Equity-Income Program

Many investors, especially in today's volatile markets, would be quite satisfied to receive an 8-to-10% return.  Our Equity-Income Program aims to achieve such returns with relatively low risk.

The program utilizes a common strategy known as covered-call writing, which employs ordinary stock options.  While stock options are used by some individuals to speculate (and often lose money), genuine investors use options to reduce risk.  We're part of the latter group.  Our simple approach is designed to generate capital gains and income.

The success of the strategy, we believe, relies on selecting stocks of only highest-quality companies when they're priced inexpensively.  To identify the best firms, we typically require:

• Dividends raised for at least 30 consecutive years
• Earnings that are "recession resistant"
• Sufficient earnings for dividends to be paid easily

Exceptionally few companies meet these criteria.  Those that do are household names such as Johnson & Johnson, Procter & Gamble and Coca-Cola.

We buy the stock of these remarkable companies, and we sell—for a "premium"—a call option allowing others to buy our stock at a set price within a set period of time.  To fully profit, all we generally need is the stock to be at or above the current depressed price in approximately one-to-two years.  Thus, the Equity-Income Program targets a stable, attractive return.  What's more, we earn dividends along the way.

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