any company subject to the requirements of
Section 15(d) of the Exchange Act.
The Statement of Additional Information ("SAI") includes additional information
about the Trust's Trustees and officers. To obtain a copy of the SAI, without
charge, call (800) 622-2474.
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.
23
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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
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.
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. Pursuant to Item 12(a)(1), a
copy of registrant's code of ethics is filed as an exhibit to this Form N-CSR.
During the period covered by this report, the code of ethics was amended to
subject all officers of the registrant (not just the principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions) to the provisions of the
code of ethics. The registrant has not granted any waivers, including implicit
waivers, from the provisions of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of trustees has determined that the registrant has at
least one audit committee financial expert serving on its audit committee. The
name of the audit committee financial expert is Joseph T. Jordan, Jr. Mr. Jordan
is "independent" for purposes of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The aggregate fees billed for professional services
rendered by the principal accountant for the audit of the registrant's
annual financial statements or for services that are normally provided
by the accountant in connection with statutory and regulatory filings
or engagements were $21,500 and $19,400 with respect to the
registrant's fiscal years ended June 30, 2006 and 2005, respectively.
(b) AUDIT-RELATED FEES. No fees were billed in either of the last two
fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under
paragraph (a) of this Item.
(c) TAX FEES. The aggregate fees billed for professional services rendered
by the principal accountant for tax compliance, tax advice, and tax
planning were $2,200 and $2,100 with respect to the registrant's
fiscal years ended June 30, 2006 and 2005, respectively. The services
comprising these fees are the preparation of the registrant's federal
income and excise tax returns.
(d) ALL OTHER FEES. No fees were billed in either of the last two fiscal
years for products and services provided by the principal accountant,
other than the services reported in paragraphs (a) through (c) of this
Item.
(e)(1) The audit committee has not adopted pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X.
(e)(2) None of the services described in paragraph (b) through (d) of this
Item were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50% of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year were attributed to work performed by persons other
than the principal accountant's full-time, permanent employees.
(g) During the fiscal years ended June 30, 2006 and 2005, aggregate
non-audit fees of $2,200 and $2,100, respectively, were billed by the
registrant's accountant for services rendered to the registrant. No
non-audit fees were billed in either of the last two fiscal years by
the registrant's accountant for services 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.
(h) The principal accountant has not provided any 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.
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 will consider
shareholder recommendations to fill vacancies on the registrant's board of
trustees if such recommendations are submitted in writing and addressed to the
committee at the registrant's offices. 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: Attached hereto
(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.CODE ETH Code of Ethics
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
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By (Signature and Title)* /s/ Larry D. Coats, Jr.
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Larry D. Coats, Jr., President
Date August 30, 2006
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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.
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Larry D. Coats, Jr., President
Date August 30, 2006
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By (Signature and Title)* /s/ Mark J. Seger
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Mark J. Seger, Treasurer
Date August 30, 2006
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* Print the name and title of each signing officer under his or her signature.