Market Neutral Long / Short

Schultz Financial Mgmt Corp

Risk-Controlled Portfolios for Serious Investors

Long / Short Strategy

Folio Statistics

(As of 2-3-2006)

	Long / Short Strategy	S&P 500 Index
2006 YTD Return	5.62%	1.36%
2005 Return	9.43%	5.80%
Volatility	7.18	10.53

*Since Inception Date: Jun 30, 2006

Investment performance figures from 2005 are based on actual results of a representative client. These figures do not include our investment management fees.

Objective

The market neutral long / short strategy is a separate asset asset class and has a low correlation to the other assets in the portfolio.

The objective of this investment is to add diversification to the overall portfolio while providing consistently attractive returns averaging 8% per year or more, regardless of the overall stock market direction.

Investment Approach

The strategy invests approximately 2/3rds of the investment portion in 10 stocks and the remaining 1/3rd in a bear market mutual fund that tracks the inverse of the S&P 500 doubled (see examples in right column). Therefore the long position in 10 stocks is fully hedged by the short position in the bear market mutual fund.

The key to the success of this strategy lies in the ability to select a diversified set of stocks that collectively outperform the market averages during both up and down markets.

Stocks chosen are selected because of strong fundamentals, strong relative strength compared to the stock market, acceptable volatility, and favorable risk / reward characteristics according to our proprietary methodology.

Every two months, stocks are replaced and the strategy is rebalanced to a 50/50 long short position.

Sample Scenarios

The long / short strategy can be profitable whether the stock market goes up or down.

An example in a bull market would be if the return of the stocks owned was 22% while the return of of the S&P 500 was 10%, then the return would be about 8%. Assuming the bear market fund tracked the inverse of the S&P 500 *2, then the return would be calculated as follows.

22% * 2/3 = 14.67%

10%*(-2)*1/3 = -6.67%

Net Return = 8.00%

An example in a bear market would be if the return of the stocks owned was -10% and the return of of the S&P 500 was -22%, then the return would be about 8%.

Assuming the bear market fund tracked the inverse of the S&P 500 *2, then the return would be calculated as follows.

-10% * 2/3 = - 6.67%

-22%*(-2)*1/3 = 14.67%

Net Return = 8.00%