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We believe that our clients should have the benefit of choice. Oakwood Capital Management’s four very well defined equity strategies, as well as our fixed income and balanced strategies, provide that spectrum of choice.

The Capital Appreciation Strategy, which is celebrating its 12th year, has outperformed the S&P 500 Index on an annualized basis since its inception, including the past calendar years of 2003 and 2004. Our goal is to maximize return and at the same time managing risk. The Capital Appreciation Strategy is at the higher end of Oakwood’s risk-reward spectrum, meaning that the expected return of the Capital Appreciation Strategy may be higher than the other Oakwood strategies, and the accompanying risk may be higher as well. It is worth noting for a point of reference that all of Oakwood’s strategies, while differing in their composition and risk-reward profile, are comprised of only high quality stocks, based upon return on equity, return on free cash flow, and other fundamental and quantitative measures.

When it comes to stocks, two particularly important types of risk are operating risk and price risk. Operating risk is the risk to the company of operating as a business. That includes anything that might adversely affect the company’s market share, such as a competitor’s successful new product, or its profitability, rising raw materials or labor costs. Price risk has to do with the stock itself rather than the business. There are different ways to look for price risk, but the most common is comparing a stock’s valuation measures, such as its price/earnings ratio and growth prospects against that of its industry, the market, or any other index that will yield a meaningful comparison.

In the Capital Appreciation Strategy, we are looking for growth opportunities, and in that process, are assessing whether a company is overly-leveraged, whether its price/earnings ratio is out of line with its industry and/or the market, and other relative fundamental and qualitative measures. We measure the return expectation with our confidence in the ability of the company to deliver that return. We differ from many growth managers in that we are not just focusing on earnings and cash flow growth without regard to price. In our view, price relative to intrinsic value matters.

Investment Objective
The Oakwood Capital Appreciation Strategy seeks to maximize capital growth by investing in the common stocks of large and mid-capitalization companies. Current income is incidental to the primary return objective of maximizing capital appreciation. This strategy is most closely allied with a growth investment style, and is suitable for investors seeking capital appreciation.

Investment Process
A guiding principle in the equity research department is that we as investors are becoming owners of the business, not just buyers of a stock. We seek to identify companies with above average growth in earnings that are attractively priced. The investment process is not based solely on macro-economic factors, such as the performance of the economy or the direction of interest rates. We employ a fundamental, intensive and rigorous in-house research process to identify companies that meet the Capital Appreciation Strategy’s criteria.

The equity research process starts with an analysis of a company’s valuations, as measured by P/E ratios and measures of economic profitability, which are distinct from its accounting profitability. We calculate both five and ten year compound annual rates of return for each potential holding and seek to maximize the return of each client portfolio. We stringently evaluate the lasting competitive advantage, and the management. In addition to examining valuation measures and return expectations, other measurements, such as discounted cash flow, adjustments for option dilution, and free cash flow are modeled and run through varying scenarios to ascertain a stock’s value in various economic environments.

Companies included in the Capital Appreciation Strategy come from the Russell 1000 Index, the S&P 500 Index and the S&P 400 Mid-Cap Index with market capitalizations ranging from approximately $1 billion and higher. We are looking for industry leaders and those companies who are challenging industry leaders, along with companies redefining their industry. Our goal is to uncover financially healthy companies with strong management, critical core business competencies, solid marketing strategies, and unique selling propositions that can be leveraged in the marketplace.

Portfolio Construction
The Capital Appreciation Strategy is a diversified strategy, with the portfolio typically containing from 30 to 36 companies, with representation in every major sector contained in the S&P 500 Index. Generally speaking, we stay fully invested in all market environments. We do not engage in the practice of raising or lowering cash balances in an effort to time the market. However, in extraordinary market circumstances, it is possible that we may decide to carry a higher cash balance for a period of time.

The portfolio management process that is in place can best be described as organic and ongoing. We do set a target price, based on our return expectations and fundamental analysis. However, once a holding approaches its target price, we may sell, or we may re-evaluate the price in relation to the evolution of the company’s fundamentals and business model and its intrinsic value to ascertain if it is still attractive to own the stock at that price. We are continuously looking at the business itself, the alternatives, and overall market dynamics in our decision-making process. We will sell if the business or management materially deteriorates, if we disagree with substantive management actions, if new unfavorable material facts come to light, or if a stock becomes fully valued.

In the Capital Appreciation Strategy, investors enjoy the benefit of a well-defined fundamental investment strategy that leads to the construction of a diversified high-quality growth portfolio. We would be happy to discuss this strategy with you to determine if it is in alignment with your investment goals.