Real Estate Income Stocks

Schultz Financial Mgmt Corp

Risk-Controlled Portfolios for Serious Investors

Folio Statistics

(As of 12-30-2005)

	Real Est Stocks	DJ REIT Index
2005 Return	6.93%	11.15%
2004 Return	31.01%	32.06%
2003 Return	32.10%	36.67%
2002 Return*	-4.44%	-5.99%
Dividend Yield	5.06%	NA
PE Ratio	16.68	NA
Volatility	11.68	12.71
Beta	0.27	NA
Market Cap	2.5 billion	NA

* Inception Date: June 10, 2002

Investment performance figures from 2003 are based on actual results of a representative client. Results prior to 2003 are those of our model folio account since its inception. These figures do not include our investment management fees.

Objective:

The objective of this folio is to provide attractive dividend income as well as appreciation similar to that of real estate. Although this portfolio is more heavily weighted in residential properties, its volatility will resemble that of the Dow Jones U.S. Real Estate Index.

Investment Approach:

At least one half of the stocks in the folio will consist of REITs in the residential or manufactured housing sectors. The remaining stocks may include REITs from any real estate sector except the mortgage sector.

First, we develop a list of 50 stock candidates for consideration in the folio based upon fundamental factors including operating margin and dividend yield.

Second, we sort those 50 stocks using a proprietary Stock Ranking System (scores 0-99, higher being better) and select the highest ranked stocks. We then limit the folio to 5 (or less) non residential REITs stocks. Daily, we monitor the earnings rank of those stocks in our Stock Candidate List, in order to determine if a change to our stock folio should be made.

Third, we look out for bad news that is specific to a particular stock that we own, that causes a large price decline of 5% or more on high trading volume. In that situation, regardless of the ranking, we would sell the stock and replace it with our highest rated candidate stock that we don't already own in the folio.

What are REITs?

Real Estate Investment Trusts (REITs) are companies that own and manage a large number of real estate properties throughout the United States. Publicly traded REITs are very liquid and can be purchased or sold daily on major stock exchanges.

REITs may own many types of real estate including industrial property, office space, residential housing, storage, shopping centers, and lodging.

Unlike corporations, REITs are required by law to distribute 95% or more of their net income to their shareholders.

Why Own REITs?

It is our view that REITs provide the best equity form of diversification to supplement stocks and bonds.

Residential REITs provide rental housing, and is likely to be less sensitive to a slow economy than other types of REITs since people will always need a place to live.

Further, owning residential income property should provide an excellent hedge against inflation due to increasing rents.

Stock Ranking System

If the stock rank of a company (REIT) in our folio drops below 30, we will sell the stock, and replace it with the highest ranked stock in our current candidate list.