It seems to us that the past few months have represented something of a similar "quiet period" for equity investors. Stock market prices and portfolio values appreciated steadily but not dramatically through most of the summer. A pull back in stock prices in the last few trading days of the third quarter left stock prices little changed from where they started. In the wake of significant downward price adjustments in mid-2002 followed by 2003's Iraq-war influenced shaky start/sizable recovery through June, perhaps a bit of calm consolidation is a welcome prescription. (It certainly beats recent outcomes in bonds, where rising interest rates handed many investors double digit losses in a matter of a few short weeks; so much for "fixed" income.)

The economy appears to be settling into the early stages of improvement, with mixed signals open to the often conflicting interpretation of "experts." The clamor over corporate malfeasance and management scandals has diminished. At the Fund portfolio company level, our research visits and analysis of ongoing results indicate measured improvement both financially and anecdotally. Companies continue to strengthen their balance sheets and rationalize their debt loads. At the same time, the overall market tone seems somewhat less manic about credit and liquidity concerns. It is difficult to discern coincidence from causation in these related dynamics. Whether investors have been mollified through reduced company debt loads, an improving economy, or simply the passage of time without financial Armageddon is open to speculation. The upshot of fewer distressed pricing situations in certain Fund portfolio positions is welcome in any event.

It is a tenet of our investment methodology to seek defined, defensible business franchises, i.e., companies that have competitive positions that can sustain them through difficult times. We have been encouraged by the durability of value in most portfolio holdings. In our opinion, the underlying value of portfolio businesses has held up remarkably well, though stock prices have run a wider than usual gamut over the past few years. In many cases we believe value has improved, despite the financial challenges of a recession and market turmoil, for example in portfolio holdings in insurance, entertainment, media, and advertising.

In our opinion, not much has changed from a few months ago: economic activity appears to be improving at a subdued pace, sales and profit growth remain difficult for many companies to generate, interest rates still offer investors little return, and aggregate market valuations appear historically lofty (often for low quality businesses). Furthermore, especially with the NASDAQ market's 2003 heady performance, a very large number of stocks remain priced at valuations that offer negligible upside and trifling downside protection to investors, in our opinion. In contrast, we believe we have carefully selected portfolio companies that retain the ability to perform well in their respective industries in an improved economic climate.

While we think we have useful insight about the direction of long term business progression for portfolio businesses, we remain without any special insight on near term outcomes for next week, month, quarter, or year. Over the past decade and a half or so, we have come to conclude that market prognostications are better left to those willing to play the statistically weak odds of such pursuits. This conclusion is not drawn lightly as it is based on a combination of personal and professional experience and the wise counsel of those whom we respect. (It has also not coincidentally been formed by our experience that most of those who regularly make such predictions are more often than not blithely making broad suggestions about other people's money.) Our observations are also confirmed by the fact that not a single member of a recently published list of the wealthiest Americans had credited their membership therein to their or their advisors' ability to predict or time the stock market. We continue to focus our efforts on things we think are both meaningful and knowable, i.e., searching out a few quality companies run by capable people in industries with good economics. The search is worthwhile but not simple; we believe we have over time identified an attractive grouping of companies that can not only sustain their businesses in tough times, but also flourish in prosperous ones. As you would expect, we remain committed to the troika of our investment philosophy: good businesses, with good management, purchased at attractive prices, i.e., discounts from long term intrinsic value. And as Walter Cronkite used to say, "that's the way it is."

Finally, we would like to thank our families, friends and shareholders for their prayers and support during the past few months as we have mourned the loss of our dear friend and partner George Brumley and the many members of his extended family. We are extremely proud of the work and dedication of the members of the Oak Value team. They have demonstrated their ongoing commitment to the firm, to each other and to our shareholders in ways that we would otherwise have been unlikely to observe. To each of them, and to our shareholders, we close with a heartfelt "thank you" for the faith and confidence you have placed in us.

We believe the greatest tribute to George is encompassed in the collective response we have witnessed from employees, shareholders, management of companies we have been honored to meet and know over the years, and the business media. That response is summed up in the reflection that George helped build an enterprise called Oak Value Capital Management, Inc. That enterprise is more than simply a few people picking stocks, but extends to a way of thinking that permeates our business culture and, like our memory of George, will live on.

David R. Carr, Jr., Co-Manager

Larry D. Coats, Jr., Co-Manager

Matthew F. Sauer, Co-Manager

Please note: The information presented above is not to be construed as an offer or solicitation to purchase the Oak Value Fund (the "Fund"), which is offered only by prospectus. Information concerning the performance of the Fund and its investment adviser's recommendations over the last year are available upon request. Past performance is no indication of future performance. You should not assume that future recommendations will be as profitable or will equal the performance of past recommendations. 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 this letter should be construed as a forecast of overall market movements, either in the short or long term. 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.

For more information about the Fund, including objectives, strategies, risks, charges and expenses, please obtain a copy of the Fund's prospectus which is available by calling 1-800-622-2474 or at www.oakvaluefund.com. Please read the prospectus carefully before you invest. The Oak Value Fund is distributed by Ultimus Fund Distributors, LLC.