A Word From The Advisor

Common stock investors in 2000 had the dubious opportunity to learn for themselves the answer to the age-old question: would you rather eat better or sleep better? After five years of returns in excess of 20% annually, the Standard and Poors 500 (“S&P 500”) reversed its direction and turned in a negative year in 2000, down 9.1%. The technology-laden NASDAQ Composite fell 39% in the same period, just short of its record decline in 1974. Growth mutual funds were down over 16% for the year and international funds, proving that there has been virtually no place to hide, declined over 15%.

Returns in fixed income, however, were substantially better. Fixed income instruments turned in a very respectable 2000 with the taxable Lehman Brothers Corporate/Government Index up 11.9% and the taxable Intermediate Index up 10.1%. Oakwood’s taxable fixed income portfolios have modestly exceeded these excellent results.* Moreover, the reduced risk of bonds offered substantial benefits to balanced accounts as fixed income succeeded at one of its more traditional roles, that of dampening portfolio volatility for clients who also use common stock as an asset class.

Equity returns* at Oakwood, while more volatile than bond results, have generally done well versus relevant equity indices. For example, the Gilford Oakwood Equity Fund, the mutual fund we manage using our Capital Appreciation strategy, outperformed the S&P 500 in 2000. For the full year the Fund’s “B” shares were down 4.4% and the “C” shares were down 2.7% versus the S&P 500, down 9.1%.**

The central challenge of investment management begins with the concept of risk control. In addition to focusing on the potential for return, professional investment managers dedicate equal time to assessing the potential for risk. At Oakwood the risk component of each asset in both common stock and fixed income portfolios is as meticulously measured as its potential for return.

The most difficult task facing any investment manager, however, is to match the risk level of the portfolio to the client’s tolerance for risk. While among the most basic of investment management tenets, this process is inordinately complicated by the fact that investors frequently are not fully cognizant of their degree of risk aversion. At Oakwood we spend time with each client identifying their sensitivities to risk, aiding them in the process of understanding risk and identifying the factors that match risk tolerance with return expectation. Since we encourage clients to establish objectives for the long term, a single down year in stocks should not necessarily obviate a carefully established investment plan. Accepting interim volatility may be exactly what an investor must do in order to meet long term goals.

We recognize, however, that investor risk tolerances may change in different financial market environments. For many, the answer to the question, would you rather eat better or sleep better is: if the market is going up, I want to eat better; if it’s going down, I want to sleep better. Thus, our managed investment product line, on the bond side, extends from the most conservative short term fixed income instruments to full maturity spectrum accounts. In equities, portfolios range from a lower risk, income oriented common stock strategy continuing to a common stock portfolio benchmarked to the S&P 500 all the way to an aggressive Science and Technology common stock strategy. Balanced portfolios, individually designed to match client investment objectives, use both fixed income instruments and common stocks. These portfolios represent a mainstay of Oakwood’s investment management and protected value for clients in 2000.

The fourth quarter of 2000 absolutely punished the stock market and most investors in common stock participated, at least to some extent, in the downturn. In reviewing your investment returns in the wake of last year, we encourage you to view this as a perfect time to revisit your goals and objectives to determine whether or not you continue to be properly positioned.

In the investing arena, the role of professional investment management has seldom been more important. Investors who are deliberate about building and maintaining substantial net worth recognize the value of an investment manager with a broad, diversified product line, an emphasis on goal setting and client service, an understanding of risk control at every stage of the process and a discipline for identifying return opportunities within those constraints. Please call us if you want to discuss your investment strategies. At Oakwood, the answer to the question, do you want to eat better or sleep better is, we want our clients to do both – in all market environments!

* Actual performance is available upon request. Past performance is not necessarily indicative of future returns.

** Past performance is no guarantee of future performance. Shares may be worth more or less than the purchase cost at the time of redemption. If shares were to be sold by the shareholder, a Contingent Deferred Sales Charge (“CDSC”) may apply. Assuming that the maximum CDSC applies, the cumulative total return of the Class B Shares would have been –9.4% for the period January 21, 2000 through December 31, 2000. For the Class C shares, cumulative total return for the year 2000 would have been –3.7%. For further information regarding the CDSC please consult the prospectus. To obtain a prospectus, please phone 800-282-2340. Distributed by Gilford Securities Incorporated, NY, NY 10022.