Tuesday, January 29, 2008

Herbalife -- Continuation Transaction

The following transaction was made today to continue the covered calls written against the 500 shares of HLF:
01/29/08 Covered Calls Continuation Transaction -- STO 5 Feb08 40 Calls @ $1.60

The Transactions History to date is as follows:
12/26/07 Bought 500 HLF @ 39.32
12/26/07 Sold 5 HLF Jan08 40 Calls @ $1.40
01/19/08 Jan08 Options Expiration Date -- HLF closed below the strike price at $39.81
01/29/08 Covered Calls Continuation Transaction -- STO 5 Feb08 40 Calls @ $1.60

The overall performance results(including commissions)for the HLF transactions through Feb08 expiration would be as follows:
Stock Purchase Cost: $19,669.95
($39.32*500+$9.95 commission)

Net Profit:
(a) Options Income: $1,472.60 (500*$1.40 + 500*$1.60 - 2*$13.70 commissions)
(b) Dividend Income: $0
(c) Capital Appreciation (If exercised): +$320.10
= ($40.00-$39.32)*500 - 2*$9.95 commissions
Note that the stock price was slightly in-the-money today at $40.07 when the transaction was made.

Total Net Profit(If stock price exercised at $40): +$1,792.70
= ($1,472.60 + $0 + $320.10)


Annualized Return If Exercised (ARIE)= +64.0% (+$1,792.70/$19,669.95)*(365/52)

Monday, January 28, 2008

Kinetic Concepts Inc. -- Continuation Transaction

The following transaction was made today to continue the covered calls written against the 400 shares of KCI:
01/28/08 Covered Calls Continuation Transaction -- STO 4 Feb08 50 Calls @ $1.70

The Transactions History to date is as follows:

11/20/07 Initial Stock Position -- Bought 400 KCI @ 59.53
11/20/07 Initial Call Options -- Sold 4 KCI Dec07 60 Calls @ $2.35
12/22/07 Dec07 Option Expiration Date – KCI closed below the strike price at $54.25
12/26/07 Covered Calls Continuation Transaction -- STO 4 Jan08 55 Calls @ $1.95
01/19/08 Jan08 Options Expiration Date -- KCI closed below the strike price
01/28/08 Covered Calls Continuation Transaction -- STO 4 Feb08 50 Calls @ $1.70

The overall performance results(including commissions)for the KCI transactions through Feb08 expiration would be as follows:
Stock Purchase Cost: $23,821.95
($59.53*400+$9.95 commission)

Net Profit:
(a) Options Income: $2,361.15 (400*$2.35 + 400*$1.95 + 400*$1.70 - 3*$12.95 commissions)
(b) Dividend Income: $0
(c) Capital Appreciation (If stock price unchanged from $49.10): -$4,191.90
= ($49.10-$59.53)*400 - 2*$9.95 commissions
(c) Capital Appreciation (If exercised): -$3,831.90
= ($50.00-$59.53)*400 - 2*$9.95 commissions

Total Net Profit(If stock price unchanged at $49.10): -$1,830.75
= ($2,361.15 + $0 - $4,191.90)
Total Net Profit(If stock price exercised at $50): -$1,470.75
= ($2,361.15 + $0 - $3,831.90)

Annualized Return If Unchanged (ARIU) -31.9% (-$1,830.75/$23,821.95)*(365/88)
Annualized Return If Exercised (ARIE) -25.6% (-$1,470.75/$23,821.95)*(365/88)

Friday, January 25, 2008

iShares MSCI South Korea Index ETF and Halliburton -- Continuation Transactions

1. iShares MSCI South Korea Index ETF (EWY) Continuation Transaction

The following transaction was made today to establish a covered calls position against the 800 shares of EWY:
01/25/08 Covered Calls Transaction -- STO 8 Feb08 62 Calls @ $1.00

The Transactions History to date is as follows:
11/28/07 Bought 800 EWY @ $65.22
11/28/07 Sold 8 EWY Dec07 68 Calls @ $1.75
12/15/07 Dec07 Options Expiration Date – EWY closed below the strike price
12/24/07 Ex-Dividend Date $.369 * 800 shares
01/25/08 Covered Calls Continuation Transaction -- STO 8 Feb08 62 Calls @ $1.00
Note: Price of EWY was $57.75 when calls were written today.

The overall performance results(including commissions)for the EWY transactions through the Feb08 expiration would be as follows:
Stock Purchase Cost: $52,185.95
($65.22*800+$9.95 commission)

Net Profit:
(a) Options Income: $2,168.10 (800*$1.75 + 800*$1.00 - 2*$15.95 commissions)
(b) Dividend Income: $295.20 (800*$.369)
(c) Capital Appreciation (If stock price unchanged from $57.75): -$5,995.90
= ($57.75-$65.22)*800 - 2*$9.95 commissions
(c) Capital Appreciation (If exercised): -$2,595.90
= ($62.00-$65.22)*800 - 2*$9.95 commissions

Total Net Profit(If stock price unchanged at $57.75): -$3,532.60
= ($2,168.10+$295.20-$5,995.90)
Total Net Profit(If stock price exercised at $62.00): -$132.60
= ($2,168.10+$295.20-$2,595.90)


Annualized Return If Unchanged (ARIU) -30.9% (-$3,532.60/$52,185.95)*(365/80)
Annualized Return If Exercised (ARIE) -1.2% (-$132.60/$52,185.95)*(365/80)



2. Halliburton (HAL) Continuation Transaction

The following transaction was made today to continue the covered calls written against the 700 shares of HAL:
01/25/08 Covered Calls Continuation Transaction -- STO 7 Feb08 35 Calls @ $1.15

The Transactions History to date is as follows:
10/24/07 Initial Stock Position -- Bought 700 HAL @ $40.01
10/24/07 Initial Call Options -- Sold 7 HAL Nov07 40 Calls @ $1.25
11/17/07 Nov07 Option Expiration Date – HAL closed below the strike price at $37.02
11/19/07 Covered Calls Continuation Transaction -- STO 5 Dec07 37.5 Calls @ $.85
11/29/07 Ex-Dividend Date -- $.09*$700
12/22/07 Dec07 Option Expiration Date – HAL closed below the strike price at $37.29
12/26/07 Covered Calls Continuation Transaction -- STO 7 Jan08 37.5 Calls @ $1.05
01/19/08 Jan08 Options Expiration Date – HAL closed below the strike price
01/25/08 Covered Calls Continuation Transaction -- STO 7 Feb08 35 Calls @ $1.15
Note: The price of HAL when the options were written on 1/25/08 was $34.25

The overall performance results(including commissions)for the HAL transactions
through Feb08 expiration would be as follows:
Stock Purchase Cost: $28,016.95
($40.01*700+$9.95 commission)

Net Profit:
(a) Options Income: $2,949.20 (700*$1.25 + 700*.85 + 700*1.05 + 700*1.15 - 4*15.20 commissions)
(b) Dividend Income: $63.00 ($.09*700)
(c) Capital Appreciation (If stock price unchanged from $34.25): -$4,051.90
= ($34.25-$40.01)*700 - 2*9.95 commissions
(c) Capital Appreciation (If exercised): -$3,526.90
= ($35.00-$40.01)*700 - 2*9.95 commissions

Total Net Profit(If stock price unchanged at $34.25): -$1,039.70
= ($2,949.20+$63.00-$4,051.90)
Total Net Profit(If stock price exercised at $35.00): -$514.70
= ($2,949.20+$63.00-$3,526.90)

Annualized Return If Unchanged (ARIU) -11.8% (-$1,039.70/$28,016.95)*(365/115)
Annualized Return If Exercised (ARIE) -5.8% (-$514.70/$28,016.95)*(365/115)

Thursday, January 24, 2008

Sticking With Our Covered Calls Investing Process

This brief article offers some words of encouragement and a few bits of advice.
It's not news to any of you that the stock market results during the past month have been very disheartening. Please don't dismay. That is, don't let your emotions and concerns get the best of you in these difficult circumstances. Keep a cool head, don't do anything rash, and continue with your covered calls investing process.
I repeat, continue with your covered calls investing process.

Over a period of time, we will be rewarded with market-beating performance; but it will take a few months before we can totally erase losses incurred during the past several weeks. I remain confident that we will exceed all major stock, bond, and money-market benchmarks in 2008 by continuing with our covered calls investing process. I strongly suspect that the intraday lows hit yesterday will prove to be the market lows for 2008. Hence, we are now beginning a period in which covered calls will enable us to gradually return to profitability. But be patient -- we will not regain all losses in a single month.

Again it should be said: By sticking with our covered calls investing process we can fully regain all our losses over the next 2-3 months. Over a short-term period, such as the past month, it is extremely difficult to time the market and to know when to abandon the market completely or even when to establish more defensive positions (such as deep in-the-money covered calls). Over recent decades, numerous investing gurus have demonstrated that the surest path to investing success is through investing in high value and high quality companies and by a consistent and disciplined application of ones own investing process. Our covered calls investing process will continue to serve us well as long as we stay the course.

Regards and Godspeed,

Tuesday, January 22, 2008

RenaissanceRe Holdings Ltd. and Lockheed Martin Corp -- Continuation Transactions

1. RenaissanceRe Holding Ltd.(RNR) Continuation Transaction

Despite the quarterly earnings release scheduled for 2/5/08 which is prior to the Feb08 options expiration date, it was decided to continue writing covered calls against the RNR holding since it is a highly recommended 'buy' by both stock advisory companies used by this advisor. In addition, the call option was priced very attractively for selling since its implied volatility was 39% greater than that of the 90-day historic volatility of the underlying RNR stock.

The following transaction was made today to continue the covered calls written against the 400 shares of RNR:
01/22/08 Covered Calls Continuation Transaction -- STO 4 Feb08 55 Calls @ $2.75
Note: RNR closed today at $55.33.

The Transactions History to date is as follows:
12/27/07 Initial Stock Position -- Bought 400 RNR @ 60.64
12/27/07 Initial Call Options -- Sold 4 RNR Jan08 60 Calls @ $2.60
01/19/08 Jan08 Options Expiration Date – RNR stock closed below the strike price
01/22/08 Covered Calls Continuation Transaction -- STO 4 Feb08 55 Calls @ $2.75

The overall performance results(including commissions)for the RNR transactions through the Feb08 expiration would be as follows:
Stock Purchase Cost: $24,265.95
($60.64*400+$9.95 commission)

Net Profit:
(a) Options Income: $2,114.10 (400*$2.60 + 400*$2.75 - 2*$12.95 commissions)
(b) Dividend Income: $0
(c) Capital Appreciation (If exercised): -$2,265.95 ($55.00-$60.64)*400 - $9.95
Total Net Profit(If stock price exercised at $55.00): -$151.85 ($2,114.10-$2,265.95)

Annualized Return If Exercised (ARIE) -4.5% (-$151.85/$24,265.95)*(365/51)



2. Lockheed Martin Corp (LMT) Continuation Transaction

The following transaction was made today to continue the covered calls written against the 200 shares of LMT:
01/22/08 Covered Calls Continuation Transaction -- STO 2 Feb08 105 Calls @ $2.20

A summary of the LMT transactions to date, including today's roll up is as follows:
1/10/08 Initial Stock Position -- BTO 200 LMT @ $109.62
1/10/08 Initial Call Options -- STO 2 LMT Jan08 110 Calls @ $1.70
01/19/08 Jan08 Options Expiration Date – LMT stock closed below the strike price
01/22/08 Covered Calls Continuation Transaction -- STO 2 Feb08 105 Calls @$2.20

The overall performance results(including commissions)for the LMT transactions through Feb08 expiration would be as follows:
Stock Purchase Cost: $21,933.95
($109.62*200+$9.95 commission)

Net Profit:
(a) Options Income: $757.10 (200*$1.70 + 200*$2.20 - 2*$11.45 commissions)
(b) Dividend Income: $0
(c) Capital Appreciation (If stock price unchanged from todays closing price of $101.02): -$1,729.95 ($101.02-$109.62)*200 - $9.95 commissions
(c) Capital Appreciation (If exercised): -$933.95 ($105-$109.62)*200 - $9.95

Total Net Profit(If stock price unchanged at $101.02): -$972.85 (-$1,729.95+$757.10)
Total Net Profit(If stock price exercised at $105): -$176.85 (-$933.95+$757.10)

Annualized Return If Unchanged (ARIU) -43.8% (-$972.85/$21,933.95)*(365/37)
Annualized Return If Exercised (ARIE) -8.0% (-176.85/$21,933.95)*(365/37)

AT&T -- Closed

The covered call position in AT&T (T) expired out-of-the-money last Friday. The investment in AT&T was closed today by selling the stock. Despite the substantial decline, it was decided to close this holding and not to roll into a Feb08 covered call position since there is a quarterly earnings announcement scheduled for later this week on 1/24/08. Also, the CEO has had some somewhat negative comments recently about new business for AT&T which likely will not bode well for the company's future financial guidance provided as part of the earnings release. The transactions and results achieved for the T covered calls position closed today was as follows:

Transactions History:
12/26/07 Initial Stock Position -- Bought 300 T @ 41.49
12/26/07 Initial Call Options -- Sold 3 T Jan08 42.5 Calls @ $.65
01/08/08 Ex-Dividend Received -- 300 @ $.40
01/19/08 Call Options Expire
01/22/08 Closing Transaction -- Sold 300 T @ 35.65

Performance Results(including commissions):
Stock Purchase Cost: $12,456.95
($41.49*300+$9.95 commission)

Net Profit:
(a) Options Income: +$182.80 ($.65*300-12.20)
(b) Dividend Income: +$120.00 ($.40*300)
(c) Capital Appreciation: -$1,761.95 ($35.65-$41.49)*300-$9.95
Total Net Profit: -$1,459.15 (+$182.80+$120.00-$1,761.95)

AT&T ANNUALIZED RETURN ON INVESTMENT: -158.3%
(-$1,459.15/$12,456.95)*(365 days/27 days)

Thursday, January 17, 2008

A Rationale for Near-Month Covered Calls

It is readily apparent to regular readers of the Covered Calls Advisor that covered calls for the next closest expiration month (i.e. the 'near-month') are almost always selected for investment. 'Near-month' is the term used by this advisor. Synonymous terms used by others include one-month, front-month, and next-month -- and there are probably others. Any of these roughly equivalent terms is satisfactory to describe the concept of selling call options for the next closest expiration month in time. For example, after January 2008 options expire tomorrow, the near-month expiration becomes February 2008; After the Feb08 expiration date, Mar08 becomes the 'near-month' expiration; etc; etc.

This article provides an explanation of why this advisor prefers near-month covered calls rather than 2nd-month, 3rd-month, 4th-month, 12th-month, or any other time horizon.

Writing near-month covered calls almost exclusively was not this advisor's original intention. Initially, a preference for 'laddering' a portfolio was intended -- the term 'laddering' refers to a portfolio containing a variety of expiration months. For example, a portfolio of 10 stocks might have three near-month positions, two 2nd-month positions, two 3rd-month positions, two 6-month positions, and one 12-month position. One clear advantage of laddering is that only a portion of one's portfolio needs to be modified each month, whereas investing solely in near-month covered calls necessitates establishing new covered call positions on 100% of all equities in the portfolio. In addition, varying time horizons provides a desirable characteristic in that it offers some increase in a portfolio's overall diversification. Nevertheless, this advisor has concluded (until further evidence is obtained that demonstrates otherwise) that near-month covered calls provide an opportunity to obtain higher investment returns over time and thereby justifies the additional trading frequency.

Let's look at some data in this regard. Today, I searched out those companies in which:
1. The stock was trading exactly at a strike price. For example, Boeing closed yesterday at exactly $80.00 and there is an $80 strike price; and
2. Options existed for multiple expiration months with the option's current open interest exceeding 100 contracts -- this condition is to ensure sufficient options liquidity for a fair market value option bid price. For Boeing, the near-month (Feb08) open interest is 2,761 contracts; the 4th-month (May08) open interest is 4,067; and the 12th-month (Jan09) is 4,780.
Four companies met the above criteria: Agnico-Eagle Mines(AEM), Boeing Co(BA), PSS World Medical(PSSI), and Tibco Software(TIBX). Both the Annualized Return if Unchanged(ARIU) and the Downside Breakeven Protection(DBP) were calculated for near-month (Feb08 is now 30 days until expiration date), 4th-month (now 121 days to expiration), and 12th-month (now 366 days until expiration) for each of these companies. The results are:
AEM -- ARIU is 73.0% and DBP is 6.0% for near-month covered calls. ARIU is 36.7% and DBP is 12.2% for 4th-month covered calls. ARIU is 20.3% and DBP is 20.4% for 12th-month covered calls.
BA -- ARIU is 45.6% and DBP is 3.8% for near-month. 21.1% and 7.0% for 4th-month. 12.7% and 12.8% for 12th-month.
PSSI -- ARIU is 51.7% and DBP is 4.3% for near-month. 23.3% and 7.8% for 4th-month. 10.2% and 10.3% for 12th-month.
TIBX -- ARIU is 80.8% and DBP is 6.7% for near-month. 38.1% and 12.7% for 4th-month. 20.5% and 20.7% for 12th-month.

The overall average for the four companies is:
ARIU is 62.8% and DBP is 5.2% for near-month covered calls.
ARIU is 29.8% and DBP is 9.9% for 4th-month covered calls.
ARIU is 16.0% and DBP is 16.1% for 12th-month covered calls.

The Covered Calls Advisor contends that the covered calls investor is more likely to obtain a higher overall annualized rate of return through a persistent covered calls investing program using near-month expirations exclusively. However, what is right for one investor is not necessarily right for all. Those covered calls investors seeking greater downside breakeven protection than is normally available in near-month positions should rightfully select longer-term covered calls -- and that is perfectly acceptable for the more conservative investor.

The examples above provide a useful but very limited view since there are only four stocks analyzed and for only a single day in time. However, other more comprehensive studies have also concluded that near-month covered calls provide superior financial returns compared with any longer-term period. For example, a paper describing the results of one study of covered calls over a 15-year period (1990-2005) was presented in an article entitled "Finding Alpha Via Covered Index Writing" in the Financial Analysts Journal (Vol. 62; Number 5). One of the several interesting conclusions presented in the article was: "In all cases, the three-month call-selling strategies underperformed the strategies selling one-month S&P 500 options." Regardless of the time frame considered, other studies have invariably reached the same basic conclusion.

Additionally, it is more than coincidence that buy/write indicies (BXM and BXY for example) utilize only near-month covered calls in their index -- near-month strategies consistently provide higher long-term returns in comparison with any longer-term period. Consequently, using the higher-return strategy is useful when comparing return results of various buy/write strategies (note: the term 'buy/write' used in this case is synonymous with our use of the term 'covered calls') versus 'buy-and-hold' benchmarks such as the S&P 500 or the Russell 3000.

So what are you thinking now? Still not convinced about writing near-month covered calls? Why? Does it seem as if it would be too time-consuming to do the research and analysis in order to make so many portfolio changes every month? My answer to that is that "it's worth it". Consider another conclusion from the same study referenced above concerning the benefits of near-month covered calls: "Covered S&P 500 index call strategies have, on average, outperformed the S&P 500 Index over the past 15+ years while realizing lower standard deviations of returns."
Higher returns with lower risk! -- In a word, that's "sweet"!

Regards and Godspeed,
Jeff

Thursday, January 10, 2008

Buy Lockheed Martin Corp

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) as follows:

Lockheed Martin Corp Covered Calls Established for Jan08

01/10/08 Bought 200 LMT @ $109.62
01/10/08 Sold 2 LMT Jan08 110 Calls @ $1.70

Annualized Return If Unchanged: 62.9%
Annualized Return If Exercised: 77.0%
Downside Breakeven Protection: 1.6%

The Covered Calls Advisor normally establishes near-month covered call positions as long as there is a week or more remaining until the expiration date. So, although there are only 9 calendar days until the Jan08 expiration date, a Jan08 covered calls position was established. The expectation is that the LMT holding will be brief and will be liquidated at January expiration on 1/19/08 since the next quarterly earnings release will be 1/24/08 and this advisor prefers to avoid holding stocks on the day their earnings are released.

Additionally, the premium received from writing the Jan08 calls today was very attractive since the implied volatility of the Jan08 calls was 21% higher than the 90-day historic volatility of the LMT stock. This situation in conjunction with the short time horizon of the position explains the relatively high potential return-on-investment percents for this particular covered calls investment.

Wednesday, January 9, 2008

“Explain Why You Are Buying”

As you have no doubt already observed, the Covered Calls Advisor's approach to identifying great covered calls investing opportunities is primarily a value-oriented, top-down, and quantitative process. The systematic process followed each month might suggest to you that this is a fairly rigid process that affords little room for any subjectivity in making ‘what to buy’ decisions. While it is true that the majority of the approach is very analytical in nature, there is also the opportunity to accommodate the investor’s ‘gut feelings’ as to the merits of a particular investment.

One of the fundamental principles of legendary investor Peter Lynch (formerly of Fidelity Magellan fame) was that you should be able to “explain why you are buying”. Before making a purchase, you should be able to provide a clear, concise, and confident explanation as to why this purchase is a good one right now.
This explanation can be done either verbally or in writing, but you should not neglect an attempt at ‘making your case’ as to the desirability of the investment. So when you think you’ve completed your research and analysis of a particular company, but before you make the actual purchase, follow the advice of Peter Lynch and try to summarize with a clear, concise, and confident explanation as to why you are buying this equity.

Try it! For practice, select a company that you are currently invested in. Try to make a clear, concise, and confident explanation as to why you own it. Two out of three is good, but not sufficient. Suppose you sense that your explanation was clear and concise, but there is some aspect that you feel is inadequate in your explanation so that your confidence in the investment is not as strong as your gut tells you it should be. Then it’s time to go back to do further research in whatever area(s) are of concern to you. This will enable you to further refine your explanation to the point where you convince yourself that the company either is (or is not) worthy of your investment.

To give you an idea of how this can be done, here is what is hopefully a “clear, concise, and confident explanation” as to why the South Korea ETF (EWY) is included in the Covered Calls Advisor Portfolio:
South Korean companies now provide attractive values to the investor. The country is growing at about 5% a year (about twice as fast as the U.S.), yet the overall P/E ratio is only 15 times trailing twelve months earnings (U.S. is about 17.5). Central Bank interest rates are currently at 5.0% (4.25% for U.S.). In the recent national election, new President Lee was elected with a strong mandate and he is committed to lowering taxes, growing the economy, reducing barriers to starting new businesses, and not trying to appease the bully to the north (North Korea). To me, the situation is somewhat analogous to the U.S. when Ronald Reagan was elected in 1980: lower taxes; business friendly; and a strong defense posture with the Soviets. Recall what followed in the U.S. – a 20-year bull market. Something similar could be brewing for South Korea.

Remember: Before making a purchase, you should be able to provide a clear, concise, and confident explanation as to why this purchase is a good one right now. As Peter Lynch would say, "Explain Why You Are Buying"!

Regards and Godspeed

Tuesday, January 8, 2008

Buy Endo Pharmaceutical Holdings Inc.

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) as follows:

Endo Pharmaceuticals Covered Calls Established for Feb08

01/08/08 Bought 500 ENDP @ $27.01
01/08/08 Sold 5 ENDP Feb08 25 Calls @ $2.60

Annualized Return If Unchanged: 20.4%
Annualized Return If Exercised: 20.4%
Downside Breakeven Protection: 9.6%

This is a deep in-the-money (9.6% downside protection) covered calls position.
I would have preferred to establish a position closer to the strike price, but the stock was midway between the $25 and $30 strike prices and the option premium on the $30 strike was below my minimum threshold of $.40 so I opted for the in-the-money $25 strike price. Since I am bullish on the stock, my hope is that the stock price will rise and approach $30 prior to the February expiration date. If this occurs, I would most likely attempt to augment the current potential annualized return of 20.4% by rolling up the current options to the $30 strike price.

Sunday, January 6, 2008

Current Portfolio Diversification Recommendations

Portfolio diversification is a very important foundation of the Covered Calls Advisor's investing approach. The spreadsheet below will be updated over time to continually show this advisor's current diversification recommendations. It will be readily accessible to the reader at any time by clicking on the "Current Portfolio Diversification Recommendations" link shown in the right sidebar of the homepage of this blog. The following guidelines will apply:
(1) Underweight -- Reduce 'Normal Weighting' by between -3% and -7%
(2) Marketweight -- Stay within -3% and +3% of 'Normal Weighting'
(3) Overweight -- Increase 'Normal Weighting' by between +3% and +7%

Tuesday, January 1, 2008

Returns -- Through December 2007

The overall performance results of the Covered Calls Advisor Portfolio (CCAP) is presented monthly at the end of each calendar month. Results are based solely on the annualized percent change of the total dollar value of the CCAP.
For comparison purposes, the primary benchmark against which the portfolio’s performance is measured is the Schwab MarketTrack Balanced Portfolio (SWBGX), a worldwide, diversified asset allocation fund. SWBGX typically contains approximately 46% domestic stocks (26% large cap; 20% small cap), 16% international stocks, 34% bonds, and 4% cash.

The CCAP was initiated on 9/14/2007 with an initial total portfolio value of $250,000.
At market close on 12/31/2007, the total portfolio value was $257,886.51, a $7,886.51 increase in overall portfolio value since inception.

CCAP Annualized Return = +10.7%
[(257,886.51-250,000)/250,000]*(365/108 days)*100

Annualized Return for SWBGX Benchmark = +2.2%
[(16.79-16.68)/16.68]*(365/108 days)*100

The annualized returns for two additional benchmarks over the same time period were:
S&P 500 Index (IVV) = -4.0% [(146.74-148.51)/148.51]*(365/108 days)*100
Russell 3000 Index (IWV) = -4.1% [(84.40-85.43)/85.43]*(365/108 days)*100