T.T.G. Financial, Inc. Commodities Trading Advisor Disclosure Document. Tripudium, Triumphus and Gnaritus Programs

Transcription

1 T.T.G. Financial, Inc. Commodities Trading Advisor Disclosure Document Tripudium, Triumphus and Gnaritus Programs THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. No person is authorized by TTG Financial, Inc. to give any information or to make any representations not contained herein. The delivery of this Disclosure Document does not imply that the information it contains is correct subsequent to the date shown below. May 1, 2010 Commodity Account Risk Disclosure Statement THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING: IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF ALL TRANSACTION COSTS. IF YOU PURCHASE OR SELL A COMMODITY FUTURE OR SELL A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON 1

2 BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUESTED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT. UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A LIMIT MOVE. THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, SUCH AS A STOP-LOSS OR STOP-LIMIT ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS. A SPREAD POSITION MAY NOT BE LESS RISKY THAN A SIMPLE LONG OR SHORT POSITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS, AT PAGE 17, A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. YOU SHOULD THEREFORE CAREFULLY STUDY THIS DISCLOSURE DOCUMENT AND COMMODITY TRADING BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE 10 Foreign Futures and Options Risk Disclosure Statement YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY ENGAGE IN TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE EFFECTED. BEFORE YOU TRADE YOU SHOULD INQUIRE ABOUT ANY RULES RELEVANT TO YOUR PARTICULAR CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH 2

3 YOU INTEND TO TRADE FOR DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE IN BOTH YOUR LOCAL AND OTHER RELEVANT JURISDICTIONS. THIS COMMODITY TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING FUNDS IN THE TRADING ADVISOR S NAME FROM A CLIENT FOR TRADING COMMODITY INTERESTS. YOU MUST PLACE ALL FUNDS FOR TRADING IN THIS TRADING PROGRAM DIRECTLY WITH A FUTURES COMMISSION MERCHANT. Contents Commodities Trading Advisor Disclosure Document... 1 Tripudium, Triumphus and Gnaritus Programs... 1 Commodity Account Risk Disclosure Statement... 1 Foreign Futures and Options Risk Disclosure Statement... 2 BREAK EVEN ANALYSIS... 4 T.T.G. Financial, Inc. Information

4 Business Background... 6 Future Commissions Merchant and Introducing Broker... 8 Principal Risk Factors... 9 Trading Programs: Fees Partially Funded Accounts Performance Grid for Notionally Funded Accounts Conflicts of Interest Litigation Trading for our own account Performance reports Performance of This Offering... Error! Bookmark not defined. BREAK EVEN ANALYSIS *** I M P O R T A N T *** PLEASE READ CAREFULLY The following presents a two year break-even analysis assuming the highest amount of fees that can be charged your account. For complete explanation of fees please refer the Section entitled Fees. 4

5 Year 1 Year 2 Initial Investment $50,000 $50,000 Ib Front end fee $3,000(3) $0 Round-Turns $ 480(1) $ 480(1) Incentive Fee $ 0(2) $ 0(2) Amount of Income to Break-even $3480 $480 Break-even % 6.96%.96% Please be apprised that these calculations include an estimation of the round-turn commission on an annual basis. This amount of the above fees could differ but will not have a material effect on the break-even percentage. (1) Commissions charged by FCM (i.e. Interactive Brokers) based on $10 per roundturn multiplied by the average number of round-turns placed by the CTA, average of 4 round-turns per month. Commissions charged by the Clients FCM will vary. (2) No incentive fees are shown as they will be charged only after taking into account all expenses. (3) Based on the maximum IB commission of 6%. T.T.G. Financial, Inc. Information Principals: Trading Principals: James L. Evans James Kotagides James L. Evans James Kotagides 5

6 Address: 4700 Dressler Rd NW Canton, OH Phone: Office: Fax: All books and records will be stored at this address. Business Form: Business Summary: S-corporation organized under the laws of the state of Ohio From its inception date, 10/1/2006 until present, TTG Financial, Inc. (the Company) has been engaged in the business of managing assets through the purchase and sale of equities, both foreign and domestic, bonds, both foreign and domestic and put and call options. Decisions regarding holdings are made based on a combination of fundamental analysis, risk based asset allocation and technical analysis. Asset Allocations for individual clients are based on an assessment of their risk tolerance. Disclosure Document Date: May 1, 2010 Business Background TTG Financial, Inc. (the Company) was founded October 1, 2006 by James Evans and James Kotagides. The Company is a Registered Investment Advisor providing investment advice for a fee. The Company is not a Broker-Dealer nor is there any affiliation with a Broker Dealer. The Company receives no commissions. As of September 30, 2011 the Company manages approximately thirty seven million in assets, namely stocks, bonds, cash equivalents and stock options. Assets are managed according 6

7 to the risk profile of each client. Assets are allocated according to one of five models based on said risk. Actual purchase and sell of specific securities is based on a combination of fundamental and technical analysis. The Company registered with the Commodities Futures Trading Commission (CFTC) as a Commodities Trading Advisor (CTA) and became a National Futures Association member in June of James L. Evans has been in the financial services business for 26 years. He began his career with Northwestern Mutual/Robert W. Baird in 1985 where he served as life agent and stock broker. From December 1989 to September 2006 he was a stock broker and branch manager for Park Avenue Securities in Canton, Ohio. His responsibilities included compliance, asset allocation strategy, marketing and accounting. Simultaneously from December 1989 to September 2004 he founded and was President of Western Reserve Pension Services, Inc. His duties included managing pension assets, discrimination testing, feasibility studies and general operations. He sold Western Reserve in September 2004, but continued his duties for Park Avenue Securities. In October 2006, he co-founded TTG Financial. He has served as a principal for TTG Financial from October 2006 to the present. His broad responsibilities include compliance, accounting, trading and asset allocation modeling. He obtained his Stock Brokers license (Series 7) in January 1988, his General Principals license (Series 24) in July 1999 and his Commodities Trading license in May 2008 (Series 3) at which point he also became a member of the National Futures Association. He has three Professional Designations; Qualified Pension Administrator in May 1994 and Qualified 401(k) Administrator in December 2002 issued by the American Society of Pension Professionals and Actuaries and the Certified Financial Planner designation issued by the Board of Certified Financial Planners in October James Kotagides has been in the financial services business for 16 years. From June 1996 to December 2003 he traded his own capital using various methods of technical analysis. He joined The Guardian/Park Avenue Securities as an agent/stock broker in December His duties included sales, asset allocation and client management. In October 2006 he co-founded TTG Financial. He has served as a principal for TTG Financial from October 2006 to the present. His broad responsibilities include equity and bond research and trading of the same. He also tracks a variety of technical indicators and executes entry and exit points for all TTG holdings. He obtained his Stock Brokers license (Series 7) in March 2004 and his Commodities Trading license in May 2008 (Series 3) at which point he also became a member of the National Futures Association. He obtained his bachelor s degree in economics from Ohio State University in 1974 and his MBA from the University of Michigan in He has obtained the Professional Designation; Registered Financial Consultant in June

8 Future Commissions Merchant and Introducing Broker TTG Financial, Inc. (the Company) is not a Futures Commissions Merchant (FCM). Clients may select the futures commission merchant (FCM) at which to maintain their account. An FCM is the institution that houses your account and executes and clears trades. Clients may also select an introducing broker (IB) through which they will introduce their accounts to the FCM. 8

9 The Company reserves the right to disapprove any FCM or IB chosen by the client. Such disapproval will generally be based on clearing capabilities, product limitations and commission structure. In an effort to ensure efficient and equitable execution between various accounts, the Company may use a trade-away account in which trades are executed by a FCM of the Company s choice and then cleared via the clients FCM. This arrangement will typically result in the client paying higher commissions because both the executing and clearing FCMs would collect a commission. The additional commission can be approximately $1.00 -$1.20 per side. The FCM will generally provide the client with the appropriate fee schedule. Principal Risk Factors A prospective client interested in opening a managed account with the Advisor should carefully consider the highly speculative nature of trading commodity interests and the possibility that he may lose more than the amount of money initially deposited in his commodity brokerage account. The risks of opening an account with the Advisor include, but are not limited to, the fact that: Futures prices are highly volatile: Price movements of commodity futures contracts 9

10 are influenced by, among other things changing supply and demand relationships, weather, government, agricultural trade, fiscal, monetary and exchange control programs and policies, national and international political and economic events, and changes in interest rates. In addition, governments from time to time intervene, directly and by regulation, in certain markets, particularly currencies and gold. Such intervention is often intended to influence prices directly. None of these factors can be controlled or predicted by the Advisor. There is no assurance that the trades made by the Advisor will result in a profit for the client or that the client will not suffer substantial losses. Futures and Options Trading is highly leveraged: Commodities accounts are leveraged, meaning you need not deposit the full value of the underlying commodity contract in order to complete a transaction. This concept is referred to as margin; in essence you are borrowing the difference between your deposit and the value of the contracts at the time of purchase. Typically, you need only 2-20% of the initial value of a futures position to establish a contract. Because of this leverage, a relatively small price movement can result in immediate and substantial losses to the client. In fact any trade may result in losses in excess of the amount invested. If the value of the contract changes against you, you will have to deposit additional moneys to retain the position immediately or lose your position and your original deposit. If a margin call occurs and you are unable or unwilling to make the required additional deposit on very short notice, your position will be closed resulting in significant losses. In fact, many FCMs may impose interday margin calls which give the client virtually no opportunity to avert a margin call and the loss of their equity. Hedging: Webster s describes a Hedge as a means of protection or defense. The types of transactions we engage in under the Tripudium or Triumphus Programs are meant to do just that; protect or defend property that you either already own or will need to purchase at a future date. It is important that you understand what a successful hedge would look like. The following example may help. Fred owns a trucking company and spends $1,000,000 a year on diesel fuel. Fred has structured his company such that he makes a profit so long as diesel fuel stays under 2.75 a gallon. A study is done and it is determined that crude oil futures are highly correlated to diesel fuel. The current price of diesel fuel is under Fred decides to purchase crude oil futures to help hedge the risk of rising fuel prices. If fuel prices drop or stay the same Fred will likely lose his futures investment. However, in this situation he will likely enjoy lower market rates on fuel. If fuel prices go up, it is likely that the value of his futures contracts will go up, helping to offset his higher market costs. There are formulas to determine how many futures contracts would be needed to fully hedge a risk. Of course in many cases it may not be financially feasible to fully hedge a risk. We try to help our clients determine a balance between financial protection and financial practicality. 10

11 There is no guarantee that a hedging program will save money, in fact, in many situations a client might lose money on the future and also have the market prices turn against them. For instance, Fred may decide to fund his account with $100, If in week one Fred s position drops below the maintenance margin level, he could well lose the entire $100,000. In week two and beyond the price of crude oil could rise. So in this case Fred was correct about the direction of crude oil prices, but he did not have the funds to retain his hedge. Credit Spread Strategy A credit spread, which involves selling an option but also includes purchasing another less expensive option. When writing a credit spread the writer is credited the difference between the collected premium from writing the option, less the cost of the option purchased. Unlike writing uncovered options, where the potential for unlimited loss exists, option credit spread risk is absolutely limited to the difference between the strike prices of the options written and purchased, plus commissions and fees. Any loss would be further reduced by the amount of the credit received. While the option credit spread clearly offers the advantage of limited risk, the writer must sacrifice some of their potential profit in exchange for acquiring a limit to the risk. Futures and Options Markets May Be Illiquid: For the most part United States commodity exchanges limit price fluctuations in certain commodity interest prices during a single day by means of daily price fluctuation limits. The daily limit, which is set by most exchanges, imposes a floor and a ceiling on the prices at which a trade may be executed, as measured from the last trading day s close. These limits may create liquidity problems. For example, once the price of a particular contract has increased or decreased by an amount equal to the daily limit, thereby producing a limit-up or limit-down market, positions in the contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Occasionally contract prices in various commodities have moved the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Advisor from promptly liquidating unfavorable positions and subject a participating customer to substantial losses that could exceed the margin initially committed to such trades. Said limits may also prevent the Advisor from deploying positions that would otherwise have been dictated by its strategy. Substantial fees and expenses: Clients are subject to substantial fees and other expenses regardless of whether profits are realized, including management fees and brokerage commissions. These fees are detailed under Fees in this document. Zero Sum Gain: Futures trading is a zero sum, risk-transferring activity in which, by definition, for every gain there is an equal and corresponding loss (plus the cost of transaction and advisory fees). There is no guarantee that the strategies used by the Advisor will be successful or will not incur losses. 11

12 Small Account Sizes Accepted: The relatively small minimum size of the accounts the Advisor will trade, $50,000, may result in substantial volatility since a large portion of the account s equity may be committed to margin. This increased volatility may result in frequent margin calls from an account s FCM and the liquidation of the account at an inopportune time if such margin calls are not, or cannot, be met. Counter party risk: It is possible that a client s FCM may fail. Although FCMs are required to keep customer assets in a segregated account they may fail to comply with said rule which could lead to the partial or full loss of a client s funds. An FCM may also declare bankruptcy or have a claim upheld by another client. In this case a client is at risk of losing all or a portion of their account balance. Options: The Advisor may trade options on financial futures and commodity futures. Transactions in options carry a high degree of risk. Purchasers and sellers of options need to be familiar with the type of option (i.e., put or call) being traded and the associated risks, including the extent to which the value of the option must increase before the position becomes profitable, taking into account the premium and all transaction costs. The purchaser of options may offset or exercise the options or allow the options to expire. The exercise of an option results either in a cash settlement or in the purchaser acquiring or delivering the underlying interest. If the option is on a future, the purchaser will acquire a futures position with associated liabilities for margin. If the purchased options expire worthless, the investor will suffer a total loss of their investment. When purchasing deep out-of-the-money options, investors should be aware that the chance of such options becoming profitable is remote. Selling ("writing" or "granting") an option generally entails considerably greater risk than purchasing options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional margin to maintain the position if the market moves unfavorably. The seller will also be exposed to the risk of the purchaser exercising the option and the seller being obligated to either settle the option in cash or to acquire or deliver the underlying interest. If the option is on a future, the seller will acquire a position in a future with associated liabilities for margin. If the option is "covered" by the seller holding a corresponding position in the underlying interest or a future or another option, the risk may be reduced. If the option is not covered, the risk of loss can be unlimited. There are special risks associated with uncovered option writing, which exposes the investor to potentially significant loss. The potential loss of uncovered call writing is unlimited. The writer of an uncovered call is in an extremely risky position, and may incur large losses if the value of the underlying instrument increases above the exercise price. Prospective investors should note that the Advisor does not anticipate writing uncovered calls as part of its trading program. As with writing uncovered calls, the risk of writing uncovered put options is substantial. The writer of an uncovered put option bears a risk of loss if the value of the underlying instrument declines below the exercise price. Such loss could be substantial if there is a significant decline in the value of the underlying instrument. Prospective investors should note that the Advisor does not anticipate writing uncovered puts as part of its trading program. 12

13 The risks listed above are intended to be a survey of different types of risks involved with futures trading. It is by no means considered to be an exhaustive list of all possible risks associated with futures trading. Potential clients should read the entire disclosure document before deciding whether or not to invest in the program. Trading Programs: We have three separate and distinct trading programs. Each program requires separate account minimums of $50,000 or five times the initial margin whichever is greater. For instance if a client wishes to initiate a wheat hedge for his bakery and also wants to speculate on the price of oil, the minimum initial deposit required would be $100,000 ($50,000 for the wheat hedge under the Tripudium program and $50,000 to speculate on oil in the Gnaritus program. Each program will be tracked separately and Performance fees and Incentive fees will be charged separately. 13

14 Under the Tripudium and Triumphus programs we will construct programs to hedge an actual risk to a client s business. We will assess the risk to your business or to your personal portfolio and then determine if there is a future correlated enough to effectively hedge your risk. We will advise you of the amount of initial deposit required to hedge your risk and help you evaluate the pros and cons between a full hedge, no hedge and points in between. A hedge could be looked at much the way you look at your casualty insurances. You pay a premium, but you hope not to have a claim. This is very similar to hedging. For instance you may deploy a wheat futures hedge to guard against higher costs at your bakery, but you would prefer that the cost of your raw materials simply stayed unchanged. Our third program, called Gnaritus, speculates on the price direction of various commodities using a proprietary blend of strategies. Tripudium The first of our hedging strategies (known as Tripudium) involve an attempt to offset an operating or inventory cost. We intend to purchase (hold long) futures contracts in energy, grain, livestock and other agricultural futures, dollar vs. foreign currency futures, mini-s&p, treasury and Fed Funds futures. The actual future purchased (held long) will depend upon our correlation study. We prepare a statistical study the goal of which is to determine what future or futures correlate to a client s business risk if any. If it is determined that there is a high enough correlation between a particular future and a client s business risk then we prepare a strategy for purchasing said contract (holding long). We use a proprietary blend of strategies to determine the entry and exit points for said futures under the Tripudium program. Components of said strategy include client input on the price trend of the risk in question, technical and macro economic analysis. Triumphus The second of our hedging strategies (known as Triumphus) involve an attempt to protect the price of a client s output. These types of hedges will typically be short a future. We intend to sell (be short) futures contracts in energy, grain, livestock and other agricultural futures, dollar vs. foreign currency futures, mini-s&p, treasury and Fed Funds futures.. 14

15 We use a proprietary blend of strategies to determine the entry and exit points for said futures under the Triumphus program. Components of said strategy include client input on the price trend of the risk in question, technical and macro economic analysis. We will request that futures commission merchants with which we work to close out any offsetting positions on a first-in, first-out basis. In order to participate in the Tripudium or Triumphus program, a client must demonstrate adequate liquidity and advanced knowledge of their particular business. They must be willing to deposit five times the initial margin requirement or $50,000, whichever is greater. These programs are hedge only programs. The client must demonstrate that they have a significant cost or risk that might be hedged through the purchase or sale of a future. Gnaritus The third program (known as Gnaritus) speculates on the price direction of energy, grain, livestock and other agricultural futures, dollar vs. foreign currency futures, mini-s&p, treasury and Fed Fund futures. We use a proprietary blend of macro-economic, fundamental and technical analysis to determine price directions on various commodities and securities. If our analysis indicates a potential movement in one of the previously listed futures, then we may buy long, sell short or deploy a credit or debit spread. Definition of Analysis and Basis for Decision Making Macro-economic analysis looks at the factors that affect the supply and demand of a particular commodity or financial asset in order to predict the expected market price for that asset. Such factors include, but are not limited to, government actions (e.g., Federal Reserve discount rate, imposition of embargoes, price controls, etc.), the release of information concerning weather conditions (e.g., reports of frost in certain growing areas), or the release of economic statistics (e.g., Consumer Price Index, Housing Starts, Unemployment Rate, etc.) resulting in actual or probable significant price movements. Technical analysis is not based on the anticipated supply and demand of the actual commodity or financial asset; instead, it is based on the theory that a study of the movement of markets themselves will provide a means of anticipating future prices. Technical analysis often includes the study of intra-day, daily, weekly, and monthly prices, volume and open interest data, and utilizes charts for analysis of these items. Another type of technical analysis is market sentiment which is based on the theory of contrary opinion and assumes that when investors swing to emotional extremes they are 15

16 likely to be overreacting. Sentiment indicators such as short sales or put and call activity is used to highlight inflexion points of bull and bear runs. We also use client input as a factor in deciding entry and exit points for trades. For instance, a client may indicate that at a certain price point for their raw material they can maintain overall profitability. We will take this into account when developing the overall strategy. Spreads We may deploy a spread strategy when our analysis indicates the difference between two futures will change substantially. We deploy our spread strategies through the use of options. An option spread trading strategy involves taking a position in two or more options of the same type (that is, two or more calls or two or more puts). Bull Spreads can be created by buying a call option with a certain strike price and selling a call option on the same asset with a higher strike price. Both options have the same expiration date. An investor entering into a Bull Spread is hoping that the underlying asset will increase in price. A Bull Spread strategy limits both the investor s upside potential and the downside risk. Similarly, Bear Spreads can be created by buying a put option with a high strike price and selling a put option on the same asset with a low strike price. An investor entering into a Bear Spread is hoping that the underlying asset will decrease in price. Butterfly Spreads can be created by buying a call option with a relatively low strike price; buying a call option with a relatively high strike price; and selling two call options with a strike price halfway between the two previous strike prices. Butterfly Spreads lead to a profit if the underlying asset stays close to a certain price level, but gives rise to a loss if there is a significant price move in either direction from such price level. Management Fee Fees 16

17 The Advisor charges a monthly management fee, billed quarterly, of 1.8% per annum. This fee is accrued monthly as 1/12 of 1.8% of the Net Asset Value of the client s account at the end of each month (1.8% annually). The management fee will be calculated prior to any incentive fee being subtracted from the account. If a client withdraws from the Program on a date other than at the end of a quarter, management fees will be calculated and billed as if such termination were the end of the month and pro-rated to the number of months actually traded in that quarter. The management fees charged to the account will be based on the nominal value of the account. The nominal value of the account under management is the initial amount of funds allocated to trading, plus or minus cumulative profits or losses, plus accrued interest, plus additional deposits, minus withdrawals, and minus all management and incentive fees paid. Cumulative profits or losses include both realized and unrealized profits or losses. For example, if a client is charged a 1.8% management fee on a $100,000 account traded as a $200,000 account, the account will be charged $3,600, or 3.6% of the actual account size. The term "net asset value" of a Client's account means the net assets in and committed to the account (that is total assets less total liabilities, including interest income and unrealized profits and losses on open commodity interest positions). Performance Fee At the end of each calendar quarter a charge equal to 10% of the gross realized gain and loss during the period plus the change in net unrealized gain or loss on open positions as of the end of the period, minus all brokerage commissions and transaction fees and charges paid and the cumulative net loss, if any, carried forward from prior periods will be assessed to your account. If the account during any period does not produce a net gain, no incentive fees will be due TTG until the account experiences a gain in a subsequent quarter. The amount of any fee due to TTG, if any, will be determined independently each quarter, and the amount of any such fee paid will not be affected by subsequent losses experienced in the account. If a total withdrawal occurs, fees will be calculated on the date of withdrawal in the same manner as the end of the quarter. Any fees due TTG will be billed and remitted before the completion of the withdrawal. Partially Funded Accounts TTG Financial, Inc. does not intend to accept Partially Funded Accounts. 17

18 Partially-funded account means a client participation in the program of a commodity trading advisor in which the amount of funds in the client's commodity interest account over which such commodity trading advisor has trading authority is less than the account size that establishes the client's level of trading in a commodity trading advisors program. If a client s account value should drop below the amount required to execute a trade (the greater of five times the initial margin or $50,000.00) then before such trade is executed, the client will be required to make a deposit such that our five times rule is satisfied. This protocol should prevent the existence of partially funded accounts as defined above. Client accounts will vary in size. In order to fairly report our performance we intend to show performance by individual transaction by category and in the aggregate based on regulatory specifications so that our client s can understand how we have arrived at our performance numbers. Notional Funding Due to the fluctuation in the price of an underlying future your account value may fall below its notional value. Notional equity creates additional leverage in an account relative to the cash in such account. This additional leverage results in proportionately greater risk of loss. While the possibility of losing all of the cash in an account is present in all accounts, accounts that contain notional equity have a proportionately greater risk of loss. All prospective clients need to understand that the account size you have agreed to in writing ("the nominal " or "notional" account size.) is not the maximum possible loss that your account may experience. You should consult the account statements received from your futures commission merchant in order to determine the actual activity in your account, including profits, losses, and current cash equity balance. To the extent that the equity in your account is at any time less than the nominal account size you should be aware of the following: 1. Although your gains and losses, fees and commissions measured in dollars will be the same, they will be greater when expressed as a percentage of account equity. 2. You may receive more frequent and large margin calls. 3. The following conversion chart may be used to convert the ROR's in the capsule to corresponding ROR's for a particular notional funding level. Performance Grid for Notionally Funded Accounts Range of Monthly Level of Notional Funding 18

19 Returns 100% 75% 50% 25% -30% -30% % % % -20% -20% % % % -15% -15% % % % -10% -10% % % % -5% -5% -6.67% % % 5% 5% 6.67% 10.00% 20.00% 10% 10% 13.33% 20.00% 40.00% 15% 15% 20.00% 30.00% 60.00% 20% 20% 26.67% 40.00% 80.00% 30% 30% 40.00% 60.00% % The information provided here regarding notional funding should in no way be interpreted as an indication that TTG will accept a partially funded account. The information is provided to help client understand how performance is affected if their account falls below the notional value. Should a client s account fall below the nominal value than no further transactions will be executed until a deposit is made to bring the account value up to our minimum funding level, the exception being transactions that complete a round turn. Conflicts of Interest 19

20 The Advisor and its principals are subject to various actual or potential conflicts of interest arising out of their relationship with the client and others. These actual or potential conflicts include the following: The Advisor anticipates that it will act as the trading advisor for other accounts and in the future. Its responsibilities to the client and to those other accounts, and the responsibilities that it may undertake in the future with respect to other managed accounts, may cause conflicts of interest; these potential conflicts include the fact that such management could increase the level of competition for the same trades selected by the Advisor and could affect priorities of order entry. All open positions in accounts managed or controlled, directly or indirectly, by the Advisor and any person or persons who are acting with the Advisor pursuant to an express or implied agreement or understanding, will be aggregated for the purpose of determining commodity position limits (as determined by the CFTC and various commodity exchanges). Thus, the client might be unable to enter into or hold certain positions if such accounts traded by a person pursuant to such agreement or understanding would exceed the applicable limits. The Futures Commission Merchant or Introducing Broker (referred to in this paragraph as the clearing firm ), selected by the client for the client s Account, and its principals officers, directors, employees, agents, affiliates and independent Floor Brokers retained by the clearing firm, all may trade commodity interests for their own accounts from time to time. In addition, the clearing firm effects transactions for its customers other than the clients of the Advisor. Since the records of such trading are considered confidential and proprietary, they will not be made available for inspection to the Advisor or the Advisor s clients except to the extent required by law. As the identities of the purchaser and seller are not disclosed until after a trade, it is possible that the clearing firm could affect transactions for clients of the Advisor in which the other parties to the transactions are the clearing firm or its principals, officers, directors, employees, agents, affiliates, customers or independent Floor Brokers. Accordingly, such person may also be in competition with the Advisor and its clients accounts and may seek execution of trading orders similar to those of the Advisor. Thus, transactions for the clearing firm and such persons may be effected at the same time similar trades are executed for the Advisor s clients at less favorable prices. The clearing firm handling the orders will attempt to require that orders be transmitted and filled by the Floor Brokers in the sequence received, regardless of customer size or identity. The regulations of the various commodities exchanges prohibit a Floor Broker and a clearing firm which employs or retains him from crossing trades (taking the opposite position of a particular trade) between the customer, the Floor Broker and the clearing firm without prior permission from the customer. It is possible the clearing firm and its principals may receive a benefit from the interest income earned on any free credit balances in the accounts of the Advisor s clients, although TTG Financial, Inc. is not aware specific situation where this had occurred, the client should familiarize themselves with all of the fees and charges associated with their FCM or IB. 20

21 The Advisor will receive its management fee as described herein even if the account is not profitable. In addition, the incentive fee arrangement entered into between the Advisor and its clients might create an incentive for the Advisor to make investments that are risky or speculative as the Advisor would be partaking in the net performance of the clients account(s). The Advisor believes that the terms of the Agreement for Advisory Management Services to be entered into between the client and the Advisor are fair and reasonable. The principals, members, directors, officers and employees of the Advisor, and the Futures Commission Merchant or Introducing Broker of the client, serve or may from time to time serve on various committees and boards of the U.S. commodity exchanges and the NFA, and assist in making rules and policies of those exchanges and the NFA. In these capacities, such persons have a fiduciary duty to, and are required to act in the best interests of, such organizations even if such action may be adverse to the interests of the Advisor or its clients. Litigation Neither the corporation or its principals have ever been or are currently involved in litigation or pending litigation regarding any issue. Trading for our own account At this time TTG does not trade its own account nor do the principals trade on their own behalf. We reserve the right to trade for our own accounts in the future. If TTG begins trading their own accounts, the records of trades and any written policies related to such trading for the principals of TTG would be made available for inspection at the office of TTG at the request of any prospective or existing client. TTG currently holds a trading account in its own name. At the time of this disclosure statement, no trades had occurred in said account. The records of this account and any written policies related to such trading are available for inspection at the office of TTG at the request of any prospective or existing client. 21

22 Performance reports PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. We do not use model performance reports. Performance Report Definitions Worst Monthly Draw-Down is defined as losses experienced by a trading program over a specified period. Worst Peak-to-Valley Draw-Down is defined as the greatest cumulative percentage decline in month end net asset value due to losses sustained by a trading program during any period in which the initial month-end net asset value is not equaled or exceeded by a subsequent month-end asset value. 22

23 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Performance of Tripudium Program Name of CTA TTG Financial, Inc. Name of Trading Strategy Tripudium Date CTA began trading client accounts Dec-09 Date CTA began using trading program Dec-09 Total assets managed in all programs $148,511 Total Assets managed pursuant to Tripudium $40,631 Number of Open Accounts as of 4/30/2010 (Tripudium) 1 Number of Client Accounts open last 5 years for all programs 3 Number profitable accounts that have opened and closed since Dec for Tripudium none Number unprofitable accounts that have opened and closed since Dec for Tripudium none Worst monthly draw down January 2010 (6.04%) Worst Peak to valley draw down December 2009 March 2010 (18.73%) Monthly and Annual Rates of Return Month January -6.04% February -5.87% March -2.49% April May June July August September October November December -5.76% Annual or YTD -5.76% % 23

24 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Performance of Triumphus Program. We have no performance track record as of this writing for the Triumphus program. 24

25 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Performance of the Gnaritus program. Name of CTA TTG Financial, Inc. Name of Trading Strategy Gnaritus Date CTA began trading client accounts Dec-09 Date CTA began using trading program Dec-09 Total assets managed in all programs $148,511 Total Assets managed pursuant to Gnaritus $107,880 Number of Open Accounts as of 4/30/2010 (Gnaritus) 2 Number of Client Accounts open last 5 years for all programs 3 Number profitable accounts that have opened and closed since Dec for Gnaritus none Number unprofitable accounts that have opened and closed since Dec for Gnaritus none Worst monthly draw down January 2010 (5.89%) Worst Peak to valley draw down December 2009 January 2010 (5.89%) Monthly and Annual Rates of Return Month January -5.89% February 13.20% March 0.00% April May June July August September October November December 2.42% Annual or YTD 2.42% 6.53% 25

26 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Detailed components of performance for Tripudium All performance for Tripudium is based on hedging CME fluid milk. Detailed components of performance for Triumphus Not applicable Detailed components of performance for Gnaritus Results were due to trading NYC US Dollar futures and NY Light Crude Oil futures. Trading the NYC US Dollar had an approximate additive affect on return of 1.52% for the month of January The remaining performance was due to trading NY Light Crude Oil futures. 26