Single Equity Risk Transfer is a new type of instrument being offered for the first time.  A five-year private investment contract called a "SERT" Contract, this is a proprietary approach to long term value protection. A SERT Contract functions like an at-the-money European-style Protective Put, but is backed by a special purpose managed futures fund, not by an institutional investor. Contract holders participate in any residual fund surplus at maturity.

Safe Haven Advisors, Inc. developed the SERT Contract system to give an executive, retiree or other concentrated shareholder at-the-money price protection, while avoiding the cost of institutional forward capital commitments. No encumbrance of the underlying shares is involved. More than 900 stocks are eligible, and a minimum of $250,000 of notional value applies.

The SERT Contract sponsor actively manages counterparty investment funds using trading techniques typical of managed futures investment funds. Management has the objective of satisfying fully the portfolio of SERT Contract obligations. However, the adequacy of assets to satisfy SERT Contracts at maturity is NOT guaranteed. As a result, purchase of a SERT Contract involves trading risk, and minimum investor net worth is mandated.

The unique feature of the SERT Contract -- the special-purpose counterparty – serves to eliminate third party capital costs. This results in contract pricing averaging about 50% of the market value of a 5-year Protective Put FLEX option. No encumbrance of the stock or taxable event is involved. Upside potential and control of the underlying stock position are retained fully by the current stockholder.

Because asset limitations may apply to the eventual contract payout, a SERT Contract should not be seen as the shareholder’s sole means of protection against risk of loss. Other and further steps, including selling the underlying shares, should be considered as counterparty financial results are reported over time.

In evaluating the potential of a SERT Contract, follow a similar procedure to that suggested for a Protective Put: Review the market value of a five-year, at-the-money European-style Put Option using the CBOE options calculator. (Note: This is found under "Trading Tools" and "Volatility Optimizer" on the CBOE web site.)

The premium cost for the comparable SERT Contract may be approximated at about half the value of the OTC option. In most cases the SERT premium will range from 3% to 8% of the notional value of the shareholding for a five-year contract.

In assessing the suitability of a SERT Contract, consider the net market value of the option acquired, the residual trading risk in the special-purpose counterparty fund and the potential that adverse outcomes may be mitigated by selling or taking further risk management steps over the term of the contract.

Request a "Single-Stock Strategies Report."