January 2004
To Our Shareholders:
"It was the best of times, it was the worst of times …it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair…"Charles Dickens, A Tale of Two Cities
Our opening quotation, nearly propelled to staleness by legion newspapers foisting yet another "the Year in…" edition on the reading public, nonetheless aptly summarizes our 2003. Most notably, it is with a mixture of irony and satisfaction that we note a successful result in the investment endeavor that is our professional purpose in the same year we lost former Oak Value Fund (the "Fund") co-manager and good friend George W. Brumley, III. The stock market, the economy, and the Fund's portfolio company values all showed marked improvement as 2003 progressed and as such the Fund's 2003 performance (see chart below, including the Fund's more important longer term performance history) indicates quite satisfactory results, in our view. Please see the enclosed account statements for individual account information. We're pleased with the performance and hope you are as well as we enter 2004 with the somewhat oxymoronic viewpoint of guarded optimism that is also well suited to the yin and yang of Mr. Dickens' famous phrase.
The investment landscape also bespeaks contradictions, while in our view offering selective long term opportunities for disciplined, rational, patient investors. In the wake of the confidence-booster of 2003 equity results breaking out of a three year bear market rout, recent earnings multiples for the major stock market indices do not look like a solid base camp from which to build attractive prospective equity returns. Valuations for more than a fair share of the leading lights of those benchmarks are looking rather stretched. (Similar, though more egregious, signposts from a few years back did not yield happy outcomes for investors at those prices.) The prospect of rising interest rates, dollar weakness concerns and weak consumer spending and job creation are hovering challenges at the macro level.
For all that, we remind ourselves and shareholders that while influenced by the economy and the overall stock market in the short term, long term results will be determined by our abilities in finding good businesses, with good management, at attractive prices. We purposely design the Fund's portfolio to be different than the overall market; in general, we actively seek to identify businesses with superior economic characteristics and return prospects relative to the average for the economy as a whole. Several portfolio commitments have yet to have their intrinsic value accurately reflected in stock price performance, so despite a good year of Fund performance, we also think there's still some gas left in the tank. Finally, while recent Fund portfolio activity remains light, research activity has been and remains brisk. While valuations, in general, make finding actionable new ideas more challenging, our efforts continue to be rewarded with periodic opportunities. Moreover, experience indicates that market action can shift that dynamic quite rapidly, often to our favor and advantage where we are prepared by careful and diligent study.
Logistically, Mr. Brumley's death initiated the implementation of a carefully laid succession strategy for the Fund's investment adviser, Oak Value Capital Management, Inc. ("Oak Value"). Certain structural adjustments included a required proxy vote of Fund shareholders seeking approval of a new advisory agreement between Oak Value and the Fund. The proxy also included the election of three nominees to serve on the Board of Trustees of the Oak Value Trust. Both proposals were overwhelmingly approved at the Special Meeting of Fund Shareholders held on December 15, 2003. We are grateful for the depth and experience of investment resources and the admirable response of the people at Oak Value who worked hard to execute the transition effort. We remain confident in this team and its ability to continue to serve Oak Value Fund shareholders.
As always, thank you for your continued support. We wish you all the best for a prosperous 2004.
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. Current performance may be higher or lower than performance quoted above. More current performance data, as well as special reports and analysis, are available at the Fund's website at www.oakvaluefund.com.
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.