2011 Manager Discussion & Analysis

Management Discussion and Analysis for Oak Associates Funds
for Fiscal Year Ended October 31, 2011

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an Investor’s shares, when redeemed, may not be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Click here for performance information through the last complete quarter.

White Oak Select Growth Fund

Jim Oelschlager, Chief Investment Officer & Co-Portfolio Manager
Mark Oelschlager, CFA, Co-Portfolio Manager
Robert Stimpson, CFA, Co-Portfolio Manager

White Oak Select Growth Fund (“The Fund”) gained 4.07% for the fiscal year ended October 31, 2011, while the comparative index, the S&P 500 Index, rose 8.09%, and the Lipper Large-Cap Growth Average increased 6.86%.

Like 2010, 2011 saw a seemingly healthy economy deteriorate partly due to Eurozone concerns, and then rebound later in the year. As it did in 2010, the stock market moved with these events. The market has been skittish throughout much of this recovery, as Europe has yet to resolve its sovereign debt issues and in the US employment growth has been stubbornly slow - raising fears that the recovery will not be self-sustaining.

In spite of the vicissitudes of the economy, corporate profitability has remained incredibly strong. Revenue growth has been solid and profit margins high, the latter continuing to confound the skeptics. In short, company managements, with the severe downturn fresh in their minds, have acted with unusual discipline, keeping spending in check. The ongoing trend of outsourced manufacturing has been a huge factor as well.

Standout performers in the Fund included managed care provider UnitedHealth, which is benefitting from subdued claims; IT giant International Business Machines, whose services business is excelling; and e-commerce leader Amazon, who continues to attract both customers and third-party sellers to its platform.

Laggards included discount broker Charles Schwab, who is being forced to waive hundreds of millions of dollars of money market fees each year because short-term interest rates are so low. This has been a frustrating time for Schwab shareholders, as this issue has dragged on with the Federal Reserve keeping rates at zero. We believe that, unless short rates are destined to be at zero forever, Schwab’s long-term earnings power is being underestimated. Other disappointments were generic drug company Teva Pharmaceutical and business lender CIT Group.

It is pretty evident that, these days, with the myriad of issues the US and the rest of the world face (high unemployment, deleveraging, large budget deficits at the state and federal level, divisiveness in Washington, European financial crisis) it is easier for most to be pessimistic than optimistic. We understand this. But we think it is important to remember that we have faced daunting problems for much of our nation’s history, and that oftentimes these turned out to be good times to invest. Conversely, periods of poor investment returns have often been preceded by times when our problems were few and the waters placid. How will things play out this time? Only time will tell, but one has to be heartened by what appears to be an abundance of attractively priced stocks. With much of the stock market trading at about 12 times earnings and the 10-year Treasury bond at about 50 times "earnings" (the reciprocal of the prevailing 2% yield), it should actually be difficult to not be excited about stocks.

Thank you for your investment with Oak Associates Funds.

Mutual fund investing involves risk, including the possible loss of principal. The value of the Fund’s investments will vary from day to day in response to the activities of individual companies and general market and economic conditions. Due to the limited number of underlying investments, the Fund is more susceptible to the price movements of any one holding and thus may be more volatile than a more broadly diversified portfolio.

Pin Oak Equity Fund

Mark Oelschlager, CFA
Portfolio Manager

Pin Oak Equity Fund ("The Fund") rose 6.92% for the fiscal year ended October 31, 2011, while the comparative index, the S&P 500 Index, gained 8.09% and the Lipper Multi-Cap Growth Average returned 6.25%.

Just as they did in 2010, the fears of a double-dip recession in 2011 proved to be unfounded, as economic growth trudged ahead. Corporate profit growth far exceeded growth in the economy, as expenses remain under control. While high unemployment, the political scene, and the European financial crisis garner the headlines, the terrific performance of corporate America is the untold story. And at the end of the day, this is what drives the value (and eventually price) of a company’s stock.

Over the summer Congress battled over how to deal with ballooning deficits and whether to raise the debt ceiling. The ceiling was raised, but, not surprisingly, the tough decisions were postponed, and Treasury debt was downgraded by Standard and Poor from AAA to AA+.* A “Supercommittee” was formed to try to find $1.2 trillion in savings by Thanksgiving. The committee failed, triggering automatic cuts that begin in 2013, barring new legislation. Unfortunately, it appears that our leaders’ preference for kicking the can down the road, and making cuts around the edges, rather than addressing the structural problems, will continue for years. It will be interesting to see if and when this will cause interest (government borrowing) rates to rise, which would exacerbate the debt problem. If Congress thinks corralling growth in the national debt is difficult now when rates are 2%, wait until they try it when rates are 6% - or higher.

Standout performers in the portfolio included biotech Biogen IDEC, whose oral drug for Multiple Sclerosis showed promise in clinical trials; Internet conglomerate IAC Interactive, whose Match.com drew new members; and e-commerce leader Amazon, who grew sales at an astounding rate.

Our investment in the financial sector hurt performance. Laggards included CIT Group, Charles Schwab, and Morgan Stanley. The market is convinced that loan growth will never return and that profitability has been drastically impaired by new regulations. While there is little doubt that conditions have changed for banks and brokerage firms, we believe that an overly bearish scenario is being priced into the stocks, creating an opportunity for patient investors.

Looking ahead, the lagged effects of lower inflation should be a nice tailwind for the economy, though the European crisis will continue to be a cloud. We plan to be greedy when others are fearful and fearful when others are greedy, a tactic that has served us well historically.

Thank you for your investment with Oak Associates Funds.

* Credit Quality: an individual bond's credit quality is determined by private independent rating agencies such as Standard & Poor's, Moody's and Fitch. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest).

Rock Oak Core Growth Fund

Robert Stimpson, CFA
Portfolio Manager

The Rock Oak Core Growth Fund (“The Fund”) rose 4.30% for the fiscal year ended October 31, 2011. The Fund underperformed the benchmark S&P 500 Index’s gain of 8.09%. Since inception on December 31, 2004, the Fund has returned 2.91% per year compared to the 2.58% gain in the S&P 500. Fixed-income and high-yield securities remained popular throughout the year, however, equities offer a more attractive value that should reward long-term investors. The relative valuation of large-cap growth stocks, in particular, has been attractive.

The fiscal year 2011 saw equities weather extreme swings. The economic data and macroeconomic outlook remained mixed throughout the year and continued concerns over a sovereign debt crisis in Europe rattled global markets regularly. Indeed, the stock market’s performance in October determined whether the past twelve months would produce a positive or negative return. In addition to turmoil in European debt markets, the ratings downgrade of US debt due to the its fiscal situation and division in Washington hurt equities in late summer. From August to September, stocks fell over 12%. During periods of extreme volatility, growth strategies and concentrated portfolios often underperform as investors seek more stable or lower risk investment approaches. While this can temper volatility in the short-term, an overly defensive posture in reaction to well known events risks long-term underperformance.

The European debt crisis remains a concern over the near term as the Eurozone nations struggle with vying national and economic interests that have hampered a decisive solution to the predicament. Domestically, the economic data is improving and the US consumer appears relatively healthy despite obstinate job growth. Corporate profits have also been strong with margins remaining near all-time highs. The combination of healthy earnings, strong balance sheets, and the negative psychological drag on the markets could lead to a robust rally.

The Fund’s best performing stock for the 2011 fiscal year was Whole Foods Market. The niche grocery store chain rose 86.16%, reflecting the improvement in consumer spending that developed with a drop in fuel and food price. The Fund’s worst performing stock was Illumina Inc., a maker of gene sequencing technology. The stock has lowered earnings forecasts on budgetary concerns from its client base of universities and government sponsored institutions.

Going forward, the Rock Oak Fund remains focused on growth investing. The outlook for the US stock market remains attractive due to the health of US companies and consumers. Many of the clouds obscuring the investment outlook throughout 2011 should dissipate next year. Since the market tends to struggle when uncertainty is high, a clearer investment picture is favorable.

Thank you for your investment with Oak Associates Funds.

River Oak Discovery Fund

Robert Stimpson, CFA
Portfolio Manager

The River Oak Discovery Fund (“The Fund”) rose 0.74% for the fiscal year ended October 31, 2011. The Fund’s performance compares to the benchmark Russell 2000 Growth Index’s gain of 9.83%. Since inception on June 30, 2005, the River Oak Fund has returned 4.63% annually. Over the same time period, the Russell 2000 Growth Index has risen 5.07% per year. The Fund’s underperformance emanated from its more defensive positioning and greater international exposure over the last 18 months.

US stocks ended the fiscal year 2011 higher despite a volatile year. Indeed, their performance in October 2011 determined whether equities would produce a positive or negative return for the last 12 months. Domestically, the economic outlook has remained dreary, with unemployment stuck above 9%. The two most notable events over the past fiscal year were the downgrade of the United States’ triple-A credit rating and the ongoing sovereign debt crisis in Europe. The former produced an 18% decline from July to August as debate over the debt ceiling and its deadline tormented stocks. The European debt crisis added to volatility throughout the year, but reared its ugly head again toward fiscal year end. Progress towards a solution is being made, but it has been a slow and painful process, exacerbated by weak political institutions and varying national interests across the European Union.

Given the stagnant economic outlook and ongoing crisis in Europe, the Fund held more cash than usual and invested in companies with strong visibility. It also increased exposure to companies with international opportunities. With poor domestic growth and austerity measures throughout Europe, companies with incremental opportunities in Chinese and Latin American markets could achieve stronger earnings growth. This exposure ultimately hampered the Fund once renewed fears that the European-debt crisis would produce another global recession. This prompted investors to sell riskier assets, such as emerging market equities.

The Fund’s best performing stock this fiscal year was Varian Semiconductor, a semiconductor equipment company, which was acquired by a larger competitor at a 50% premium to its market price. B&G Foods, a supplier of food staples, was the second best performing stocks, gaining 81%. The company’s performance reflects the turbulent market environment and investors’ preference for more defensive companies during the year. Mercadolibre, a Latin American online retailer, remains the Fund’s largest position. The company lost 1% for the fiscal year but remains a top holding as a pure play on robust economic growth and e-commerce penetration in Latin America.

Looking into 2012, job growth in the US remains the most pressing issue for the markets. The European debt crisis will also threaten equities until a decisive solution is implemented. The upcoming presidential election could benefit stocks. Regardless of who wins the election, a president’s second term tends to be more collaborative and less decisive. Given the derision which has dominated the political process over the past two years, a more effective government is welcomed. Corporate balance sheets and profitability remain healthy, yet poor sentiment and geopolitical issues have prevented valuations from fully reflecting the strong earning picture. Resolving these issues would benefit stocks.

Thank you for your investment with Oak Associates Funds.

Mutual fund investing involves risk, including the possible loss of principal. Funds that emphasize investments in smaller companies generally will experience greater price volatility.

Red Oak Technology Select Fund

Mark Oelschlager, CFA
Portfolio Manager

Red Oak Technology Fund ("The Fund") returned 10.73% for the fiscal year ended October 31, 2011, while the comparative index, the NASDAQ 100 Index, which includes holdings within sectors beyond just technology, gained 12.07%, and the Lipper Science and Technology Average rose 4.02%.

Technology is a cyclical sector, and when the market rose and fell with economic expectations, the tech sector did the same. It was important to keep one’s head during the past twelve months, as reacting to news and following the herd led to many managers and investors being whipsawed.

When investing in technology stocks, many have a tendency to pay less attention to valuation, believing that one needs to pay up for good growth stories. But paradoxically, valuation has a great track record in the sector, meaning that tech stocks that are lowly valued tend to significantly outperform those that are highly valued. In our management of the portfolio we are very much aware of this fact and try to restrict our fishing to the attractive pools, believing that this improves our odds of finding winning investments. We also focus on sustainability of revenue and earnings, rather than point-to-point growth, as the former is a larger determinant of intrinsic value.

Oftentimes a portfolio’s return is driven by one or two big winners, but for the Fund this past year it was broad-based, as 11 stocks – almost one third of the holdings – rose by more than 20%. Some of these included semiconductor manufacturing process-control company KLA-Tencor, consulting and technology outsourcing behemoth Accenture, and Internet security company Check Point Software. Our avoidance of many of the high flyers in tech also helped relative performance, as several of those stocks suffered large declines as growth expectations retreated.

Laggards included IT outsourcing company Computer Sciences, disk drive maker Western Digital, and semiconductor company Marvell Technology.

While concentrated, the portfolio has exposure to many different areas within technology, including software, services, semiconductors, e-commerce, Internet search, and computer networking. With revenue growth solid, expenses restrained, and capital spending still under control, free cash flow generation in the sector is excellent. Judging by the prevailing valuations, the market is skeptical that this will last, which means expectations are subdued – often a good thing for returns.

Thank you for your investment with Oak Associates Funds.

Black Oak Emerging Technology Fund

Robert Stimpson, CFA
Portfolio Manager

The Black Oak Emerging Technology Fund (“The Fund”) fell 5.44% for the fiscal year ended October 31, 2011. During the same period, the NASDAQ Composite Index rose 8.25%. The Fund underperformed the benchmark index, which is more diversified and not exclusively invested in the technology sector. Over the last five years, the Fund has gained 4.70% per year compared to a 3.52% return in the NASDAQ Composite Index.

The fiscal year 2011 proved to be a volatile period for global equities. Economic data remained muted throughout the year and turmoil in Europe rattled investor sentiment frequently. Despite the presence of the sovereign debt problems in Europe for well over a year, the Eurozone has yet to produce a solution to help settle investor fears. Austerity measures are likely to limit economic growth in European countries already struggling with structural employment and demographic problems.

Trouble in Europe was not the only problem for US equities in 2011. The fiscal situation of the United States government weighed on markets following the downgrade of US debt by leading rating agencies. Political division and an upcoming presidential election year have ensured the squabbling is likely to continue into 2012. The economic uncertainty domestically, problems in Europe, and political contention caused investors to shun higher risk strategies throughout the year. Given the Fund’s focus on younger technology companies, it suffered in the risk-averse environment. The NASDAQ Composite weathered the environment better due to its diversification and strong performance from large-cap technology leaders Apple, Amazon and Intel. To counter the negative headwinds, the Fund held more cash than normal, and sought out companies with strong exposure to Asia and Latin America. Unfortunately, this exposure hurt the Fund once fear of another global recession hit emerging markets.

The Fund’s best performing stock this fiscal year was Fortinet, an internet security company, which gained 53.7%. Online security remains a top priority area of spending as cyber threats fail to diminish during poor economic times. The industry will remain a sector of focus for the Fund. The Fund’s worst performing stock was Acme Packet, a supplier of networking equipment. The entire networking industry suffered in 2011 as spending from government and companies limited revenue growth opportunities for leading suppliers. The largest holding for the Fund is Cognizant Technology Solutions. The IT-services company helps clients reduce IT spending through outsourcing. This value proposition resonates with customers due to economic uncertainty and austerity programs.

Going forward, the Black Oak Fund will continue to seek emerging technology companies with solid earnings prospects that are trading at favorable valuations. The Fund’s exposure to companies that are attractive acquisition candidates may increase. Strong earnings throughout the technology sector over the last two years have resulted in increased cash balances at larger tech companies. This cash is likely to be redeployed in several ways, including more strategic acquisitions. With bond yields and Gross Domestic Product growth prospects low, it is accretive to repurchase shares and acquire potential competitors.

Thank you for your investment with Oak Associates Funds.

Mutual fund investing involves risk, including the possible loss of principal. Funds that emphasize investments in technology generally will experience greater price volatility. There are additional risks associated with investing in a single-sector fund with a limited number of holdings versus a more broadly diversified portfolio, including greater sensitivity to economic, political, or regulatory developments impacting the sector. Funds that emphasize investments in smaller or mid sized companies may experience greater price volatility.

Live Oak Health Sciences Fund

Mark Oelschlager, CFA
Portfolio Manager

Live Oak Health Sciences Fund ("The Fund") rose 14.46% for the fiscal year ended October 31, 2011, while the comparative index, the S&P 500 Health Care Index, gained 10.02%, and the Lipper Health & Biotechnology Average returned 10.14%.

It is unusual for the healthcare sector, known for its stability, to outperform in a strong market. Throughout the year investors became more comfortable with the ramifications of healthcare reform and found it difficult to ignore the appealing valuations.

Strong performers for the past year included institutional pharmacy Pharmerica, which bounced off oversold levels and is now being pursued as an acquisition candidate by a competitor, and Biogen Idec, whose new drug for Multiple Sclerosis, BG-12, which can be taken orally, showed excellent results in clinical studies. Pharmaceutical distributors and managed care, two areas of focus for the portfolio, also performed very well.

Laggards included drug makers Teva Pharmaceutical, whose shares suffered from concerns about future competitiveness of its Multiple Sclerosis franchise, and AstraZeneca, who reported disappointing clinical trial data for a new drug.

Our management style remains long-term focused and our turnover low. That said, an area into which we made a strong push during the fiscal year is medical and surgical products. This group became oversold due to slowing demand that is likely resulting from the weak economy. The reduced expectations set up the potential for nice gains in the shares once demand returns, a scenario we think likely. We also are finding opportunity in life science tools, an area that was once a major focus of the fund before we reduced our exposure when the risk-reward deteriorated.

One area where we have limited exposure is small biotech, whose value as enterprises typically rides on the results of one or two clinical trials. In the past we have been burned several times on these developmental stage companies, whose stories sounded so compelling but whose shares crashed when new compounds did not meet expectations when tested in trials. Given their track record, these small biotech “lottery tickets” seem to offer the unappealing combination of high risk and low return.

The healthcare sector continues to offer a slew of investment opportunities - companies that generate strong returns, have good unit growth and pricing power, pay sizeable dividends, and trade at what we believe to be attractive valuations.

Thank you for your investment with Oak Associates Funds.

Mutual fund investing involves risk, including the possible loss of principal. Funds that emphasize investments in technology generally will experience greater price volatility. There are additional risks associated with investing in a single-sector fund versus a more broadly diversified portfolio, including greater sensitivity to economic, political, or regulatory developments impacting the sector.

The above commentaries represent the managers’ assessments of their respective Funds and the market environment at a specific point in time and should not be relied upon by the reader as research or investment advice.

Alpha - Measure of risk-adjusted performance.

Price-to-Earnings Ratio: (P/E Ratio) is a valuation ratio of a company’s current share price compared to its per-share earnings.

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