Managed Forex Account Program Minimum Investment USD $10,000 1

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1 COMMODITY TRADING ADVISOR DISCLOSURE DOCUMENT OF A Delaware limited liability company registered with the Commodity Futures Trading Commission as a commodity trading advisor and a member firm of the National Futures Association 68 MAPLE AVENUE NORTHPORT, NY (302) cta@integralcapitalmanagement.com Managed Forex Account Program Minimum Investment USD $10,000 1 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 or entity is authorized to give any information or make any representation not contained in this Disclosure Document in connection with the matters described herein, and, if given or made, such information or representation must not be relied upon as having been authorized by Integral Capital Management, LLC. The effective date and date of intended first use of this Disclosure Document is September 15, This document is considered outdated after June 15, All prospective Clients should read this Disclosure Document carefully and in its entirety. 1 For non-us accounts, the minimum investment amount will be EUR 8,000

2 RISK DISCLOSURE STATEMENT THE RISK OF LOSS IN TRADING COMMODITY INTERESTS 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 FUTURES CONTRACT OR SELL A COMMODITY OPTION OR ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING, YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS OR SECURITY DEPOSIT 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 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 INTEREST 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 14, 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 INTEREST MARKETS. YOU SHOULD THEREFORE, CAREFULLY STUDY THIS DISCLOSURE DOCUMENT AND COMMODITY INTEREST TRADING BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE 5. YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING. SUCH TRADING IS NOT CONDUCTED IN THE INTERBANK MARKET. THE FUNDS DEPOSITED WITH A COUNTERPARTY FOR SUCH TRANSACTIONS WILL NOT RECEIVE THE SAME PROTECTIONS AS FUNDS USED TO MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTION CONTRACTS. IF THE COUNTERPARTY BECOMES INSOLVENT AND YOU HAVE A CLAIM FOR AMOUNTS DEPOSITED OR PROFITS EARNED ON TRANSACTIONS WITH THE COUNTERPARTY, YOUR CLAIM MAY NOT BE TREATED AS A COMMODITY CUSTOMER CLAIM FOR PURPOSES OF SUBCHAPTER IV OF CHAPTER 7 OF THE BANKRUPTCY CODE AND REGULATIONS THEREUNDER. YOU MAY BE A GENERAL CREDITOR AND YOUR CLAIM MAY BE PAID, ALONG WITH THE CLAIMS OF ii

3 OTHER GENERAL CREDITORS, FROM ANY MONIES STILL AVAILABLE AFTER PRIORITY CLAIMS ARE PAID. EVEN FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE FROM ITS OWN FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF PRIORITY AND OTHER GENERAL CREDITORS. FURTHER, YOU SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED IN THE RISK DISCLOSURE STATEMENT OF THE FUTURES COMMISSION MERCHANT OR RETAIL FOREIGN EXCHANGE DEALER THAT YOU SELECT TO CARRY YOUR ACCOUNT. 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 OR RETAIL FOREIGN EXCHANGE DEALER, AS APPLICABLE. iii

4 TABLE OF CONTENTS RISK DISCLOSURE STATEMENT... ii SUPPLEMENTAL DISCLOSURES... v ABOUT THE ADVISOR... 1 ABOUT THE PRINCIPAL... 1 TRADING PROGRAM... 2 NOTIONAL AND COMMITTED FUNDING... 5 PRINCIPAL RISK FACTORS... 5 COUNTERPARTY ARRANGEMENTS ADVISOR S FEES PAYMENT OF FEES CONFLICTS OF INTEREST LITIGATION OPENING AN ACCOUNT PRIVACY POLICY ADDITIONS AND WITHDRAWALS TO EXISTING ACCOUNTS TAX ASPECTS PAST TRADING PERFORMANCE ACKNOWLEDGMENT OF RECEIPT OF DISCLOSURE DOCUMENT iv

5 SUPPLEMENTAL DISCLOSURES INTEGRAL WAS FORMED TO EVENTUALLY PRESENT TO THE MARKETPLACE A FULL COMPLIMENT OF CTA MANAGED FOREX PROGRAMS BASED UPON PROPRIETARY, ADVANCED AUTOMATED AND SEMI-AUTOMATED TRADING ALGORITHMS OVERSEEN BY A RESPONSIBLE REGISTERED CTA AND NFA MEMBER AND MANAGEMENT. INTEGRAL BELIEVES SUCH PROGRAMS AND SOLUTIONS ARE UNIQUE, AND TO DATE HAVE BEEN GENERALLY UNAVAILABLE TO THE INVESTING PUBLIC. INTEGRAL IS DETERMINED TO PROVIDE INVESTORS ACCESS TO RESPONSIBLE AUTOMATED AND SEMI-AUTOMATED DRIVEN TRADING PROGRAMS THAT UTILIZE SUCH SYSTEMS, WORKING EXCLUSIVELY FOR THE BENEFIT OF INDIVIDUAL AND INSTITUTIONAL INVESTORS. INTEGRAL HEREBY ADVISES PROSPECTIVE CLIENTS THAT THE USE OF AUTOMATED AND SEMI-AUTOMATED SYSTEMS IN TRADING CAN IN ITSELF POSE ITS OWN LAYER OF RISKS. THOSE RISKS INCLUDE, BUT ARE NOT LIMITED TO TECHNOLOGICALLY INDUCED DELAYS AND ERRORS, AND/OR UNINTENDED RAPID EXECUTIONS INDUCED BY FALSE DATA, FALSE QUOTES, OR EXTRAORDINARY EVENTS. SOME OF THESE EXECUTIONS COULD BE BEYOND HUMAN INTERVENTION AND CONTROL NO MATTER HOW WELL INTENTIONED. ALTHOUGH WITHIN THE SURETY PROGRAM NO SUCH HIGH-FREQUENCY TRADING IS INTENDED, ENVISIONED, OR EXPECTED, AND ALTHOUGH INTEGRAL MANAGEMENT SHALL CONTINUOUSLY OVERSEE ALL TRADING ACTIVITY, NO INDEFATIGABLE ASSURANCE CAN BE MADE BY INTEGRAL THAT SUCH UNINTENDED ORDER ENTRIES, TRADE EXECUTIONS, OR CONSEQUENTIAL GAINS OR LOSSES COULD HYPOTHETICALLY OR ACTUALLY RESULT. THEREFORE, IF ANY PROSPECTIVE INVESTOR IS NOT COMPLETELY COMFORTABLE WITH TRADING STRATEGIES AND TRADE EXECUTIONS THAT ARE IMPLEMENTED VIA AUTOMATED OR SEMI-AUTOMATED SOFTWARE MEANS, THEN AN INVESTMENT IN SURETY OR ANY SUBSEQUENT TRADING PROGRAM OFFERED BY INTEGRAL CAPITAL MANAGEMENT, LLC SHOULD NOT BE UNDERTAKEN. FURTHERMORE, YOU WILL BE SPECIFICALLY ASKED TO CONFIRM YOUR UNDERSTANDING OF THE AFORE-MENTIONED TERMS DURING THE PRE-QUALIFICATION PROCESS. ALTHOUGH INTEGRAL BELIEVES WHOLEHEARTEDLY THAT ITS METHODS AND TECHNOLOGY ARE SOUND AND ARE IN THE BEST INTEREST OF ITS CLIENTS, FOREX TRADING CONTAINS RISKS AS DO SEMI-AUTOMATED TRADING TECHNIQUES. BY ENTERING INTO AN INVESTMENT WITH INTEGRAL CAPITAL MANAGEMENT, YOU AGREE THAT YOU UNDERSTAND AND ARE WILLING TO ACCEPT ANY AND ALL SUCH RISKS IN PURSUIT OF POTENTIALLY ABOVE AVERAGE RETURNS. v

6 ABOUT THE ADVISOR Integral Capital Management, LLC (the Advisor ), a limited liability company, was organized in the state of Delaware in June The Advisor became registered as a commodity trading advisor ( CTA ) with the Commodity Futures Trading Commission ( CFTC ) on July 16, The Advisor became a Member of National Futures Association ( NFA ) and a Forex Member on July 17, Since forming in June 2013, the Advisor has been dormant through the date of this disclosure document. The Advisor s NFA I.D. # is The Advisor's main business address is 68 Maple Avenue, Northport, NY The Advisor's books and records are maintained at this address. The Advisor's telephone number is (302) and the e- mail is cta@integralcapitalmanagement.com. The sole business of the Advisor is to provide discretionary trading advice to sophisticated advisory Clients (each, a Client and collectively, the Clients ) in respect of over-the-counter spot contracts in currencies ( Forex or Forex contracts ) through separately managed Client accounts (each, an account and collectively, the accounts ). The accounts will be in the name of the Client, and the Forex positions and other assets in the account will be held at an eligible institution selected by the Client and acceptable to the Advisor as described in this Disclosure Document (each, a Counterparty and collectively, the Counterparties ). The Counterparty will act as the trading counterparty to the Client, and trading will be conducted on a principal-to-principal basis in the over-the counter Forex markets, as opposed to on an agency basis through a broker on an organized exchange. All Clients must be knowledgeable of the risks of trading Forex and capable of withstanding significant trading losses. The Advisor s sole principal and registered Forex associated person is Anthony Ingrassia ( trading principal ). Mr. Ingrassia is the trading principal of the Advisor and is responsible for making all trading decisions on behalf of the Advisor s Client. A biographical description of Mr. Ingrassia is presented under "About the Principal". The Advisor is currently offering one program called the Surety Program which is fully described in this Disclosure Document. The Advisor reserves the right to offer additional programs in the future. The Advisor currently does not trade Forex for its own account. Any future trading in the Advisor s account may or may not follow the same trading programs being offered in this Disclosure Document. Trading activity in the Advisor's account(s) along with any written policies related to such trading will be made available for Client inspection. Furthermore, no Client will be permitted to review other Clients personally identifiable records. ABOUT THE PRINCIPAL Anthony Ingrassia Anthony Ingrassia became a registered Forex associated person of the Advisor on July 17, 2013 and was listed as a principal of the Advisor on July 16, Anthony Ingrassia owns and operates the Advisor. Furthermore, Mr. Ingrassia is the trading principal of the Advisor and is responsible for the supervision of registered associated persons that are permitted to solicit prospective Client accounts. Mr. Ingrassia also conducts market analysis, makes trade selections, and handles the day-to-day operational and financial affairs of the company. 1

7 In addition to owning and operating the Advisor, Anthony Ingrassia was until recently registered as a commodity trading advisor in his own name and is a listed principal and registered associated person. Under this sole proprietor CTA, Mr. Ingrassia was a registered associated person from July 1997 through April 1998 and a listed principal from July 1997 through June Mr. Ingrassia subsequently became an associated person and listed principal of his own sole proprietor CTA in March On August 29, 2013, Mr. Ingrassia withdrew his personal CTA license and no longer is a registered AP of his own personal CTA. Mr. Ingrassia s sole proprietor commodity trading advisor was NOT a Member of NFA. As a sole proprietor CTA, Mr. Ingrassia performed research and offered commentary, however, did not manage client accounts pursuant to power of attorney. Prior to setting up his own CTA in his own name, Mr. Ingrassia was a registered associated person of The Chicago Corporation from September 1995 through April The Chicago Corporation was a registered FCM from February 1979 through March 1997 and a registered CTA from March 1995 through March From June 1998 through December 1998, Mr. Ingrassia was a registered associated person of AG Edwards & Sons Inc. AG Edwards & Sons Inc. was a registered commodity trading advisor from June 1982 through July 1990 and again from October 1996 through March AG Edwards & Sons Inc. was also a registered FCM from June 1982 through February Mr. Ingrassia maintains several personal Forex trading accounts. These accounts have been and will continue to be utilized for dynamic, real money testing of Forex programs under development, and for trading system evaluation purposes. Therefore, since their main purpose is not for speculative trading, and the trading results are unrelated to the Surety Program offered within this disclosure document, Clients will not be permitted to inspect the trading records of these personal accounts because the systems and their results remain proprietary. However, in the future should any of Mr. Ingrassia s personal trading accounts become dedicated to participating in the Surety program offered in this Disclosure Document for his benefit through speculative trading; the records of those accounts will be voluntarily made available for client inspection, upon request. To learn more about the Advisor and its principal, you may visit NFA s Background Affiliation Status Information Center ( BASIC ) at TRADING PROGRAM The Advisor believes that investing a portion of your liquid investment assets in the off-exchange Forex market is the best means by which to capitalize on a country or region s perceived economic, political, financial or environmental strengths/weaknesses, or relative changes in interest rate differentials between countries. Moreover, currencies are generally known for maintaining strong trending characteristics in both up and down markets, through wars, periods of inflation and recessions and have statistically noncorrelated returns from other asset classes. Off-exchange Forex trading is also unique in that it offers the possibility of greater leverage than is typical in other asset-classes, which can work both for and against you as you will read further on in this Disclosure Document. Also, in the off-exchange Forex market it is as easy for the Advisor to sell short as it is to buy. Furthermore, unlike the futures market, the offexchange Forex market does not have pre-determined movement limits as exists in futures, nor is it subject to trading halts as are stocks. As of the date of this Disclosure Document, the Advisor is offering to Clients one unique and proprietary Trading Program called Surety. The primary features of this trading program are summarized below. The description of the Advisor s Trading Program is meant to provide investors with an overall description of what is involved and what the investors can expect the Advisor to do in their investment 2

8 accounts. The description is not meant to be exhaustive and cover every aspect of the Trading Program simply because the basis of what goes into a trading decision is often complex and very involved and such a description in this Disclosure Document would go beyond what is necessary for the investor to understand in order to make an investment decision. The Advisor believes that there is always room for improvement and as a result the methods that may be used in the future might differ from those presently being used. Because the Advisor's methods are proprietary and confidential, managed account Clients will not be informed with respect to each such change in the Advisor s investment methods unless they are material in nature. Trading Philosophy and Methodology The Advisor s objectives are as follows: Implement a program where it is informed by signals that then require human intervention and analysis in the decision to place a trade. Implement a program that takes advantage of the inherent volatility of the Forex market. Implement a program that will produce a return that is not correlated to any other investment type such as futures, equities or fixed income. Implement a program that will produce a favorable absolute return regardless of the direction of the market. Implement a program that will trade in highly liquid markets. The Advisor believes that its trading program will achieve these objectives. The Advisor does caution prospective clients that there can be no assurance that the trading program will be successful in achieving these objectives. Since there are no guarantees that the Advisor s trading program will meet its investment objectives or not suffer capital loss, the trading program is not appropriate for investors seeking fixed monthly income distributions or guaranteed returns. Furthermore, the Advisor believes that an investment is best appreciated over a long term and therefore suggests that investors maintain their investment with the Advisor for more than one year. The Surety Program The Surety Program is a discretionary trading strategy that seeks to profit from trading the spot Forex markets primarily but not exclusively utilizing the 7 major currencies contained within the US Dollar Index. These include the USD, EUR, CAD, GBP, CHF, JPY, and the SEK, plus the AUD, NZD. In addition the NOK, MXN, SGD, HKD, HUF, & TRY, may be traded along with the crosses between them and the other major components of the same 2. The spreads on the various currency pairs will vary. It is expected that the spreads will range between 2 pips up to 6 pips. The Advisor will regularly engage in analyzing, filtering and implementing trading signals from its proprietary internal systems and from trusted outside signal provider(s) that do their own independent analysis, and who typically charge fees for their research and timing services to the Advisor. Such external fees are the sole responsibility of the Advisor. Country analysis, economic news and global events are key to forming a fundamental opinion. At the same time, banks, institutions, and traders depend heavily on technical analysis in their decision 2 AUD represents the Australian Dollar; CAD represents Canadian Dollar; CHF represents the Swiss Franc; EUR represent the Euro; GBP represents the British Pound; HKD represents the Hong Kong Dollar; HUF represents the Hungarian Forints; JPY represents the Japanese Yen; MXN represents the Mexican Peso; NOK represents the Norwegian Kronor; NZD represents the New Zealand Dollar; SEK represents the Swedish Kronor; SGD represents the Singapore Dollar; TRY represents the Turkish Lira, and; USD represents the United States Dollar. 3

9 making process. Subsequently, key levels of support and resistance as well as other technical indicators are often well-respected in determining market movements. The Advisor aggregates his own research and opinion with the best outside services he can obtain to ultimately initiate trades on behalf of the investors within the Surety Program. Fundamental analysis includes the consideration of factors external to the market of a particular instrument. For example, weather, imports/exports, governmental data, economies, and political events that affects the supply and demand of that particular instrument, in order to gain insight into the possible future movement of prices of that instrument. Technical analysis is not based on the anticipated supply and demand of the currency. Instead, it is based on the study of markets themselves (in particular, trends of prices established by the markets for various instruments during selected historical periods) as a predicate for anticipating future price movements. Technical analysis of the markets often includes a study of the actual daily, weekly and monthly price fluctuations, utilizing charts and/or automated analysis of these items combined with other technical market data. The Advisor manages investment risk in various ways. Professional traders and money managers often consider sound money management and position sizing to be the single most important aspect of a successful investment program. The position sizing approach allows the Advisor to adjust trade position size based on equity, current market volatility, expected risk to reward ratio, and performance in order to either increase profit potential or reduce market risk exposure as appropriate. While the Advisor s trading program is considered discretionary, at no time will there be any intentions of allocating a disproportionate percent toward margin deposits for trading purposes. The average leverage levels are expected to be between 10:1 to 20:1; however range averages could change if margin requirements change or if the spot price of currencies materially changes. Although current regulatory requirements allow the Advisor to leverage up to 50:1, the Advisor expects to keep leverage between 10:1 to 20:1. For example, if an account invests USD $10,000, the Advisor would generally be buying and selling currency lot sizes of between USD $100,000 and USD $200,000. Account size, market conditions and compliance policies are factors that could influence the decision and timing as to any changes in leverage. Should leverage be reduced, then the amount allocated toward trading as margin deposits can be increased to a higher portion of account equity. Clients should be aware that the higher the leverage level, the greater the magnitude of not only potential trading profits, but potential trading losses relative to account equity. The Advisor may add additional currency pairs or delete existing pairs for the Surety trading program at any time in its sole discretion. As of the date of this Disclosure Document, the Advisor does not anticipate employing exchange-listed futures or options on futures contracts for Clients who participate in the Surety Program. The Advisor will not render investment advice as to securities for any Client account. The exact nature of the Advisor s trading programs, trading strategies, methodologies, risk management techniques, and research and development efforts are proprietary and confidential. The foregoing description is thus of necessity general and is not intended to be exhaustive. The Advisor may modify its trading programs or trading methods at any time. Clients will not necessarily be informed of these or any other changes, although Clients will be informed of any material changes to the Trading Advisor s trading programs or trading methods. There is no assurance that the performance of the Advisor will result in profitable trading or avoid trading losses. An investment in Forex is a speculative investment and will likely experience significant volatility of returns on a day-to-day basis and over time. An investment should not be considered by a Client who cannot afford the total loss of his or her investment. Prospective Clients should consult their advisors and review this Disclosure Document thoroughly, before opening an 4

10 account. NOTIONAL AND COMMITTED FUNDING The Advisor does not permit accounts to be traded based upon notional and committed funds. Notional Funds are funds that are not actually held in the trading account. Committed funds are funds not actually held in the trading account but have been committed to the program pursuant to a written agreement and are readily accessible to the Advisor s trading program. Only actual cash in a trading account will be permitted. PRINCIPAL RISK FACTORS FOREX PRICES ARE HIGHLY VOLATILE. PRICE MOVEMENTS OF FOREX CONTRACTS ARE INFLUENCED BY INTEREST RATES, CHANGES IN BALANCE OF PAYMENTS AND TRADE, DOMESTIC AND INTERNATIONAL RATES OF INFLATION, INTERNATIONAL TRADE RESTRICTIONS AND CURRENCY DEVALUATIONS AND REVALUATIONS AND VARIOUS OTHER UNPREDICTABLE FACTORS. IT IS NOT POSSIBLE TO FORESEE ALL RISKS IN ADVANCE. IN ADDITION TO THE RISKS INHERENT IN TRADING FOREX, OTHER RISK FACTORS EXIST, INCLUDING THOSE DESCRIBED BELOW, IN CONNECTION WITH A CLIENT PARTICIPATING IN THE ADVISOR'S MANAGED FOREX ACCOUNT PROGRAM. PROSPECTIVE CLIENTS SHOULD CONSIDER ALL OF THE RISK FACTORS DESCRIBED BELOW AND ELSEWHERE IN THIS DISCLOSURE DOCUMENT BEFORE PARTICIPATING IN THE ADVISOR'S PROGRAM: Counterparty Risk The Counterparty will have custody of the account s assets. Bankruptcy, fraud or financial difficulties at one of these institutions could impair the operational capabilities or the capital position of the account. In general, the account s assets and Forex positions held at the Counterparty will not be subject to the same protections as would be afforded if the Counterparty was required to comply with SEC or CFTC regulations governing the custody of customer accounts that trade securities or exchange-traded futures positions. In particular, funds deposited by a Client with a registered Futures Commission Merchant ( FCM ) or Retail Foreign Exchange Dealer ( RFED ) for trading Forex transactions are not subject to the customer funds protections provided to customers trading on a contract market that is designated by the CFTC (i.e., a futures exchange). This means that a Forex Client s Counterparty may commingle the Client s funds with its own operating funds or use them for other purposes, unlike customer segregated funds on deposit at a registered FCM for futures trading. In the event that the Counterparty becomes bankrupt, any funds the Counterparty is holding for the Client in addition to any amounts owed to the Client resulting from trading, whether or not any assets are maintained in separate deposit accounts by the Counterparty, may be treated as an unsecured creditor s claim, and not a commodity customer claim for purposes of Subchapter IV of Chapter 7 of the U.S. Bankruptcy Code and the regulations thereunder. As a general creditor, a Client s claims may be paid, along with the claims of other general creditors, from any monies still available after priority claims are paid. Even funds that the Counterparty keeps separate from its own funds may not be safe from the claims of priority and other creditors. In the event of the bankruptcy or fraud at a Counterparty, the Client may be unable to recover its funds from the Counterparty, or it may take a significant amount of time to recover Client assets, if any remain. For these reasons among others, there can be no guarantee that the account will never lose any of its assets as a result of a Counterparty s or other institution s failure, fraud, or for other reasons. Further, to the extent that the Counterparty is located outside of the U.S. and files for bankruptcy in its 5

11 home jurisdiction, such jurisdiction s bankruptcy procedures and rights afforded to creditors may be different than in the U.S., where the procedures may be more certain and the creditor protections may be greater. Speculative Nature of Investment Strategy The investment program used by the Advisor to manage Client accounts involves speculation in the direction and extent of changes in the rate of exchange between various currencies on a leveraged basis. The value of the account s investments will be affected favorably or unfavorably by fluctuations in currency rates. There is a high level of risk associated with this investment strategy and a Client should make a decision to open an account only after consulting with independent qualified investment and tax advisers. Volatility Currency prices are highly volatile. Price movements for currencies are influenced by, among other things: changing supply-demand relationships; trade, fiscal, monetary, exchange control programs and policies of governments; United States and foreign political and economic events and policies; changes in national and international interest rates and inflation; currency devaluation; and sentiment of the market place. None of these factors can be controlled by the Advisor and no assurance can be given that the Advisor s trading will result in profitable trades for a participating Client or that a Client will not incur losses from such events. You may sustain a total loss of the initial margin funds and additional funds that you deposit with the counterparty to establish or maintain your position. If the market moves against your position, you could be called upon by your counterparty to deposit additional margin funds, on short notice, in order to maintain your position. Depending on the counterparty s policy and procedures, your positions may be automatically liquidated without advanced notice. If you do not provide the additional required funds within the prescribed time, your position may be liquidated at a loss, and you could be liable for any resulting deficit in your account, if any. Trading Levels The Advisor regularly monitors the equity being traded upon, which includes any profits and losses experienced in the account. Although the percentage-based safeguards (e.g., maximum overall drawdown limit, maximum individual position drawdown limit, and maximum buying power exposure limit) stay constant, the dollar amount of these risks will increase or decrease along with the acocunt equity. It is at the Client s discretion as to whether or when to limit such compounding, and by how much. As a result of compounding, it is possible the typical maximum leverage utilized by the Advisor (of less than 20:1) might be exceeded, especially immediately following the withdrawal of Incentive Fees or intentionally by the Client. For example, if the Advisor has USD $50,000 being managed in a Client account and the Advisor enters into a position equating to USD $1,000,000 (20:1 leverage) in United States Dollars and subsequently the account experiences a USD $5,000 withdrawal or had a USD $5,000 incentive fee payment debited by withdrawal, the cash in the account now becomes USD $45,000 while the USD $1,000,000 position remains open. This would have the inadvertent effect of increasing the leverage to 22%. The Advisor will attempt to minimize the extent and duration of such over-exposure, but maintains discretionary authority as to how to achieve that goal. It is therefore incumbent upon the Client to recognize the importance of notifying the Advisor of the intention to withdraw amounts in excess of 5% of the equity balance well in advance of the date of any planned withdrawal, if the client wishes to avoid such impact. The Advisor will then order the reduction or suspension of new trading, once the next flat position is achieved. Trading will then recommence following the processing of the withdrawal. 6

12 It is the Client s responsibility to periodically withdraw trading profits earned in the Client s account if they do not wish the account to be compounded. As long as such trading profits are retained in the account and not withdrawn, such retained trading profits will be considered intentional and willful deposits of new capital and will be traded as such in the absence of instructions to the contrary. Whenever a withdrawal is made while positions are open, the Client acknowledges this will likely result in the account being traded at higher leverage until the account is once again flat and unless such trading profits are withdrawn (or the account incurs subsequent trading losses sufficient to wipe out such profits), even if such retained profits remain in the account for only a very short period of time. If a subsequent withdrawal is made, the Advisor will attempt to reduce the time of over-exposure to the extent reasonably practicable; however, the time frame to accomplish that objective may vary with the leverage being employed, amount traded and other unforeseen market conditions or other factors. Liquidation of Positions Under certain market conditions, it may be difficult or impossible for the Advisor to liquidate a position. This can occur, for example when a currency is deregulated or fixed trading bands are widened. Potential currencies include, but are not limited to the Thai Baht, South Korean Won, Malaysian Ringitt, Brazilian Real, Hong Kong Dollar, the Swiss Franc and the Euro. The Advisor does not expect to be trading in exotic currencies however, there is no limitation should the Advisor decide to engage in trading these currencies. Market Risk There can be no assurance that the specific investment strategies utilized for the account will produce profitable results. Any factors that may tend to lessen major price trends (such as governmental controls affecting the markets) may reduce the prospect for future investment profitability. Any factor that would make it difficult to execute trades, such as reduced liquidity or extreme market developments also could be detrimental to profits. No assurance can be given that the techniques and strategies of the Advisor will be profitable in the future. No Central Market Place Unlike regulated futures exchanges, in the retail off-exchange Forex market, there is no central marketplace with many buyers and sellers. The FCM or RFED determines the execution price, so the Advisor will be relying on the FCM s or RFED s integrity for a fair price. Currency Trading Presents Unique Risks The interbank market consists of a direct dealing market, in which a participant trades directly with a participating bank or dealer, and a brokers market. The brokers market differs from the direct dealing market in that the banks or financial institutions serve as intermediaries rather than principals to the transaction. In the brokers market, brokers may add a commission to the prices they communicate to 7

13 their customers, or they may incorporate a fee into the quotation of price. This is often called a pip in the off-exchange Forex market 3. Leveraged Nature of FOREX Contracts Because low margin deposits are normally required, an extremely high degree of leverage is obtainable in Forex trading. A relatively small price movement in a Forex position, consequently, may result in immediate and substantial losses. Any purchase or sale of a Forex position may result in losses which substantially exceed the amount invested. Severe adverse short term price movements could force liquidation of open positions with substantial losses, possibly in excess of the equity in the account. At higher leverage levels, Client trading losses as a percentage of account equity will be greater to the extent that the market moves against the trading positions in the account proportional to the leverage employed. Different trading programs will generally exhibit different rates of return (both positive and negative), given the different leverage levels and the effect of leverage on performance. Clients must be aware of the implications of opening an account using leverage, particularly higher leverage levels, and should only open an account after carefully considering if they are willing to suffer a complete loss of their investment. Regulation of Retail FOREX Markets in the U.S. Historically, the retail Forex markets in the U.S. have been substantially unregulated. However, in recent years, culminating most recently with rules promulgated by the CFTC and effective October 18, 2010, the Commodity Exchange Act and CFTC and NFA rules now provide for a comprehensive regulatory scheme for retail Forex transactions, including but not limited to, requirements regarding: minimum security deposits; registration of Counterparties and other intermediaries, such as introducing brokers, trading advisers and fund operators; disclosure, recordkeeping and reporting requirements of Counterparties and intermediaries; and trading and operational standards of Counterparties and intermediaries. Securities and Exchange Commission - registered broker-dealers and certain other U.S - regulated institutions, such as U.S. banks, that act as Counterparties are subject to a different regulatory regime and the regulatory protections available to Clients under these regimes may differ. However, it should be noted that the foregoing regulatory scheme, or any other applicable regulatory scheme, will not guarantee Clients against losses or fraudulent conduct by market participants. The registration status of the Advisor or of any Counterparty does not imply that the CFTC, the NFA or any other governmental, regulatory or selfregulatory organization has endorsed or approved the Advisor or Counterparty or the Advisor s trading program. Further, the retail Forex marketplace differs in certain substantial respects from other markets, such as the futures or securities markets, in terms of market operation and regulatory protections. For example, the retail Forex marketplace currently is an over-the-counter, principal-to-principal market, and is not an 3 Currencies are quoted using 4 or 5 significant digits. A pip, represents 1/100th of 1%, or 1/10000 of the unit price. Whereby a tick is the smallest possible price movement, available at some but not all brokers, and is equal to 1/10th of 1 pip. This is very similar to ticks or points in other financial products. In an example of an Ask price of , a 10 pip increase in the Ask price would result in a quote of Likewise, a 10 pip decrease in the Ask price would result in a quote of Most currency pair exchange rates are priced to the fourth decimal place, frequently making the fourth decimal place represent the pip value. However, for currency pairs like the USD/JPY, which are only priced to the second decimal place, the pip value is not the fourth decimal place but instead the second. So a two pip increase could be represented by a change of to One tick move would be 0.1 times the values of a 1 pip move. 8

14 organized contract market where contracts are listed on an exchange, subject to clearing procedures and other mechanisms which insulate the Client from counterparty credit risk. In addition, deposits placed for retail Forex trading are not subject to the customer funds protections afforded to deposits placed for futures contract trading. The foregoing is not a complete or definitive statement of the retail Forex regulatory scheme in the United States or in other jurisdictions. Prospective Clients should consult their legal advisors for more information or specific advice. Transaction Volume and Market Liquidity A decline in cash flows into the financial markets or a slowdown in investment activity by institutions and Clients, as well as other factors, may cause a decline in transaction volumes in the Forex markets. The account s investment activities may be affected materially by transaction volumes in the Forex markets. Higher market volume typically provides greater opportunities to engage in revenue-generating transactions. Therefore, a decline in transaction volumes may adversely affect the account s profit opportunities. If the liquidity of the secondary market decreases substantially for a Forex contract held by the account, the account may not be able to close out a position prior to its expiration or exercise and may have to purchase or sell the underlying instrument, make or receive a cash settlement, or meet ongoing margin requirements. An illiquid secondary market could be caused by a number of factors, including a thin trading market in the particular instrument, severe market unrest and trading suspensions. This may result in significant losses on transactions. Suspensions or Limitations on Trading Activities Counterparties typically have the right to suspend or limit trading in any instrument traded, upon the occurrence of certain market conditions or events or for other reasons, including a Client account exceeding certain permitted trading thresholds or exposures. In addition, applicable laws or market regulations could impose similar restrictions on the size of positions in particular markets controlled by a single Client or account controller. A suspension or limitation of the account s trading privileges in any respect may render it temporarily or permanently impossible to initiate or liquidate positions and could thereby prevent a Client from achieving its investment objectives. This could expose a Client s account to significant losses. Diversification and Portfolio Risk Historically, foreign currencies have been generally non-correlated to the performance of other asset classes such as stocks and bonds. Non-correlation means that there is no statistically valid relationship between the performance of foreign currencies, on the one hand, and stocks or bonds, on the other hand. Non-correlation should not be confused with negative correlation, where the performance of two asset classes would be opposite of each other. Because of this non-correlation, the results of the account cannot be expected to be automatically profitable during unfavorable periods for the stock market, or vice versa. If, however, the account does not perform in a non-correlated manner with respect to the general financial markets or does not perform successfully, a Client will obtain little or no diversification benefits by investing in Forex. The account may have no gains to offset the Client s losses from other investments, and the Client may suffer losses on its investment in Forex at the same time losses on its other investments are increasing. The Client should therefore not consider an investment in Forex to be a hedge against losses in its core stock and bond portfolios. There can be no assurance that an investment in the account would improve the risk/return profile of any 9

15 Client s portfolio or otherwise improve the performance of the Client s overall portfolio, and any investment in the account may in fact result in significant losses. The account s portfolio will be concentrated exclusively in the Forex markets, and will not represent a broad diversification of investments among particular obligors, issuers, companies, countries, industries, exchanges, Counterparties, strategies, types of investments, or other shared characteristics. In general, a less diversified portfolio will tend to expose the Clients to greater volatility and risk than would be the case with a more broadly diversified portfolio. Conflicts with Counterparty Forex transactions ordered by the Advisor will be executed with a Counterparty, which is acting in opposition to the Client on each trade. This means that, when the Advisor sells, the Counterparty is the buyer, and when the Advisor buys, the Counterparty is the seller. Forex transactions, like futures transactions, are zero sum transactions, in that for every winner there is an equal and offsetting loser. As a result, when a Client loses money trading, the Counterparty is making money on such trades, in addition to any fees, commissions, or spreads the Counterparty may charge. Clients are urged to review and understand the risk disclosures that Clients receive from the Counterparty contained in the Counterparty s account opening documents. Over-The-Counter Contracts and Counterparty Credit Risk The Advisor will purchase and sell Forex contracts for the account, which are contracts between the account and a Counterparty entered into on a principal-to-principal basis in the over-the-counter markets between the parties and not on an exchange. Therefore, your managed Forex Account will be exposed to the credit risk of the Counterparty on each transaction. Failure of a Counterparty to fulfill a contract could result in losses of any prior payments made pursuant to the contract as well as the loss of the expected benefit of the transaction. The account is subject to the risk that the Counterparty with which it executes transactions, carries positions and/or has posted collateral may default. The default by a Counterparty with or through which the account trades could result in material losses beyond the control of the Advisor. Sovereign Risk Governments from time to time intervene, directly and by regulation in currency markets, with the specific intention of influencing currency exchange rates. The effect of government intervention can cause the value of a particular currency to change substantially overnight. Frequency of Trading It is impossible to predict the precise frequency with which positions will be entered and liquidated by the Advisor. Foreign exchange trading along with the high degree of leverage and the volatility of foreign exchange prices and markets, among other things, typically involves a much higher frequency of trading and turnover of positions than may be found in other types of investments. There is nothing in the Advisor s trading methodology that necessarily precludes a high frequency of trading for accounts managed. Lack of Daily Price Limits in the Off-Exchange Forex Markets Trading in the Forex markets differs from trading in futures or futures options in a number of ways that may create additional risks. For example, there are no limitations on daily price moves in most currency markets. In addition, the principals who deal in Forex markets are not required to continue to make 10

16 markets. There have been periods during which certain participants in Forex markets have refused to quote prices for Forex trades or have quoted prices with unusually wide spreads between the bid & ask prices at which transactions occur. Execution of Orders In entering orders for Clients accounts, the Advisor does not intend to limit itself to any particular kind of order. At times it may enter market orders intended to obtain the prevailing market price in a particular market. The Advisor may, however, at times use limit orders and other kinds of qualified orders if, in its judgment, that appears appropriate in the given market circumstances. In addition, when liquidating a position, the Advisor may affect a reversal order, i.e., the current position is liquidated and an opposite one established for the market in question. Charges to a Client s Account A Client is obligated to pay substantial dealer spreads, brokerage commissions, fees and other transaction costs regardless of whether the Client realizes profits. Confidentiality of Client Records The Advisor may enter into a contract with external compliance consulting firms to compile performance data, prepare Disclosure Documents and perform on-site inspections. Although the Advisor retains all Client records under strict confidentiality, the Advisor may provide Client records (i.e., daily and month end statements generated by the Client s FCM/RFED, Client account files, and fee arrangements) to the external consultants for purposes of compiling performance data in accordance with CFTC and NFA Requirements. The Advisor may also request that the FCMs/RFEDs carrying the Client accounts to provide certain records to the external compliance consulting firms in order for the Advisor to meet its regulatory obligations as a commodity trading advisor. At times, the Advisor may be required by law to furnish complete Client records to regulators, legal counsel, courts of competent jurisdiction, or other entities. The Advisor will obtain reasonable assurance from the external consultants that all Client information will be regarded with the utmost of confidentiality. In addition, Client records will remain confidential with respect to other Clients. Changes in Trading Approach No assurance is given that the Advisor's performance will result in successful trading for Clients under all or any conditions. The Advisor may alter its trading methods, the currency pairs it uses to trade, or money management principles, without prior approval by, or notice to Clients, if the Advisor determines that such change in policy is in the best interest of Clients. Limited Trading History for Trading Programs The Advisor has limited experience managing Client accounts. Also, the Advisor has a limited operating history in its capacity as a commodity trading advisor. Electronic Order Entry The Advisor will place trades via electronic order platforms for its discretionary trading programs. In such instances, trading through an electronic trading or order routing system exposes the Client s account to risks associated with system or component failure. The risk exists that a trade may not be placed, significant slippage, a trade may be placed at a later time than originally desired, or a trade may not be 11

17 able to be cancelled due to market volatility and volume, quote delays, system and software errors, internet traffic, or outages. System or component failure may also result in loss of orders or order priority. These occurrences, which are beyond the Advisor s control, could result in losses to a Client s account. Uncertainty Concerning Future Regulatory Changes In addition to possible changes in the regulation of Forex trading, other regulatory changes could have a material and adverse effect on the prospects for profitability. The Forex markets and the use of these markets by regulated entities are subject to ongoing and substantial regulatory changes, and it is impossible to predict what statutory, administrative or exchange-imposed restrictions may become applicable in the future. Particularly in light of the general turmoil that has engulfed the financial markets over the past several years, Congress, the Treasury Department, the SEC and the CFTC, among others, have or are considering measures, including but not limited to, bans and limits on speculative trading that could limit or negate the ability of the Advisor to trade profitably. THE FOREGOING IS NOT A COMPLETE OR DEFINITIVE STATEMENT OF THE RETAIL FOREX REGULATORY SCHEME IN THE UNITED STATES OR IN OTHER JURISDICTIONS. PROSPECTIVE CLIENTS SHOULD CONSULT THEIR LEGAL ADVISORS FOR MORE INFORMATION OR SPECIFIC ADVICE. COUNTERPARTY ARRANGEMENTS Each Client of the Advisor must select an eligible institution that will serve as the Client s trading counterparty (the Counterparty ), which will hold all Client funds and through which Forex transactions will be executed. The Advisor is not permitted to have custody over any Client assets or investment positions. As is typical of Forex transactions, which are over-the-counter transactions entered into on a principal-to-principal basis as opposed to exchange-listed agency transactions, the Counterparty will act as principal opposite the Client s account with respect to all Forex transactions entered into for the account by the Advisor. In general, under the Commodity Exchange Act, permitted Counterparties for U.S. Clients include: CFTC-registered FCMs or RFEDs, in each case who also are Forex dealer members of the NFA. The Advisor requires Client accounts to establish their account with a registered RFED and Member of NFA. Clients generally are free to choose their Counterparty and introducing broker, provided such Counterparty and introducing broker is acceptable to the Advisor. With respect to accounts originating through the Advisor s sales efforts, the accounts will be serviced by ATC Brokers ( ATC Brokers ). The Advisor s primary criteria for determining a Counterparty or introducing broker to be acceptable is that the Counterparty and introducing broker is permitted to act as a counterparty or introducing broker to the Client under applicable law and permits electronic trading and the Advisor is able to implement its discretionary trading approach using the Counterparty s or introducing broker s systems. ATC Brokers is equally owned by David Manoukian and Jack Manoukian. ATC Brokers is a registered introducing broker since September 2005, a Member of NFA since September 2005 and an approved Forex firm since September ATC Brokers is located at 655 N. Central Avenue, Suite 1450 in Glendale, CA Their telephone number is For their service to the Advisor, they are compensated with a mark-up of the raw straight through processing spread available to it from its best liquidity providers at any given time. It is estimated that ATC will receive a markup ranging from 1/2 to 12

18 1 full pip. With respect to accounts originating through the Advisor s sales efforts, the Advisor will be recommending ATC Brokers who clear through Forex Capital Markets, LLC ( FXCM ). FXCM is a registered FCM since June 21, 2001 and has been a Member of NFA since the same day. On October 5, 2010, FXCM has been registered as a RFED and has been an approved Forex Dealer Member of NFA. FXCM is located at 55 Water Street, 50 th Floor, New York, New York If a Client has FXCM as their Counterparty, it should be noted that FXCM will not charge your account a commission. Rather, FXCM is compensated by a mark-up, which is automatically added to the spreads it receives from its liquidity providers. FXCM may also receive compensation for order flow from its liquidity providers. FXCM does not charge commissions on standard accounts, however, commission charges may apply for certain classes of non-standard accounts. If FXCM is not chosen as the counterparty, the mark-up is expected to be comparable to those charged by FXCM. FXCM strives to provide traders with tight, competitive spreads; however, there may be instances when market conditions cause spreads to widen beyond the spreads typically displayed. Additionally, spreads may not be applicable to Japanese-Yen denominated accounts or client accounts of referring brokers. FXCM gains to benefit on marking-up spreads on transactions and collecting or paying interest at the time the positions are closed and reopened at the end of each trading day during the normal rollover process in the off-exchange Forex markets. The Advisor will be primarily trading major currency pairs such as EUR/USD, NZD/USD, USD/CAD; GBP/USD; USD/CHF; AUD/USD; USD/JPY but reserves the right to trade other major currency pairs in the future. The major currency pairs are those in which the trading volume if the highest. Specifically, over 80% of the entire volume of the market takes place among these pairs so they are the most liquid and the least susceptible to market manipulation or outside factors. On these particular pairs, FXCM s spread typically ranges from as little as two PIPs to as much as six PIPs. For a description of a PIP, please refer to Principle Risk Factors Currency Trading Presents Unique Risks. The value of a PIP varies depending on the currency pair and the currency exchange rates. In a currency pair, the left currency in the pair is the base currency. The United States Dollar value of a PIP in the EUR/USD or the GBP/USD for example is $10 based upon using 100,000 units of the base currency. To further this example, the formula for calculating the PIP value is: (one pip, with proper decimal placement/currency exchange rate) x (Notional Amount). In the EUR/USD pair, a movement from.8941 to.8942 is one PIP therefore, a PIP is Therefore, (.0001/.8942) times 100,000 Euro equals If we want the PIP value in US Dollars, we multiple the X the EUR/USD exchange rate of.8942 which comes to $10. To learn more about the various PIP values in the base currencies, you may contact either the Advisor or the FCM or RFED. The accounts that will be established by the Advisor for customer will be considered Standard Accounts. A standard lot is 100,000 units of currency, while a mini-lot (1/10th standard lot) is the smallest trade size available and is determined by the account type. FXCM offers standardized trade sizes which determine the trade sizes available. For example, with an FXCM standard account, the standard lot size is 10,000 units of currency. Therefore, the smallest trade size is $100,000 units of currency. Additionally, Standard account holders can place trades of any size, so long as they are in increments of $10,000 units such as $20,000; $30,000; $100,000; $310,000, etc. THE COUNTERPARTIES CHOOSEN BY CLIENTS HAVE NOT PASSED UPON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. FURTHERMORE, THE 13

19 COUNTERPARTIES WILL NOT ACT IN ANY SUPERVISORY CAPACITY WITH RESPECT TO THE ADVISOR NOR PARTICIPATE IN THE MANAGEMENT OF THE ADVISOR. THEREFORE, PROSPECTIVE CLIENTS SHOULD NOT RELY ON ANY OF THE COUNTERPARTIES OR INTRODUCING BROKERS IN DECIDING WHETHER OR NOT TO PARTICIPATE IN THE ADVISOR S TRADING PROGRAM. ADVISOR S FEES The Advisor charges one or both of the following fees for its advisory services: (i) monthly management fee; and (ii) monthly incentive fee. The Advisor reserves the right to accept fee arrangements that differ from those disclosed within this disclosure document. The fee rates agreed upon will not generally exceed the levels indicated below. Accordingly, no assurance can be given that the fees to be charged to a Client s account will be more or less than the amount to be charged to any other Client account managed by the Advisor. The Advisor s fees may be based on such factors as the type of Client (i.e., institutional versus individual), opening account size, leverage level, and other factors deemed relevant by the Advisor. Certain persons (including but not limited to, affiliates and family members of the principals) in the sole discretion of the Advisor may pay reduced fees. Fees, which will be deducted directly from the Client s account, will be determined as summarized below. In all cases, the specific fees will be agreed upon with the Client before an Advisory Agreement is executed and the specific incentive fee percentage will be documented in the Advisory Agreement. The Advisor will not charge an upfront fee upon the opening of Client accounts. The Advisor generally charges Clients the fees set forth below: Management Fee The Advisor generally will receive a monthly Management Fee of up to % of the end of month account equity (2.0% annually) calculated as of the end of each calendar month. In general, the Advisor will charge the same Management Fee rate to Client accounts regardless of the leverage applied by the Advisor, except under such circumstances as the Advisor may determine. For example, an account being managed for a client originating from the United States, the maximum leverage the Advisor is permitted to use is 50:1 leverage. An account owned by a non-us Resident is not restricted by the regulatory limits of 50:1, and therefore, the Advisor can trade as much as 300:1 leverage. Regardless of the leverage deployed by the Advisor, the management fee will be based solely upon the actual assets in the trading account. Management Fees are charged as a percentage of the account equity in the account, and not on the accounts leverage level. Account equity generally means the account s total assets less total liabilities; provided, however, that for purposes of calculating the Management Fee as of any period, account equity shall be determined before accrual or deduction for any Performance Fee for such period. Account equity includes the sum of all cash, U.S. Treasury bills and other interest-bearing obligations at their cost plus accrued interest, all other accrued interest earned by Client on its assets in the account, and the current market value of all open Forex positions. No reduction shall be made for dealer spreads, brokerage commissions and other costs and charges which would be incurred upon liquidation. The Management Fee is paid to the Advisor whether or not trading has been profitable. Withdrawals from and additions into an account are pro-rated during the month in determining the monthly management fee. Management Fees accrued on withdrawals of funds from the account are payable as of the end of the calendar month in which such withdrawal occurs. Incentive Fee The Client will pay the Advisor a monthly incentive fee of up to 30% based on New Net Trading Profits. 14

20 For purposes of calculating the Advisor's incentive fees during a period, New Net Trading Profits shall mean the cumulative profits (over and above the aggregate of previous period profits as of the end of any period) during the period (before deducting the Advisor's incentive fee payable). New Net Trading Profits shall include: (i) the net of profits and losses (i.e. less commissions and any fees) resulting from all trades closed out during the period, (ii) the change in unrealized profit or loss on open trades, if any) as of the close of the Period, and (iii) the amount of accrued interest and other investment income earned, if any, not necessarily received, during the Period, minus other expenses incurred during the period. All open Forex positions in a Client s account are calculated at the fair market value at the end of each business day at 5:00 pm EST or EDT (rollover time) and at the end of the month by the RFED. The market value of an open position is determined by the price as offered by the RFED. If any payment is made to the Advisor with respect to New Net Trading Profits experienced by the account, and the account thereafter incurs a net loss for any subsequent period, the Advisor will retain the amount previously paid with respect to such New Net Trading Profits regardless of whether any New Net Trading Profits were/are earned. Losses shall be carried forward from the preceding Periods and not carried back. If Trading Profits for a period are negative (thus a Trading Loss), it shall constitute a "Carryforward Loss" for the beginning of the next period. If a Client withdraws funds from the account at a time when the account has a Carryforward Loss, the Trading Loss that must be recovered before there will be New Net Trading Profits will be reduced. The amount of the reduction will be determined by dividing the value of the account immediately after such withdrawal by the value of the account immediately before such withdrawal and multiplying that fraction by the amount of the unrecovered Trading Loss at the time of the withdrawal. If Trading Losses occur in more than one calendar month in the account without an intervening payment of an incentive fee, and the value of the account is reduced in more than one calendar month because of withdrawals, then the Trading Loss in each such calendar month shall be reduced in accordance with the above formula, and only the reduced amount of Trading Loss will be carried forward to offset future Trading Profits. The Advisor may share a portion of its incentive fees with third parties in accordance with regulatory standards. One Pip Spread The Advisor will receive up to a one PIP spread on each standard lot traded. This PIP spread can and will vary depending on the Retail Foreign Exchange Dealer fee structure and spread structure as well as if the account comes to the Advisor through an introducing broker or through the Advisor s sales efforts. As mentioned in this Disclosure Document, a PIP is the basic unit of price in which a currency is traded. For AUDUSD, EURUSD, GBPUSD, and NZDUSD, one pip on a standard lot size will have a value of USD $10. For other currencies, the value of a PIP depends on rate between the USD and those currencies. Generally speaking, the value of one PIP on a standard lot size will be close to $10. For example, for the USDCAD pair at , one PIP will be $10.14; for USDJPY pair at 80.34, one PIP will be $12.45; and for the USDCHF paid at , one PIP will be $ Most currencies are traded at a precision of 5 decimal points such that one pip = of contract size in base currency units. Therefore, for example, based on the trading lot size of 10,000 EUR with USD as quote currency, a pip is equal to USD $1.00. To further this example, a 100,000 standard lot of EUR with USD as quote currency would equate to a $10 per PIP. One exception is the Japanese yen that is generally exchanged to 3 decimal places such that 1 pip = of contract size. Under this arrangement, the Advisor has an incentive to aggressively trade Clients accounts. Furthermore, the PIP rebate is not being deducted from Client accounts as a separate expense. Rather, this PIP will be marked up as part of the price of the trade. This PIP income to the Advisor will be computed and paid by the Counterparty 15