ANNUAL
REPORT
Queens Road Value Fund
Queens Road Small Cap Value Fund
Each a
series
of the
Bragg
Capital
Trust
May 31,
2005
Board of
Trustees
Benton Bragg
Steven
Scruggs
Phil Blount
Tim Ignasher
Chris Brady
Harold
Smith
Robert
Carter
Investment
Adviser
Bragg
Financial Advisors, Inc.
100 Queens Road
Charlotte, NC
28204
Dividend
Paying Agent,
Shareholders’
Servicing Agent,
Transfer
Agent
Mutual
Shareholder Services
8869 Brecksville Rd, Suite C
Brecksville, Ohio
44141
Custodian
US Bank,
NA
425 Walnut Street
P.O. Box 1118
Cincinnati, OH
45201
Independent
Auditors
Cohen McCurdy Ltd
826 Westpoint Parkway Suite 1250
Westlake, Ohio
44145
Shares of the Queens Road
Value and Queens Road
Small Cap Value Fund are
distributed by Queens Road
Securities, L.L.C, an affiliate of the Investment Adviser. This report
has been
prepared for the general information of the shareholders. It is not
authorized
for distribution to prospective investors unless preceded or
accompanied by a
current prospectus. The Funds’ prospectus contains more
complete
information about the objectives, policies, expenses and risks of the
Funds.
The Funds are not bank deposits, not FDIC insured and may lose
value. Please read the prospectus
carefully before investing or sending money.
Dear Fellow Shareholders:
(Unaudited)
After a strong
finish to 2004, U.S.
equity markets have treaded water for the first half of 2005 with large
cap
stocks up about 2.5% and small cap stocks down about the same amount. We are pleased to report the Queens Road
Value
Fund and the Queens Road
Small Cap Value Fund had positive returns for our fiscal year ending
May 31,
2005. Please look below in the
commentary section for each fund to see detailed performance
information.
The
US
economy (as measured by GDP)
grew by 4.4% during 2004 and by 3.6% during the first quarter of 2005. This slow down to a more normal level was not
unexpected. The Federal Reserve in
continuing its fight against inflation has raised the Fed Funds rate by
2%
since last summer in an effort to control economic growth.
Surprising many, this has resulted not in an
upward shift of the yield curve, but in a flattening.
We interpret this to mean that the Fed sees
more inflation than market participants.
Only time will tell which outlook is correct.
What, me worry?
Higher energy
and other raw material prices continue to cloud the market causing many
to feel
they will ultimately lead to a drain on profits. And
of course whether or not a housing bubble
exists and if so when will it collapse remains the talk of the day. These worries coupled with the possibility of
another terrorist attack are enough to unnerve all but the most
disciplined
investors. Yet with all these worries,
we remain optimistic. We are invested in
what we think are the best companies with the best managements in the
best
industries. In the short run, things
beyond our control may happen which will drive the prices of our
investments
down, but we remain confident that over the long-term, the companies we
are invested
in will enhance shareholder value by increasing the economic profits of
their
business.
On May 30, 2005
the Funds held a special shareholder meeting to vote on an additional
independent Trustee. We took this
opportunity to also re-elect the existing Trustees.
I am pleased to announce that Mr. Robert
Carter was elected to serve as an independent Trustee and the current
Trustee
were re-elected to continue their indefinite terms.
Mr. Carter is a Strategic Planning Analyst
with Laureate Capital and has worked in the finance industry for over 5
years. We look forward to Rob’s
guidance
and advice as he serves on our board of Trustees.
Below is a table showing how votes were
cast.
|
Name
|
Independent?
|
Votes
For
|
Votes
Withheld
|
Abstentions/Non
Votes
|
|
Mr. Robert Carter, Proposed
Trustee
|
Yes
|
273,275
|
0
|
6,152
|
|
Mr. Tim Ignasher, Trustee
|
Yes
|
273,275
|
0
|
6,152
|
|
Mr. Chris Brady, Trustee
|
Yes
|
273,275
|
0
|
6,152
|
|
Mr. Harold Smith, Trustee
|
Yes
|
273,275
|
0
|
6,152
|
|
Mr. Phil Blount, Trustee
|
Yes
|
273,275
|
0
|
6,152
|
|
|
|
|
|
|
|
Mr. Benton
Bragg, Chairman, Trustee
|
No
|
273,275
|
0
|
6,152
|
|
Mr. Steven Scruggs, President,
Trustee
|
No
|
273,275
|
0
|
6,152
|
As always we appreciate your
continued
support. Please call us if you have any
questions.
Sincerely,
/s/Steve Scruggs, CFA
/s/Benton Bragg, CFA
President
Chairman
Past
Performance does not guarantee future performance. The value of
your shares will fluctuate and may
be
worth less than their original cost at the time of redemption.
Manager’s
Discussion
The Queens Road
Value Fund had a good year and was up 10.79% for the twelve months.
However, we
trailed our primary benchmark, the Barra Large Cap Value Index, which
was up 11.88%.
Nevertheless, we did manage to outperform the S&P 500, which
increased 8.23%.
Contributing to
the positive performance were great returns by
aggregates company Florida Rock and
the Latin
American wireless telephone operator America Movil. Among our worst performing stocks were
insurance
broker Marsh & McLennan and computer peripheral maker Lexmark
International.
The chart below
shows the
fund’s performance for the recent fiscal year ended May 31, along
with the
returns for the Barra Large Value Index and the Standard and
Poor’s 500 Index.
The fund attempts to have lower volatility than the Barra Large Value
Index by
maintaining a diversified portfolio of undervalued securities. We try
to
outperform the index through security selection, and invest only in
those
companies that we believe have the best prospects for long-term
performance.
Please note
that due to
the low level of assets in the fund, the advisor voluntarily agreed to
waive
its management fee of .95% from inception through 12/31/2004. The advisor does not intend to waive its
management fee in the future. Had the advisor not waived its fee, the
returns
would have been lower.
|
|
QRVLX
|
S&P/Barra
Large Value
|
S&P
500
|
|
June 2004
|
1.75%
|
2.17%
|
1.94%
|
|
July 2004
|
-1.49
|
-1.90
|
-3.31
|
|
August 2004
|
1.67
|
1.08
|
.40
|
|
September
2004
|
0.00
|
1.90
|
1.08
|
|
October
2004
|
2.11
|
1.51
|
1.53
|
|
November
2004
|
4.14
|
4.88
|
4.04
|
|
December
2004
|
2.47
|
3.26
|
3.40
|
|
January
2005
|
-1.30
|
-2.43
|
-2.44
|
|
February
2005
|
1.94
|
1.81
|
2.10
|
|
March 2005
|
-.76
|
-1.78
|
-1.77
|
| April
2005 |
|
-2.31
|
-2.04
|
-1.90
|
|
May 2005
|
2.28
|
3.17
|
3.18
|
|
One Year
|
10.79
|
11.88
|
8.23
|
The following chart gives a visual
breakdown of the Fund by the industry sectors the underlying securities
represent as a percentage of the portfolio of investments.
Note 1.
Organization
The Queens Road
Value Fund (the “Fund”), a managed portfolio of the Bragg
Capital Trust, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, open-end management company. Prior to November 26,
2003 the
Queens Road Value Fund was named the Queens Road Large Cap Value Fund. The Fund is one of a series of Funds of the
Bragg Capital Trust, which also includes the Queens Road Small Cap
Value
Fund. The Fund’s investment
objective is
to seek growth of capital. It invests
primarily in common stocks which are believed by the Advisor to be
undervalued
and have good prospects for capital appreciation. The
Funds’ registration statement was
declared effective on June 13, 2002 and operations began on that date.
Note 2. Significant Accounting
Policies
The
following is a summary of accounting policies followed by the Fund in
the
preparation of its financial statements.
Security
Valuation: Securities, which
are traded on a national securities exchange or on the NASDAQ
over-the-counter
market, are valued at the last quoted sales price.
If there are no sales reported the Fund’s
portfolio securities will be valued using the last reported bid price.
Short-term obligations having remaining maturities of 60 days or less,
are
valued at amortized cost. Securities for which market quotations are
not
readily available are valued at fair value as determined in good faith
by and
under the direction of the Fund’s Board of Directors.
Federal
Income Taxes: The Fund’s policy
is to continue to comply with the requirements of the Internal Revenue
Code
applicable to regulated investment companies and to distribute all of
its taxable
income to its shareholders. Therefore no
provision for income taxes is required. The
Fund intends to distribute its net long-term capital gains and its net
short-term capital gains at least once a year.
Estimates:
The preparation of financial
statements in conformity with generally accepted accounting principles
requires
management to make estimates and assumptions that affect the reported
amounts
of assets and liabilities, and disclosure of contingent assets and
liabilities
at the date of the financial statements and the reported amounts of
increases
and decreases in net assets from operations during the reporting
period. Actual
results could differ from those estimates.
Other: The
Fund follows industry practice
and records security transactions on the trade date.
The specific identification method is used
for determining gains or losses for financial statement and income tax
purposes. Dividend income is recorded on
the ex-dividend date, except that certain dividends from foreign
securities are
recorded as soon as information is available to the Fund.
Interest income is recorded on an accrual
basis. Discounts and premiums on securities purchased are amortized
over the
life of the Fund. Interest income is recorded on an accrual basis. Discounts and premiums on securities
purchased are amortized over the life of the respective securities. Accounting principles generally accepted in
the United States
of America
require that permanent financial reporting tax differences relating to
shareholder distributions be reclassified to paid in capital.
Distributions
to shareholders: Distributions to
shareholders, which are
determined in accordance with income tax regulations, are recorded on
the
ex-dividend date.
Note 3.
Investment Advisory Fee and Other
Transactions with Affiliates
The Fund
retains Bragg
Financial Advisors, Inc. (the “Advisor”) as its Investment
Advisor. Under the terms of the management
agreement,
the Advisor provides investment management and administrative services
for the
Fund. For its services as Advisor, the Fund pays a fee, computed daily
and
payable monthly at the annual rate of .95% of the Fund’s average
daily net
asset value. For the year ended May 31, 2005, the Advisor earned $7,980. From these fees and its own resources the
Advisor agreed to pay other operating expenses of the Fund including
transfer
agent fees, fund accountant fees, registration fees, custodial fees,
and other
ordinary expenses of the Fund. However
the agreement does not require the Advisor to pay interest, taxes,
brokerage
commissions and extraordinary expenses of the Fund.
For the year ending May 31, 2005, the Advisor
voluntarily waived $3,223 of the management fee for the period of June
1, 2004
to December 31, 2004. The amount due to the Advisor at May 31, 2005 is
$1,146.
Certain
Trustees and
officers of the Advisor are “interested persons” (as
defined in the Investment
Company Act of 1940) of the Trust. Each “non-interested”
Trustee is entitled to
receive an annual fee of $1,000 plus expenses for services relating to
the
Trust which is paid by the Advisor.
Queens Road
Securities
(“QRS”) acts as the principal underwriter in the continuous
public offering of
the Fund’s shares. Certain officers
of
the Trust are also officers of QRS. QRS also received $234 during the
from
brokerage fees on executions of purchases and sales of the Fund’s
portfolio
investments. In addition to the amounts
received, QRS waived commissions of $322.
Note 4.
Capital Share Transactions
At May 31,
2005, there were an unlimited number of shares authorized and 106,723
shares
outstanding, each with no par value, and capital paid-in amounted to
$1,284,282
for the Fund.
Note 5.
Investments
For the year
ended May 31, 2005, the cost of purchases and the proceeds from sales,
other
than short-term securities, aggregated $1,222,942 and $440,653,
respectively.
As of May 31, 2005, the gross unrealized appreciation for all
securities
totaled $119,677 and the gross unrealized depreciation for all
securities
totaled $34,539, for an unrealized appreciation of $85,138. The aggregate cost of securities for federal
income tax purposes at May 31, 2004 was $1,326,948.
Note 6.
Distributions to Shareholders
The tax
character of distributions paid during the fiscal years ended May 31,
2005 and
2004 were as follows:
|
Distributions paid from:
|
2005
|
2004
|
|
Ordinary
Income
|
$11,913
|
$8,901
|
|
Short-Term
Capital Gain
|
10,619
|
0
|
|
Long-Term
Capital Gain
|
30,862
|
0
|
|
Return of
Capital
|
0
|
0
|
|
|
$53,394
|
$8,901
|
As of May
31, 2005 the components of distributable earnings/ (accumulated losses)
on a
tax basis were as follows:
|
Undistributed
Ordinary income/ (accumulated losses)
|
$0
|
|
Undistributed
long-term capital gain
|
18,264
|
|
Unrealized
appreciation/ (depreciation)
|
85,138
|
|
|
$103,402
|
There were
no differences between book-basis and tax-basis unrealized appreciation
(depreciation).
Note 7.
Control
The
beneficial ownership, either directly or indirectly, of more than 25%
of the
voting securities of a fund creates a presumption of control of the
fund, under
section 2 (a) (9) of the Investment Company Act of 1940.
As of May 31, 2005, the Bragg family owned
over 46% of the Fund.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Shareholders
and
Board of Trustees
Queens Road
Value Fund
We
have audited the accompanying statement of assets and liabilities,
of the Queens Road Value Fund, a series of the Bragg Capital Trust,
including
the schedule of investments, as of May 31, 2005, and the related
statement of
operations for the year then ended, and the statements of changes in
net assets
and financial highlights for each of the two 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. The financial
highlights for the periods indicated prior to May 31, 2004 were audited
by
McCurdy & Associates CPA’s, Inc., whose audit practice was
acquired by
Cohen McCurdy, Ltd. McCurdy &
Associates CPA’s, Inc. expressed unqualified opinions on those
highlights.
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 audits to obtain reasonable assurance about whether the
financial
statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included
confirmation of securities owned as of May 31, 2005 by correspondence
with the
Fund’s custodian and broker. An
audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial
statement presentation. We believe that our audits provide a reasonable
basis
for our opinion.
In our
opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial
position of the Queens Road Value Fund as of May 31, 2005, the results
of its
operations for the year then ended, and the changes in its net assets
and
financial highlights for each of the two years in the period then
ended, in
conformity with accounting principles generally accepted in the United
States
of America.
Cohen
McCurdy, Ltd.
Westlake, Ohio
July
28, 2005
Expense Example
As a shareholder of the Queens Road Value
Fund, you
incur one type of cost: management fees. This Example is intended to
help you understand
your ongoing costs (in dollars) of investing in the Funds and to
compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of
$1,000
invested at the beginning of the period and held for the entire period,
December 1, 2004 through May 31, 2005.
Actual Expenses
The first line of the table below provides
information
about actual account values and actual expenses. You may use the
information in
this line, together with the amount you invested, to estimate the
expenses that
you paid over the period. Simply divide your account value by $1,000
(for
example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the
result by the number in the first line under the heading entitled
"Expenses
Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for
Comparison Purposes
The second line of the table below provides
information about hypothetical account values and hypothetical expenses
based
on the Funds’ actual expense ratios and an assumed rate of return
of 5% per
year before expenses, which are not the Funds’ actual returns.
The hypothetical
account values and expenses may not be used to estimate the actual
ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in these Funds
and other
funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical
examples that appear in the shareholder reports of the other funds.
|
|
|
|
|
|
|
|
|
|
|
Beginning Account Value
|
Ending Account
Value
|
Expenses Paid
During the Period*
|
|
|
December 1, 2004
|
May 31, 2005
|
December 1,2004 to May 31,
2005
|
|
|
|
|
|
|
Actual
|
$1,000.00
|
$1,022.29
|
$0.00
|
|
Hypothetical
|
|
|
|
|
(5%
Annual Return before expenses)
|
$1,000.00
|
$1,024.93
|
$0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Expenses are equal to
the Fund's annualized expense ratio of .00%, multiplied by the average
account value over the period, multiplied by 182/365 (to reflect the
one-half year period).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
31, 2005
Past
Performance does not guarantee future performance. The value of
your shares will fluctuate and may
be
worth less than their original cost at the time of redemption.
Manager’s
Discussion
(Unaudited)
The
Small Cap
Value Fund had an outstanding year. Total return for the 12 month
period ending
5/31/2005 was 14.38%. This compares with
returns of 15.11% for the Russell 2000 Value Index and 11.82% for the
Russell
2000 Index.
Contributing
to our positive performance were specialty health and life insurer,
Universal
American Financial, natural gas utility and distributor, UGI and
athletic shoe
maker K-Swiss. Among our poorest
performing holdings were nutritional supplement marketer, Nutraceutical
International, funeral home operator, Stewart Enterprises, and nut
seller, J.B.
Sanfilippo & Sons.
The chart below
shows the
fund’s performance for the recent fiscal year ended May 31, along
with the
returns for the Russell 2000 Value Index and the Russell 2000 Index.
The fund
attempts to have lower volatility than the Russell 2000 Value Index by
maintaining a diversified portfolio of undervalued securities. We try
to
outperform the index through security selection, and invest only in
those
companies that we believe have the best prospects for long-term
performance.
Please note
that due to
the low level of assets in the fund, the advisor voluntarily agreed to
waive
its management fee of 1.35% from inception through 12/31/2004. The advisor does not intend to waive its
management fee in the future. Had the advisor not waived its fee, the
returns
would have been lower.
|
|
QRSVX
|
Russell
2000 Value
|
Russell
2000
|
|
June 2004
|
4.02
|
5.08
|
4.21
|
|
July 2004
|
-3.80
|
-4.60
|
-6.73
|
|
August 2004
|
0.00
|
0.98
|
-0.51
|
|
September
2004
|
3.27
|
3.96
|
4.69
|
|
October
2004
|
1.58
|
1.55
|
1.97
|
|
November
2004
|
8.38
|
8.87
|
8.67
|
|
December
2004
|
2.68
|
2.39
|
2.96
|
|
January
2005
|
-0.43
|
-3.87
|
-4.17
|
|
February
2005
|
1.17
|
1.99
|
1.69
|
|
March 2005
|
-2.25
|
-2.06
|
-2.86
|
|
April 2005
|
-5.66
|
-5.16
|
-5.73
|
|
May 2005
|
5.41
|
6.10
|
6.55
|
|
One Year
|
14.38
|
15.11
|
9.82
|
The
following chart gives a visual breakdown of the Fund by the industry
sectors the
underlying securities represent as a percentage of the portfolio of
investments.
May
31, 2005
|
Shares/Principal
Amount
|
|
Market Value
|
|
% of Net Assets
|
|
|
|
|
|
|
|
Aerospace
& Defense
|
|
|
|
|
|
1,250
|
United Industrial
|
|
$
43,313
|
|
1.21%
|
|
|
|
|
|
|
|
|
Apparel
Retail
|
|
|
|
|
|
2,172
|
Cato Corporation
"A"
|
|
62,684
|
|
1.75%
|
|
|
|
|
|
|
|
|
Arrangement
of Transportation of Freight & Cargo
|
|
|
|
|
|
4,919
|
Vitran Corp.,
Inc. *
|
|
74,424
|
|
2.08%
|
|
|
|
|
|
|
|
|
Banks
|
|
|
|
|
|
|
2,000
|
First Midwest
Bancorp, Inc.
|
|
69,380
|
|
|