Portfolio Manager's Commentary
June 30, 2008

Market Environment

We continued to experience considerable volatility in the markets during the second quarter of 2008. Most broad-based indices, such as the Dow Jones Industrial Average and the S&P 500 were in negative territory and the U.S. economy still faces strong head winds with housing and credit issues still a concern. The depth and duration of these problems are not known for sure by anyone at this time.

Volatility is a natural occurrence in the markets. There will always be periods of volatility and uncertainty. We try and take advantage of times like these to find long-term values in the stock market.

We are optimistic, with global growth continuing to be relatively strong, healthy corporate balance sheets, and at the end of quarter, the S&P is trading at a very reasonable 12.7 X 2009 earnings.

Positioning the Portfolios: Generating Ideas

We are value oriented with a contrarian bent. Through extensive research, we generate hundreds of ideas from a variety of sources - both internal and external. From over 1000 stocks, we continually monitor about 200. We are classic stock pickers who look at stocks from the bottom-up.

A patient investment strategy is our hallmark. We look for gaps between a company's business value and its current stock price, then carefully evaluate its strengths and risks, investing in those whose stock prices don't fully reflect their true value. We typically hold these stocks for at least 3-5 years. We believe this approach offers our investors the potential for higher returns with lower risk. Striving to reduce risk is inherent in our investment philosophy.

Our multi-cap approach allows us to opportunistically take advantage of market rotations. During these market cycles, we apply our proven investment process to companies of all sizes and sectors, identifying what we believe are undervalued small-, mid- and large-capitalization stocks.

Timberlands

We view Timberlands as a very attractive business with low capital intensity, low volatility, and good growth over time.

As a tree grows larger, it becomes more valuable because a larger tree means more and higher-value wood is available to harvest. Smaller timber is useful only for pulpwood, which sells for roughly $8 per ton. Larger timber, on the other hand, can be sold as sawlogs for over $30 per ton to be used in flooring, furniture, etc. Together these factors lead to an approximate annual average growth rate of 25% in the value of a typical southern yellow pine tree from year 13-24. Over time, some timberland can be developed to higher and better use (HBU) land, significantly increasing value.

Timberlands investments tend to exhibit low levels of volatility. In the twenty years ending in 2007, The NCREIF Timberland Index had only one down year (2001). Timberlands are not traded on any exchange and deals tend to be large and infrequent- therefore they are not attractive to speculators. The market for timberlands tends to be dominated by long term, specialized investors such as timber investment funds and pension funds. When end markets, such as housing and paper products, are weak, timberland owners reduce harvests to allow stock to grow larger and more valuable. This acts as a "cushion" on the downside and reduces volatility.

Timberlands have extremely low capital requirements. All that is required is planting and periodic harvesting. Adding to their appeal, Timberland stocks tend to pay attractive dividend yields. Should housing markets turn positive over the next few years, Timberland stocks will benefit.

The attractive investment characteristics of Timberlands have not gone unnoticed in the private market. Despite depressed log and lumber prices, private timberland transaction prices have continued to increase. On April 1, 2008, Timberstar sold 900,000 southern U.S. acres to John Hancock at $1900 per acre, having bought the property for $1320 per acre in 2006. In March, Rayonier purchased 53,800 acres in Washington for $3819 per acre. Using conservative valuation measures, we estimate that on a sum-of-the-parts basis Weyerhauser and Plum Creek are trading at a discount to net asset value of approximately 45% and 25%, respectively.