COMMODITY TRADING ADVISOR OFFERING DOCUMENT OF NON CORRELATED CAPITAL PTY LTD

Transcription

1 NON CORRELATED CAPITAL Fund and Investment Management COMMODITY TRADING ADVISOR OFFERING DOCUMENT OF NON CORRELATED CAPITAL PTY LTD The Positive Theta Program A $250,000 Minimum Commodity Futures Trading Program 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 Non Correlated Capital Pty Ltd to give any information or to make any representation not contained in this Information Brochure 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 Non Correlated Capital Pty Ltd. The effective date and date of intended first use of this Disclosure Document is October 31, This document is considered outdated after July 30, This Disclosure Document should be read carefully and in its entirety by all prospective clients. PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR ACCOUNT DOCUMENT. Non Correlated Capital Pty Ltd 430 Little Collins St Melbourne, Victoria 3000 AUSTRALIA Tel: Fax:

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 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 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 PAGES 13 THROUGH 14 A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF 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 PAGES 6 THROUGH 7. 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. 2

3 TABLE OF CONTENTS RISK DISCLOSURE STATEMENT 2 TABLE OF CONTENTS 3 INTRODUCTION 4 THE TRADING ADVISOR 4 MANAGEMENT 4 QUALIFIED ELIGIBLE PERSONS 5 PRINCIPAL RISK FACTORS 6 SPECIAL DISCLOSURE FOR NOTIONALLY FUNDED ACCOUNTS 8 TRADING METHODOLOGY AND RISK MANAGEMENT 9 LIMITATION OF ADVISOR S LIABILITY 12 FEES AND EXPENSES 13 FUTURES COMMISSION MERCHANT AND INTRODUCING BROKERS 14 POTENTIAL CONFLICTS OF INTEREST 15 PROPRIETARY TRADING BY THE ADVISOR 16 ADDITION AND WITHDRAWAL REQUIREMENTS 16 MISCELLANEOUS 16 PRIVACY STATEMENT 17 LITIGATION 18 PROGRAM PERFORMANCE 18 NOTES 19 ADDITIONAL NOTES 20 Welcome Pack Client Acknowledgement of Reciept of Information Brochure Customer Authorization to Pay Fees Customer Agreement and Trading Authorization (i - iv) NFA Rule 2.30 Required Investor Information (Individuals Only) Additonal Forms (Optional): Arbitration Agreement (a-c) Form of Notional Funds Letter Non Correlated Capital Pty Ltd s Privacy Notice 3

4 INTRODUCTION Non Correlated Capital Pty Ltd (the Advisor or NCC ), is in the business of providing advisory services to clients with regard to trading futures contracts and options on futures contracts. NCC offers Clients an opportunity to participate in a managed account program, The Positive Theta Program, which seeks capital appreciation of Clients assets through speculative trading in futures contracts and options on futures contracts. There is no representation being made that this trading program will be successful in achieving this goal. The program is fully discussed in Trading Methodology and Risk Management. THE TRADING ADVISOR Non Correlated Capital Pty Ltd, an Australian proprietary limited company, formed in May The advisor became registered with the Commodity Futures Trading Commission ( CFTC ) as a Commodity Trading Advisor ( CTA ) on April 11, NCC is a member of the National Futures Association ( NFA ) since April 11, The Advisor s principal office is located at Normanby Chambers, 430 Little Collins Street, Melbourne, Victoria 3000, Australia. Its telephone number is The Advisor is offering Clients an opportunity to participate in managed account programs, which seek capital appreciation of Clients assets through speculative trading in commodity futures and options on commodity futures. There is no representation being made that these trading programs will be successful in achieving this goal. These programs are fully discussed in Trading Methodology and Risk Management.. MANAGEMENT Troy Burns, AFMA Dip Fin, Dip CivEng Troy is a co-founder and Director of NCC. Troy began his professional career in civil engineering, where in 2004 he founded a company, Burns Civil Pty Ltd, which provided civil engineering design services to companies such as BHP Billiton and Rio Tinto. Troy started trading futures and options in 2001 for a private family trust Positive Theta Trust. Through the practical application of his ideas, Troy became pivotal in the development of the strategies now traded by the Advisor. Troy s systematic and procedural mind set makes him a primary asset in the management of new investment and growth strategies for NCC. Kevin Saunders, A Fin, Dip Fin. Markets (Dux) Kevin is a co-founder and a trader for NCC. Educated through FINSIA, (an Australian financial services industry association), Kevin was awarded the Victorian Dux (an award for the best course mark in the state) and was the national subject prize winner for Derivatives: Applying theory to Practice. Kevin has been a private trader since In 2001, Kevin founded a private business, Know the Ropes for the purpose of providing financial consultation and content creation. Since 2001, Kevin has worked closely with several trader education companies and associations as a content provider and speaker. Over the last ten years, Kevin has gained extensive experience in risk management, trade planning and execution, money management and trading system design. This knowledge has seen practical application in the market place both with his own capital and with capital managed by the Advisor. General Notes During the five years preceding the date of this document there have been no administrative, civil or criminal actions against NCC or its principals (either pending, on appeal or concluded) that would be material to an investor in making a decision to open an account managed by the Advisor. 4

5 QUALIFIED ELIGIBLE PERSONS The Advisor will only enter into an advisory relationship with clients that are qualified eligible persons ( QEP ) as defined under the Commodity Futures Trading Commission s Rule 4.7. Generally, this includes non-us persons and entities, U.S. investors with securities portfolios valued at $2 million or more, persons having $200,000 in margin deposit with an FCM in the previous six months, certain knowledgeable employees as defined under the rule, and qualified purchasers as defined by the Investment Company Act of 1940 (generally persons with $5 million or more in investments). Futures Commission Merchants, Broker-Dealers, Commodity Pool Operators, Commodity Trading Advisors, and Registered Investment Advisors that have a minimum of $5 million under management and two years of experience also qualify. The preceding discussion is generalized and does not cover all aspects of the definition of a QEP. The definition of a QEP is specific and found in Rule 4.7 of the Regulations. It is the client s obligation to determine if he or she qualifies. 5

6 PRINCIPAL RISK FACTORS In addition to the risks inherent in trading commodity interests pursuant to instructions provided by the Advisor (see TRADING METHODOLOGY AND RISK MANAGEMENT ), there exist additional risk factors, including those described below, in connection with an investor participating in a managed account program. Prospective clients should consider all of the risk factors described below and elsewhere in this Information Brochure before participating in The Positive Theta Program as offered by the Advisor. Futures and Options Trading Is Speculative and Volatile. Futures prices are highly volatile. Price movements for commodity interests are influenced by, among other things: changing supply and demand relationships; weather, agricultural, trade, fiscal, monetary, and 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 rates of inflation; currency devaluations and revaluations; and emotions of the marketplace. None of these factors can be controlled by the Advisor and no assurance can be given that the Advisor s trading actions will result in profitable trades for a Client or that a Client will not incur substantial losses. Futures and Options Trading Is Highly Leveraged. A futures position can be established with margin typically between 2% and 20% of the total value of the commodity interest contract purchased or sold. This can permit an extremely high degree of leverage. Accordingly, a relatively small price movement in a contract may result in immediate and substantial losses to the investor. Thus, like other leveraged investments, any trade may result in losses in excess of the amount invested. When the market value of a particular open position changes to a point where the margin on deposit in a participating customer s account does not satisfy the applicable maintenance margin requirement imposed by the customer s FCM, the customer, and not the Advisor, will receive a margin call from the FCM. If the customer does not satisfy the margin call within a reasonable time, the FCM will close out the customer s position. Futures and Options Markets May Be Illiquid. The markets may become illiquid due, for example, to daily price fluctuation limits, making it impossible for a trader to close out a position against which the market is moving. Conversely, speculative position limits or other market constraints may prevent an Advisor from acquiring positions otherwise indicated by its strategy, eliminating profit opportunities or making it impossible to protect against further losses. This combination implies a high degree of risk. Futures trading is a zero-sum, risk transfer activity in which, by definition, for every gain there is an offsetting loss rather than a mutual participation over time in economic growth. A client s account s success depends entirely on the Advisor s ability to predict or follow future price movements or otherwise implement its trading strategies. There can be no assurances of the Advisor s success in doing so. Trading of Commodity Options Involves Certain Risks. Options on certain financial futures contracts and options on certain physical commodity contracts have been approved by the CFTC for trading on United States exchanges. Each such option is a right, purchased for a certain price to either buy or sell the underlying futures contract or physical commodity during a certain period of time for a fixed price. The Advisor may engage in the trading of options for the account of a Client. Although successful options trading requires many of the same skills, as does successful futures contract trading, the risks involved are somewhat different. For example, if the Advisor, on behalf of a participating customer, buys an option (either to sell or buy a futures contract or commodity), the customer will be required to pay a premium representing the market value of the option. Unless the price of the futures contract or commodity underlying the option changes and it becomes profitable to exercise or offset the option before it expires, the Client may lose the entire amount of the premium. Conversely, if the Advisor, on behalf of a Client, sells an option (either to sell or buy a futures contract or commodity), the Client will be credited with the premium but will have to deposit margin with the customer s FCM due to the customer s contingent liability to deliver or accept the futures contract or commodity underlying the option in the event the option is exercised. Traders who sell options are subject to the entire loss which occurs in the underlying futures contract or commodity (less any premium received). The ability to trade in or exercise options may be restricted in the event that trading in the underlying futures contract or commodity becomes restricted. Such trading may involve 6

7 additional risks. A Client s FCM May Fail. Under CFTC regulations, FCMs are required to maintain customers assets in a segregated account, separate and apart from an FCM s proprietary accounts. If a Client s FCM fails to do so, the Client may be subject to a risk of loss of his funds on deposit with his FCM in the event of its bankruptcy. In addition, under certain circumstances, such as the inability of another customer of the FCM or the FCM itself to satisfy substantial deficiencies in such other customer s account, a participating customer may be subject to a risk of loss of his funds on deposit with his FCM, even if such funds are properly segregated. In the case of any such bankruptcy or customer loss, a Client might recover, even in respect of property specifically traceable to that customer, it is possible that none of any clients property may be available for distribution, or only a pro rata share of all property available for distribution to all of the FCM s customers. Substantial Fees and Expenses. A Client is subject to substantial brokerage commissions and other transaction costs as well as management and incentive fees. Accordingly, a Client s account will have to earn substantial trading profits to avoid depletion of the Client s funds due to such commissions, costs, and fees. The Client, and not the Advisor, is directly responsible for paying to the Client s FCM, as appropriate, all margins, option premiums, brokerage commissions and fees, and other transaction costs and expenses incurred in connection with transactions effected for the customer s account by the Advisor. The Advisor considers the interests of its Clients paramount and manages all accounts to further the interests of customers. Nevertheless, no assurance can be given by the Advisor as to any minimum or maximum number of transactions which will be entered into for a Client s account during any period for which the account is managed by the Advisor. A Client is responsible for bearing any and all expenses, losses, and fees incurred as a result of maintaining and having the Advisor trade the Client s account. In the Management Agreement (a copy of which is attached), a Client agrees to indemnify and hold harmless the Advisor and its employees, affiliates, and agents in this regard. See FEES AND EXPENSES. Limited Portfolio May Result in Increased Volatility. Trading a limited portfolio may result in Clients experiencing greater performance volatility and greater risk of loss than would be experienced by a more diversified portfolio. No Intrinsic Value to Investments. The Positive Theta Program offered should be considered on a stand-alone basis only, not as a beneficial diversification to a portfolio, unless it trades successfully. Clients will not acquire assets with intrinsic value. The Positive Theta Program offered hereby is entirely speculative and is not based on the appreciation in value of any asset. Possible Regulatory Changes. In the current environment, prospective Clients must recognize the possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in the Positive Theta Program offered hereby. For example, certain exchanges could raise significantly the margin requirements applicable in connection with NCC option writing. Accordingly, NCC would not be able to write as many options, based on a particular level of net assets, as was possible previously. Reduced position levels may lead to lower profit potential. Tax liability. Clients should satisfy themselves as to the income tax and other tax consequences of an investment in a managed account program with specific reference to their own tax situation by obtaining advice from their own tax counsel before participating in a managed account program. Counter Party Credit Risks. A Futures Commission Merchant ( FCM ) and Introducing Broker ( IB ), or a foreign entity dealing with foreign futures and options, may experience financial difficulties that may result in the inability or refusal to perform all of its obligations or even failure. This can lead to a partial payment or non-payment of funds due to the clients; in some cases it may be impossible to collect sums owed, particularly from foreign entities. The foregoing list of Principal Risk Factors does not purport to be a complete explanation of the risks involved in 7

8 commodity futures contracts and options on futures trading. Potential investors should read the entire disclosure document before deciding whether to invest in the program. SPECIAL DISCLOSURE FOR NOTIONALLY FUNDED ACCOUNTS Some accounts managed by the Advisor may specify a Nominal Account size that exceeds the amount of Actual Funds and are therefore referred to as Notional Fund Accounts. The amount by which the Nominal Account size exceeds the amount of Actual Funds on deposit in an account is deemed Notional Funds. You should request your commodity trading advisor to advise you of the amount of cash or other assets (actual funds) which should be deposited to the Advisor s trading program for your account to be considered fully-funded. This is the amount upon which the commodity trading advisor will determine the number of contracts traded in your account and should be an amount sufficient to make it unlikely that any further cash deposits would be required from you over the course of your participation in the commodity trading advisor s program. You are reminded 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 designated nominal account size you should be aware of the following: 1. Although your gains and losses, measured in dollars will be the same, they will be greater when it expresses a percentage of account equity. 2. You may receive more frequent and larger margin calls. 3. You will pay higher advisory fees and brokerage commissions, as measured by the percentage of such fees and commissions in relation to assets actually deposited in the account, than a client s account which is fully funded. See page 13 for more information. 4. Once the initial nominal account size has been established by the client in writing, it will continue to be increased/decreased by cash additions, cash withdrawals, and net performance. A client may decide to change the designated nominal account size (trading level). Any such decision to alter the nominal account size (which is not the result of accrued trading profits or losses), should be communicated to the Advisor in writing. A client may specifically request in writing that cash additions, cash withdrawals, and net performance not impact the nominal account size. 5. The following table may be used to convert the actual rates of return ( ROR ) to the corresponding ROR s for particular funding levels Actual ROR Rates of Return on various funding levels 30% 30% 60% 75% 100% 20% 20% 40% 50% 66.67% 10% 10% 20% 25% 33.33% 0% 0% 0% 0% 0% -10% -10% -20% -25% % -15% -15% -30% -37.5% -50% 100% 50% 40% 30% Level of Funding 8

9 TRADING METHODOLOGY AND RISK MANAGEMENT The trading strategies utilized by the Advisor are proprietary and confidential. The following descriptions are of general necessity and is not intended to be all-inclusive. Recommended Commitment The Advisor recommends that Clients open accounts with a minimum of $250,000 for the Positive Theta Program. This is to ensure that Clients will have sufficient equity in their accounts to fully participate in the allocation techniques specific to the Program. The Advisor reserves the right to waive this minimum funding requirement. The Advisor may also accept partially funded or notional accounts. The Advisor believes that a long-term commitment to The Positive Theta Program provides the best opportunity to experience profitable trading. A client should be willing to commit capital to the The Positive Theta Program for at least one year for a reasonable chance to ascertain the level of return targeted by the The Positive Theta Program. The Positive Theta Program General Overview The Advisor currently engages in a program of buying and selling or writing options (puts and calls) on a broad range of futures markets within the United States. The current market scope for the program encompasses thirteen futures markets within the United States. The Advisor will extend the scope of markets within The Positive Theta Program and as such, reserves the right to place trades in any commodity futures contract, or option contract thereon, on any exchange, at the Advisor s sole discretion. The trading strategy utilized by the Advisor is proprietary and confidential. The following description is of general necessity and is not intended to be all-inclusive. The Advisor uses an approach to trading that relies heavily on selling or writing options on commodity futures markets. The Advisor may also, from time to time, purchase options and may employ the use of hedge strategies such as option spreads, strangles, straddles, or may purchase or sell futures contracts to offset an open option position. The implementation of The Positive Theta Program relies on a systematic deployment process moderated by a qualitative overlay. The advisor will utilise the following in the qualitative process before engaging systematic trade allocation. charted prices, trade volumes, price momentum, underlying market volatility measurements, the price and volatility of various options, both in absolute terms in relation to their historic levels, and in relative terms comparing the prices and volatility of puts to the prices and volatility of similar calls some fundamental considerations. Trade Deployment Non Correlated Capital deployment is across three components,the Core Allocation, Macro Allocation and the Tail Allocation. The Core and Macro Allocation share an even 50% split of the trading account, while the Tail Allocation has a fixed allocation based on annual targets. The Core Allocation has a single market focus with very tight risk management suited for that market. The Macro Allocation has a diversified focus with exposure across 13 of the most liquid US future markets and an allocation matrix that stops trade concentration, and spreads trade flow over time. The Tail Allocation has a risk focus, with emphasis on lowering annual volatility and reversing an unlimited risk profile into a potential gain profile. 9

10 Core Allocation The Core Allocation focuses on a hybrid option writing/buying strategy over the WTI Crude Oil futures contract traded on NYMEX. The strategy utilizes a proprietary, two step initiation process. New positions are first initiated when a directional market opinion is identified. Then this position evolves into a non-directional market strategy at key inflection points. The trigger to evolve the strategy into a non-directional form is provided by market price action. The evolved position will now be exposed to large market moves in either direction. Management of the directional risk at this stage is accomplished by monitoring and maintaining various option model metrics within pre-defined tolerances. Adjustments to the market exposure then continues, in a systematic fashion, in a dynamic real-time process. Rarely will options positions be held through to expiry. Extreme market movements or client account equity falling below pre-defined thresholds, will result in a reversal adjustment, in which long options will be purchased and combined with the short option exposure, to result in a position that can profit from the continuation of the market momentum. Macro Allocation The Macro Allocation relies on a unique allocation model that maximises diversification and minimises market correlation. The allocation model serves to minimise individual market risk. Every month, price measurement techniques are employed to determine allocation. Options will be written in the most advantageous markets where volatility compression is expected to occur or at least stay constant, and options will be bought at times when markets display large changes in volatility. The Macro allocation employs price level based, liquidation triggers and a hedging method based on a predefined qualitative overlay. No written options will be held in the money. Futures contracts will be used to mitigate adverse exposure in times of strong directional movement and volatility expansion. Tail Allocation The Tail allocation is implemented to cover any short option exposure created by the Marco and Core Allocations. Typically one to two times more options will be bought at lower deltas each month, to turn the portfolios risk profile away from unlimited loss to a potential return. This will typically be deployed in the energy complex, due to the portfolio weighting to those markets, but at times will also cover any of the thirteen markets traded in the Macro Allocation. The Tail Allocation is an additional risk management overlay, designed to act as tail risk insurance. NCC will expend up to 3% of total capital each calendar year for that cover. General note regarding risk management All of the trading strategies have predefined profit goals and risk exposure. Stop loss measures are utilized as well as the use of derivative hedging techniques to quantify market exposure. The Advisor employs money management skills, acquired over years of experience, in live trading as well as historical market research. Please note that given the volatile nature of the markets and possible changes in economic or government policies, amongst other factors, that can not be controlled or foreseen by the Advisor, no assurances can be offered that the Advisor s trading actions and stop loss measures will successfully contain losses and result in profitable trades for a Client, or that a Client will not incur substantial losses. Form of Margin Deposits A customer participating in the Positive Theta Program must deposit trading funds directly in a commodity trading account with an FCM. If Treasury bills are purchased for a participating customer s account, such Treasury bills are utilized as initial margin for commodity interest transactions, although the FCM generally credits a customer s margin requirement with only 90% of the face value thereof. All interest income earned on such Treasury bills is credited to the participating customer s account and Non Correlated Capital will not receive an incentive fee on such interest income. 10

11 NCC s trading strategies are speculative in nature. Hedgers and Speculators are the two broad classifications of persons who trade in commodity futures and options. The commodities markets enable the hedger to shift risk of price volatility to the speculator. The usual objective of the hedger is to protect the profit expected from farming, merchandising or processing operations, rather than to profit from futures trading. Unlike the hedger, the speculator generally does not expect to deliver or receive any physical commodity, electing instead to offset a futures or option position and realizing a profit or loss based on the difference between the price at which a position was acquired and that at which it was later offset. The speculator risks capital with the intention of making profits from fluctuations in futures or option prices. Speculators rarely take delivery of physical commodities but rather close out positions by entering into offsetting purchases or sales of futures contracts or options. Trading Strategies and Systems The trading strategies and systems utilized by Non Correlated Capital may be revised from time to time as a result of ongoing research and development, which seeks to devise new trading strategies and systems as well as test methods currently employed. The trading strategies and systems used by NCC in the future may differ significantly from those presently used due to the changes which may result from this research. Clients will be informed of these changes as they may occur. THERE IS NO ASSURANCE THAT ANY PROFIT WILL BE PROVIDED TO THE INVESTORS GAINED FROM PARTICIPATION IN THE POSITIVE THETA PROGRAM AS A RESULT OF THESE TRADING METHODS CONDUCTED BY THE COMMODITY TRADING ADVISOR. No participant will acquire any rights or proprietary interest in, or have access to any of the information, data, or trading methods utilized by the Advisor. Description of Interests Traded The Advisor may trade any variety of commodity futures contracts on regulated exchanges that may include, but are not limited to grains, metals, currencies, financial market indices, energy related materials and other items of food and fibre, money market instruments, and items that are now, or may hereinafter be, the subject of futures contract trading, options on futures contracts, including physical commodities trading or derivatives or other contracts on such items or instruments (collectively commodity interests ). The markets available for inclusion in the portfolio will normally be limited to sufficiently liquid commodity interests and may evolve over time as the requirements for portfolio balance and liquidity change. Markets traded by the Advisor, and those which are to be traded by the Advisor include, but are not limited to the following. US Physical Derivative Markets Crude Oil (New York Mercantile Exchange) Natural Gas (New York Mercantile Exchange) Coffee (New York Board of Trade) Corn (Chicago Board of Trade) Soybeans (Chicago Board of Trade) Gold (NYMEX / Commodity Exchange Center) Silver (NYMEX / Commodity Exchange Center) US Financial Derivative Markets US 30 Year Bond (Chicago Board of Trade) US 10 Year Bond (Chicago Board of Trade) Emini S&P 500 (Chicago Mercantile Exchange) Japanese Yen (Chicago Mercantile Exchange) Euro Currency (Chicago Mercantile Exchange) Canadian Dollar (Chicago Mercantile Exchange) 11

12 LIMITATION OF ADVISOR S LIABILITY The Trading Advisory Agreement provides that the Advisor shall not be liable to a client for any actions taken with respect to a commodity account if the Advisor acted in good faith and in a manner reasonably believed to be in, or not opposed to the best interest of the client. The Trading Advisory Agreement further provides that such actions do not include gross negligence, wilful or wanton misconduct, or a breach of fiduciary obligations to the client by the Advisor. The Trading Advisory Agreement, consequently, provides that Advisor shall be indemnified and held harmless in the above described circumstances. 12

13 FEES AND EXPENSES The Advisor charges clients a quarterly incentive fee and monthly management fee that is billed monthly in arrears. Once the fees are earned, the Advisor will retain the fees regardless of the account s performance subsequent to the period for which the fees are earned. Because NCC may structure each account (including the applicable fees) to meet specific Client needs, the foregoing description of NCC s fees should be viewed as a general guideline only, and represents the fees that may be charged to an account under most circumstances. Management and/or incentive fees may be waived or adjusted at the sole discretion of the Advisor. Incentive Fee The Advisor charges a quarterly incentive fee of 20.0% of New Net Trading Profits. The New Net Trading Profits, as defined below. The New Net Trading profits will include accrued earned interest (if any). New Net Trading Profits are computed using the formula: gross realized profit and loss during the period plus the change in net unrealized profit and loss on open positions as of the end of the period, minus all brokerage commissions and transaction fees and charges paid during the period and cumulative net loss, if any, carried over from other periods. The carryover of previous loss makes certain that incentive fees are paid only on the cumulative increases in the net gains of an account. It should be noted that the full loss is not carried over to the next quarter in an instance where there has been a partial withdrawal of funds. In this case, the portion of the loss attributable to the withdrawn amount is first subtracted from the carryover loss. In addition, if an account does not have New Net Trading Profits in a given quarter, no incentive fee will be due to NCC unless and until the account experiences New Net Trading Profits in a subsequent quarter. The amount of the incentive fee due to NCC, if any, will be determined independently with respect to each quarter, and the amount of any such fee paid will not be affected by subsequent losses experienced in a participating customer s account. In the event of a withdrawal other than as of at a quarter-end, any accrued Incentive Fees with respect to such redeemed assets will be paid to NCC as if such date of withdrawal were at a quarter-end. Management Fee The Advisor charges a monthly management fee, billed monthly, of 2% per annum. This fee is paid monthly in arrears as 1/12 of 2% (2% annually) of the Net Asset Value, as defined below, of the client s account at the end of each month. The management fee will be calculated prior to any incentive fee being subtracted from the account. If a client withdraws from The Positive Theta Program on a date other than at the end of a month, management fees will be calculated and billed as if such termination were the end of the month. The Advisor may accept partially funded, or notional funded accounts. 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 2% management fee on a $100,000 account traded notionally as a $200,000 account, the account will be charged $2,000, or 2% of the notional 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). Third Party Fees The Advisor may cause futures or options transactions to be executed by an FCM other than the one at which the accounts are carried. Clients agree to pay any additional charges on such trades for the execution of the futures or options and the give up of these positions to the carrying brokerage firm. NCC may at times pay a portion of fees collected from clients to third parties, such as Introducing Brokers (IBs), properly registered with the NFA, for referral services. 13

14 Miscellaneous Management and Incentive fees, if any, are due immediately upon termination of a client account prior to the end of the quarter. A participating customer is not entitled to a refund of any management fees and/or incentive fees paid to the date of such customer s withdrawal from The Positive Theta Program. Following the end of a calendar month, an invoice will be sent to the FCM carrying the participating customer s account to collect the management fee and incentive fee, if any, that are due and owing to the Advisor. By signing the Fee Payment Authorization, participating clients authorize their respective FCMs to pay the Advisor management and incentive fees from the customer s account upon the receipt of a bill for such fees from the Advisor. The Advisor should be contacted as soon as possible upon finding any errors. FUTURES COMMISSION MERCHANT AND INTRODUCING BROKERS Clients of the Advisor may select at their choice any registered Futures Commission Merchant ( FCM ) with which to maintain their accounts, subject to the Advisor s approval. Clients may also select an Introducing Broker ( IB ) to introduce the client s account to the FCM. In the event that the Client does not select an IB, the Advisor will utilize Capital Trading Group LLCas the IB to introduce the Client s account to the Client s chosen FCM. The FCM selected by the client will be responsible for holding and maintaining all customer funds, securities, commodities, and other properties, providing a daily written record of any trading activity as well as month end reports of all open positions held in the account and their value. The brokerage fees, commissions and other charges to the client s accounts are negotiated between the FCM and/or IB, as applicable, and the client. Advisor anticipates commission rates of the IB will range between $0.50 to $10 per round turn plus fees. These additional fees would include FCM fees, exchange fees, and regulatory fees. The Advisor anticipates the commission plus additional fees will range $5 to $20 per round turn. Advisor reserves the right to reject any FCM or IB requested by a client for any reason, including product limitations, the belief that its execution and or back office service is not satisfactory or the commission or fees charged to a client are not satisfactory. The Advisor also evaluates regulatory integrity of the selected FCMs and IBs, and reserves the right to reject any FCM or IB that does not maintain regulatory integrity. In an effort to ensure efficient trade execution and maintain equity between various accounts, NCC will use a give-up arrangement in which trades are executed through RJ O Brien inc., and then cleared by the client s FCM. This arrangement will typically result in the client paying a higher round-turn commission in the form of an added give-up fee paid to the executing FCM ranging between approximately $0.50 and $1.0 per side, or $1 or $2 per round turn, depending on the futures market in which trading is taking place. The client generally will be provided with a statement from the clearing FCM disclosing the amount of brokerage commissions and fees charged to the account. The IB of the Advisor may receive a portion of the give-up fee in order to cover additional costs as a result of clearing trades at a firm other than the executing firm. The Advisor recommends that each prospective client familiarize themselves with the services, experience, and integrity of any futures commission merchant or introducing broker with which a client chooses to do business. Generally, commission and other transaction based fees should not exceed $25 per round-turn. 14

15 POTENTIAL CONFLICTS OF INTEREST Prospective clients should be aware that the below list of potential conflicts, which is not a complete list of every potential conflict, but those potential conflicts that are most likely to occur,, and other, potential conflicts of interest are frequently inherent to a CTA. The Advisor, however, understands its obligation to treat each client with fairness while considering the client s best interests. All efforts will be made to assure fair and equitable treatment of all accounts. The Advisor intends to continue to actively solicit and manage other customer accounts. In conducting such activities, the Advisor may have conflicts of interest in allocating management time and administrative functions. The trading methods and strategies utilized in managing the accounts of participating investors may be utilized by the Advisor in trading for it or the accounts of individuals employed by the Advisor or affiliated with the Advisor. In rendering trading advice to a Client, the Advisor will not knowingly or deliberately favour any proprietary account over the account of the Client. However, no assurance is given that the performance of all accounts managed by the Advisor will be identical or even similar. Because of price volatility, occasional variations in liquidity, differences in order execution, as well as differences in each accounts trading level each month, it is impossible for the Advisor to obtain identical trade execution of all its clients. As such, differences in performance among client accounts over time, may and, more than likely, will occur. The Advisor will typically place orders as block orders. In doing so, the Advisor will enter the order for one client along with the orders of other clients. In addition, the Advisor s account and/or the Advisors principals accounts may be blocked with the clients accounts. In this manner of trading, the Advisor attempts to trade clients accounts in parallel, making trades for accounts and apportioning the number of each commodity interest ratably among the accounts based on the equity in each account. In the event of a partial fill, allocations will be made on a pro-rata basis. Each client would receive, if possible, a portion of the blocked order using the following process: 1. The fill ratio for the trade is calculated by taking the total contracts filled and dividing it by the total contracts for the order 2. For each account in the trade, the scaled quantity is determined by taking the rounded-down portion of the original number of contracts multiplied by the value determined in step 1. For example, if step 1 resulted in a value of 0.5 and an account had originally been assigned 3, the new quantity determined in this step would be 1 (the rounded-down portion of 3 x 0.5) 3. If the total number of contracts given out to each account does not equal the total number of contracts actually received, the following steps are performed: a. 0.1 is added to each account s fractional remainder from step 2. b. If the fractional remainder is greater than or equal to 1, the account gets an additional contract added to the quantity determined in step 2 c. After all accounts have been processed by steps 3a and 3b, step 3 is repeated until the total number of contracts given out equals the number of contracts actually received. In the event a partial fill occurs, the Advisor s account and/or its principal s account may receive a position once each of the client s accounts have received a full or partial allocation. The Advisor intends to enter orders for clients accounts simultaneously with orders for proprietary accounts, and in view of market liquidity and open interest, the Advisor believes any adverse effect will be minimal or nonexistent. Neither the Advisor nor the principals will knowingly trade or take positions ahead of clients positions. 15

16 PROPRIETARY TRADING BY THE ADVISOR The Advisor and its principals may continue to trade their own proprietary accounts. Although the Advisor will generally trade in parallel with customer accounts, due to differences in leverage, performance may differ significantly from customer performance. NCC will never intentionally favour a proprietary account over a client account, nor will the Advisor knowingly permit a proprietary account to trade ahead of a client account. Proprietary performance will be published on NCC s website but due to the proprietary nature, the trading records of such trading activity will not be made available to clients for inspection. NCC reserves the right to cease publishing its proprietary performance at any time. ADDITION AND WITHDRAWAL REQUIREMENTS Additional funds may be added to a Client s existing account at any time with written notice to the Advisor. Clients must provide written notice to the Advisor 5 business days in advance in order to withdraw funds in any amount from their account. All notices of additions and withdrawals will become effective once acknowledged by the Advisor. Changes to positions held by an account will be made as promptly as possible subsequent to the acknowledgment of the request. The Advisor reserves the right to negotiate addition and withdrawal requirements on an individual account basis. MISCELLANEOUS This Disclosure Document does not purport to discuss all of the risks concerning trading in Commodity Interests or NCC s trading program. Each client should consult his own tax advisor(s) to determine the income tax and other tax consequences of an investment in a managed account program with specific reference to their own tax situation. Due to the complexity of the tax laws and the various considerations applicable to each client, NCC does not provide tax advice. The rates of return earned when an advisor is managing a limited amount of equity may have little relationship to the rates of return that an advisor may be able to achieve managing larger amounts of equity. NCC shall not be liable, responsible or accountable in damages or otherwise to the Client, its successors or assigns, except for NCC s wilful misconduct or gross negligence, and disclaims any liability for human or machine errors in connection with the placement or transmission of orders to trade or not trade commodity interests, including errors of any brokerage firm. Management fees, charged at 2% of net asset value per annum, are paid monthly in arrears. Performance fees, charged at 20% of new trading profits are paid quarterly in arrears. Management fees and/or performance fees may vary as agreed upon by the advisor and client. NCC reserves the right to make such determinations on a case-by-case basis. The United States and foreign commodities markets are subject to ongoing and substantial regulatory changes. It is impossible to predict what statutory, administrative or exchange changes may occur in the future or what impact such changes may have on the NCC s prospects for profitability. 16

17 PRIVACY STATEMENT NCC considers privacy to be fundamental to our relationship with our clients. We are committed to maintaining the confidentiality, integrity and security of our current and former clients non-public information. Accordingly, we have developed internal polices to protect confidentiality while allowing clients needs to be met. We will not disclose any non-public personal information about clients, except to our affiliates and service providers as allowed by applicable law or regulation. In the normal course of serving our clients, information we collect may be shared with companies that perform various services such as our accountants, auditors and attorneys. Specifically, we may disclose to these service providers, non-public personal information including: information NCC receives from clients on managed account agreements and related forms (such as name, address, Social Security/Tax identification number, birth date, assets, income and investment experience); and information about clients transactions with NCC (such as account activity and account balances). Any party that receives this information will use it only for the services required and as allowed by applicable law or regulation, and is not permitted to share or use this information for any other purpose. To protect the personal information of individuals, we permit access only by authorized employees who need access to that information to provide services to our clients and us. In order to guard clients non-public personal information, we maintain physical, electronic and procedural safeguards that comply with the U.S. federal standards. If the relationship between a client and NCC ends, NCC will continue to treat clients personal information as described in this notice. An individual client s right to privacy extends to all forms of contact with NCC, including telephone, written correspondence and electronic media, such as messages via the Internet. NCC reserves the right to change this privacy notice, and to apply changes to information previously collected, as permitted by law. NCC will inform clients of any such changes as required by law. Any questions regarding this Privacy Statement should be directed to Troy Burns, at (+61) or info@noncorrelatedcapital.com. 17

18 LITIGATION THERE HAVE BEEN NO MATERIAL ADMINISTRATIVE, CIVIL OR CRIMINAL ACTIONS AGAINST THE ADVISOR OR ANY OF ITS PRINCIPALS WITHIN THE PAST FIVE YEARS. PROGRAM PERFORMANCE THERE IS SUBSTANTIAL RISK INVOLVED IN INVESTING IN THE ADVISOR S TRADING PROGRAMS. AN INVESTMENT IN EITHER TRADING PROGRAM IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY REVIEW FUTURES AND OPTIONS TRADING TO DETERMINE IF IT IS SUITABLE FOR YOU IN LIGHT OF YOUR INVESTMENT OBJECTIVES AND FINANCIAL CONDITION. Performance History for Non Correlated Capitals Positive Theta Program October 1, 2007 October 31, 2012 Name of CTA Name of Trading Program Inception of Trading for CTA Inception of Trading for offered program Number of open accounts in offered program Total nominal assets under management for CTA 1 Total nominal assets traded pursuant to the program Largest monthly draw-down 2 Worst peak to valley draw-down 3 Number of profitable accounts that have opened and closed Range of returns experienced by profitable accounts 4 Number of losing accounts that have opened and closed Range of returns experienced by unprofitable accounts 4 Non Correlated Capital Pty Ltd The Positive Theta Program October 2007 October USD $4,047,035 USD $5,540, % (January 2008) (Dec 07 Jan 08) % none NA Footnotes: 1. Total nominal assets under management for all programs as of October 31, Largest monthly draw-down means losses experienced by the trading program over a specified period. Drawdowns are measured on the basis of month-end net assets values only, and do not reflect intra-month figures. 3. Worst peak-to-valley drawdown is the greatest cumulative percentage decline in month-end net asset value in the program due to losses during a period in which the initial month end net asset value is not equalled or exceeded by a subsequent month end net asset value. 4. Of the accounts which have opened and closed for this program. Returns of profitable and unprofitable closed accounts are actual and are not pro-forma. 5. Monthly Rates of Return is Net Performance divided by the sum of Beginning Equity and the time-weighted value of Additions and Withdrawals. Time-weighted is calculated by calculating the number of days the amount of the Addition/Withdrawal is available for trading during the period. The Compounded Rate of Return is based on the change of the annual $1,000 Index. $1,000 Index shows how a theoretical $1,000 investment, if left untouched, would have appreciated (depreciated) during the annual period in the performance table. 6. Prior to July 2012, Rate of Return is net of pro-forma fees of a 2% management fee and 20% quarterly incentive fees. After July 2012, Rate of Return is net of fees of a 2% management fee and 20% quarterly incentive fees. 7. Prior to July 2012 the programs performance capsule is shown as proprietary performance. After July 2012 the programs performance capsule is shown as a composite of managed accounts. 5,6,7 Performance History Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year 2007 n/a n/a n/a n/a n/a n/a n/a n/a n/a -0.62% 4.49% 2.84% 6.78% % 2.52% 5.96% 3.19% 3.75% 2.25% 8.63% 7.93% -4.18% -5.94% 17.83% % 11.90% % -1.54% 3.97% 13.35% -7.88% 7.41% 10.00% 5.22% 10.34% 9.21% 10.30% 14.81% % % 8.29% 8.26% 3.15% -8.04% 8.94% 4.79% -3.39% 12.27% 2.46% -0.58% 2.69% 56.83% % -5.31% 3.66% 3.66% -6.29% 2.86% 1.15% -0.89% 4.23% 5.84% 5.29% 2.86% 11.36% % 1.68% 1.43% 3.63% 0.34% -0.46% 2.00% 2.67% 1.62% 2.03% 20.80% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS; AN INVESTMENT IN THE PROGRAM OFFERED HEREBY IS SPECULATIVE AND INVOLVES A SUBSTANTIAL RISK OF LOSS. The above performance capsule was prepared by Michael Coglianese of CCS Financial Services, inc., but are unaudited. 18

19 NOTES TO THE PRO-FORMA PERFORMANCE TABLE This table assumes a Pro Forma management fee of 2% and Pro Forma quarterly incentive fees of 20% applied from October 2007 October Together they make up the CTA s advisory fees. From inception of trading in October 2007 through June 2012 the performance record is based on trading family trust money of one of NCC principals. Managed accounts started in July The accompanying performance tables were prepared in accordance with Commodity Futures Trading Commission ( CFTC ) standards. 1. Beginning Equity represents the sum of actual equity (including cash and cash equivalents) in the accounts, plus capital, which is allocated for trading but not required as margin and accordingly, not actually deposited in the account. Beginning Equity includes unrealized profit and loss of open positions. 2. Addition represents all additional capital allocated to trading whether or not actually deposited in an account. 3. Withdrawals represent all partial and total withdrawals, as well as reallocations of funds from capital previously allocated to trading, whether or not such capital was actually deposited in an account. 3a. Pro Forma Adjustment is the total difference between actual performance and pro forma performance. Pro Forma performance was different from actual because of Pro Forma management and incentive fees. The accounts did not actually incur any management and incentive fees for the period October 2007 June Net Performance before Advisory Fees is the Realized and Unrealized Profit (Loss) after Brokerage Commissions for the period. 5. Pro-Forma/Actual Advisory Fees are the total pro forma incentive (20% quarterly) fees and management fees (2% per year) calculated by the advisor for the period October 2007 June Starting in July 2012, all accounts were charged actual fees ranging of 2% Management fees and 20% Incentive fees. 6. Net Performance after Advisory Fees is Net Performance before Advisory fees less Pro-Forma/Actual Advisory Fees. 7. Ending Equity represents the sum of Beginning Equity plus Additions, less Withdrawals, plus or minus Net Performance plus pro forma adjustment. 8. Monthly Rate of Return is the Net Performance divided by the time-weighted Beginning Equity. Time weighted beginning equity plus additions minus withdrawal, adjusted for the number of days funds were in the account. 9. Compounded Rate of Return is calculated by applying, on a compound basis, each of the Monthly Rates of Return for a year, not by adding or averaging such Monthly Rates of Return. 10. Largest monthly draw-down is the worst loss experienced by the program over a specified period. Drawdowns are measured on the basis of month-end net asset values only, and do not reflect intra-month figures. 11. Worst peak-to-valley drawdown is the greatest cumulative percentage decline in monthend net asset value in the program due to losses during a period in which the initial monthend net asset value is not equalled or exceeded by a subsequent month-end net asset value. 12. Brokerage commissions are accounted for monthly and include the total amount of all brokerage commissions and other trading fees paid during the month. Brokerage commissions are calculated on a round-turn basis. Round-turn commissions have ranged from approximately U.S. $2.35 to U.S. $5.0 Interest income (where applicable) is earned on U.S. government obligations and cash on deposit with futures commission merchants and is recorded on the accrual basis. 19

20 ADDITIONAL NOTES: The performance record is set forth from the inception of trading for this trading strategy under the management of Troy Burns to June of 2010 and subsequently continues under Non Correlated Capital as of July Troy Burns became a trading principal of Non Correlated Capital on July The initial accounts included in the aforementioned performance had been family members and friends of the family that became interested in the trading program through their relationship with Troy Burns. As such, these accounts assigned trading authority to Troy Burns individually. The accounts were traded utilizing the same trading strategy outlined in this document. Since July 2010 these and all additional accounts have been managed directly by Non Correlated Capital. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. NO REPRESENTATION IS MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE RESULTS SIMILAR TO THOSE SHOWN OR AVOID SUBSTANTIAL LOSSES. FUTURES TRADING IS SPECULATIVE AND INVOLVES SUBSTANTIAL RISK OF LOSS. 20