CFTC RISK DISCLOSURE STATEMENT THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. 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. THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF THE PRINCIPAL RISK FACTORS AND EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR ("CTA"). THE REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") REQUIRE THAT PROSPECTIVE CUSTOMERS OF A CTA RECEIVE A DISCLOSURE DOCUMENT WHEN THEY ARE SOLICITED TO ENTER INTO AN AGREEMENT WHEREBY THE CTA WILL DIRECT OR GUIDE THE CLIENT'S COMMODITY INTEREST TRADING AND THAT CERTAIN RISK FACTORS BE HIGHLIGHTED. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. THEREFORE, YOU SHOULD PROCEED DIRECTLY TO THE DISCLOSURE DOCUMENT AND STUDY IT CAREFULLY TO DETERMINE WHETHER SUCH TRADING IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. YOU MAY ALSO REQUEST DELIVERY OF A HARD COPY OF THE DISCLOSURE DOCUMENT, WHICH WILL ALSO BE PROVIDED TO YOU AT NO ADDITIONAL COST. THE CFTC HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN ANY OF THESE TRADING PROGRAMS NOR ON THE ADEQUACY OR ACCURACY OF ANY OF THESE DISCLOSURE DOCUMENTS. OTHER DISCLOSURE STATEMENTS ARE REQUIRED TO BE PROVIDED TO YOU BEFORE A COMMODITY ACCOUNT MAY BE OPENED FOR YOU. ADDITIONAL DISCLOSURE REQUIRED FOR ADMINISTRATIVE FEES: A COMPLETE DISCUSSION OF FEES AND CHARGES ARE REPORTED IN THE CTA's DISCLOSURE DOCUMENT. SPECIFICALLY, ONE SHOULD RECOGNIZE THAT AN INTRODUCING BROKER MAY CHARGE A FRONT-END START UP FEE OF UP TO 6% OF THE INITIAL CONTRIBUTION. PLEASE NOTE THAT THIS CHARGE IS NOT REFLECTED IN THE PERFORMANCE OF THE COMMODITY TRADING ADVISOR AND COULD HAVE A SIGNIFICANT IMPACT ON THE CUSTOMERS ABILITY TO ACHIEVE SIMILAR RETURNS.
The case for diversification of one’s investment portfolio with managed futures, when supported by independent research and facts, is compelling. This PowerPoint presentation attempts to present this information in a straightforward, easy to understand manner. The performance enhancement and risk reduction benefits of incorporating managed futures in one’s investment portfolio have been well documented. However, particularly in today’s times of heightened market volatility, I believe the versatility of managed futures to potentially perform in volatile up and down markets, recessionary and boom times, or in virtually any economic condition is its most attractive feature. Whether markets are rising or falling, managed futures potentially stand ready to perform. Very few investments can make that claim! Please be advised, however, that trading futures and options involves substantial risk of loss and is not suitable for all investors. There are no guarantees that managed futures will continue to perform in all market conditions. Unfortunately, we find ourselves in the midst of the worst secular bear market since the Great Depression. A secular bear market is one which rises and falls, yet makes little progress over many years. We have experienced three such periods since the turn of the last century. Average length of previous secular bear markets was 18 years, each lasting anywhere from a minimum of 16 to a maximum of 21 years. Thus, if you add 18 years to the start of the current secular bear market, which began in 2000, plus or minus three years, the current secular bear market that began in 2000 may not end until sometime in the 2015 to 2021 time period. Given the worst fundamentals since the Great Depression, chances are it won’t end until sometime around 2020. Bob Boshnack, Chairman Vision Financial Markets LLC A Personal Message from the Chairman of Vision Financial Markets
To read more about secular bear markets, read Lesson in Secular Bear Markets , located at: http:// cta.visionlp.com/pdf/gen/secular_bear.pdf In my opinion we have entered a new era of a “trader’s market,” where buy and hold investing won’t work unless one has a 15 year investment horizon. I believe in this “trader’s market” era one’s best chance to potentially profit will be in investments like managed futures that have the versatility to potentially capitalize on the volatile up and down markets that are so typical in secular bear markets. Accordingly, in the coming years I believe suitable investors may stand a better chance for success in professionally managed futures than in equities. My reasoning: Even if stocks do experience strong gains in any given year they will probably be given back in ensuing years as was the case with gains made from 2003 through 2007 and in the other secular bear markets of the past century. And that’s what happens in secular bear markets; there are strong rallies and even cyclical bull cycles within secular bear markets whose gains disappear when the secular bear market reasserts itself! On the other hand, unlike stocks, managed futures are a true “trader’s market” investment because it offers the potential opportunity to capitalize equally on rising and falling markets! Secular Bear Markets
What are Managed Futures? “ ” A CTA managed futures account is one where a registered Commodity Trading Advisor (CTA) is given responsibility to make all trading decisions. This authority is delegated by the account holder to the CTA through a limited power of attorney which may be withdrawn at any time. A managed futures account is one where a registered Commodity Trading Advisor (CTA) is given responsibility to make all trading decisions. This authority is delegated by the account holder to the CTA through a limited power of attorney which may be withdrawn at any time. CTAs are registered with the Commodity Futures Trading Commission (CFTC), an agency of the federal government, and are members of the National Futures Association National Futures Association (NFA) a self-regulatory organization authorized by Congress in 1982. CTAs are professional money managers who manage an investor’s assets using investments in the commodities markets similar to the way a stock mutual fund manager would invest his client’s assets in a variety of different stocks. You can use managed futures in a variety of qualified retirement plans including IRAs, trusts, and pensions.
Source: Barclay Hedge Alternative Investment Database. Time period 1980 through 3 rd Quarter 2008. Growth of the Managed Futures Industry Billion USD
Growth of the Managed Futures Industry <ul><li>Managed futures are one of the fastest growing investments today. </li></ul><ul><ul><li>In 1980 there was less than $1 billion in managed futures. </li></ul></ul><ul><ul><li>In 2000 there was $37.90 billion. </li></ul></ul><ul><ul><li>However, as of the 3rd quarter of 2008 there was $228 billion in managed futures! </li></ul></ul><ul><ul><li>As one can see from the chart on the previous slide, it took 20 years for managed futures to reach $37.90 billion under management. In the next eight years alone, managed futures experienced an increase in assets 600% higher than that experienced in the prior twenty year period. Why has there has been such a huge increase in managed futures participation? We believe it was because investors have been educated as to the value, benefits and risks concerning managed futures; thus solidifying the need and purpose of this PowerPoint presentation! </li></ul></ul>“ ” Managed futures experienced an increase in assets 600% higher than that experienced in the prior twenty year period.
Managed Futures Risk Reduction and Performance Enhancement Benefits The value of professionally managed futures was thoroughly researched by Dr. John Lintner, of Harvard University, in a 1983 landmark study, “The Potential Role of Managed Futures Accounts in Portfolios of Stocks and Bonds.” Lintner wrote that “the combined portfolios of stocks (or stocks and bonds) after including judicious investments ...in leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone.” Lintner specifically showed how managed futures can decrease portfolio risk, while simultaneously enhancing overall portfolio performance. His conclusions concerning the risk reduction and performance enhancement capabilities of managed futures have been confirmed in “action” by actual investing!
Academic Studies on Managed Futures Compared to Stocks The Benefits of Managed Futures , by Thomas Schneeweis, Professor of Finance, University of Massachusetts This academic study showed that managed futures as investments are not riskier than stocks . According to Schneeweis “Managed futures are not any more riskier than traditional equity investments. Investment in a single commodity trading advisor is shown to have risks and returns, which are similar to investment in a single equity. Moreover, a portfolio of commodity trading advisors is also shown to have risks, and returns, which are similar to traditional investments.” The report can be read in its entirety at: http:// cta.visionlp.com/pdf/gen/BenefitsofMFRev.pdf Facts and Fantasies About Managed Futures , by Gary Horton, The Warton School, University of Pennsylvania, and K. Geert Rouwenhorst, Yale School of Management. This study concluded: “During the past 45 years, commodity futures have had roughly the same return as stocks with less risk, have way outperformed bonds and are a better hedge against inflation than either stocks or bonds.” The report can be read in its entirety at: http://cta.visionlp.com/pdf/gen/factfantasies9-24-04.pdf If you are interested in reading the entire report by Thomas Schneeweis, a full copy of the report is available upon request.
This study comparison shows that up to 20 percent of total investments in managed futures provides the best risk-adjusted returns and greater independence from general market moves. 1) Managed futures: CASAM CISDM CTA Equal Weighted; 2) Stocks: MSCI World; 3) Bonds: JP Morgan Government Bond Global; *Courtesy CME Group: Managed Futures: Portfolio Diversification Opportunities . OPTIMUM PORTFOLIO MIX (01/1987 - 02/2008)* Source: Bloomberg
Managed futures: CASAM CISDM CTA Equal Weighted; Time scale: 11/1990 – 02/2008; Source: Bloomberg The chart above shows the worst historic drawdowns for each of the indices from 11/1990 through 02/2008. Drawdowns, or the reduction an account might experience during a market retrenchment, are an inevitable part of any investment. However, because managed futures trading advisors can go long or short (and typically adhere to strict stop-loss limits) managed futures have limited their drawdowns more effectively than many other investments. Please be advised, however, that the use of stop loss or contingent orders may not protect profits, and may not limit losses to the amount intended. Certain market conditions make it difficult or impossible to execute such orders. As the above chart shows, drawdowns for managed futures have been less steep than those for major global equity indices. *Courtesy CME Group: Managed Futures: Portfolio Diversification Opportunities . WORST DRAWDOWNS IN COMPARISON*
The Power of a Diversified Portfolio with Managed Futures In the above example, the overall risk is reduced by almost 82%t from –41.0%t to –7.5% and the return also increases almost 20% from +7.4% to +8.9%. This is mainly due to the lack of correlation and, in some cases, negative correlation between some of the portfolio components in the diversified portfolio. There is even negative correlation between stocks and managed futures as the two markets move independently from each other. *Courtesy CME Group: Managed Futures: Portfolio Diversification Opportunities .
MANAGED FUTURES DECLINES VS A TRADITIONAL PORTFOLIO DURING STOCK MARKET DECLINES Managed futures: CASAM CISDM CTA Equal Weighted; Stocks: MSCI World; Bonds: JP Morgan Government Bond Global; Time scale: 01/1987 – 02/2008 Managed futures trading advisors can generate profit in both rising and falling markets due to the their ability to go long (buy) futures positions in anticipation of rising markets or go short (sell) futures positions in anticipation of falling markets. Moreover, trading advisors are able to go long or short with equal ease. As the above chart shows this ability, coupled with their virtual non-correlation with most traditional asset classes, have resulted in managed futures performing well relative to traditional asset classes during adverse conditions for stocks and bonds. Note how in every year except one managed futures were positive while a traditional portfolio of stocks and bonds were negative. This should help one conceptualize how managed futures can potentially reduce risk and increase returns when combined in a stock and bond portfolio! *Courtesy CME Group: Managed Futures: Portfolio Diversification Opportunities .
COMPARISON OF PERFORMANCE (01/1980 - 02/2008) Over the past 27 years, managed futures have out-performed other asset class, including high-performing S&P 500 Total Returns. 1- Managed futures: CASAM CISDM CTA Equal Weighted; 2- U.S. stocks: S&P 500 Total Return; 3- International stocks: MSCI World; Source: Bloomberg; All material is property of MSCI. Use and duplication subject to contract with MSCI. As the above chart shows looking back over the past few decades, managed futures have consistently outperformed other asset classes such as stocks and bonds. Consider an initial investment of $10,000 invested in 1980. If placed in a U.S. stock fund mirroring the S&P 500, the investment would have been worth approximately $288,000 as of early 2008. Allocating the same amount to a basket of international equities reflecting the Morgan Stanley Capital International Index of world stocks, the initial investment would have grown to nearly $120,000. But the same investment in managed futures, based on the Center for International Securities and Derivatives Markets weighting, would now be worth more than $513,000. *Courtesy CME Group: Managed Futures: Portfolio Diversification Opportunities . PERFORMANCE RESULTS OF A 27 YEAR STUDY
Amateurs vs. Professionals According to a CME published report: “Some individual investors – those who have the know-how, time, access to information and necessary temperament – are highly successful in directing their own futures trading. Unfortunately, however, the record suggests that only a small percentage of do it yourself futures traders possess these requisites for success. Studies indicate that somewhere between 2 out of 3 and 9 out of 10 lose money”. However, some CTAs have been shown to achieve consistent returns, even in volatile markets. We believe the most prudent way to participate in the commodities markets is with the professional Commodity Trading Advisors (CTAs).
Managed Futures vs. Hedge Funds The differences between managed futures and hedge funds are substantial. Managed futures are 100% transparent. With hedge funds, investors are often unaware of the holdings of the fund. At times their positions are very hard to value and estimate. When liquidated, hedge fund positions can be much lower than their estimated value. On the other hand the holdings of managed futures managers and the corresponding profit/loss of the positions can be viewed in real time every day at their exact value! Additionally, managed futures typically trade in the most liquid markets in the world. Hedge funds often venture into illiquid securities (such as mortgage backed securities or over-the-counter products) which aren’t traded on many exchanges.
Managed Futures vs. Commodities Although managed futures managers utilize commodity futures, commodities and managed futures are two entirely different asset classes. Managed futures have the versatility of going short commodities as easily and as often as going long, making them able to potentially profit from both rising and falling markets. Therefore, managers can perform just as well when commodity prices are declining, as they can when commodity prices are rising. This is why in 2008 commodities performed poorly, but managed futures, as an asset class, performed well… some CTAs were able to take advantage of the falling commodity prices.
A Common Mistake Most investors consider themselves diversified if their investment portfolio includes a percentage mix of stocks and bonds. Their stock holdings may include corporate stocks, index funds, preferred stocks mutual funds, international and emerging market funds. Bond holdings may include treasuries, corporate and municipal bonds. If an investor follows the guidance of most financial advisors, these blends of stocks and bonds would be considered “diversified”. We believe this is a common mistake among most investors. Furthermore we believe the real test for a diversified portfolio is not in up markets when gains correlate with stock market indexes, but rather in bear markets where investors have found that they are extremely exposed to declining asset values, despite their perceived “diversification”. 2008 was a prime example where most investments, even commodities, experienced negative returns. However, professionally managed futures experienced positive returns! ! (See next chart on #19).
Note: If you look at the chart on slide #14 you will notice that 2008 was not the only year that managed futures out performed other indices. I n all but one major stock market decline since October 1987, managed futures outperformed all other indices. Isn’t this strong support on the value of managed futures in an overall investment portfolio? 2008 PERFORMANCE OF VARIOUS POPULAR INDICES
<ul><li>2008 Performance Data Sources and Definitions: </li></ul><ul><li>Credit Suisse/Tremont Managed Futures Index is an index comprised of 29 of the worlds largest audited managed futures funds. </li></ul><ul><li>The Barclay CTA Index is a leading industry benchmark representing the performance of individual commodity trading advisors. Be advised that Barclay’s performance results are based on data received by CTAs who participate in contributing the information. </li></ul><ul><li>NASDAQ Composite Index is comprised of more than 4,000 domestic and international securities listed on the NASDAQ. </li></ul><ul><li>S&P 500 Index is a basket of 500 large cap stocks that are considered to be widely held and whose performance is thought to be representative of the stock market as a whole. </li></ul><ul><li>Dow Jones Industrial Average Index is comprised of 30 of the largest and most widely held public companies in the United States. </li></ul><ul><li>Credit Suisse/Tremont Hedge Fund Index is the largest asset weighted hedge fund index encompassing 496 hedge funds. </li></ul><ul><li>Goldman Sachs Commodity Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. </li></ul><ul><li>The MSCI World Index measures the equity market performance of 23 major developed market country indices. </li></ul><ul><li>Dow Jones Wilshire Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities. </li></ul>2008 Indices Performance - 33.84% Dow Jones Industrial Average 5 - 43.12% Real Estate 9 - 42.08% World Stocks 8 - 46.49% Commodities 7 - 19.07% Hedge Funds 6 - 38.49% S&P 500 Index 4 - 40.54% NASDAQ Composite 3 + 14.11% Managed Futures CTAs 2 + 18.33% Managed Futures Funds 1 2008 Performance Indices
Personalized Advisory Service Our CTAs are carefully selected from the universe of CTAs, primarily based on their risk-adjusted returns and our overall evaluation of their trading expertise. Each has their own trading style and market approach with varying levels of aggression in their trading. A Vision affiliated managed futures specialist works with each investor based on an investor’s risk tolerance, investment capital, performance goals, and diversification requirements, in selecting the CTA or CTA portfolio that may best satisfy the investor’s needs. This is a personalized highly collaborative process where the managed futures specialist provides the necessary information and comfort to the investor in order to make an informed investment decision.
Vision has focused on managed futures from its inception, which dates back nearly 30 years. Vision is in partnership with the Chicago Mercantile Exchange, the largest futures exchange in the world, to educate the public on the virtues, benefits and risks of managed futures. The goal of the partnership is for Vision and the CME Group to work together to further the cause of managed futures through education targeted at both existing and new investors to the commodities markets. Vision provides its affiliated brokers ongoing information, support and training in becoming proficient managed futures specialists. Managed Futures Partnership of Vision and the CME CME Group is the trademark of CME Group, Inc. The Globe logo and CME® are trademarks of Chicago Mercantile Exchange, Inc. CBOT® is the trademark of the Board of Trade of the City of Chicago. NYMEX is the trademark of New York Mercantile Exchange, Inc.
Are your life style plans or retirement savings being negatively affected by the current secular bear market in stocks? Is your “traditional diversification” really protecting your future? What investment do you have in your portfolio that has the versatility to potentially profit just as easily in declining as well as in rising markets? In today’s global economy, real diversification may be more important than ever before. The old “buy and hold” recipe of strictly stocks and bonds no longer provides the security and reliability that it once did, especially in the current economic cycle. We believe that the definition of diversification in the 21st century should include a wide variety of “uncorrelated” asset classes. These should include investment alternatives which provide the potential opportunity for profits in declining markets and the ability to achieve a truly diversified portfolio. We believe there are few investments that can provide this type of diversification better than professionally managed futures! ? Important Questions!
Frequently Asked Questions Q: Are there any tax benefits to investing in managed futures? A: Yes. According to the Tax Act of 1981, short-term profits in commodities are treated as 60% long term and 40% short term. On the other hand, short term trading profits in stocks are treated as 100% short term. A short-term investment is one that is held for less than one year. This favorable tax treatment in commodities can translate to investors in upper tax brackets, saving as much as 30% on taxes in short term gains on commodities versus stocks! Investors should consult their tax advisor regarding their individual tax situation.
Frequently Asked Questions (cont’d.) Q: Where is my money kept? A: Client’s assets are held in a Customer Segregated Account by Vision Financial Markets (“Vision”) at an established financial institution. Vision is a strongly capitalized diversified group of affiliated companies that offer commodities brokerage and clearing services, securities brokerage and clearing, asset management, Commodity Trading Advisor selection and private investment funds. Since its inception, Vision has maintained substantially more regulatory capital than is required to maintain its customer equity. Vision is one of the largest providers of Introducing Broker Services in the futures industry and ranked by Futures Magazine within the top 30 largest Futures Commission Merchants in the U.S. Vision is a registered Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission as well as a Commodity Pool Operator. Vision is also a clearing member of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (“CBOT”), collectively known since their merger as the CME Group. In addition Vision enjoys clearing status at CME Clearing, the world’s largest derivatives clearing organization. The CME Group states in their financial safeguard brochure, “the CME clearing financial safeguard system provides unparalleled safeguards for the protection and benefits of all participants in markets cleared by CME clearing.” In the 161 year history of CME and its predecessor organization, there has never been a failure of a clearing member resulting in a loss of customer funds. Additionally Vision is clearing members of The Options Clearing Corporation ( “OCC”), the largest clearing organization in the world for options and the Depository Trust & Clearing Corporation, ( “DTCC”) which provides custody and asset servicing for 3.5 million securities issues from the United States and 110 other countries and territories.
Clients have 24/7 access to their accounts via a password protected Web site disclosing all trading activity and account balances. Funds can be liquid and accessible within one weeks notice. You may also call your Managed Futures Specialist who receives a daily equity run detailing all your open positions, netting out profit and losses, showing the exact daily balance in your account. Whether you call or not, a purchase and sale statement (P/S Statement) can and will automatically be sent to you on every single trade, showing the date and price entered; when you exit a trade, the date, price, and net profit or loss on the trade as well as your account balance. 3. 1. 2. Besides receiving confirmation on each individual transaction, a summary of all transactions showing their results are posted on the web via your password protected account. Instead of having your statements post office mailed, you can select having your P/S statements e-mailed directly to you! Therefore, even without calling, you will have a written, detailed breakdown of the CTA’s transactions and performance in your account. Frequently Asked Questions (cont’d.) Q: How can I track the performance in my managed account?
Frequently Asked Questions (cont’d.) <ul><li>Q: How accessible are my funds in a managed account? </li></ul><ul><li>A: A managed account usually offers a high degree of liquidity. Although we strongly advise you to view your managed account as a long-term investment, part or all of your funds are usually available within one weeks notice. </li></ul><ul><li>Is the money in my managed futures account safe? </li></ul><ul><li>A: Your funds are kept in segregated accounts in your name. CFTC Regulations prohibit Futures Commission Merchants (FCM) from commingling segregated funds. </li></ul><ul><li>Be advised that segregation of funds does not guarantee safety from losses due to trading. </li></ul>
Frequently Asked Questions (cont’d.) Q: I am down on my stock fund or stock related investment, why would I want to sell at a loss in order to open a managed futures account ? A: This is a very common question, especially in today’s market environment. Human beings are not programmed emotionally to accept losses. But the #1 rule is to cut losses and let profits run, the same logic applies to portfolios. If it is true that you would have a better chance to potentially improve long term performance with a mix of different asset classes which includes managed futures, does it matter what the current value of your stock or stock fund is? This mix may have the potential to perform better over a period of time in the future than an investment in stocks and bonds alone. We are not suggesting that you liquidate your entire portfolio in order to participate in managed futures. We believe that stocks play an important role in a portfolio. We are suggesting you take into serious consideration the compelling facts, studies and opinions brought out in this PowerPoint presentation on diversifying your overall portfolio with professionally managed futures! Why risk your entire portfolio on the hope that we are not at one of those stages? In the strongest of terms, we believe we are in one of those stages now where stocks will under-perform for the next decade!
<ul><li>For more information about managed futures, please contact your Vision affiliated broker. </li></ul>Contact Vision