Friday, July 17, 2009

OAK VALUE FUND Investment Adviser’s Review – Second Quarter 2009

From the depths of despair, U.S. equity prices in the second quarter advanced meaningfully, continuing the
recovery that began in early March. Our experience suggests that it is not the state of despair that leads to
ruin, but rather it is the actions that are taken when faced with such that have the potential to cause harm. In
the case of the U.S. stock market and investors' general reactions earlier this year, the presumption that we
were faced with an impending and terminal economic depression led, in our opinion, to a significant gap
between the "value" of many of the world's great businesses and the "prices" of their stocks. The rally that
has produced a partial closing of this gap has been somewhat deceiving. While most businesses have seen
their share prices recover from those lows, the magnitude of the recovery has been far from uniform. The
vicious recovery in the hard-hit and fundamentally challenged financial sector led a market advance that has
disproportionately buoyed the shares of lower priced and lower quality businesses.

In the face of this low quality recovery, we are pleased to report that the Oak Value Fund handily
outperformed the broad market as measured by the S&P 500 index for the quarter. Though a few of the
Fund holdings that had experienced "guilt by association" did benefit from the recovery in the financial and
consumer sectors, the Fund's broader collection of advantaged businesses posted solid results, advancing
more than 20 percent for the quarter. During the quarter, shares of Coach advanced significantly, pushing it
into the top five listing that includes prior quarter top holdings Berkshire Hathaway, Praxair, Avon Products
and Oracle. A brief update on each of these top holdings is included in the pages that follow.

More importantly, we are pleased to report on the portfolio actions we took on behalf of Fund shareholders
during the quarter. In this regard, we have continued to distinguish ourselves from those market participants
who have viewed the market in a state of despair. As the lower end of the quality spectrum led the recovery,
we found that an increasing subset of high quality, advantaged businesses were being overlooked and offered
to investors at very attractive and perhaps unprecedented valuations. We believe the four new holdings that
were added to the Fund's portfolio during the quarter are among the world's great businesses. They are each
leaders in their respective industries, are highly profitable, have clean balance sheets, and produce clearly
advantaged economics for the benefit of their shareholders. Our investment theses for these companies -
Colgate-Palmolive, Automatic Data Processing ("ADP"), Monsanto and Apollo Group, are also included in
the pages that follow.

Full Article.