B-Portfolio
The principal objective of the Balanced Portfolio is to provide a maximum return attainable from a combination of stocks (common and preferred), bonds and the use of cash, cash equivalents or option premium income within prudent risk parameters. The Balanced Portfolio, which is compared to market benchmarks with a similar composition, seeks to achieve long-term capital appreciation, but with less exposure to the equity markets. The equity portion of the Balanced Portfolio is managed using the same methods as the accounts in the Equity Portfolio. Within the fixed income portion, securities are evaluated and selected based upon Vision Advisors' interest rate assumptions, the U.S. Treasury yield curve, credit risk and a number of macro-economic variables that may affect the relative performance of the specific bonds. Fixed income holdings include preferred stocks, municipal bonds, U.S. Government Agency securities and other debt instruments such as investment grade corporate bonds.
Vision Advisors also believes that it makes sound economic sense to employ from time to time a strategy of writing covered call positions against some or all of the stocks in the Balanced Portfolio. The primary purpose of option writing is to earn additional income through premiums received from the buyers of the call options. By monitoring the volatility, delta and time to expiration, Vision Advisors works to optimize the trade-off between premium income and the potential for future price appreciation. When options are employed, Vision Advisors anticipates that the benefits of premium income received will outweigh the limitation of gains by use of those option contracts. At the same time, the investor receives a measure of downside protection if the price of the stock declines. By means of this option writing program, Vision Advisors will attempt to enhance total returns in the portfolio by judiciously covering the options written and capturing the premium before the underlying stock price increases or decreases by more than the amount of the premium or by letting the options expire, worthless (thus keeping 100% of the premium), depending on market conditions.
In addition to covered calls, Vision Advisors may, from time to time, purchase out-of-the-money put options to further add to level of downside protection. The ratio of purchased put options may be less than the number of long shares of stock owned in the account. Please recognize that employing puts to help protect the stocks in an account is likely to temper total returns (due to the premium paid to purchase the put options), but does provide downside protection against declines in the underlying stocks.