DISCLOSURE DOCUMENT OF MELISSINOS TRADING, LLC

Transcription

1 DISCLOSURE DOCUMENT OF MELISSINOS TRADING, LLC 9 Brandywine Drive Matawan, NJ Tel: (732) Michael@melissinostrading.com 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. Investment in Melissinos Trading, LLC s trading programs are limited to Qualified Eligible Persons (QEP) The delivery of this Disclosure Document at any time does not imply that the information contained herein is correct as of any time subsequent to the date shown below. The Date of this Disclosure Document is September 5,

2 RISK DISCLOSURE STATEMENT THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING: IF YOU PURCHASE A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF ALL TRANSACTION COSTS. IF YOU PURCHASE OR SELL A COMMODITY FUTURES CONTRACT OR SELL A COMMODITY OPTION OR ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS OR SECURITY DEPOSIT AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUESTED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT. UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A LIMIT MOVE. THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, SUCH AS A STOP-LOSS OR STOP-LIMIT ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS. A SPREAD POSITION MAY NOT BE LESS RISKY THAN A SIMPLE LONG OR SHORT POSITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY INTEREST TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS, AT PAGE 7, A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY INTEREST MARKETS. YOU SHOULD THEREFORE CAREFULLY STUDY THIS DISCLOSURE DOCUMENT AND COMMODITY INTEREST TRADING BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE 9. YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY ENGAGE IN TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE EFFECTED. BEFORE YOU TRADE YOU SHOULD INQUIRE ABOUT ANY RULES RELEVANT TO YOUR PARTICULAR CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH YOU INTEND TO TRADE FOR DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE IN BOTH YOUR LOCAL AND OTHER RELEVANT JURISDICTIONS. THIS COMMODITY TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING FUNDS IN THE TRADING ADVISOR S NAME FROM A CLIENT FOR TRADING COMMODITY INTERESTS. YOU MUST PLACE ALL FUNDS FOR TRADING IN THIS TRADING PROGRAM DIRECTLY WITH A FUTURES COMMISSION MERCHANT OR RETAIL FOREIGN EXCHANGE DEALER, AS APPLICABLE. 2

3 TABLE OF CONTENTS THE TRADING ADVISOR (MELISSINOS TRADING LLC) 4 PRINCIPAL S BACKGROUND 4 THE MELISSINOS TRADING SYSTEM 4 COMMODITY BROKER 6 ACCOUNT AND FEE INFORMATION 7 REFERRAL FEES 8 CONFLICTS OF INTEREST 8 LITIGATION 9 RISK FACTORS 9 NOTIONALLY FUNDED ACCOUNTS 11 CONVERSION CHART FOR MONTHLY RATES OF RETURN 12 PAST GAINS AND LOSSES 13 CONTRACTS TRADED ON U.S. & NON-U.S. EXCHANGES 14 PAST PERFORMANCE 15 Enclosures: 1) Qualified Eligible Person (QEP) requirements 2) Anti-Money Laundering Program 3) Customer Acknowledgement of Receipt of Disclosure Document 4) Notional Funds Letter 3

4 THE TRADING ADVISOR (MELISSINOS TRADING LLC) Introduction. Melissinos Trading, LLC (the MEL ) became a New Jersey limited liability company on August 9, It became registered with the Commodity Futures Trading Commission ( CFTC ) as a Commodity Trading Advisor ( CTA ) in November 2010 and Commodity Pool Operator ( CPO ) in September 2011 and a member of the National Futures Association ( NFA ) in November Michael G. Melissinos is the President and sole owner of MEL. MEL s contact information is: 9 Brandywine Drive Matawan, NJ Tel: (732) info@melissinostrading.com All original books and records for inspection are held at this location; copies of such documentation are held off the premises for added safety and security. MEL manages accounts for individuals, institutions, funds, or pension plans on a discretionary basis utilizing futures contracts in physical and financial commodities. For information on MEL s past trading performance as a registered CTA, see page 15. There have been no administrative, civil, or criminal proceedings pending, on appeal or concluded against MEL or Michael G. Melissinos at any time. History of Trading Programs. The Eupatrid Commodity Program, MEL s current program, began trading in January Originally only available through large individual managed accounts, the Eupatrid Commodity Program also became accessible in part through the Melissinos-Eupatrid, LP, a registered commodity pool that MEL launched in November Principal. Michael G. Melissinos became registered as a principal and associated person of MEL in November He has performed commodity market research for the company since inception. Mr. Melissinos received a bachelor s degree in accounting from Seton Hall University in From January 2007 to October 2007, he worked as a financial services staff accountant at Rothstein-Kass & Co, a public accounting professional services firm. From October 2007 to January 2009, he worked as an equity research trading desk analyst concentrating on healthcare equities at Bear Stearns and JP Morgan, two global investment bank and securities trading and brokerage firms. From February 2009 to May 2009, he was unemployed and conducted research on systematic technical trading. From June 2009 to December 2010, he worked as an equities trader at SMB Capital, a proprietary trading desk in New York, NY. Since March 2011, he has worked as a baseball pitching instructor at CK s Baseball4U, a baseball training facility, in Morganville, NJ. Since August 2012, he has worked a travel baseball coach at The Baseball Center NYC, a baseball training facility, in New York, NY. Mr. Melissinos is the market analyst, research programmer, and has developed MEL s trading system. THE MELISSINOS TRADING SYSTEM Current Investment Program. MEL currently offers one trading program, the Eupatrid Commodity Program. The offering trades a globally diversified portfolio of commodities and currency futures seeking above-average longterm growth unrelated to traditional investments such as stocks, bonds and real-estate. 4

5 Objective. The Melissinos Trading System (the System ) is responsible for trading the Eupatrid Commodity Program. Its objectives are to achieve above-average growth during any 5 to 15 year holding period with low correlation to global stocks, bonds and real-estate and to provide investors with a potential inflation hedge. Trading Strategy Overview. The basic premise of the System is to hold either long or short positions with the major price trend of each market in the portfolio. The System is designed to capture a significant portion of each market s total profit potential. The System does not predict which markets will trend or when they will trend. It also does not predict which markets will enter choppy periods or when they will become choppy. Instead, the System holds long positions in markets it defines the trend as up, short positions in down-trending markets and no position in the rare case of flat trending markets. The System expects to experience strings of losses and whipsaws from time to time. All decisions necessary to implement the System are derived from proprietary computer programs designed by the General Partner. Robust Strategies. The System s strategies are highly robust. Robust strategies are those that MEL expects to remain valid over many years. Highly robust techniques are based on very general, successful trading principles, are not optimized and do not exactly fit to any specific market situation. This lack of curve-fitting contributes to substantial volatility in this investment. MEL expects robust strategies remain valid and to increase the System s potential for above-average long-term growth. Systematic Technical System. The System is fully systematic though discretion is employed in portfolio composition and weighting. Typically, portfolio managers and trading systems are classified as systematic or discretionary or a combination of the two. Systematic traders follow non-emotional sets of rules often based on mathematical models of market behavior. They use their judgment in designing the models and trading systems. Discretionary traders apply intuition and judgment to make trading decisions. Trend Detection. MEL employs analytical methods to identify long-term trends. Comprehensive research by Mr. Melissinos led to the development of quantitative models. These models observe market data for price behavior that characterize a trend. The System generates buy and sell signals for initiating trades when price trends are identified. Investment decisions reflect MEL s trading models assessment of the market, not emotional responses to economic or political data. Portfolio Composition. The System trades a widely diversified portfolio of commodities, interest rates, stock indices and currency futures. Physical commodities such as metals, petroleum, grain, food and fiber futures make up about half of the portfolio weighting. Global interest rates, stock indices and currency futures make up the rest. The markets are chosen for their historical performance and customary liquidity. MEL believes that portfolio composition is one of the most important techniques in achieving diversification. Trading diverse markets reduces volatility in the portfolio, but at the same time increases stability and robustness. Markets are selected by conducting co-variance and correlation studies. These techniques identify markets that are as different from each other as possible. Risk Management. The System uses proprietary, advanced money management and risk control strategies. It embraces short-term volatility while employing sizable leverage in an effort to increase the potential for longterm gain. Some examples of strategies the System employs is 1) constant reassessment of overall portfolio risk exposure; 2) stop-loss order is placed when a trade is entered and never retreats from the initial position (see below); 3) a proportional betting variation in relation to current equity which results in an initial average 5

6 risk of under 2% per trade. Internal statistical boundary limits are in place as protection for the overall trading program. Stop-losses are used to balance the potential loss on a trade versus the opportunity for maximum profit. Stoplosses may not necessarily limit losses, since they become market orders upon execution. As a result, a stoploss order may not be executed at the stop-loss price. Aggressive Posture. The System accepts relatively high short-term volatility in an effort to make above average returns over a holding period of 5+ years. The expectancy of short-term volatility is because 1) it employs only robust trading strategies that are not curve-fit to any market condition; 2) it occasionally uses significant leverage in its risk management strategies; and 3) it holds through intermediate-term counter-trends when trying to capture long-term trends. Research. MEL plans on continuing its research to examine current trading methods and operations while exploring other opportunities. Some examples of proprietary statistical techniques that are continuously examined are sector analysis and correlation, parameter degradation studies, slippage analysis and drawdown analysis. See Page 14 for a listing of the futures contracts currently traded by the System. The composition of this portfolio may be modified, without prior notice to clients. The General Partner reserves the right to revise any method or strategy, including the markets traded, technical trading elements used and/or the applied risk management principles. Revisions, unless deemed material, typically will not be communicated to clients. The General Partner has discretion to override or modify any transaction signal generated by the System. For example, the General Partner has discretion to direct that the transactions signaled by a program not be executed at all, be executed in part, or be executed at a different price or in a different contract month. The General Partner has no duty to advise you of any such action. COMMODITY BROKER (FCM) MEL does not choose any one particular entity as its Futures Commission Merchant ( FCM ). The client retains the freedom to open an account with any FCM. Brokerage fees and other expenses to such accounts by the FCM may vary significantly and are negotiated between the client and his or her FCM. A reasonable commission rate that MEL accepts a client s FCM is between $3-10 per contract. Presently, MEL does not recommend the use of an Introducing Broker for its managed accounts. However, MEL will consider the use of an Introducing Broker for accounts of sufficient size. Potential clients may be introduced to MEL by Introducing Brokers of their choice. MEL reserves the right to approve such brokers, however, and to limit the amount of commission charged. Criteria for approval includes value of services provided, execution, commissions charged and, in some cases, the reputation and fitness of the broker. Approval of a broker by MEL does not constitute an endorsement of said broker MEL or its principal. MEL may, in its sole discretion, pay a referral fee to certain parties who are appropriately registered as compensation for the introduction and maintenance of client accounts. Such parties much be registered with the CFTC as an Introducing Broker or as an FCM. The FCM may remit some or all of its compensation to certain of its employees who are registered as Associated Persons. For further information, please see Referral Fees on page 8. 6

7 ACCOUNT AND FEE INFORMATION Minimum Account Size. The minimum investment for a managed account trading the Eupatrid Commodity Program is $500,000. MEL reserves the right to raise the minimum investment at any time and/or accept smaller amounts at its discretion. Minimum Term of Investment. The Eupatrid Commodity Program is not suitable for an investor seeking shortterm results. MEL requires no minimum term for managed accounts. However, MEL believes that the potential for a successful investment is proportional to the length of time the investment is allowed to work. It strongly recommends that a client commit to a minimum term of investment of at least five years to allow the best possible opportunity to capture the full benefits of the trading program. The Melissinos Trading System is longterm and best serves clients who are willing to make at least a five year commitment without withdrawing funds from the account, except to pay any tax liability on profits. The client always retains full control over withdrawal of his or her funds from his or her account at the FCM. The client must be aware that withdrawal prior to MEL s recommendation of a five-year minimum term of investment except to pay taxes on profits is not recommended by MEL. Fees. As compensation for its management services, MEL charges clients a monthly management fee based on account equity and/or a quarterly incentive fee based on performance. Certain persons, at the discretion of MEL, may pay reduced fees or may not be required to pay any fees to MEL. Fees that will be deducted directly from the client s account are calculated as follows: 1) MEL shall be paid a monthly management fee generally ranging from 0% to 1/12 th of 2% of Account Equity (0% to 2% annually), calculated at the end of each month and payable as of the end of each calendar month, and on the day an account closes, whether or not trading has been profitable. This fee is sometimes taken on a bi-monthly basis. Account Equity shall mean an account s total assets less liabilities, to be determined on the basis of generally accepted accounting principles, consistently applied, unless otherwise specified below. Account Equity will include the sum of all cash, U.S. Government obligations or other securities at market value, accrued interest receivable, and the current market value of all open commodity positions (as indicated by the settlement prices determined by the exchanges on which such positions are maintained). No reduction shall be made for brokerage commissions and other charges which would be incurred upon liquidation of such open positions. At the end of the first calendar month in which an account has traded, and after an account has instructed MEL to cease managing the account, the management fee shall be calculated pro rata based upon the number of days in the month that the account was managed by MEL. Deposits to or withdrawals from the account during the month are also charged on a pro rata basis. Management fees are payable whether or not the account is profitable and will not be returned to the client for any reason. 2) MEL shall be paid a quarterly incentive fee ranging from 20% to 30% of New Trading Profits. New Trading Profits represents, in general, the excess of the cumulative Gain/Loss from Commodity Trading, less Management fees, over its highest past value of any prior quarterly period (i.e. its new trading profits). The Gain/Loss from Commodity Trading is the net realized gain/loss from closed and completed commodity transactions (after brokerage commission and exchange and NFA fees) plus the increase/decrease in the value of the open positions at the end of each quarter (without reduction for commissions which would be incurred by closing such open positions). 7

8 If the client withdraws funds from the account, or reduces the Account Equity on a date other than the end of a month, the incentive fee described above would be determined on the portion of the equity no longer under the management of MEL as if such date were the end of a month and, if applicable, New Trading Profits would be proportionately reduced for the purpose of determining subsequent New Trading Profits. If MEL has a carryforward loss when a portion of the equity is withdrawn, whether at month-end or on another date, such loss would be proportionately reduced for purposes of determining subsequent New Trading Profits. Incentive fees which have been paid will not be returned in the event of subsequent losses. However, any account which has a decline in Account Equity as a result of trading losses (i.e., a decline in the cumulative Gain/Loss from Commodity Trading from its high) will not be required to pay an incentive fee until those losses are recovered. Additions and Withdrawals. MEL recommends that a client view his or her account as a long-term investment with the objective of seeking capital appreciation over time. Each client may wish to add or withdraw capital from their account at any time and in any amount but recommends that assets only be added or withdrawn at month-end with a minimum three-day prior notice given to MEL. MEL encourages assets not to be withdrawn before the recommended term of five years other than at year end to pay taxes on profits, if any. A client who makes additions or withdrawals not in accordance with MEL s recommendations may result in termination of his or her account by MEL without prior notice. Reports to Investors. MEL s clients receive regular reports of trade initiations and liquidations as well as monthly statements from the FCM. Also, clients will receive a monthly performance summary from MEL. REFERRAL FEES MEL agrees to pay a referral fee to persons or firms meeting CFTC registration requirements that refer clients to MEL s managed account program. Such fees will consist of a percentage of the fees earned by MEL from the management of the referred clients investment. MEL may offer referral fees for new referrals on a negotiated basis. The principal of MEL will not receive a referral fee or any fee other than the aforementioned management and incentive fees outlined in detail on pages 7 and 8 of this document. Thus, no conflicts of interest currently exist between MEL or its principal in regards to disbursing referral fees. A further discussion of current and potential conflicts of interest can be found below. CONFLICTS OF INTEREST MEL and Mr. Melissinos are free to engage in trading for their own proprietary accounts, although they currently do not do so. Such trading may be experimental in nature (and therefore different) and/or more aggressive than the trading for MEL s clients. Positions for such accounts may be opposite or placed before or after positions for client accounts. The record of trading in these proprietary accounts, when applicable, will be made available to clients upon request. Each client of MEL can open an account with any FCM as long as MEL is consulted and provides prior approval. Approval is based on ability to execute MEL s orders and clear the markets in the portfolio at reasonable commission rates. MEL enters all buy and sell orders at the same price for all accounts under its management trading a given market. MEL does not anticipate a conflict of interest in which some of the accounts under its control will hold positions opposite a client s. There may be unusual brief periods when such trading ahead conflicts could exist, however, due to lack of market liquidity or unforeseen difficulties on the part of brokers executing MEL s 8

9 orders. Any such discrepancies between a client s account and other accounts managed by MEL would be an unintentional function of trade execution, out of MEL s control, and expected to be brief in duration. Incentive fees are paid to MEL based on the percentage of trading profits. This arrangement may create an incentive for MEL to enter trades that are riskier or more speculative than would be the case if MEL were compensated solely by an asset-based management fee. MEL has no affiliation or business arrangements with any FCM, Introducing Broker or principal thereof, from which MEL would benefit directly or indirectly from the maintenance of a client s account. Since MEL does not participate in any brokerage commissions, there is no conflict of interest regarding increasing trading activity between MEL and/or any FCM with whom clients may choose to carry their accounts. LITIGATION There has been no material administrative, civil or criminal proceedings against MEL or Mr. Melissinos within the five years preceding the date of this Disclosure Document or ever. RISK FACTORS Among the risks of opening a futures trading account are the following: Volatility. Futures prices may exhibit a high degree of volatility. This volatility, combined with the inherent leverage used in futures trading can lead to large and sudden losses of capital. It may result in total loss of a client s investment or, in certain circumstances, a total loss in excess of a client s total investment. Leverage. The low margin deposits typically required in futures trading permit an extremely high degree of leverage. Accordingly, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the client. MEL leverages the amount of money under management. This could result in a loss of more than the client s initial investment for which the client would be financially responsible. Liquidity. The markets traded may become illiquid, which can prevent entering or exiting positions. This can result in sizable losses. Most United States exchanges limit fluctuations in most futures contract prices during a single day by regulations referred to as daily price fluctuation limits or daily limits. Daily limits prevent trades from being executed during a given trading day at a price above or below the daily limit. If the price of a futures contract moves to the limit price, it may be difficult, costly or impossible to liquidate a position. Such limits could prevent the Eupatrid Commodity Program from promptly liquidating unfavorable positions held in client accounts. Failure of the FCM. Under CFTC regulations, FCM s are required to maintain the client s assets in a segregated account. If the FCM fails to do so, a client may lose his or her money in the event of FCM bankruptcy. Even with proper segregation, a client may still lose his or her funds on deposit with the FCM should another customer of the FCM or the FCM itself fail to satisfy deficiencies in such other customer s accounts. Dependence on Michael Melissinos. MEL is dependent on the services of Michael Melissinos, and if the services of Mr. Melissinos become unavailable, MEL would cease its trading activities. Non-U.S. commodity exchanges. MEL may engage in trading on non-u.s. exchanges and markets. Such exchanges and markets involve certain risks not applicable to trading on United States exchanges and are frequently less regulated. Possible absence of a stable clearinghouse to make good on trades in the case of a 9

10 party refusing or being unable to fulfill the terms of a contract may result in considerable losses for the client. Futures traded on non-u.s. markets are also subject to the risk of fluctuations in the exchange rate between the local currency and the United States dollar and to the possibility of exchange controls. Stop-loss orders may not limit losses. MEL often uses stop-loss orders to protect positions. However, there is no assurance that such orders will be executed at the prices specified and limit the losses to the intended amounts. Examples include, but are not limited to: 1) markets opening beyond stop-loss orders; 2) illiquid markets may move substantially beyond stop-loss orders before execution; 3) breaking news may move markets substantially beyond stop-loss orders before execution; 4) markets may move beyond stop-loss orders and lock at the daily price limits preventing order executions; and 5) the exchanges may halt trading for any variety of reasons preventing stop-loss orders from being executed. Decisions Based on Technical Analysis. Trading decisions made on behalf of the client s account are based on strategies that utilize mathematical analyses of technical factors of past market performance. Profitability of any trading strategy based on this style is determined by the relationship of historical prices and parameter values to future price movements. MEL attempts to develop robust trading strategies that are successful under a wide variety of market conditions. There is no guarantee that these strategies will be effective in future market conditions. Additions of New Assets. Each new account and any addition to an existing account encounter a startup period which may incur certain risks related to the initial investment of such assets. These periods represent a risk in that the level of diversification of an account s portfolio may be lower than in a fully-committed portfolio. Moving to deploy newly invested capital, an account s level of cash and cash equivalents may be higher which may dampen returns either positively or negatively. Depending on market conditions, performance of a new account or existing account with an addition may be materially different from other accounts. Execution of Trades. MEL relies on computer and telephone for executing trades. If such equipment fails, MEL may not be able to execute trades, which could result in losses or missed trading opportunities. Possible Effects of Technical Trading Systems. MEL believes that in recent years there has been a substantial increase in the use of technical trading systems, especially trend-based systems. As capital under management increases, trading systems based on similar principles may attempt to initiate and liquidate positions around the same time at MEL which may affect the execution of trades to the detriment of client s accounts. Systems Failure. MEL s strategies are highly dependent on the proper functioning of its computer systems. The failure of MEL s hardware or software can disrupt trading or make trading impossible until the failure is fixed. Such failure resulting in the inability to trade could, in certain market conditions, cause an account to experience significant trading losses or miss opportunities for profitable trading. Disruptions or Inability to Trade Due to a Failure to Receive Timely and Accurate Market Data from Third Party Vendors. MEL s strategies depend on receiving timely and accurate market data from third party vendors. Failure to receive timely and accurate data for any reason can disrupt and adversely affect MEL s trading until such failure is corrected. Other. This is an investment subject to a high degree of risk which may not be suitable for all investors. Investors can lose a large amount of money in this investment for a variety of reasons. 10

11 The foregoing does not purport to be a complete explanation of the risks involved in trading futures. Potential clients should carefully study the entire Disclosure Document and commodity trading in general before determining to open an account with Melissinos Trading, LLC. MEL permits clients to partially fund their accounts. NOTIONALLY FUNDED ACCOUNTS 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 ADVISORS 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. THE AMOUNT OF FUNDS IN A NOTIONALLY-FUNDED ACCOUNT WILL CHANGE AS PROFITS AND LOSSES AND ADDITIONS AND WITHDRAWALS OCCUR. THEREFORE, THE RATE OF RETURN WILL CHANGE ACCORDINGLY. FOR EXAMPLE, A $10,000,000 ACCOUNT THAT MAKES 10 PERCENT OR $1,000,000 IN ONE MONTH, WILL BASE THE NEW RATE OF RETURN ON $11,000,000 FOR THE RATE OF RETURN THE NEXT MONTH. 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 COMMISSIONS MERCHANT IN ORDER TO DETERMINE THE ACTUAL ACTIVITY IN YOUR ACCOUNT, INCLUDING PROFITS, LOSSES AND CURRENT CASH EQUITY BALANCE. TO THE EXTENT THAT THE EQUITY IN YOUR ACCOUNT IS AT ANY TIME LESS THAN THE NOMINAL ACCOUNT SIZE YOU SHOULD BE AWARE OF THE FOLLOWING: 1) ALTHOUGH YOUR GAINS AND LOSSES, FEES AND COMMISSIONS MEASURED IN DOLLARS WILL BE THE SAME, THEY WILL BE GREATER WHEN EXPRESSED AS A PERCENTAGE OF ACCOUNT EQUITY. 2) YOU MAY RECEIVE MORE FREQUENT AND LARGER MARGIN CALLS. 3) THE DISCLOSURES WHICH ACCOMPANY THE PERFORMANCE TABLE MAY BE USED TO CONVERT THE RATES OF RETURN ( ROR S ) IN THE PERFORMANCE TABLE TO THE CORRESPONDING ROR S FOR PARTICULAR PARTIAL FUNDING LEVELS. In order to assist prospective clients in assessing the effect notional funding has on an account s cash rate of return the following table titled Notional Funding Percentage Rate of Return Conversion Table has been included. The vertical (or y axis) lists hypothetical rates of return of a fully funded account while the horizontal (or x axis) list hypothetical percentage funding levels. 11

12 Full Funded Rates of Return Notional Funding Percentage Rate of Return Conversion Table 100% 1000% 500% 333% 250% 200% 167% 143% 125% 111% 100% 90% 900% 450% 300% 225% 180% 150% 129% 113% 100% 90% 80% 800% 400% 267% 200% 160% 133% 114% 100% 89% 80% 70% 700% 350% 233% 175% 140% 117% 100% 88% 78% 70% 60% 600% 300% 200% 150% 120% 100% 86% 75% 67% 60% 50% 500% 250% 167% 125% 100% 83% 71% 63% 56% 50% 40% 400% 200% 133% 100% 80% 67% 57% 50% 44% 40% 30% 300% 150% 100% 75% 60% 50% 43% 38% 33% 30% 20% 200% 100% 67% 50% 40% 33% 29% 25% 22% 20% 10% 100% 50% 33% 25% 20% 17% 14% 13% 11% 10% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% -10% -100% -50% -33% -25% -20% -17% -14% -13% -11% -10% -20% -200% -100% -67% -50% -40% -33% -29% -25% -22% -20% -30% -300% -150% -100% -75% -60% -50% -43% -38% -33% -30% -40% -400% -200% -133% -100% -80% -67% -57% -50% -44% -40% -50% -500% -250% -167% -125% -100% -83% -71% -63% -56% -50% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage Level of Actual Funding Beginning Equity Nominal Account Size includes additional amounts ( notional funds ), and represents the accounts fully-funded trading level. Additions represents all actual and notional additions made to the accounts at any time during the month. Withdrawals represents all partial or complete withdrawals (including withdrawals of notional funds) from the accounts at any time during the month. Profits and additions to an account will be treated as additions to actual funds and will increase nominal account size and losses and withdrawals to an account will be treated as withdrawals to actual funds and will decrease nominal account size. 12

13 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS PAST GAINS AND LOSSES The General Partner has managed client accounts since January Past gains and losses experienced by a composite of the General Partner s accounts would be comparable to the size of losses expected to be experienced by an individual account. The General Partner assigns the same level of risk to individual and other accounts. Since inception, our clients have suffered through one period that resulted in losses of over 20% as shown below. Clients have also suffered through smaller losing periods as well (shown below). The results are based on a composite of Melissinos-owned programs ever offered and include client results (net of pro forma incentive fees) since January LOSS LEN GTH ( months) Recovery ( months) PEAK VALLEY % 16 - Aug-11 Dec % 1 3 Apr-11 May % 1 2 Inception Jan-11 The average duration of the three loss periods is 6 months, the average loss is 10.99% and the average time to recover (recoup the loss) is 2.5 months, not including the ongoing recovery from the most recent drawdown. A summary of results for various trading periods shown below gives an indication of the kinds of gains and losses you may experience over the long-term future. Gains and Losses Summary (Net of Pro Forma Incentive Fees) Based on a Composite of Melissinos-owned programs January 2011 August 2014 TRADIN G PERIOD BEST WORST 1 Month 9.56% -9.06% 3 Month 17.86% % 6 Month 25.05% % 12 Month 17.40% % 18 Month 27.81% % 24 Month 15.23% % 13

14 CONTRACTS TRADED ON U.S. AND NON U.S. EXCHANGES Agriculture C urrencies Livestock Coffee (ICE US) Australian Dollar (CME) Feeder Cattle (CME) Corn (CBOT) British Pound (CME) Lean Hogs (CME) Cotton (ICE US) Canadian Dollar (CME) Live Cattle (CME) Orange Juice (ICE US) Euro (CME) Soybeans (CBOT) Japanese Yen (CME) M etals Soybean Meal (CBOT) New Zealand Dollar (CME) Copper (COMEX) Wheat (CBOT) Swiss Franc (CME) Gold (COMEX) Sugar (ICE US) U.S. Dollar Index (ICE) Palladium (COMEX) Silver (COMEX) Bonds Energies Eurp BTP (EUREX) Brent Crude Oil (ICE) Stock s U.S. 10-Yr Note (CBOT) Heating Oil (NYMEX) Hang Seng (HKE) U.S. 30-Yr Bond (CBOT) RBOB Gasoline (NYMEX) IBEX 35 (MEFF) WTI Crude Oil (NYMEX) MSCI Emerging Markets (NYSE LIFFE) Nasdaq 100-mini (CME) S&P 500-mini (CME) Key to Exchanges CBOT - Chicago Board of Trade CME - Chicago Mercantile Exchange NYMEX - Division of New York Mercantile Exchange ICE US - ICE Futures US EUREX - European Exchange HKE - Hong Kong Exchanges & Clearing Ltd. LIFFE - London International Financial Futures & Options Exchange MEFF - Mercado Español de Futuros Financieros 14

15 PAST PERFORMANCE The table in this document has not been audited by independent public accountants. However, MEL believes that the information contained in the table fairly represents the composite results of its past performance. Composite performance presentations combine individual accounts that are traded according to the same trading program, but may have differences that affect the actual rate of returns. The composite rate of return does not indicate any rate of return actually achieved by a single account, but it provides a valid representation of the accounts included in the composite. No representation is being made that accounts managed by MEL as managed accounts will achieve profits in the future similar to those shown in the tables. In addition, MEL currently operates Melissinos-Eupatrid, LP, a registered commodity pool. Currently, this commodity pool is the only account managed by MEL. MEL began managing the commodity pool in January EUPATRID COMMODITY PROGRAM The Eupatrid Commodity Program trades a globally diversified portfolio of commodities and currencies seeking above-average long-term growth unrelated to stocks and bonds. It is the current available offering of MEL and is traded via the Melissinos Trading System. PERFORMANCE CAPSULE (UNAUDITED) Name of the CTA: Type of Program: Inception of Trading by the CTA: Jan 11 Inception of Trading in the Program: Jan 11 Total assets traded by the CTA as of June 1, 2014: $1,609,051 Total assets traded in the Program as of June 1, 2014: $1,609,051 MELISSINOS TRADING, LLC Eupatrid Commodity Program For Required Period (Since 01/11) Worst Monthly Percentage Drawdown -9.06% 5/11 Worst Peak-to-Valley Drawdown % 8/11 12/12 # of Accounts Open in the Program 1 Accounts Opened and Closed with Profits in the Program 3 (+6.60%, +6.90%) Accounts Opened and Closed with Loss in the Program 1 (-2.80%) Percentage Rate of Return¹ Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Annual² NT NT 6.90 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS Performance is based on a composite rather than account by account, which creates an averaging effect on the results. Each individual s account s performance is likely to differ from the composite. Material differences among the accounts may be due to several factors including, but not limited to, varying advisory fees and the timing of their payment, brokerage commissions, miscellaneous expenses and the size of the account. In addition, results may vary depending on factors such as the order in which executed trades are allocated among the various accounts and/or the order in which trades for the various accounts are entered, the date 15

16 the account started trading and the length of time the account was open. As a result of the variables, individual account performance may be more of less favorable than the composite performance herein. ¹ "Percentage rate of return" represents the percentage change in net asset value during the month. ² "Annual" represents the monthly compounded rate of return over twelve months. ³ "Drawdown" means losses experienced by the pool over a specified period. ⁴ "Worst peak-to-valley drawdown" is the greatest cumulative percentage decline in net asset value during any period in which the initial value is not equaled or exceeded by a later value, measured on a monthly basis. NT Between November-December 2011, Melissinos Trading transitioned to a commodity pool structure. As a result, no trades or fees were taken. 16

17 Portfolio Requirement QUALIFIED ELIGIBLE PERSON ( QEP ) STATUS Portfolio Requirement means that Investor (a) owns securities (excluding interests in issuers with which Investor is affiliated) and other investments with an aggregate market value of at least $2 million; (b) has on deposit for its own account with a futures commission merchant, at any time during the preceding six months, $200,000 or more in exchange-specified initial margin and option premiums for futures and other commodity interest positions, or (c) has a portfolio comprised of a proportionate combination of the investments specified in (a) above and the margin and premium specified in (b) above -- e.g., investments of $1,000,000 and margin and option premiums of $100,000). Natural Persons (i.e., Individuals) 1. Investor meets the Portfolio Requirement AND either -- (a) An individual whose net worth, or joint net worth with spouse, exceeds $1,000,000 as of the date of this Agreement. For purposes of this paragraph, net worth means the excess of total assets at fair market value, including home furnishings and automobiles over total liabilities. The value of the primary residence of such individual should be excluded from the net worth calculation except when indebtedness secured by the residence exceeds the value of the home which should be considered a liability and deducted from the individual s net worth. (b) has had individual gross income of $200,000 or more in the past two calendar years, or joint gross income with spouse of $300,000 in those years and, in either case, has a reasonable expectation of his individual or joint gross spousal income, respectively, reaching the same level in the current year. 2. Investor is a qualified purchaser under Section 2(a)(51) of the Investment Company Act of 1940, as amended (and is not required to meet the Portfolio Requirement). Pension and Profit-Sharing Plans 3. Investor meets the Portfolio Requirement AND is -- (a) An employee benefit plan under ERISA: (i) whose decision to invest in the Program is made by a plan fiduciary (as defined in ERISA 3(21)) that is a registered investment adviser, bank, savings and loan association, or insurance company; or (ii) with total assets exceeding $5 million; or (iii) that is a self-directed plan, and the decision to invest in the Program is made by a QEP; or (b) A plan established and maintained by a state, a political subdivision thereof, or any agency or instrumentality thereof, for the benefit of its employees and with total assets exceeding $5 million. Individual Retirement Accounts 17

18 4. An IRA whose owner is a QEP under (1) or (2) above. Partnerships, Corporations and other Entities 5. Investor meets the Portfolio Requirement AND is-- (a) A commodity pool, trust, insurance company separate account or bank collective trust: (i) with total assets exceeding $5 million, (ii) that was not formed for the purpose of investing in the Program and (iii) whose decision to invest in the Program was directed by a QEP. (If the entity does not meet these tests, it may still qualify as a QEP under (10) below.); (b) A corporation, a partnership or a Massachusetts or similar business trust, but which is not a commodity pool, that: (i) has total assets exceeding $5 million and (ii) was not formed for the specific purpose of investing in the Program; (c) An insurance company (as defined in 2(1) of the Securities Act) acting for its own account or for the account of a QEP; an investment company registered under the ICA, or a business development company as defined therein which was not formed for the specific purpose of investing in the Program; a bank (as defined in 3(a)(2) of the Securities Act) or savings and loan or other institution (as defined in 3(a)(5)(A) of the Securities Act) acting for its own account or that of a QEP; or an organization described in 501(c)(3) of the Internal Revenue Code with total assets exceeding $5 million; or (d) A governmental entity (including the U.S., any state, or a non-u.s. jurisdiction) or political subdivision thereof, or a multinational or supranational entity, or any instrumentality, agency or department of any of the foregoing, if authorized by law to invest in a commodity pool or account. Investment Professionals and Related Persons 6. A CFTC-registered commodity pool operator ( CPO ) or commodity trading advisor ( CTA ) who: (a) has been registered and active as such for two years or (b) in the case of a CPO operates pools with aggregate assets exceeding $5 million, or in the case of a CTA advises accounts with aggregate assets deposited with futures commission merchants exceeding $5 million. 7. With respect to an exempt account (such as the Program): (a) The CTA or investment adviser of the exempt account offered or sold, or an affiliate of any of the foregoing; (b) A principal of the company offering the exempt account or the CTA or investment adviser of the exempt account, or an affiliate of any of the foregoing; (c) An employee of the company offering the exempt account, the CTA or investment adviser of the exempt account, or of an affiliate of any of the foregoing (other than employees performing solely clerical, secretarial or administrative functions with regard to such person or its investments) who, in connection with his or her regular functions or duties, participates in the investment activities of the exempt account offered, or other accounts advised by the CTA or the investment adviser of the exempt account, or by the affiliate; provided that such employee has been performing such functions or duties for or on behalf of the exempt account offered, CTA, investment adviser or affiliate, or 18

19 substantially similar functions or duties for or on behalf of another person engaged in providing commodity interest, securities or other financial services, for at least 12 months; (d) Any other employee of, or an agent engaged to perform legal, accounting, auditing or other financial services for, the exempt account offered, the CTA or investment adviser of the exempt account offered, or any other employee of, or agent so engaged by, an affiliate of any of the foregoing (other than an employee or agent performing solely clerical, secretarial or administrative functions with regard to such person or its investments); provided, that such employee or agent: (i) Is an accredited investor as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended; and (ii) Has been employed or engaged by the company offering the exempt account, commodity trading advisor, investment adviser or affiliate, or by another person engaged in providing commodity interest, securities or other financial services, for at least 24 months; (e) The spouse, child, sibling or parent of a person who satisfies the criteria of 7(a)-(d) above; provided that: (i) an investment in the exempt account by any such family member is made with the knowledge and at the direction of the person; and (ii) the family member is not a qualified eligible person for the purposes CFTC Rule 4.7(a)(3)(xi); 8. A CFTC-registered futures commission merchant. 9. An SEC-registered broker or dealer. Entities That Are Wholly-Owned by QEPs 10. An entity in which all the owners or participants are QEPs. Non-United States Persons 11. An individual who is not a resident of the United States. 12. A corporation, partnership or other entity organized principally for passive investment (such as a commodity pool or investment company) that (a) was not formed for the principal purpose of enabling U.S. Persons to participate in the Program or in other commodity pools or accounts exempt under CFTC Rule 4.7; and (b) is 90% or more owned by Non-U.S. Persons and U.S. Persons that are QEPs. 13. A corporation, partnership or other entity, other than a passive investment entity as described immediately above, organized under the laws of, and with its principal place of business in, a non-u.s. jurisdiction. 14. A pension plan for the employees, officers or principals of an entity organized and with its principal place of business outside the U.S. 15. An estate or trust whose income is not subject to U.S. income tax, regardless of source. 19

20 ANTI-MONEY LAUNDERING PROGRAM The Fund s investor identification procedures are based on the premise that it will only accept an investment from a prospective investor only after: the General Partner has confirmed the identity of the investor and that the investor is investing as principal and not for the benefit of any third party; or if the investor is investing on behalf of other underlying investors, the General Partner has confirmed the identities of the investor and the underlying investors; or the General Partner has determined that it is acceptable to rely on the investor due diligence performed by a third party, such as a fund administrator or an investor intermediary, with regard to the investor (and underlying investors, if applicable). The General Partner shall have the right to request such information as they deem necessary to verify such information. In the event of delay or failure by a prospective investor or an investor to produce any information required for verification purposes, the General Partner may refuse to accept subscriptions or may compulsorily affect the withdrawal of such investor from the Fund. The General Partner, by written notice to any investor, may suspend the distribution and withdrawal rights of such investor or the payment of distribution and/or withdrawal proceeds to such investor if it reasonably deems it necessary to do so to comply with anti-money laundering regulations applicable to the Fund, the General Partner, or any service provider to the Fund. Each prospective investor and investor shall be required to make such representations to the Fund as the Fund and the General Partner each may require in connection with applicable anti-money laundering programs, including, without limitation, representations to the Fund that such prospective investor or investor is not a prohibited country, territory, individual or entity listed on the United States Department of Treasury Office of Foreign Assets Control ("OFAC' ) website, and that it is not directly or indirectly affiliated with any country, territory, individual or entity named on an OFAC list or prohibited by any OFAC sanctions programs. Such prospective investor or investor shall also represent to the Fund that amounts paid by it to subscribe for Shares were not directly or indirectly derived from activities that may contravene United States Federal, state or international laws and regulations, including, without limitation, any applicable anti-money laundering laws and regulations. 20