Covered Call Stock Fund

Schultz Financial Mgmt Corp

Risk-Controlled Portfolios for Serious Investors

Covered Call Fund

Fund Statistics

(Through12-30-2005)

	Covered Call Fd	S&P 500 Index
2005 Return	15.36%	4.90%
2004 Return	9.87%	10.71%
2003 Return	23.13%	28.70%
2002 Return	-12.20%	-22.23%
2001 Return	-2.00%	-11.90%

The "Covered Call Fund" is third party mutual fund (actual fund name not given) that we have used for our clients since 2001. The investment return shown is the net total return of the fund as reported by Morningstar.com and does not include our fees.

Investment Objective

Our objective for the Covered Call Fund is to realize 85% of the long term returns of the stock market averages with only 50-60% as much risk during prolonged bear markets.

Investment Approach

By combining stocks and options, the Covered Call Fund attempts to create a well-diversified and significantly hedged portfolio. the Fund uses futures and options to hedge the values of its investments against changes resulting from market conditions.

The Fund bases its hedging decisions on estimates of the fair value and expected contribution made by the position to the overall expected return of the portfolio.

The Fund maintains similar style and sector weights to the S&P 500 and hedges risk market risk by using a covered call strategy (see right column). The Fund's investment approach is based on sophisticated mathematical models focused on variables that cover multiple dimensions of a stock’s true value, such as its momentum, company fundamentals, liquidity and risk.

What is Hedging?

Hedging is a technique for reducing the downside risk of traditional portfolio that own stocks or bonds. The "hedge" will provide a positive return that will partially offset declines or losses from the other traditional holdings in a portfolio.

Covered Call Strategy

Covered call writing is either the simultaneous purchase of stock and the sale of a call option or the sale of a call option against a stock currently held by an investor. Generally, one call option is sold for every 100 shares of stock. The writer receives cash for selling the call but will be obligated to sell the stock at the strike price of the call if the call is assigned to his account. In other words, an investor is "paid" to agree to sell his holdings at a certain level (the strike price). In exchange for being paid, the investor gives up any increase in the stock above the strike price.

© Schultz Financial Management 2002