High Yield Fund

Portfolio Manager’s Letter

Quarter Ended March 31, 2011
April 15, 2011

Dear Aegis Investors:

The Aegis High Yield Fund delivered another quarter of solid performance during the first three months of 2011 as
high yield bonds continued to strengthen. The Aegis High Yield Fund increased 4.84 percent, nicely exceeding the
3.88 percent return of our primary benchmark, the Barclays Capital High Yield Index. The Fund also outperformed
the Credit Suisse High Yield Index, which returned 3.77 percent. Fund performance continued to be bolstered by
strong returns in coal, oil & gas exploration and production, and refining issues. Past performance data for the
Aegis High Yield Fund and its primary Barclays benchmark is presented in Table 1 below:

Table 1: Performance of the Aegis High Yield Fund

Annualized

Three Year- One Three Five Ten Since

Month to-Date Year Year Year Year Inception
Aegis High Yield Fund 4.84% 4.84% 13.90% 15.06% 10.50% NA 9.09%
Barclays Capital High Yield Index 3.88% 3.88% 14.31% 12.94% 9.12% 8.63% 8.59%

Performance data quoted represents past performance and does not guarantee future results. Current perfor-
mance may be lower or higher than the performance data quoted. The investment return and principal value
will fluctuate so that upon redemption, an investor’s shares may be worth more or less than their original cost.
For performance data current to the most recent month end, please call us at 800-528-3780 or visit
www.aegisfunds.com. The fund has an annualized expense ratio of 1.20%.

The high yield market maintained its upward trend during the quarter as the economy continued on its now famil-
iar path of economic recovery. High yield securities are strongly benefitting from increased appetite for market
risk, as investors react to the unprecedented injections of liquidity by the United States Federal Reserve. Cur-
rently, the Federal Reserve is in the process of completing a renewed $600 billion program of debt monetization
through money printing, known as QE2, which has now resulted in a near tripling of the monetary base since early
2009. The enormous surge in liquidity from this questionable economic policy has forced short-term interest rates
to extraordinarily low levels, driving all manners of investors into risk assets to avoid the painful, slow erosion of
purchasing power when holding cash or treasury bills with yields under the rate of inflation. In this low-rate envi-
ronment, high yield bonds have certainly proven to be a popular asset class with investors. The first quarter of
2011 was no exception, with Credit Suisse estimating high yield fund flows of $5.4 billion.

Increased high yield investor inflows have resulted in continued strength in the pace of new high yield issuance,
with Credit Suisse estimating that 182 issuers raised $79.4 billion during the quarter. Default rates have remained
extraordinarily low, with only 6 domestic issuers defaulting on a paltry $3.5 billion of debt in the quarter. Over
the last 12 months, 23 issuers have now defaulted on an aggregate $18.3 billion of debt, according to Credit
Suisse. With current recovery rates on defaulted securities estimated at nearly 60 percent, the performance drag
on the $1.1 trillion high yield market from defaults over the last year is estimated to be about 0.8 percent.

The Aegis High Yield Fund experienced a technical default shortly after quarter-end on our investment in Pfleider-
er (variable rate perpetual bonds) after the company’s secured creditors decided that a financial restructuring of
the company was necessary. As was mentioned in last quarter’s letter, industry overcapacity and raw material
price increases were straining building product margins at the company. While the full details of the restructuring
have yet to be disclosed, it is likely that the our holdings of Pfleiderer bonds will be converted into a minority
equity position in the company. While returns on our Pfleiderer bonds adversely impacted quarterly returns by
approximately 0.2 percent over the quarter, there is a good probability we will achieve material recovery of value
as the company works through its debt restructuring process and industry dynamics begin to improve. As of today,
our holdings of Pfleiderer debt represent 0.25 percent of the Fund’s portfolio.
Nearly $1.4 trillion of today’s massive $2.4 trillion monetary base now consists of excess reserves held at the Fed
by shell-shocked financial institutions. Many of these banks are now conservatively positioning their assets after
being subjected in recent years to often arbitrary and highly subjective regulatory evaluation. However, as regu-
latory and economic sentiment improves, banks may eventually choose once again to lend out these high-powered
excess reserves, resulting in an inflationary money supply surge as these funds are loaned out time and again
through our fractional banking system.

Excessive Federal Government deficit spending is being facilitated by the Federal Reserve’s multiple programs of
money printing, allowing politicians to avoid addressing the bloated federal budget. While the Federal Govern-
ment continues on track to spend more than $1.5 trillion more than it receives this year, politicians recently de-
clared a shutdown-averting victory with a $38 billion “compromise” cut in the $3.8 trillion federal budget. While
the Washington Post hailed the “Biggest Cuts in U.S. History,” anyone with basic math proficiency can understand
the intellectual incoherence of touting a one percent cut in a federal budget in this fashion, particularly given
that the federal budget has increased by an incredible 40 percent since 2007. The current level of government
spending is clearly unsustainable.

The unprecedented Fed liquidity injections may already be fanning inflationary flames. Since the beginning of
2010, oil prices are up nearly 30 percent, and gasoline prices are now exceeding $4 per gallon in some states. The
Goldman Sachs Agricultural Index is up more than 45 percent with corn prices rising more than 60 percent.
Wholesale US food prices jumped in February by the largest amount since 1974. Cotton prices in recent months
reached the highest price since the New York Cotton Exchange opened in 1870. Alarmingly, commodity price in-
flation is now working its way through to consumer prices. Wal-Mart CEO Bill Simon recently told USA Today that
cost increases were “starting to come through at a pretty rapid rate,” and that “inflation was going to be seri-
ous.”

Ironically, Bernanke and other senior Federal Reserve staff appear as of yet unmoved by the potential inflationary
threat, with Atlanta Fed President Dennis Lockhart even suggesting, incredibly, that another round of money
printing may be necessary should oil prices continued to climb. With the Fed seemingly on a continuing path of
currency debasement, it is difficult to see inflationary pressures subsiding anytime soon. Government inflation
statistics themselves are also suspect, having been subject over the years to changes in calculation methodology,
which now include modifications such as hedonic adjustments and substitution effects, all of which appear to
moderate the reported rate of inflation. Reported inflation would have hit an annual rate of 9.6 percent in Feb-
ruary, had the reporting methodologies remained consistent with those in place prior to 1980, according to the
Shadow Government Statistics newsletter.

Given our unease with inflation, and our concern over the impact of inflation on interest rates, we continue to
keep the adjusted duration of Aegis High Yield Fund bonds at a short 2.7 years, well beneath the approximately
4.6 year adjusted duration of the Barclays HY Very Liquid Index. By keeping our duration short, we hope to avoid
the carnage that is likely to occur as rates move higher to incorporate increased inflationary expectations. We are
also taking other measures to combat rising inflation and interest rates. At quarter-end, we held nearly 7 percent
of the portfolio in two variable rate bonds and a REIT that holds primarily variable rate hotel loans, 11 percent in
foreign corporate bonds denominated in the currencies of foreign commodity exporting countries, and 6 percent in
convertible securities that should directly benefit from a higher inflation and interest rate environment.

In recent months, inflationary fears have begun to push long rates higher, which is remarkable because it is occur-
ring despite Federal Reserve purchasing pressure, which acts to drive prices up and yields lower. Yields on 10-
year treasuries increased from 3.30 percent to 3.47 percent during the quarter, and are up nearly 100 basis points
over the last 6 months. As can be seen in Figure 1, high yield credit spreads over treasuries continued to compress
during the quarter, with the Barclays Capital High Yield Very Liquid Index interest rate premium over treasuries
declining another 57 basis points, to a spread of only 4.01 percent, significantly beneath the 16-year average
spread of 5.42 percent.

When credit spreads are low and the yield curve steep with short term rates near zero, fixed income funds have
increased incentive to borrow money at ultra-low short rates to finance longer-duration bond purchases to
“enhance” yield. In this context, it is somewhat disconcerting to note that reported margin debt has now in-
creased to $310 billion in February, up a significant 7.2 percent from January and well up from its $200 billion
post-crash low in early 2009. Borrowing in this manner to boost yield is risky behavior that can end badly, as 2008
can attest. Rest assured that we do not borrow money to “enhance” yield, as we want to be in a position of full
control over our investments should the markets experience volatility.
 Figure 1: High Yield Credit Spreads

20%
Spread Over 10-yr Treasuries

16%

12%

Average: 5.42%
8% Average: 5.42%

4%
4.01%

0%
1994

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2003

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2007

2008

2009

2010

2011
The largest Fund purchase during the quarter was Reddy Ice First Lien Senior Secured Bonds (11.25% due March
2015), which we bought to yield approximately 9.8 percent to maturity. Reddy Ice is the largest domestic distrib-
utor of ice, with a strong market presence in the Southeast. The company experienced a downturn in its ice busi-
ness as the economy declined in 2008. Particularly damaging for ice demand was a dramatic drop-off of home-
building and outdoor construction in core Reddy Ice markets. Investor sentiment was further depressed as the
government initiated an anti-trust investigation into the ice distribution industry, which was recently concluded
without further action against Reddy Ice. Currently the highly levered company is finally beginning to see stabili-
zation in end-use ice demand, but is still challenged by its high cost of capital and increased market competition.
Given our debt’s senior position, the stabilization of company EBITDA and additional corporate cost-cutting ef-
forts, we believe the value of our bonds is well protected. Currently, the first lien debt has a manageable net
debt to projected 2011 EBITDA multiple of 4.25 times. It is possible that private equity players with access to
lower cost capital may have an interest in large, ice industry players, which could ultimately lead to a company
recap.

The Fund’s largest sale during the quarter was the liquidation of our position in Horizon Lines Unsecured Con-
vertible Notes (4.25% due August 2012). Horizon Lines is a Jones Act shipping company with intra-US routes to
Alaska, Hawaii and Puerto Rico, as well as a transpacific business to Guam and China. Over the last several years,
Horizon had been plagued by an industry-wide anti-trust investigation. Investors were also concerned about the
looming capital replacement requirements, as many of their vessels were quite old. Nevertheless, at the time of
our purchase in July 2009, these Horizon bonds were trading at less than 70 cents on the dollar with an 18 percent
yield to maturity. We felt the company risks were more than adequately reflected in the bond valuations, and the
company had the potential to gain operating leverage and substantially increase cash flows as the economy recov-
ered.

As Horizon bonds appreciated to in excess of 90 cents on the dollar, ironically, company fundamentals appeared to
be deteriorating. Horizon lost a very profitable contract with Maersk for transpacific shipping in 2010, the margin
dollar replacement for which was a potential issue. We also learned that stifling union contract agreements were
eroding profits and hindering operational flexibility, rendering certain of Horizon’s trade routes unprofitable. We
completely exited the position at approximately 92-93 after learning that certain customers, alleging damages
from Horizon’s bad anti-trust behavior, were backing out of a proposed $60 million civil anti-trust settlement with
Horizon, presumably in order to seek higher damages. Fortunately, our decision to sell was on point, as the bonds
subsequently dropped to 75 cents on the dollar on news of possible default after the company plead guilty to price
-fixing charges and 3 of its former executives received jail time. While it is possible that the final outcome for
bondholders may eventually be positive, particularly from current price levels, at the moment we are more com-
fortable following developments from the sidelines.

Overall, the Fund continues to focus on smaller issues with capital structure seniority. Given the inflationary pres-
sures, and the extraordinarily low yields available in the market today, we are keeping our maturities short. We
also are continuing our focus on bonds of companies with substantial tangible assets that can provide additional
security for our debt. At quarter-end, 71 percent of the Fund’s bonds were either senior secured issues or unse-
cured issues without any outstanding secured debt (net of cash), compared with an estimated 29 percent of such
issues in the Barclays Capital High Yield ETF (which tracks the index). This metric is reflective of the substantial
effort we place on minimizing credit risk in our portfolio.

We are working hard to navigate carefully through this increasingly dangerous yield environment while seeking out
good smaller credits for our portfolio. The Fund remains at a size where we believe we have the flexibility to
continue to deliver good results by focusing on special situations within an increasingly challenging overall envi-
ronment. Employees and our families own in excess of 5 percent of the Fund’s outstanding shares, and we intend
to keep monitoring portfolio risks carefully. As always, our shareholder representatives are available via 1-800-
528-3780 for routine questions. Should you have any questions at all regarding our Fund’s investment perfor-
mance or market approach, you are always welcome to call me personally at (571) 250-0051.

Sincerely,

Scott L. Barbee
Portfolio Manager
Aegis High Yield Fund
Any recommendation made in this report may not be suitable for all investors. This presentation does not consti-
tute a solicitation or offer to purchase or sell any securities. Its use in connection with any offering of fund
shares is authorized only in the case of a concurrent or prior delivery of a prospectus.

The Aegis High Yield Fund is offered by prospectus only. Investors should consider the investment objectives,
risks, charges and expenses of the fund. The prospectuses contain this and other information about the fund and
should be read carefully before investing. To obtain a copy of the fund’s prospectus please call 1- 800-528-3780
or visit our website www.aegisfunds.com, where an on-line prospectus is available.

Risks associated with investing in the Aegis High Yield Fund include: credit risk, interest rate risk, liquidity risk,
high yield security risk, market risk, foreign investment risk, prepayment risk, defaulted or bankrupt security
risk, convertible securities risk, equity investment risk, manager risk, political and international crisis risk.

Performance data quoted represents past performance and does not guarantee future results. Current perfor-
mance may be lower or higher than the performance data quoted. The investment return and principal value
will fluctuate so that upon redemption, an investor’s shares may be worth more or less than their original cost.
For performance data current to the most recent month end, please call us at 800-528-3780 or visit
www.aegisfunds.com. The fund has an annualized expense ratio of 1.20%.

The Aegis High Yield Fund imposes a 2% redemption fee on shares held for less than 180 days. Performance data
does not reflect the redemption fee, which would have reduced the total return.

The article refers to three bonds held by the Fund, Pfleiderer Finance variable rate perpetual bonds due Febru-
ary 2049, Reddy Ice Corp. 11.25% due March 2015 and Horizon Lines Inc. 4.25% unsecured convertible notes due
August 2012. As of March 31, 2011, the bonds represent 0.4%, 3.5%, and 0.0% of total Fund assets respectively.

Date of first use: April 19, 2011 Fund Distributor: Rafferty Capital Markets, LLC