EXECUTIVE SUMMARY

v	Equity markets did not offer investors much in the way of returns in 2005, with broad index measurements ranging from mildly negative to a few percentage points positive. Stock market returns cover a wide variety of ground in the path toward long term results, such that the price of the well above average years is tolerance with lackluster ones. Candidly, that adjective describes 2005 results at Oak Value. Although that is neither a terrible outcome nor one out of step with markets or peers, it is certainly not indicative of the longer term results we strive to achieve.
v	In summary, the underperformance in client portfolios last year can be largely attributed to lackluster performance in heavily weighted exposures in consumer discretionary businesses and an underweighting in energy and other commodity based businesses.
v	Overall, we expect the long term influence of energy stocks on market results to be fairly modest given the commodity and cyclical nature of the businesses and their mediocre long term profit profile.
v	Conversely, we are finding an increasing number of businesses with superior profit profiles available at reasonable prices, in part due to an overall market that has basically gone nowhere during the first half of the decade. The characteristics of the businesses we are seeing in terms of profitability, internal return on capital measures, balance sheet strength, and importantly price, bode well in our view for prospective outcomes.

Equity markets did not offer investors much in the way of returns in 2005, with broad index measurements ranging from mildly negative to a few percentage points positive. If the influence of energy related holdings is removed from diversified benchmarks, results were even worse. Oak Value client portfolios did not capture even what little return was available, courtesy in part of just such an underweighted position in Energy, generally finishing the year down just over one percent. Although that is neither a terrible outcome nor one out of step with markets or peers, it is certainly not indicative of the longer term results we are striving to achieve.

We expect our avoidance of Energy and Utility sector investments will prove to be the right decision in the long run, and a good bit of 2005's performance lag relative to the S&P 500 (and roughly three quarters of that Index's return last year) relates to these two areas. Overall, we expect the long term influence of Energy stocks on market results to be fairly modest given the commodity and cyclical nature of the businesses and their mediocre long term profit profile.

In addition to the challenge of an Energy underweighting, client portfolios were also over-weighted in the underperforming Consumer Discretionary sector, including a healthy dose of quality media businesses whose stock prices have languished. While there remains a cyclical level of near-term uncertainty about media businesses that is currently depressing valuations there, we expect client portfolio positions to perform well over time. The prices attached to media content may fluctuate in the near term, but the value of entertainment that consumers want is usually proven out over time. Moreover, we are finding an increasing number of other types of businesses (see the 4Q 2005 PORTFOLIO CHANGES section below for several examples) with superior profitability profiles available at reasonable prices, in part due to an overall market that has basically gone nowhere during the first half of the decade.

PORTFOLIO UPDATE

Beyond broad economic sector allocation decisions, the other sizable contributor to under-performance last year was client portfolios' holdings in Cendant, Zale, and Comcast, which generally created a headwind against performance as their share prices lagged in the latter part of the year. While we discuss each in some detail below in terms of specifics, the common denominators fall into the category of our attempting to place some level of near term business and/or valuation challenges into the context of our longer term evaluation of intrinsic value. Still, those three holdings hurt results for 2005 and are receiving an appropriate level of the investment team's attention.

In fact, in post-quarter-end developments early in 2006, we eliminated Zale and Cendant positions. Over the course of the summer, Zale was working to re-position the merchandise mix, inventory sourcing, and sales training of its flagship brand in an effort to improve sales there relative to competition. Though the transition was being guided under the direction of an executive with a solid track record at Zale and elsewhere in the industry, the challenges were significant. We kept a close eye on their progress, and generally reduced Zale positions in client portfolios as it became clear that execution challenges would continue to impact operating and financial outcomes. Zale's CEO resigned in early 2006, and investors are now faced with what we view as the associated likely re-setting of expectations to much lower hurdles. In that light, the prevailing risks to Zale's stock price outweigh any intermediate term improvement in its business.

At Cendant, management has tried to unlock value via a split of the company into its separate and distinct businesses, though the stock price has yet to respond to that stimulus. Execution challenges related to acquisitions in its sizable travel segment have muddied the water on the higher sum-of-the-parts value that the splitting transactions were designed to make clearer. On one hand, even the reduced expectations for travel arguably leave more value in the total package than the market is currently assigning. At the same time, the change from the historic Cendant which has been a profitable investment in the past is noteworthy.

The separate individual businesses may well carry a somewhat higher risk profile given their more narrow industry focus. Additionally, some level of execution risk exists over the course of the foreseeable future as the parent company processes the planned business splits. While private equity investors, of which we recognize there is currently no shortage, could reasonably "pay up" for one or more of the pieces given their greater comfort with debt financing and their own internal return targets, that is a far different expectation than the cash flow scenario of our investment thesis. Processing these altered cross currents, we elected to reduce Cendant positions in client portfolios late in 2005 and had eliminated that reduced exposure by the printing of this commentary.

Comcast has been a challenge of another variety, where a declining stock price is associated with market concerns over future value rather than immediate execution and financial performance. Comcast has in fact executed its business plan well during the tenure of clients' ownership period, though the multiple the market has attached to its growing cash stream has diminished in response to concerns over competition.

While we believe there should be more value in Comcast than reflected in its current stock price, we acknowledge the uncertainty related to establishing the value of entertainment distribution in today's marketplace. With telephone companies readying video offerings to buttress their besieged traditional voice business, the revenue projections for a package of video, data, and voice services remains a matter of great debate, and where uncertainty reigns, valuations typically struggle. While we believe Comcast has the low cost infrastructure and an advantaged platform to offer a package of services to customers, the element of enhanced competition over the course of client ownership cannot be ignored. At this point, we remain convinced that the risk reward profile of this scenario warrants our continued allocation of capital.

PORTFOLIO OUTLOOK

Frankly, we find recent outcomes a tad frustrating, largely because of the discontinuity between confidence in our investment philosophy and research process and a lack of market-beating outcomes of late. We generally added eight new companies to client accounts in 2005, including three in the most recent period, and we are encouraged by the quality of client portfolios relative to the current prices the market is attaching to individual positions. We also eliminated seven investments in 2005 and are confident that the net effect of the buy and sell activity is an improved risk/reward profile and better portfolio characteristics in terms of profitability, balance sheet strength, returns on capital, etc. - all indications in our view of improved prospects relative to recent experience.

In light of the fact that the overall market results have largely marked time for several years, the odds of better outcomes from today's starting point are arguably superior to a starting point at the beginning of the decade. To that point, while we are not generally fans of top-down analyses, the prospects for the future, coming out of a sideways market, are fairly compelling in our view. Simply to get to half of the long term average return of 11% on stocks for the full decade begun in 2001, the broad market must advance over 65% from its 2005 year end level, or low double digit +% annualized. For results to reach the full long term average returns on stocks, the prospective outcome must be commensurately larger.

We are not predicting such an advance, but rather pointing out the arithmetic surrounding mean-reversion. Moreover, should it occur, we would not expect a rising stock market to be equally distributed across all companies. It has been our recent experience that the bottom-up economics for some very high quality businesses that we have evaluated indicate significant return opportunities based on recent stock prices relative to earnings potential. We maintain that the combination of an increasingly high quality portfolio of companies with an ever stringent investment process has placed us in a solid position to capitalize on just such a broadening opportunity set.

4Q 2005 PORTFOLIO CHANGES

During the fourth quarter we initiated three new positions in client portfolios. The nature of these businesses vary significantly with two well known great brands, Estée Lauder and Harley-Davidson, as well as industrial gas supplier, Praxair. We also eliminated the final portion of long time holding AMBAC during the period.

Purchases

Praxair

In October, we initiated client portfolio positions in Praxair, a leading producer of atmospheric and process gases for use in industrial production, healthcare facilities, energy refining and other commercial manufacturing. With their critical position in the functioning of a global economy, we were intrigued about the economic characteristics of different components of the manufacturing value chain. Many of the participants are of an inherent economic nature that we specifically try to avoid, i.e., they are commodity businesses with no differentiating features, intense competition based on price, leading to extreme cyclicality and inconsistent profitability. Our examination of Praxair indicates that it not only avoids these poor characteristics, but flourishes among them, producing more stable profits over time in a fashion that separates it from more commodity industrial and specialty chemical producers. The global industrial gas market consists of a limited number of key suppliers with an extended presence in all major geographical and product markets. The financial characteristics of Praxair specifically indicate a decided advantage to its peers in terms of its low teens return on capital, as well as operating profit margins and long term return on equity figures that place it on par with high quality businesses in other industries.

Praxair executes a disciplined business model in order to earn consistent and rewarding returns, with customer contracts as a crucial component in their ability to recover the high up front costs related to production capacity. Praxair is compensated for its assumption of capital risk via long term - typically 15 year - guaranteed agreements (so called "take or pay" contracts) designed to safeguard the return of, and adequate return on, its capital outlay. The deals also include the ability to maintain profit margins by passing along increases in critical cost components, notably including rising costs of energy. A combination of few, rational competitors, economies of scale inherent in specific geographic concentration, diversification across a portfolio of industries, including energy production, and the disciplined execution of by-product economics (repurposing derivative gases from one process to additional customers and clustering new customers in physical proximity to existing infrastructure) have allowed Praxair to earn attractive returns on its capital and deliver value to shareholders over long periods of time.

Praxair is highly diversified in the end markets they serve and boasts a growth rate of twice industrial production, illustrating strong, sustainable growth opportunities in a high margin business. As we look forward, Praxair is enjoying some very high growth characteristics in a variety of end markets, including energy, health care, and electronics manufacturing that are providing long-term visibility and predictability for Praxair's overall growth rate. Having come to appreciate the attraction of "enclave economics" executed by a management with an explicit focus on earning high returns on shareholders equity, we were pleased for clients to get an opportunity to own this fine business. Praxair's management team has demonstrated a focus on seeking a superior return on retained earnings rather than pricing to marginal cost, and has a history of allocating shareholder capital for dividend increases, share repurchases, and acquisitions that improve their regional/geographical footprint and technology over time. We think an over-reaction to hurricane damage to the petrochemical industry created a window for us to climb through for initial positions in client accounts.

Harley-Davidson

Harley-Davidson is the largest manufacturer of heavyweight motorcycles in the United States, with a roughly 50% market share of "big bikes" for recreational, military and law enforcement riders. While it competes with global brand names such as Honda, BMW, Suzuki, etc., it is one of the more focused competitors, with 80% of revenues from motorcycles (rather than other automotive) and over twice its nearest competitors' market share in its heavy bike niche in the U.S. The balance of revenues also relate to motorcycles in the form of accessories and financing for the product and licensing of the one of the most recognizable consumer brands in the world.

Harley-Davidson's return on invested capital is high, reflecting the company's disciplined financial acumen, moderate capital requirements, and its strong brand. Profitability characteristics such as 40% gross margins (sales minus costs of production) and 25% operating margins (after selling and administrative expenses) testify to the strength of the core business and value of the brand identity in consumers' eyes. (Recall that major U. S. automobile manufacturers, each with identifiable but not necessarily valued brand names, do not boast a similar profitability track record during the recent past.) Harley's high returns and high profit margins are themselves obstacles to potentially harmful mergers and acquisitions because so few businesses would match those attractive characteristics, and historically, the company has delivered exceptional growth through organic measures.

The Harley-Davidson brand has evolved over time to become as much a lifestyle brand as a motorcycle and the company has done a good job cultivating and protecting this image. While competing against large competitors, Harley's strong brand mitigates the scale/price advantages of Japanese manufacturers; despite the availability of motorcycles that are less expensive and/or more performance-oriented, Harley-Davidson remains an aspirational brand. Depending on how you define the category, Harley either competes with a wide range of companies for consumers' leisure time and expenditures, or there is no substitute. From the name on the tank to the customized accessories, and right down to the signature Harley-Davidson engine rumble, for many potential and existing motorcycle riders nothing but a Harley will do. The company capitalizes on this strong affinity with regular innovation and careful attention to the heritage that feeds its high percentage of repeat customers. In our opinion, Harley has been successful over time by both recruiting new riders and listening to the core customers and innovating based on their expressed desires for features.

Harley has cultivated the personal attachment of its customers and dealers into a culture of product experience and satisfaction that is the envy of most marketers. While the growth of the US heavyweight motorcycle market has slowed since the late 1990s, the company's ability to forecast demand in order to adjust production protects the company from unfavorable supply imbalances. Historically, Harley-Davidson motorcycles have benefited from demand that outstripped available supply to dealers, with waiting lists common; as demand growth has slowed to a more manageable level, the company has lowered production targets to preserve healthy pricing. We expect both demographic and socio-graphic trends toward more leisure time and increasing affluence to allow lots of open road for Harley to continue its success.

Harley has a committed management team that is among the best in the leisure business, particularly in financial management and focus on shareholder returns. The company recently expanded its physical plant and is not expected to significantly increase its capital expenditures in the near future. We believe the company will continue to return capital to its shareholders through buybacks and dividends, given its strong free cash characteristics. We believe large buybacks of this nature are illustrative of the strength of a company's core brand as well as a management team aligned with investors' interests.

We have followed the company for the better part of the nearly two decades since it became a public company. Until now, we have yet to find what we considered an appropriate entry point, i.e., a time when Harley's attractive growth profile was not more than fully reflected in its stock price. Even with conservative assumptions about unit growth and discounted terminal multiples, modest growth over a five year time horizon would indicate a value for the company significantly above that reflected in its recent share price.

Estée Lauder

Our research team has followed the cosmetics business throughout the entire history of the firm. This research effort and the knowledge base that it represents have yielded demonstrable results throughout this period, when applied opportunistically. Our recent review of this industry included a fresh analysis of both the mass merchant and prestige channels to analyze the competitive positioning of the participants as well as the economic structure of the industry. In our view, the existence of established successful brands across the beauty category makes it very difficult for new entrants to compete effectively. In certain skin care categories, novel technology may provide an entry point, but the cost of developing and marketing a one-product brand would most likely compel the developer to sell the technology to an established player with distribution relationships and marketing savvy. With this work as a complement to our collective knowledge base about the industry and some conveniently-timed price volatility in the group, we recently initiated client portfolio positions in Estée Lauder.

Estée Lauder has developed or acquired a solid lineup of "prestige" beauty products over six decades. Over time, the company has built several high quality and defensible brands within the prestige category and partnered/acquired others with sufficient economics to earn attractive returns. With a solid global portfolio, Estée Lauder has built a highly regarded portfolio of brands that are unlikely to be replicated, including its namesake, plus Clinique, Aveda, MAC, Bobbi Brown, and Origins.

Estée Lauder brands represent an aspirational product to its core customers, providing a level of protection from pure price competitors. With few legitimate substitutes for beauty products, there is little indication that customers will stop using cosmetic products in the proportion they have in the past. The company has a strong competency in developing, marketing and maintaining branded products that are demanded by customers as they obtain greater wealth, offering global growth opportunities as economies grow and move more customers into the affluent market. In developing markets, cosmetic expenditures have grown at a rate in excess of the growth rate of GDP as customers have chosen to spend more of their discretionary income on these products over time.

Estée Lauder continues to diversify its distribution in a manner that both protects existing brands and provides opportunities to access more customers. For example, the company has developed four brands in an exclusive agreement with Kohl's, targeting prestige/high end mass customers who choose to shop away from the company's traditional stronghold of department stores and malls. For the traditional customer base, the importance of the company's products within the department store - often a significant percentage of total store revenues - prevents that distribution channel from exercising significant pricing power despite its continued consolidation.

The third generation of Lauder family management has recently focused the company on becoming more operationally efficient in an effort to complement the company's strong brand portfolio and to enhance profitability. For example, while the company has had several successful brand acquisitions and development programs in its history, management believes that it can generate the same success with fewer programs by taking a more evidence-based approach to marketing and brand development. In our view, modest margin expansion opportunities, modest revenue growth and the associated operating leverage, plus more efficient capital usage are achievable goals. We believe that the achievement of these objectives should result in a meaningfully higher value than is reflected in recent share prices.

The philosophical foundation for what we do as value investors is based on the pursuit of good businesses with good management purchased at attractive prices. The objective of our research process is not to know "all" information, but to identify, understand and analyze information which is relevant to the portfolio decisions and in our opinion, recent additions to client portfolios fit the bill. We enter individual investments with confidence, while fully acknowledging that the array of potential outcomes, with regard to the underlying businesses they represent and the corresponding shares prices they may reflect, will almost certainly vary from any single scenario we may anticipate. That is one reason we work diligently to understand the businesses and develop multiple valuation, business, and economic scenarios for consideration. Our goal is to allocate clients' capital to investments where we believe the likely collection of potential scenarios is advantaged, over the long term, by our focus on high quality businesses purchased at prices that reflect a proper margin of safety. With that said and as longtime readers well know, some of our holdings will certainly turn out to be better businesses, and better investments, than others. Notably, we also view these and other portfolio decisions in the context of a portfolio of holdings. They will not each work out as planned, certainly rarely at the same time or in exactly the way we anticipated, but we strive for aggregate portfolio results over time that are attractive in the absolute and out-perform passive benchmarks.

Sales

After reducing position sizes during the third quarter of 2005, an increasingly competitive landscape and altered view of the underlying risk profile related to catastrophic events led us to eliminate AMBAC during the fourth quarter after a long ownership period. With capital markets and non-capital market alternatives awash in liquidity, traditional risk transfer services such as AMBAC's financial guarantee business are meeting with competition that is limiting growth and pressing profit margins. One alternative in such an environment is to lower quality standards and take on more risk, implicitly or explicitly in order to meet growth targets, a path that usually proves disastrous, though the challenges can remain dormant for some time. While there is much to admire in AMBAC's business model, shifts in its business mix and increasing competition (as well as substitutes) for its risk-transfer services presented us with sufficient reason to re-evaluate our assessment of its intrinsic value range. We weren't willing to wait until such challenges expressed themselves in financial outcomes, preferring to book profits and reinvest in opportunities with better tradeoffs of upside/downside potential. Vigilance in the realm of maintenance research is rarely a source of regret in our experience, especially in financial services businesses where complexity and uncertainty tend to multiply with growth and time.

Five Largest Holdings Update

AFLAC

After a period of price weakness earlier this year, AFLAC's share price has steadily climbed in response to improving business outcomes in both of its major markets, Japan and the US. We generally responded in inverse fashion in 2005, sizably increasing client portfolio positions early in the year and trimming somewhat in November. Our experience with AFLAC's business over many years is that their continuous product innovation and focus on efficiencies more than adequately compensate for occasional brief slowdowns, macro challenges, and shifts in the competitive landscape.

In Japan, they continue to build on a successful cancer insurance history with products designed to support an aging population faced with rising co-pays in government sponsored health plans. In general, demand for the supplemental health insurance products in which AFLAC specializes is expected to continue to grow as co-pays increase as a result of increasing burdens on the national health insurance system. AFLAC may also continue their success in penetrating the small and mid-size business market with the proposed 2007 entry of banks as distribution partners. In the US, AFLAC continues to make progress in better managing the growth that their status as the only company purely focused on secondary product offerings has helped to create. 2005 results reported recently indicate they are meeting financial targets, matching the qualitative assessment of their superior position with "proof in the pudding" results. While its progress in the past few years has been intermittent (often creating profitable trading opportunities), we think the clear trend of AFLAC's business points to continued success. Management's disciplined execution of a stock repurchase program and modest dividends indicates to us that they understand the value of their business franchise and they plan to continue to deliver that value to its shareholders.

Berkshire Hathaway

Nothing about the investment case for Berkshire Hathaway changed in 2005, though as we've indicated in the past, its flat stock price may have been impacted by the regulatory uncertainty it has faced for over a year. In our opinion, nothing about how the regulatory matters that have so interested business journalists are ultimately settled would in our view have any ability to damage Berkshire's business model or substantively impact its intrinsic value, which remains significantly above its recent stock price.

The basic investment thesis for Berkshire is that it generates significant investment capital at very low cost, from insurance operations and diverse business activities. The challenge is frankly one of deploying billions of dollars of capital at adequate rates of return, a high grade "problem" if ever we've heard of one. We have indicated in the past that as long as Berkshire chairman Warren Buffett is alive, he will in our view retain the capital and continue to seek profitable deployment, a task for which he is uniquely suited. Should his advancing age remove him from that process, we believe that the sizable capital cushion would present an increasingly talented and professional board of directors at Berkshire with sufficient flexibility to initiate value protecting actions on its shareholders' behalf.

In our view, the size of and lack of understanding about Berkshire contribute to a challenge in value recognition by the market, though that does not mean the value isn't there. For example, the past few years have seen sizable returns to energy and utility investments. If Berkshire's investments there, including Mid-American Energy and the gas pipelines bought at distress prices in 2002 were separately traded, we suspect they'd have earned impressive returns for public shareholders. We could make similar arguments for the GEICO auto insurance subsidiary (go take a look at a stock price chart for Progressive, GEICO's closest competitor), its building products businesses such as Johns Mansville, Benjamin Moore, Shaw Carpet, and Acme Brick (think the home building boom has helped these?), and other areas.

We are amused when journalists assail Mr. Buffett's "old-school" investment methodology as in a recent article. We have a simple question for skeptics in this regard: which relevant investment opportunity of size of the past decade has Warren Buffett missed? Hedge funds are all the rage, practicing arbitrage of equivalent securities trading in different markets. Mr. Buffett made hundreds of millions of dollars in profits on the difference between the 29 year Treasury bond and its 30 year "on-the-run" equivalent in 1998's Long Term Capital Management meltdown-induced panic. High Yield bonds? You don't even want to know how much money Berkshire made buying junk bonds in the summer and fall of 2002. Oil? Mr. Buffet invested in Petro-China, then trading at a sizable discount to its U. S. equivalents, long before Goldman Sachs called for super-spikes and $100 a barrel oil. Housing? Berkshire not only covered that in building products as indicated above, but also owns a large collection of independent real estate agencies, courtesy of its Mid-American acquisition. Three percent per side is still the norm for brokerage commissions, and we assume the Home Services subsidiary of Mid-American has profited nicely from a white-hot real estate market.

We could go on (foreign currency anyone? commodities?), but the point is that Berkshire under Mr. Buffett has coined money in such a profuse and diverse fashion that searching for a comparable recently left us wryly comparing to Rumpelstiltskin. In short, Berkshire remains in our view the safest investment clients can own, with prospects for growth and value creation that more than compensate for its risks and the patience that will likely be required to await value recognition. Even our conservative valuation scenarios indicate a sizable discount of the current stock price from a rational appraisal of Berkshire's intrinsic value.

Cadbury Schweppes

Cadbury has worked diligently to execute its plan to rationalize global production, leverage its routes to the consumer and innovate, i.e., create new products based on its strong worldwide brand positions. Innovation has been successful in the US drinks division, where the Dr. Pepper franchise has expanded into the diet area to drive volume growth. They have also been successfully innovating in the gum business, with Trident Splash, the first liquid-center-filled pellet gum, combining two flavors (Strawberry-Kiwi or Vanilla-Mint) and textures in the same gum.

In November, the company completed the sale of its European beverage division to a private equity group, delivering on a commitment to focus resources on their highest return opportunities and to rationalize those with more modest prospects. In our view, Cadbury has executed well in its integration of the Adams gum acquisition and in subsequently beginning to deliver on the promise of that combination. Shares remain comfortably discounted from intrinsic value at recent prices, particularly so in consideration of the valuations afforded to similar businesses. We believe the sales and margin increases they anticipate remain achievable for a great portfolio of brands that are a big part of many people's daily snack experience.

Constellation Brands

Constellation was among the better portfolio performers during 2005, as the positive financial effects of its successful Mondavi acquisition became clear. The share price was weak early in the fourth quarter (though it recovered) related to fears that the company would overpay in its proposed hostile acquisition of Canadian wine maker Vincor. We generally used the price weakness to selectively add to client portfolio positions where appropriate.

Our experience with Constellation's management team is that they are as price disciplined on the acquisition front as they are opportunistic. The business remains well positioned with solid distribution over which it can leverage any completed acquisitions, and good exposure to the growing "New World" wine category courtesy of past savvy deals. We expect continued business growth to support value enhancement of this fine business.

E.W. Scripps

Scripps continues to experience positive operating and financial outcomes, courtesy of its strong portfolio of media properties. Founded in newspapers, the management team has historically - and profitably - moved into television and cable networks, video shopping and now directly onto the internet. Scripps has a history of starting valuable media assets from scratch (HGTV) as well as acquiring them (Food Network). The company continues to make progress with its newer networks - Fine Living, DIY Network (do-it-yourself), and Great American Country (GAC) - expecting them to collectively begin contributing to the network segment profitability after several years of nurturing them.

Because they develop and own the original programming used on its networks (at a fraction of other entertainment outlets' production costs), they are more suited to leveraging that content into other forms of distribution, in particular video-on-demand and the internet. Moreover, we think Scripps' rich relationships between specific content and viewers who are attuned to those interests makes their ownership ultimately more commercially exploitable for advertiser dollars than content with less of those features. In our view, the consumer/advertiser bond is more durable for Scripps' niche content, even in a world of time-shifted viewing and fast forwarding courtesy of digital video recorders. In short, we believe that while Scripps' shareholders have been partially rewarded for the value of the content Scripps' management team helped to create, the total value of that media reinvestment has yet to be fully realized.

CONCLUSION

The recent market environment, while challenging, has allowed our team to bring to bear what we believe to be an increasingly productive research effort in a period of opportunity. We are vetting new ideas more comprehensively, digging deeper, and canvassing a broader investment landscape, all in an increasingly productive and systematic fashion. Over the past couple of years, we have evolved our research team and the infrastructure to support its effort to more fully complement our investment decision making. Today we find ourselves with a more seasoned and broadly experienced research team operating in a fertile environment.

For all the self-flagellation that an underperforming year can encourage in our business, we remain confident. Such periods typically provide opportunity for reflection and self evaluation and we have prudently taken note of such during recent times. We are encouraged by the prospective return opportunities implied in an attractively priced portfolio of quality companies operating in a growing economy. The characteristics of the businesses we are seeing in terms of profitability, internal return on capital measures, balance sheet strength, and importantly price, bode well in our view for prospective outcomes.

We recognize the recent dislocation between our optimism for the quality and economics of portfolio holdings (and the due diligence process by which they were selected) and the market-beating outcomes we all expect. In our opinion, client portfolio holdings represent a collection of very good businesses, with good management, purchased at attractive prices. The overall investing backdrop has been challenged by a rising tandem of energy prices and interest rates that we think have kept a lid on returns for almost two years, an outcome we would not expect to continue indefinitely. Though we neither control nor can accurately predict such macro-outcomes, we can control our research effort and the decision-making related thereto. In that regard, we are more focused than ever. We remain guided by a proven philosophy and will continue to execute with diligence and discipline, a course of action that we expect will yield competitive long term outcomes.

Oak Value Capital Management, Inc. Investment Committee

David R. Carr, Jr.             Larry D. Coats, Jr.             Matthew F. Sauer

IMPORTANT INFORMATION

This commentary seeks to describe Oak Value Capital Management Inc.'s ("Oak Value" or "we") current views of the market and to highlight selected activity across client accounts. Any discussion of specific securities is intended to help clients understand Oak Value's investment management style, and should not be regarded as a recommendation of any security. Where shown or quoted, recent company returns (for example calendar quarter or trailing twelve months) are stock price changes only, and reflect neither dividends nor any fees associated with an investment account managed by Oak Value.

The displays detailing a summary of holdings or portfolio activity (e.g., "Client Portfolio Activity Summary," "Summary Purchase/Sale Activity" and "Top Ten Holdings") are based on Oak Value's Value Composite ("Composite"). The displays detailing Business Category Allocation is based on a large account managed by Oak Value in the Composite. Individual client portfolios that are members of the Composite may and do differ in their investment composition from the aggregate composite and/or the large account for a variety of reasons. Not all positions listed in a summary of "Client Portfolio Activity Summary," and "Summary Purchase/Sale Activity" may have been purchased by, owned in, and/or sold from all client portfolios. Any information providing a summary of holdings and assets under management is presented to illustrate the application of the value investment philosophy only and should not be considered recommendations by Oak Value. Because any displays detailing a summary of holdings are presented as of the dates indicated and change from time to time, they may not be representative of Oak Value's current or future investments. "Top Ten Holdings" do not include money market investments.

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Although this commentary focuses on the most recent calendar quarter, we use this perspective only because it reflects convenience and industry convention. Oak Value does not subscribe to the notion that three-month calendar periods or other short-term periods are either appropriate for making judgments or useful in setting long-term expectations for returns from Oak Value's, or any other, investment strategy. Oak Value does 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 portfolio commentary should be construed as a forecast of overall market movements, either in the short or long-term.

Indices are unmanaged and do not reflect the payment of advisory fees and other expenses associated with privately managed accounts. Investors cannot directly invest in an index, though index funds designed to replicate the performance of various indices are generally available. The S&P 500 is a registered trademark of the McGraw-Hill Companies, Inc. and is an unmanaged index of common stocks of 500 widely-held companies as determined from time to time by Standard and Poor's Corporation in their discretion.

On December 16, 2005, Standard and Poor's replaced their S&P/Barra indices with new indices called the U.S. S&P/Citigroup Style index series. The S&P/Citigroup Style index series (e.g. S&P 500/Citigroup Value and S&P 500/Citigroup Growth) measures style across seven different growth and value factors, and acknowledges that some companies exhibit neither strong growth nor value attributes, whereas the S&P/Barra methodology assigned stocks to value or growth indices based on price-to-book ratios, and only identified stocks as pure growth or pure value.

The S&P/CitiGroup Style (Growth or Value) index series is an exhaustive, market capitalization-weighted benchmark which divides the complete market cap of each parent index into approximately equal growth and value indices. Stocks that do not have pure growth or pure value characteristics have their market caps distributed between the growth and value indices. The style indices measure growth and value across separate dimensions using seven risk factors - three to measure growth (i. e., 5-Year Earnings per Share Growth Rate, 5-Year Sales per Share Growth Rate, and 5-Year Internal Growth Rate) and four (i. e., Book Value to Price Ratio, Cash Flow to Price Ratio, Sales to Price Ratio, Dividend Yield) to measure value. The S&P 500 index and the S&P/Citigroup Style indices referenced include the reinvestment of dividends.

The Lipper returns are calculated by Lipper Inc., a Reuters Company, which is a nationally recognized organization that compares the performance of mutual funds with similar investment objectives. The returns represent the average performance of included funds and are based on total return performance, with capital gains and dividends reinvested, with annual operating expenses deducted, but without including front- or back-end sales charges.

The Dow Jones Industrial Average is a price-weighted index composed of 30 of the largest, most liquid New York Stock Exchange and NASDAQ listed stocks that are major factors in their industries, and widely held by individuals and institutional investors. Prepared and published by Dow Jones & Co., it is one of the oldest and most widely quoted of all the market indicators. The Dow is a price weighted index, meaning that the weight of each firm in the index is proportional to its share price, rather than the more common capitalization weighted index construction, where a constituent's weight is proportional to its outstanding market value as a percentage of the total.

A full disclosure presentation for the Value Composite is available upon request by contacting a member of the Marketing Department at Oak Value at (919) 419-1900.

Third parties who intend to re-distribute the information contained herein, whether in whole or in part and either paraphrased or verbatim, should be aware that this "Important Information" represents material and relevant disclosure and should be incorporated by reference or made available to clients, and that Oak Value assumes as much.

Oak Value Capital Management, Inc.
3100 Tower Boulevard, Suite 700
Durham, NC 27707
(919) 419-1900