Strategy Risks

please read risk disclosure carefully

The trading strategy employed by BCC is based upon two primary premises (i) that the overall direction of the stock market, as represented by the S&P 500 Index goes up over a long period of time, and (ii) options traded in the S&P 500 Index are statistically overpriced over time, relative to the actual underlying historical movement of the Index itself.

Bayou City Capital trades in the S&P 500 Index. Using a thoughtful and systematic methodology Bayou City sells option premium, at or close to where the market is currently trading while simultaneously maintaining a slightly long market bias. Additional points should be noted about trading in the S&P 500 Index futures market.

* The S&P 500 Index futures market is extremely liquid. S&P 500 Index futures have a large open interest and volume of daily transactions. Market making activities are generally quite liquid and competitive thus bid/ask spreads are generally tight (except in the most volatile markets) and slippage is therefore reduced;

* Commission costs are quite low, averaging about $8 per futures or option contract and commissions as a percentage of contract value are also quite low.

* The Chicago Mercantile Exchange ("CME"), the exchange where S&P 500 Index futures and options contracts are traded, uses SPAN margin treatment which provides a very fair and rational approach to portfolio collateralization and margin calculations.

The investment strategy of Bayou City Capital has certain inherent risks that will negatively impact the performance of the funds as follows:

* Repeated sharp market movement both up and down over a short period of time;

* Extreme market movements both up and down due to exogenous events;

* Large and rapid drops in the S&P 500 Index.