Growth & Income Strategy 12/31/2015 999 Vanderbilt Beach Road, Suite 102 Naples, Florida 34108 V: 866-459-9998
About Us Founded in 2006, Gyroscope Capital Management Group ( Gyroscope Capital ) focuses on option strategies for high net worth and institutional clients. Gyroscope Capital provides concentrated stock hedging and transition services, along with two managed equity portfolios that incorporate a covered call overlay. Gyroscope Capital is an SEC Registered Investment Advisory firm that has partnerships with some of the leading independent broker/dealers to provide our investment services and strategies to their clients. Gyroscope Capital s investment team has over 65 years combined experience in the industry structuring option deals for High Net Worth clients. Our experience allows us to evaluate option fundamentals so that clients receive the best option value within our hedging and transition strategies and equity portfolios. Gyroscope Capital provides investment portfolio management via partnerships with other advisory firms. By acting as sub-advisor, Gyroscope Capital becomes an integral piece of the client s overall portfolio. The advisor remains the client s main point of contact. 2
Growth Strategy - Description GCMG believes that the best performance in any portfolio will be achieved by a diversified mixture of stocks. The Growth Portfolio contains stocks with a high potential for growth in the year ahead. EPS Growth has a high correlation to growth in stock price. Focusing on large-cap companies with above average EPS growth provides clients with greater upside potential in their portfolio. This portfolio is best suited for investors who are able to accept a greater degree of investment risk in an effort to maximize their portfolio return. The portfolio benefits from covered call option sales which enhance account income and provide limited downside protection. 3
Growth Strategy Investment Methodology This portfolio focuses on a mixture of stocks that have a higher-than-average growth potential as determined by an analysis of a company s earnings growth, stock price performance over a five-to-ten year period and volatility. We narrow the universe of stocks that we consider for investment to: Stocks with an EPS growth in the top 50% of the S&P 500 index average Stocks that are projected to grow at least 8% in the next year These stocks are then ranked using our proprietary formula which takes into account 1-Year EPS Growth Estimated Long-Term Growth Rate 12-month target price 4
Growth Strategy Investment Methodology We then pick the top 20-25 stocks with the constraint that at least six of the S&P sector weightings be represented. By requiring that we keep the portfolio diversified, we ensure that opportunities in are not missed in nonrepresented markets and that downturns in one sector will have less effect. Covered calls are sold on the positions within the portfolio when possible. Each position is reviewed independently for call option sales. We look at strike prices within a range of 5% to 25% above current prices and select calls based upon their ability to provided the greatest annual dividend yield balanced against the expected annual price appreciation. In the event a stock is called away, we repurchase it into the account and more calls are sold on the position (assuming the stock remains in the Portfolio.) 5
Growth Strategy - Example Information above is Supplemental to the Compliant Presentation on the last page 6
Growth Strategy: Performance Annual Returns 4 th Quarter YTD 2015 2010 2011 2012 2013 2014 2015 (12/31/15) Gyroscope 24.89% -5.97% 12.34% 35.64% 12.77% 8.94% -0.01% Buy Write (BXM) 5.86% 5.72% 5.20% 13.26% 5.64% 4.00% 5.24% Annual Returns (10/01/07 12/31/15) 1 Year 3Year* 5 Year* Gyroscope** -0.01% 15.22% 10.08% Buy Write (BXM) 5.24% 7.98% 6.97% * Annualized Returns ** Returns are Net of Fees Information above is Supplemental to the Compliant Presentation on the last page 7
Growth Strategy: Composite Characteristics 12/31/2015 Median Market Cap. 3-Year Portfolio Beta vs. S&P 500 $73.71B 0.98 P/E Ratio 38.6 Number of Long Positions 20 Turnover 100.16% Information above is Supplemental to the Compliant Presentation on the last page 8
Growth Strategy: Income 12/31/2015 DividendYield 1.36% Trailing 12-Month Option Premium 4.88% TotalYield 6.24% Information above is Supplemental to the Compliant Presentation on the last page 9
Growth & Income 12-Month Rolling Distribution 9.00% 8.00% 7.00% 6.00% Call Option Premium Yield % Dividend Yield % 12-Month Rolling Total Distribution Report as of 12/31/2015 6.24% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% The income for this graph is generated on a monthly basis versus the starting monthly balance. Supplemental to the compliant presentation. Past performance is not indicative of future returns. Gyroscope Capital actively manages the Covered Call Option overlay. We realize more option premium when opportunities arise 4th quarter equity market volatility provided d opportunities i to increase the portfolio s 12-month distribution ib i yield to 6.24% Gyroscope Capital will continue to take advantage of such opportunities as the market allows Information above is Supplemental to the Compliant Presentation on the last page 10
Growth Strategy What are Covered Calls? A Covered Call Write is the purchase of stock and the simultaneous sale of a call option on that same stock. Or, it is the selling of a call option on stock you already own. Because the stock is already owned, the call option is considered covered. The customer has chosen to accept income from the premium of the sale in lieu of any price appreciation above the strike price. Example: 1) Purchase (or it may already be owned) 1,000 shares of XYZ @ $90.00 2) Sell 10 (1) XYZ Nov 100 Calls @ $2.00 3) Days until expiration: 47 4) Dividend per share until expiration: $1.20 In the example above, the customer is agreeing to sell their XYZ stock at $100. In return for this agreement, they receive 2.00 points or $200 per contract (for a total revenue of $2,000), less any commissions. Note: (1) Normally, one option contract covers 100 shares of stock. 11
Growth Strategy What are Covered Calls? Investors who consider covered calls: Are comfortable with owning the underlying stock. Believe that the stock price on the underlying shares will not be affected substantially by market volatility during the call option period. View the stock they own as flat to slightly bullish. Are prepared to sell their stock if the call is exercised. Covered calls can provide investors: Income o The options are sold for premiums which are credited towards the client s account. In the example, the client would have received $2,000 less any commissions Upside Selling Price o In return for the income, the investor agrees to sell the stock at the strike price. In the example, the stock would be sold at $100 per share. This strike price is 10 points above the current price of $90. The client would participate fully in any gains up to the strike price of the stock. Limited Downside Price Protection o Income from the sale of the option can be seen as downside protection. In the example, the option was sold at $2.00 per share. That would mean the stock price would have to fall to $88 before losses would occur. o Because of this protection ti, the strategy t has less downside risk than an outright buy of the stock. 12
Growth Strategy - Personnel Investment Manager Michael J. Egan Mr. Egan has principal responsibility for the management of the Gyroscope Capital Management Group, LLC ( GCMG ). He is a Certified Investment Management Analyst (CIMA ) and is a member of the Investment Management Consultants Association (IMCA) as well as a Certified Financial Planner (CFP ) and a member of the Financial Planning Association. His principal duties include: Chairman of Gyroscope Capital s Investment Committee and advising wealthy individuals, families, and their trusted advisors regarding investment management and financial planning of their concentrated positions, which entails effective development of investment policy, asset allocation, investment implementation, and continued performance monitoring. Mr. Egan has been an Investment Advisor Representative with GCMG since 2005. Prior to GCMG, Mr. Egan joined Legg Mason in 1994 from American Express/Lehman Brothers, where he spent three years structuring t and executing swap and derivative transactions ti totalingt over $8 billion for Fortune 50 companies. At Legg Mason Mr. Egan founded and managed the Corporate and Executive Services Group, which specialized in providing corporate executives and their families with comprehensive wealth management services. The Group managed in excess of $300 million for executives. Mr. Egan served from 1996 to 2003 on the President s s Advisory Council and the Career Development Committee of Goodwill Industries of the Chesapeake, Inc. He was also on the Board of Directors for the Pelican Bay Foundation as Secretary from 2007-2008, in Naples, Florida. Mr. Egan is a former member of the Equity Derivatives Committee of the International Swap and Derivatives Association, Inc. Mr. Egan received a Bachelor of Arts degree in Economics from the College of William and Mary, a Master of Arts degree in Economics from New York University, and a Master of Business Administration degree from the Fuqua School of Business at Duke University. He is a graduate of the London School of Economics and Political Science General Course Program. A nationally recognized speaker, Mr. Egan has addressed dozens of professional audiences across the United States on equity risk and investment management strategies. His book Your Stronger Financial Future was published in September 2011 by McGraw-Hill and is available at all major bookstores. As a Registered Representative of Moors & Cabot, Mr. Egan holds Series 3, 4, 7, 9, 10, 24, 63 and 65 licenses. 13
Growth Strategy - Personnel Investment Committee Sarah H. Wolf Ms. Wolf assists clients and Financial Advisors on hedging, diversification, portfolio management and other wealth enhancement and protection strategies, and structures and executes these transactions. Ms. Wolf joined GCMG in 2005 as Vice President of Wealth Management with responsibility for coordinating all of GCMG s services for individual and corporate clients. Ms. Wolf joined Legg Mason s Equity Hedge Group in 1997 as Director of Client Service with responsibility for coordinating all of the team's services for individual and corporate clients. She joined Legg Mason from Chesapeake Bank and Trust, where she acted as liaison between the bank's trust and brokerage areas and consulted on special projects, including the roll-out of the bank's ATM business. Ms. Wolf received a Bachelor of Arts degree from Washington College and completed the Hansard Scholars Programme in Parliamentary and Public Policy Studies at the London School of Economics. She is an active member of Women on Wall Street, an organization dedicated to furthering leadership and business opportunities for women in the financial services industry. She also volunteers with Junior Achievement. A Registered Representative, Ms. Wolf holds a Series 7 and Series 63 licenses. 14
Growth Strategy - Personnel Investment Committee Rob M. Carr Mr. Carr assists clients and Financial Advisors on hedging, diversification, portfolio management and other wealth enhancement and protection strategies. His principal duties include the development of marketing materials, research and reporting. Mr. Carr has also been instrumental in developing the advisory hedging strategy program. Mr. Carr joined Gyroscope Capital Management Group, LLC. in 2008 and holds a Series 7, Series 66 and Series 24 licenses. Prior to Moors & Cabot, Mr. Carr was employed with Creative Touch Interiors where he worked as a commercial project estimator. Mr. Carr oversaw projects such as the Miami Dolphins Stadium Renovation and High Point Towers in Ft Myers, FL. Mr. Carr received a Bachelor of Science degree in Chemical Engineering from the University of Florida and a Master of Business Administration degree from Florida Gulf Coast University. 15
Growth Strategy - Personnel Investment Committee Mary T. Hackney Mary Tanner Hackney, CFA, is a consultant serving on the investment committee of GCMG team headed by Michael J. Egan. From 1999 to 2009, Ms. Hackney was Chief Administrative Officer of a Florida high net worth family office, overseeing public and private financial securities investments and reporting, as well as legal, accounting and risk management activities. During the prior 18 years, Ms. Hackney was with various divisions of Merrill Lynch and A.G. Edwards & Sons, including stock brokerage, client service and private client portfolio management. Ms. Hackney earned the Chartered Financial Analyst (CFA ) designation in 2003. Ms. Hackney serves on the board of the Naples Art Association and is an avid sailor and private pilot. 16
Disclaimer Options trading is not suitable for all investors. Contact Gyroscope Capital Management Group, LLC ( GCMG ) at 999 Vanderbilt Beach Road Suite 601, Naples, FL 34108 or visit http://www.cboe.com/resources/intro.aspx for a current options disclosure documents, Characteristics and Risks of Standardized Options. This document discusses potential risks with options issued by the Options Clearing Corporation ( OCC ), which are typically listed on an exchange. Gyroscope Capital Management Group (GCMG) is an SEC registered investment adviser located in Naples, FL and affiliated with Moors & Cabot, Inc (a registered broker-dealer). GCMG only transacts business in states where it is properly registered or in compliance with applicable state regulations. Individualized responses that involve actual or contemplated securities transactions or the rendering of personal investment advise for compensation will not be made absent compliance with all applicable investment adviser regulation requirements. Please contact the sender if there are any questions. Illustrations used in this document are hypothetical. The results achieved by individual clients will vary and will depend on a number of factors including the particular underlying investments and their dividend yield, option market liquidity, interest rate levels, implied volatilities, and the client s expressed return and risk parameters at the time the service is initiated and during the term. Investors should carefully consider executing any trade using options and be aware of all the risks, including, but not limited to, receiving back less value than they invested. Past performance is not a guarantee of future returns. The information contained herein has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary of all available data. Options are not be suitable for all investors and there are significant risks inherent in the use of options, even when options are used for hedging purposes. GCMG does not provide legal, tax or accounting advice and the information contained herein should not be construed as such. This marketing piece is not intended for the giving of investment advice to any single investor or group of investors and no investor should rely upon or make any investment decisions based solely upon the contents of the piece. Clients should confer with a professional prior to investing. Taxes, fees and commissions i do have a direct and material impact on the options strategies, t may reduce the effectiveness of some strategies, t and may result in the investor not achieving i his or her investment objectives. The examples presented above do not take into account the tax consequences or the impact on holding period. Investors should always seek professional tax advice before engaging in any of these strategies. Under new tax laws, certain in-the-money covered call writes are deemed unqualified and carry certain tax consequences. You should consult your financial or tax advisor for more information. GCMG does not provide tax advice. This illustration of potential cash flow from a covered call option writing program is not based on an actual portfolio. Covered call option cash flow for any portfolio will vary depending on actual portfolio positions, option premium received, individual stock price volatility, and general stock market volatility. Positions covered by call options may be called away, creating realized capital gains or losses. There can be no guarantee that the owner of the call option will not exercise prior to GCMG s attempt to repurchase a sold option. Cash flow is not guaranteed over any period. More information may be found on GCMG s Form ADV. If the price of the stock declines by an amount greater than the premium received the position will have point-for-point loss. Therefore, this strategy should not be employed if you believe the price will decline considerably in value. If the price of the stock increases by an amount greater than the strike price, the investor will forgo any price appreciation above the strike price. Therefore, this strategy should not be employed if you believe the price will increase considerably in value. 17