MARKET NEUTRAL INCOME

INVESTMENTS (MNII)A broad overview of

Strategy

And Intent

Disclaimer

• This is NOT an offer to sell or a solicitation to buy any security.

• Offering will be by Private Placement Memorandum (PPM) ONLY.

• This is only intended as a basic primer on the strategy used in MNII

• All investors MUST read the PPM and understand the risks before investing.

Risk Factors

• Market risk

• Liquidity risk

• Leverage risk• Security specific risk

• Timing risk

• Volatility risk

• Interest rate risk

Market Neutral

• Not Dependent on Market direction

• Equally weighted to up and down moves• Diversified by industry (Sectors)

• Low expected correlation to Stock indexes

• Low expected correlation to Bonds

• Low expected correlation to Real Estate

Income Investments

• This Investment is designed to produce a regular (recurring) Stream of Income.

• Income can be re-invested or distributed.

• Short term gains are generally taxed as ordinary income.

Equity tools

• Stocks (Equities)

• Contracts on underlying equity securities

“Puts” (gain value when stocks decline)

“Calls” (gain value when stocks advance)

• Spreads (combine 2 contracts to manage risk, reward, time of exposure, or loss)

Time frame

• The Company intends to transact a series of short term investments, generally less than one month in duration.

• Investors will commit to a six month period of illiquidity; after 180 days investors may take all or a part of their investment out.

• Investors also have the option of removing monthly gains, if any, every quarter.

Stock Selection

• The greatest time requirement is allocated to the selection of individual securities, and sometimes indexes.

• Securities selected are screened against a large

number of qualities and variables. (39 currently)

• Selection is weighted for both risk and return. Lower risk is favored over return.

Selection

• Stocks are routinely screened with computer selection programs

• Technical and fundamental scores are considered and evaluated

• Both commercial and custom designed screening programs are used

• Diversification of sectors is maintained • Exposure of capital in any one stock is

usually limited to a maximum of 10%

Security Selection

• When a target security is identified, the following additional checks are performed:

• Option liquidity• Option open interest

• Earnings release dates

• Premium levels

• Ability to get both sides ‘in the money’

Example of a long transaction

• Data as of close 4/26/07

• Apple Computer currently trading at 98.8• Apple May calls expire in 22 days

• May 90 call ask price 9.40 (8.8 value)» (.60 premium)

• May 95 call bid price 4.90 (3.8 value)» (1.10 premium)

Long example continued..

• Remember Apple is at 98.8 in our example

• Net cost is 4.50 (9.40 – 4.90)

• Spread Value if stock is unchanged= 5.00

Long example continued..

• Remember Apple is at 98.8 in our example

• Net cost is 4.50 (9.40 – 4.90)

• Spread Value if stock is unchanged = 5.00

• Spread Value if stock is increased = 5.00

Long example continued..

• Remember Apple is at 98.8 in our example

• Net cost is 4.50 (9.40 – 4.90)

• Spread Value if stock is unchanged = 5.00

• Spread Value if stock is increased = 5.00• Spread Value if stock drops 3.00 = 5.00

Long example continued..

• Remember Apple is at 98.8 in our example

• Net cost is 4.50 (9.40 – 4.90)• Value if stock is unchanged = 5.00• Value if stock is increased = 5.00• Value if stock decreases 3.00 = 5.00• Value if stock decreases 5.00 = 3.80

Long example conclusion

• If we paid 4.50 for this spread,

• And it is worth 5.00 in 22 days

• We would make 11% on our investment.• Commissions will reduce the return. (3%)

• Overhead also reduces the return (.008%)

• Net in our example is 7.992% in 22 days

Example of a short transaction

Data as of close 4/26/2007

• Apple is currently trading at 98.80• Apple May Puts expire in 22 days

• May 105 Put price is 6.50 (6.20 Value)» ( .30 premium)

• May 100 Put price is 2.70 (1.20 Value)» ( 1.50 premium)

Short example continued

• Remember that Apple is at 98.80

• Net cost is 3.80 (6.50- 2.70)• Value if stock is unchanged = 5.00

• Value if stock is decreased = 5.00

• Value if stock is increased 1.00 = 5.00

• Value if stock is increased 3.00 = 3.20

Short example conclusion

• If we paid 3.80 for this spread

• And it is worth 5.00 in 22 days

• We would make 31% on our investment• Commissions will reduce the return <3%>

• Overhead also reduces the return<.008%>

• Net in our example is 27.992% in 22 days

The Heart of the Matter

• Speculators are eager to pay a premium to increase the amount of leverage used on an investment position.

• The premiums they pay decline most rapidly in the last month of a contract’s life.

• By selling contracts to speculators, investors can capture a premium with an attractive return in a short period of time.

MNII Investor Advantage

• Stocks go up• Stocks go down• Stocks stand still

• But time only goes forward!

• The passage of time benefits the seller of option premiums.

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Typical Positions

• Long AAPL spread• Long TSO spread• Long POT spread

• Long HD spread

• 2 to 4 Straddles or:• 2 to 4 Condors

• Short HOV spread• Short TIE spread• Short ZION spread

• Short IGT spread• And possibly…

• Profit when stock moves big / profit when stock stays still

Expenses

• NO Selling Cost

• Less than 1% overhead fee (to cover mailing and accounting costs)

• Commissions (depending on activity, but about 1/40th of big firms cost!)

• “Free ride” on first 5% of profit

• Participation at 20% of gains over first 5%

Diversification

• Rebalancing

• Allocation

• Non Correlation• Compounding (Monthly!)

• Market Neutral position

• Active Management

• Hedge Fund Agility

Safeguards

• Segregated Bank Account for deposits

• Independent custodian for securities

• Only one paying client for Manager (Peloton, LLC) – no conflict of interest

• CPA firm (Shafer Group) prepares monthly investor reports and issues all distributions

READY?

• $100,000 Minimum Investment

• Qualified Investors required

• Six month commitment• Private Placement Agreement

• Only 99 investors

• No published track record…..yet!

• Target of 5%............per month.

Legal Note:

Past performance is not indicative of future results and

all investments have risks. Read the PPM for a more complete

listing of risks and considerations.

Questions?