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 document is readily accessible at this site. 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. 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 before an account may be opened for you.

By their very nature, managed futures are a diversified investment opportunity encompassing a vast array of commodities. Trading advisors have the ability to invest in over 150 different markets worldwide. Additional diversification benefits are achieved by using multiple trading strategies or advisors that have proven their superior trading techniques over time. Defining these benefits helps to explain how managed futures can be utilized to achieve a variety of investment goals and objectives for portfolio diversification.

Portfolio Diversification: Non-correlation to traditional asset classes

The primary benefit of adding an allocation of managed futures to a diversified investment portfolio is that it may decrease overall portfolio volatility risk.

The potential to reduce risk is possible due to the low to slightly negative correlation of managed futures to traditional asset classes, such as stocks and bonds. One of the key tenets of Modern Portfolio Theory, as developed by Nobel Prize economist Dr. Harry Markowitz, is that more efficient investment portfolios can be created by diversifying among asset classes with low to negative correlations.

Managed futures investments have historically performed independently of traditional investments, such as stocks and bonds. This is referred to as non-correlation or the potential for managed futures to perform well regardless of whether traditional markets such as stocks and bonds are rising or falling.

The non-correlation of managed futures with traditional asset classes allows portfolio volatility to be reduced by their inclusion in an overall balanced investment portfolio. While there exists a common misconception that futures are highly volatile and risky, adding managed futures as a component to a diversified investment portfolio may actually decrease volatility and increase returns in a portfolio as a whole.

Further evidence of the ability of managed futures to enhance the returns of traditional investments has been documented in a study undertaken by Northern Trust. In Northern Trust's January 2007 report "Wealth in America 2007, Findings from a Survey of Millionaire Households" the key findings stated:

"Nearly half (45%) of millionaires have 10% or more invested in alternative assets; of these, 53% cited improved portfolio diversification as the main reason they have made such a significant allocation to alternatives. Another 34% cited the attraction of higher returns as the main reason for making significant investments in alternatives."

Portfolio Diversification: Potential for enhanced portfolio returns

Does the addition of a managed futures component to a portfolio enhance overall returns?

The Chicago Board of Trade's booklet, "Managed Futures, Portfolio Diversification Opportunities," shows a portfolio with the greatest risk and least returns comprised of 55% stocks, 45% bonds, and 0% managed futures while a portfolio exhibiting the greatest returns and least risk, comprised 45% stocks, 35% bonds, and 20% managed futures.

Past performance is not necessarily indicative of future results.

The following chart shows the return expectancy curve generated by the addition of managed futures to a traditional portfolio:

Past performance is not necessarily indicative of future results.

Hypothetical example of a managed futures component within a portfolio:

The following hypothetical example should assist in better understanding how a relatively small investment in managed futures can enhance overall portfolio performance:

A $500,000 portfolio of stocks and bonds returning a 10% profit would yield profits of $50,000.

Now let's assume your total portfolio is $500,000 and you invest 80% in stocks and bonds ($400,000) and 20% in Managed Futures ($100,000). Let's assume at the end of the year you realize a 10% return on your stocks and bonds and a 25% return on managed futures. The result would be as follows:

$500,000 Portfolio % of Portfolio Return
Stocks & Bonds $400,000 80% allocation
10% Profit: $40,000
Managed Futures $100,000 20% allocation
25% Profit: $25,000
Total Profit: $65,000

Now let's assume you earn 10% on the 80% of your portfolio invested in stocks and bonds, but lose 10% in managed futures. The results would be as follows:

$500,000 Portfolio % of Portfolio Return
Stocks & Bonds $400,000 80% allocation
10% Profit: $40,000
Managed Futures $100,000 20% allocation
10% Loss: ($10,000)
Total Profit: $30,000

As evidenced in the hypothetical example shown above, by investing just 20% of your portfolio in futures the overall portfolio performance was significantly enhanced on a percentage weighted basis.

You can also see that a 10% loss in managed futures would still leave you with a net profit of $30,000 if your stock and bond allocation returned 10%.

Important Disclaimer: The above hypothetical example is strictly for illustration purposes only, to help you better understand the potential impact of portfolio diversification. In no way is the example to be construed as the returns you might receive in stocks and commodities. Of course, in actual investing, your results can be better or worse. The risk of loss exists in futures trading.

Portfolio Diversification: Opportunity for reduced portfolio volatility risk

Investors can utilize managed futures with a view to reducing volatility in their overall investment portfolio. There's a low correlation between the performance of managed futures and stock prices or interest rates.

Through a managed futures investment, investors have access to futures markets around the globe. Many of these markets are now electronically traded and offer sophisticated risk management tools. CTAs trade a host of liquid global markets ranging from currencies to stock indices, agricultural commodities, precious metals, base metals, interest rate products and so on.

Unlike other asset classes, where profits depend solely on price appreciation, opportunities in commodity futures trading exist in both rising and falling markets. Option strategies can also be employed by CTAs seeking better returns.

Thomas Schneeweis, Professor of Finance at the Center for International Securities and Derivatives Markets (CISDM) at the University of Massachusetts, Amherst released a benchmark study in June 2002 titled "The Benefits of Managed Futures" which supported use of managed futures as a way to reduce portfolio volatility risk. It states that managed futures:

• enhance portfolio returns in economic environments in which traditional stock and bond investment media offer limited opportunities, and that managed futures
• participate in a wide variety of new financial products and markets not available in traditional investor products

In his conclusion Professor Schneeweis wrote:"Thus managed futures are shown on average to have a low return correlation with traditional stock and bond markets as well as many hedge fund strategies and to offer investors the potential for reduced portfolio risk and enhance investment return. As important for properly constructed portfolios, managed futures are also shown to offer unique downside risk control with upside return potential.

Simply put, the logical extension of using investment managers with specialized knowledge of traditional markets to obtain maximum return/risk tradeoffs is to add specialized managers who can obtain the unique returns in market conditions and types of securities not generally available to traditional asset managers; that is, managed futures."

Portfolio Diversification: Opportunities in bull and bear markets

Managed futures can take advantage of price trends no matter which direction the markets move, and thus can generate positive returns even in a volatile economic environment that can cause stress to a typical stock and bond portfolio. With the combined potential for decreased portfolio risk and enhanced portfolio performance, managed futures are not only an attractive stand alone investment but in recent years are now becoming a very attractive addition to global asset management portfolios. They also hold the unique potential of improving the overall investment quality of that portfolio. This potential has been further substantiated by the landmark study of Dr. John Lintner of Harvard University, in which he noted that "the combined portfolios of stocks (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."

Investing in managed futures is speculative, involves a high degree of risk, and is not suitable for all investors. Past performance is not necessarily indicative of future results.

Portfolio Diversification: Ability to profit independent of the economic environment

This bar chart shows the comparison between the performance of managed futures and stocks during the five worst declines in U.S. stocks as represented by the S&P 500 index.

The data above supports the benefits of non-correlation which are inherent in managed futures portfolios and which also highlight the ability to profit independent of the economic environment.

The pie chart information was derived from the Barclays study which shows the performances of selected asset classes, the worst case declines, and how managed futures performed over the period of the study.

Portfolio Diversification: Managed futures employed as an inflation / deflation hedge

Managed futures trading programs can be designed to profit from major shifts in commodity asset prices and can act as an effective inflation or deflation hedge. The chart on the following page ranks the worst 10 months experience by the equity and debt markets from 1987 to 2003.

The blue bars shows the performance of CISDM Trading Advisor Qualified Universe Index (formerly known as the MAR Index). This established index tracks the managed futures industry and the peach bars show the performance of a traditional portfolio comprised of 50% stock and 50% bonds.

The chart reveals that managed futures produced positive returns in 9 of the 10 periods. This result clearly demonstrates the true diversification provided by managed futures during the investors' greatest time of need.

Portfolio Diversification: Global diversification in liquid markets

A successful managed futures trading advisor has the flexibility to go long or short with the markets. They can buy futures in anticipation of a rising market or sell futures in anticipation of a falling market, generating greater potential for profit regardless of current market conditions. With the advent of ever improving technologies came increasing access to a host of global futures exchanges which in turn allows managed futures trading advisors to diversify their trading systems by participating in over 150 different markets worldwide.

These markets include currencies, stock indices, financials, agricultural products, precious metals, energy products, and more. As a result, managed futures trading advisors have an extraordinary variety of venues and opportunities for profit potential and risk reduction through an array of non-correlated markets.

The table shows the explosive growth in global futures and options volume in selected markets over a one-year time frame in millions of contracts and the percent change in volumes over that short period. Trading volume for the first two months of 2007 rose to 2.13 billion contracts implying that volume for the year will exceed 12 billion contracts.

Portfolio Diversification: Stability and transparency of the global futures industry

Managed futures accounts, like all other accounts of customers doing business through a U.S. exchange, must be executed by and carried on the books of a "clearing member" (a brokerage firm or FCM that holds a membership in an exchange's clearing organization.) Once a trade between two clearing members is matched by the exchange, the rights and obligations under the futures or options contract do not run between the original buyer and seller; instead, they are between the seller and the clearing organization.

An exchange's clearing organization guarantees performance on every contract to each of its clearing members.

Although each exchange's clearing function operates somewhat differently, at minimum they all ensure that there are sufficient resources to meet obligations by:

• collecting performance bonds;
• marking contracts to the market at least once daily; and
• establishing capital requirements and maintaining minimum financial standards for clearing members.

Portfolio Diversification: Potential tax benefits versus stocks

According to the Tax Act of 1981, short-term profits in futures are treated as 60% long-term (therefore being subject to a maximum tax of 15%), and 40% short-term (normal taxable income). On the other hand, short-term trading profits in stocks (stocks held less than one year) are treated as 100% short-term.

This favorable tax treatment for futures can translate for those in the upper tax brackets, saving as much as 30% on taxes on short-term gains in futures versus stocks. Alternative investments such as Managed Futures are not suitable for all investors.

Transworld Managed Futures recommends managed futures should only be used with speculative capital, and that the investment not exceed 20% of investable assets or 10% of a client's overall net worth.

It is strongly recommended that any investment tax considerations should be reviewed with a qualified tax professional prior to investing.

There is a substantial risk of loss in trading commodity futures and options. Past results are not necessarily indicative of future results.