1. Introduction
The date of this Disclosure Document is OCTOBER 31, 2011.
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 above. Further, the
Disclosure Document shall not be used or relied upon by any investor opening an
account with Dorset Futures Corporation (Dorset) more than nine months past the
date stated above. Futures trading
is speculative in nature, involves a high degree of risk, and is not suitable
for all investors. An investor
should consult his financial advisor before opening a managed futures account. No
person is authorized by Dorset to give any information or to make any
representation not contained herein.
Dorset
Futures Corporation was incorporated in January 1988 in the state of
Pennsylvania. Dorset Futures Corporation was originally registered as a
Commodity Trading Advisor and Commodity Pool Operator on January 21, 1988, in
the state of Pennsylvania. The Commodity Pool Operator registration was
withdrawn on March 1, 1989. Dorset Futures Corporation was re-registered as a
Commodity Pool Operator on May 8, 1990, again in the state of Pennsylvania.
Those registrations were withdrawn on February 1, 1995. Dorset Futures
Corporation was re-registered as a Commodity Trading Advisor on August 20,
2002, in the state of Pennsylvania. Dorset Futures Corporation is registered
with the Commodity Futures Trading Corporation (ÒCFTCÓ) as a commodity trading
advisor (CTA). Dorset Futures
Corporation is a member of the National Futures Association (NFA) in the same
capacity, and was registered with the NFA on September 9, 2002. Dorset Futures
CorporationÕs offices are located at 976 Dutton Mill Road; West Chester, PA
19380, and its main telephone number is 610-688-8714.
2.
Business Background
Bruno A. Giordano is President,
co-founder, and a director of Dorset futures Corporation. He was registered as
a principal and associated person and a director of Dorset Futures Corporation on
August 20, 2002. Mr. Giordano oversees administration and compliance. Mr.
Giordano is manager of the Dorset Futures Corporation Branch office which was
listed as such on October 13, 2010 and is located at 522 Dorset Road, Devon, PA
19333. Mr. Giordano has also been and continues to be President , founder, and
a director of Dorset Financial Services Corporation, a firm which offers
financial services to the public (formerly known as Capital Accumulation
Services, Inc.), from January 1981 to the present. Mr. Giordano is a Certified Financial Plannerª with a B. S.
from the United States Military Academy and an MBA from Syracuse University. Mr. Giordano is Series 3, Series 7 and Series
24 licensed.
Hugh Yeakel is co-founder, associated
person and a director of Dorset Futures Corporation. He has a B. S. degree from
Villanova University. He is Series
3 licensed. From April 1992 to
October 1997 he was a floor trading member of the New York Futures
Exchange. From January 1990 to the
present, he continues to be a trading consultant to Dorset Financial Services
Corporation. Mr. Yeakel is responsible
for research and day-to-day placement of orders. Mr. Yeakel was registered as a
principal of Dorset Futures Corporation in June 2002 and as an associated
person of Dorset Futures Corporation on August 20, 2002.
Past performance is disclosed on page 13 of
this document.
3.
Trading Program
DorsetÕs investment philosophy is directed towards
long-term capital appreciation through speculation in commodity futures
trading. This is achieved by
pursuing a trading program utilizing E MINI Stock Index Futures without
reliance on a necessary upward trend in the general direction of market prices.
An investment with Dorset, therefore, may be appropriate for a portion of the
investment portfolio of potential investors whose objective is diversification
and the possibility of substantial gain while recognizing the substantial risks
of speculation in futures trading.
There is no representation being made that the
trading program will be successful in achieving this goal.
Because
speculative trading in commodity interests presents the risk of substantial
loss, only persons with the ability to absorb such loss should consider
participating in this program. The
program has been developed for investors who are willing to commit funds for a
period of at least eighteen months.
The
trading methods applied by Dorset are proprietary, complex and confidential. As a result, the following discussion
is, of necessity, general in nature and not intended to be exhaustive. Dorset plans to continue the testing
and reworking of its trading methodology and, therefore, retains the right to
revise any methods or strategy, and/or the money management principles
applied. Such ongoing revisions,
unless deemed material, will not be made known to clients.
The
trading methods that have been developed, utilize an algorithm that selects
from the E MINI, S & P 500, NASDAQ, and the Emini Dow which are traded on
the CME GLOBEX, and the Russell 2000 which is traded on the ICE
(Intercontinental Exchange). On any given day we may trade all, none or some
combination of the above listed futures contracts. The manager will make any decisions
regarding the addition or deletion of a particular commodity. A portion of the equity in each
clientÕs account may be invested in U.S. Treasury Bills.
We
will make every effort to close any positions still open at the end of the
trading day. Our intention is that no open positions be carried overnight.
The
trading method adjusts the size of the positions in any given futures contract
as to number of contracts per account, based on technical parameters predicting
perceived strength of the trend, and total value of the account.
The trading method currently does not allow more
than two round-turn trades per day per futures contract selected.
While
the trading method may identify specific points to enter a trade on any given
day, these points may not be realized, and therefore, the trade may not be
consummated. There are other times
when no trade is indicated by the trading method for any given day. As a consequence of these two
situations, there are days when the trading method will not trade.
There
is absolutely no assurance given as to the frequency of trading that will be
realized.
The
trading method also determines how much risk to take per trade (i.e., how far
away from the entry point to place the initial protective stop), based on recent
market volatility.
It
is our intention to risk approximately one half (1/2%) to one and one half
(1½%) percent of the total Net Asset Value of the account on any given
trading day on each position taken. When the trade is placed, we set stops in an
effort to limit the loss that can occur on any one trade. There is no assurance
that these stops will be filled at the specified price due to slippage or other
factors.
A Non-Discretionary System
Trade
selection is not subject to intervention by DorsetÕs principals and, therefore,
is not subject to the influences of individual judgment. As a mechanical trading system, the
Dorset trading method embodies all the expert knowledge required to analyze
market data and direct trades, thus eliminating the risk of basing a trading
program on one indispensable person.
Equally as important is the fact that mechanical methods can be tested
in simulation for long periods of time, and the trading methodÕs empirical
characteristics can be measured.
The
trading methodÕs output is rigorously adhered to in trading the portfolio and,
intentionally, no importance is given to any external or fundamental
factors. While it may be seen as
unwise to ignore information of obvious value, such as that pertaining to
political or economic developments, the disadvantage of this approach is far
outweighed by the advantage of the discipline that rigorous adherence to such a
trading method instills. An
individual making trading decisions, and paying attention to day-to-day events,
could easily be deflected from the discipline required to adhere to such a trading
method.
4. Account
Documentation, Size and Funding
Dorset
recommends that accounts have at least $100,000 to trade.
Clients
are required to execute a management agreement with Dorset, which constitutes
the full and complete understanding between the parties. Authorizations are executed by the
client and furnished to the FCM to empower Dorset to make trades for the
clientÕs accounts and to collect fees for its services. If a client intends to (1) commit funds
from outside accounts, or (2) open an account on behalf of an ERISA plan,
specific additional acknowledgments must be signed by the client at the time an
account is opened.
5. New Accounts
A
clientÕs account may incur certain risks relating to the initial investment of
its assets. Notwithstanding any
delay in becoming fully invested, a clientÕs account may commence trading
operations at a time that is determined after the fact to have been an
unpropitious time.
6.
Introducing Brokers
Dorset will not work with introducing brokers.
7. Futures Commission
Merchant
A
participating customer must select an FCM to maintain its account because, as a
commodity trading advisor, Dorset is not permitted to hold customersÕ funds,
securities, commodities or other property. A participating customer retains ultimate control over his
account and may close out the account completely at any time upon notice in
accordance with his agreement with his FCM. In such case, the funds, securities, commodities and other
property held in the customerÕs account, after deduction for commissions,
premiums, fees and other expenses, with be returned directly to the customer or
to such person as the customer directs.
Dorset has a working relationship
with the FCM FCStone LLC and requires that clients use this FCM.
FCStone, LLC – Bankruptcy Case, Case
No. 07-14987
On August 17, 2007, Sentinel Management Group, Inc. filed for bankruptcy
protection in the United States Bankruptcy Court for the Northern District
Illinois. On August 29, 2008, the bankruptcy trustee of Sentinel filed
adversary proceedings against FCStone, LLC, and other futures commission
merchants in the Bankruptcy Court for the Northern District of Illinois seeking
avoidance of previously directed federal court order of the transfers or
withdrawals of funds received by the
futures commission merchants within 90 days prior to the filing of the Sentinel
bankruptcy petition, as well as avoidance of post-petition distributions and
disallowance of the proof of claim filed by FCStone, LLC. The trustee seeks
recovery of pre- and post-petition transfers totaling approximately $15.5
million. On April 8, 2009, the bankruptcy trustee filed an amended complaint
adding a claim for unjust enrichment. The Sentinel cases have been reassigned
within the United States District Court for the Northern District of Illinois,
and the trustee has filed a motion for summary judgment. FCStone, LLC intends
to defend the matter vigorously, and to coordinate its defense with the other
futures commission merchants. The other futures commission merchants are: ABN
AMRO; Clearing Chicago LLC; Crossland LLC; Peregrine Financial Group, Inc.;
Velocity Futures LLC; Rand Financial Services, Inc.; MF Global, Inc.; Penson GHCO
and Penson Financial Futures, Inc.; Farr Financial Inc.; IFX Markets, Inc. and
IPGL Ltd.; Cadent Financial Services LLC; Country Hedging, Inc.; UBS Securities
LLC; TradeMaven Clearing LLC; American National Trading Corp.; Alaron Trading
Corporation and MBF Clearing Corp.
On
October 23,2010, FCStone LLC (ÒFCSÓ) entered into a settlement with ICE US (the
ÒExchangeÓ) for the sum of $345,000 regarding alleged rule violations by FCS
which may have occurred relating to the account of Fausto Jaquez (ÒJaquezÓ), an
exchange member that cleared though FCS. Included in the fine was a profit of
$195,044 that resulted from unauthorized transactions entered by Jaquez that
Stone liquidated. Settlement
was without the admission or denial of guilt: Exchange Rule 5.02(c) in two (2)
instances by failing to report a deficit of ten thousand ($10,000) or more in
the account of Member with floor trading privileges; Rule 5.02(b) in two (2)
instances by failing to inform the Exchange that FC Stone accepted
non-liquidating trades for an account in deficit which belonged to a Member
with floor trading privileges; and Exchange Rule 2.29(e) in two (2) instances
by failing to: (1) appropriately monitor an account for financial and
operational risk; and (2) inform another Member was using the log-in ID of
another Member to execute trades on the electronic platform.
FCS
is occasionally involved in civil litigation and administrative proceedings
brought by its customers. Except as discussed above, the current or pending
civil litigation or administrative proceedings in which FCS is involved are not
expected to have a material effect upon its condition, financial or otherwise.
FCS vigorously defends, as a matter of policy, civil litigation, reparation,
and arbitration proceedings brought against it.
Dorset will charge $4.50 per round turn Electronic
Futures trade. Dorset Futures Corporation must pay $4.00 commissions to FCStone
LLC and $0.04 fee to the National Futures Association. The $0.46 difference
will be retained by Dorset Futures Corporation and all or a portion of it may
be used for trading platform fees. (i.e.
CQG platform.)
Dorset may, in its sole discretion, pay certain
parties who are appropriately registered, portions of the fees that Dorset
earns as compensation for the introduction and maintenance of client
accounts. Such parties must be
registered with the CFTC.
The
FCM will charge the customer commissions of $4.00 on commodity interest
transactions as noted above.
Commission charges will be reflected on confirmations/purchase and sales
statements sent to the customer.
In addition, the account will be charged NFA fees on trades executed for
the customerÕs account. A participating
customer is directly responsible for the payment to the FCM of all margins,
brokerage commissions and fees, options premiums and other transaction costs
incurred in connection with transactions effected for the customerÕs account
pursuant to instruction provided by Dorset.
8. Order Entry and
Allocation
Dorset intends to use the
same general methods and strategies to trade all its clientsÕ accounts. In rendering trading advice, Dorset
will never knowingly or deliberately favor the account of any client over the
account of any other client.
However, this is not to say that all accounts will achieve the same
rates of return. Depending on its
position on the allocation list, an account is likely to receive a better or
worse price per trade than other accounts and this will impact individual rates
of return. Every attempt will be
made by the FCM to distribute trades evenly.
To minimize any possible conflicts of interest,
block order fills are assigned by Dorset as follows:
Split Fills—assigned in order of account
number, lowest fill to lowest account number, highest fill to highest account
number
Dorset will select the type
of order to be used in executing client trades and may use any type of order
permitted by the exchange where the order is placed.
The
number of contracts that Dorset believes can be bought or sold without unduly influencing
price adversely may at times be limited.
9.
Fees
The management agreement provides for a monthly management fee to be paid from
the
clientÕs account, regardless of whether the account is profitable, and a monthly performance fee payable solely out
of net new appreciation in the accountÕs nominal account value. These standard fees are as follows:
A.
The monthly management fee equals
0.1% of the average daily net asset value
of
the account, or approximately 1.2% per annum. Additions or withdrawals will be pro-rated for actual time
during the month that money was available in the account.
For purposes of calculating the management fee, net
assets will mean total
assets,
including all cash and cash equivalents, accrued interest less liabilities, and
shall be determined in accordance with generally-accepted accounting principles
under the accrual basis of accounting.
B. The
monthly performance fee equals
twenty-three percent (23%) of the appreciation of the net asset value of the
clientÕs account during each calendar month. Appreciation, as used herein, means the excess (if any) of
the account value as of the end of any calendar month, payable over the highest
level of the account value as of the end of any prior month (or date the
account commences futures trading, whichever date the account value was
higher), increased by additional capital contributed, but reduced by
withdrawals, distributions and performance fees as of or subsequent to the date
of such highest account value. If
any payment shall have been made to Dorset for appreciation experienced in the
clientÕs account, and the account thereafter incurs a net loss for any
subsequent month, Dorset shall be entitled to retain performance fees
previously paid on the account.
However, no subsequent performance fee shall be paid to Dorset until the
account has again experienced net new appreciation.
C. Any
accounts closed during the month will be billed pro-rata as of the close of
business of the day the account is closed.
D. The
Advisor reserves the right to share any portion of these fees with third
parties in accordance with regulatory and industry standards.
10. Conflicts of Interest
DorsetÕs
Trading of Accounts and Other Activities.
Inasmuch as Dorset will participate in round-turn commission
rates (See paragraph 7 of this document), that may be construed by some as a
potential conflict of interest. The greater the number of trades, the greater
the amount of commissions that will accrue to Dorset Futures Corporation.
Dorset Futures will strictly adhere to its trading method and will not
knowingly or deliberately increase trading to increase commissions.
Because Dorset charges performance fees, it may have
an incentive to place riskier trades than one would normally expect.
Dorset proposes to manage the accounts of a number
of clients and to solicit actively the accounts of individuals and pools.
Certain of these accounts may have significantly larger amounts for trading
commodity interests than others. Dorset will endeavor to handle all accounts in
an equal manner, regardless of size or ownership.
Dorset Futures and its principals or employees may
trade futures interest contracts for their own accounts. In such proprietary trading, Dorset
Futures or such persons may trade their own accounts aggressively and, thus,
may assume more risk than Dorset Futures will normally assume on behalf of
accounts managed by it. Such
trading may be conducted in accordance with the same approach as is used in
trading accounts managed by Dorset Futures or pursuant to different approaches
or strategies and may be done at brokerage rates which are substantially lower
than the rate which clients pay.
Because trading for such accounts may be conducted pursuant to different
trading approaches or strategies from those employed for clients, trades for
such accounts may occur before trades for client accounts or may be opposite to
those for client accounts.
Accordingly, such proprietary accounts may experience trading results
which are substantially different from those experienced by client
accounts. The records of such
proprietary trading will not be available to clients for inspection. Since Dorset Futures and its principals
may trade futures interest contracts for their own proprietary accounts, as
described above, it is possible that Dorset Futures and/or its principals may,
from time to time, be competing with other accounts managed by Dorset Futures
for similar futures interest contract positions in one or several markets or
may take positions in their proprietary accounts which are opposite to the
positions taken in client accounts.
Dorset Futures will in the future manage and trade
additional accounts. Dorset
Futures will not, however, knowingly or deliberately employ a trading method on
behalf of any account which it manages or trades which it knows to be inferior
to any trading method which is employed for other account of similar size or
knowingly or deliberately favor one account over any other such account.
Notwithstanding the foregoing, speculative position
limits allow an advisor to control only a limited number of futures contracts
in any one commodity. Therefore,
Dorset Futures is potentially subject to conflicts in any one commodity. Therefore, Dorset Futures is
potentially subject to conflicts of interests among the accounts it advises
which are competing for a limited number of contracts. Thus, there is a potential conflict of
interest between the individual clientÕs interest in maintaining a larger
position in a specific futures interest, and Dorset Futures interest in
maintaining a smaller position in an individual clientÕs account in order to
provide positions in the specific futures interest to other accounts under
management. In addition, Dorset
may conduct experimental trading in proprietary accounts to test new systems or
variations of basic trading methods and/or strategies. Results of proprietary
accounts traded by principals will
not be included in performance figures.
There are no known actual or potential conflicts of
interest presently known to Dorset Futures and/or its principals which have not
been disclosed herein.
11. Principal Risk Factors
Dorset
directs the trading for customers in futures contracts (collectively referred
to as ÒfuturesÓ or Òfutures tradingÓ).
Before committing to a futures trading program, prospective clients
(ÒclientsÓ) should consult their financial advisor to inform themselves fully
on futures trading and to determine if futures are suitable for their
investment needs. Futures trading
involves many risks. Prospective
clients should review this section and the entire Disclosure Document to become
familiar with some of the more significant risks.
Market Risks
Futures Trading is Speculative and Volatile.
Futures contracts are speculative and have a high
degree of price variability. This
variability, combined with the leverage used in futures trading, can cause
large and sudden losses of capital and may result in the total loss of your
investment. It is possible that you may lose all of or more than your
investment.
Futures
speculation is a highly speculative Òzero sumÓ investment activity in that for
every gain there is an equal and offsetting loss. Such trading also has no inherent value or participation in
economic growth. Unlike typical securities
investments, there is no consistency of yield (as in the case of debt) or
growth (as in the case of equity).
Futures Trading is Highly Leveraged.
The
leverage in futures trading arises from the small amount of margin necessary to
purchase a futures contract.
Because the amount of margin funds necessary to be deposited in order to
enter into a futures contract position is typically about 2% to 10% of the
total value of the contract,
Dorset is able to hold positions with a face value equal to several
times the net assets of a clientÕs account. A relatively small movement in the price of a contract can
produce a loss that is equal to or substantially greater than the margin
deposit.
Your Investment Could be Illiquid.
Futures
positions cannot always be liquidated at the desired price. This illiquidity can occur when the
market is thinly traded, which means that there is a relatively small volume of
buy and sell orders. Some futures
contracts are subject to daily price fluctuation limits. These limits are restrictions imposed
by some futures exchanges on the maximum price fluctuation that may occur in a
futures contract on any one trading day.
For example, if the price of a futures contract rises to its daily
limit, no trades may take place that day above the limit price. On many occasions in the past, futures
prices have moved to the daily limit for several consecutive days with little
or no trading, and such situations could recur. Therefore, Dorset may be unable to liquidate certain unprofitable
positions, thereby increasing the loss to a clientÕs account.
Disruptions
may occur in any market due to political events. For example, foreign governments may take or be subject to
political actions that disrupt the markets in their currency or in major
exports. These actions could
result in losses to a clientÕs account.
Unexpected
market illiquidity has caused major losses in recent years in some
sectors. There can be no assurance
that the same will not happen to an account at any time or from time to time.
Dorset
will use stop loss orders and intends to carry no positions overnight. These
actions are intended to ameliorate losses due to restrictions on trading and
unexpected market illiquidity.
There can be no guarantee that stop loss orders will
be executed at the desired price, or that positions will be liquidated prior to
the market close.
Day Trading Risk.
The
fact that Dorset intends to not carry any positions overnight is characterized
as day trading. Day trading may result in excessive commissions being charged
to each account.
An Investment in Managed Futures May Not Diversify an Overall
Portfolio.
Historically,
managed futures have been generally non-correlated to the performance of other
asset classes such as stocks and bonds.
Non-correlation means that there is no statistically valid relationship
between the past performance of futures contracts and stocks or bonds (as
opposed to negative correlation, where the performance would be exactly
opposite between two asset classes).
Because of this non-correlation, an account with Dorset cannot be
expected to be automatically profitable during unfavorable periods for the
stock market or vice versa. The
futures markets are fundamentally different from the securities markets, making
any comparison between them inherently limited.
Trading Risks
Dorset Analyzes Only Technical Market Data, Not Any Economic Factors
External to Market Prices.
The
trading methods used by Dorset for clientsÕ accounts are technical in nature,
meaning that they use market statistics (i.e., price) to predict future price
movement. The profitability of
trading using such methods ultimately depends on, among other things, the
occurrence of significant price trends (i.e., sustained movements, up or down,
in futures contract prices). Such
trends may not develop, and there have been significant periods in the past
without price trends. No assurance
can be given that DorsetÕs methods will be successful in the future, or that
investment results of a clientÕs account will be similar to those achieved by
Dorset in the past.
The
likelihood of profitability could be materially diminished during periods when
events external to the markets themselves have an important impact on
prices. During such periods, DorsetÕs
analysis of the marketÕs statistical data history could establish positions on
the wrong side of the price movements caused by such events.
Increased Competition from Other Trend-Following Traders Could Reduce
Dorset Futures CorporationÕs Profitability.
There
has been a dramatic increase over the past 10 to 15 years in the volume of
assets managed by trend-following trading systems like the Dorset
programs. In 1980, the assets in
the managed futures industry were estimated at approximately $330 million; by
the end of 2000, this estimate had risen to approximately $35 billion. It is also estimated that over half of
all managed futures trading advisors rely primarily on trend-following systems. This implies increased competition,
which could operate to the detriment of a clientÕs account, because it may
become more difficult for Dorset to implement its trading strategy if other
trading advisors using technical systems are, at the same time, also attempting
to initiate or liquidate futures positions or otherwise alter trading patterns.
Trading Methods Involve Proprietary Methods.
Because
specific elements of DorsetÕs trading methods are proprietary, a client will
not be able to determine the full details of the methods or whether the methods
are being followed.
Trades May be Executed at Different Prices for Different Accounts.
The
trading methods used by Dorset identify the price of a particular futures
contract which corresponds to the modelsÕ entry or exit point for a trade. Once the entry or exit point has been
reached, Dorset attempts to execute the trade for all accounts at the best
price possible. Trades may be
executed at different times for different accounts. There is no guarantee that every client account will receive
a trade at the price identified by the models or at the same price as other
accounts.
Speculative Position Limits May Alter Trading Decisions.
The
CFTC and the exchanges have established position limits, known as Òspeculative
position limits,Ó on the maximum net long or short positions that any person
may hold or control in futures contracts.
All accounts controlled by Dorset are combined for speculative position
limit purposes. If a position in
those accounts were to approach the level of the particular speculative
position limit, such limits could result in Dorset modifying its trading
decisions or liquidating certain futures positions.
Increase in Assets Under Management May Affect Trading Decisions.
Dorset
has not agreed to limit the amount of additional equity which it may manage,
and is actively engaged in seeking major new accounts. The more equity Dorset manages, the
more difficult it may become to trade profitably because of the difficulty of
trading larger positions without adversely affecting prices and
performance. Accordingly, such
increases in equity under management may require Dorset to modify its trading
methods, which could have a detrimental effect on a clientÕs investment.
Trading Errors
Though Dorset will attempt to correct trading errors
as soon as they are discovered, it will not be responsible for poor executions
or trading errors committed by brokers or itself. All errors, except those resulting from willful misconduct
or fraud, will be considered a cost of doing business.
Tax Risks
Fees May Be Characterized as ÒInvestment Advisory Fees.Ó
The
Internal Revenue Code of 1986, as amended, provides that investment advisory
fees are to be aggregated with unreimbursed employee business expenses and
other expenses of producing income, collectively known as Òaggregate investment
expenses,Ó and the aggregate amount of such expenses will be deductible only to
the extent that such amount exceeds 2% of a taxpayerÕs adjusted gross
income. In addition, aggregate
investment expenses in excess of the 2% threshold, when combined with certain
other deductions, are subject to a reduction generally equal to 3% of the
taxpayerÕs adjusted gross income in excess of $100,000 to a maximum of 80% of
the taxpayerÕs itemized deductions otherwise available for the year. Such limitation could substantially
reduce the deductibility for federal income tax purposes on any amount deemed
to constitute Òinvestment advisory fees.Ó
The management and performance fees payable to Dorset may be
characterized as investment advisory fees, subject to the above
limitation. EACH CLIENT,
THEREFORE, MAY PAY TAX ON MORE THAN THE NET PROFITS GENERATED IN HIS
ACCOUNT. EACH PROSPECTIVE CLIENT MUST
CONSULT AND MUST DEPEND ON HIS OWN TAX ADVISER REGARDING THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE DORSET FUTURES
CORPORATION TRADING PORTFOLIOS.
Other Risks
Failure of Brokerage Firms.
In
addition to market risk in entering into futures contracts, there is a credit
risk that a counterparty will not be able to meet its obligations to DorsetÕs
clients. The counterparty for
futures contracts traded in the United States is the clearinghouse associated
with that specific exchange. In
general, clearinghouses are backed by the corporate members of the clearinghouse,
who are required to share any financial burden resulting from the
non-performance by one of its members, and as such, should significantly reduce
this credit risk. Dorset trades
for its clients only with U. S. exchanges. All positions of DorsetÕs clients are valued each day on a
mark-to-market basis. There can be
no assurance that any clearing member, clearinghouse, or counterparty will be
able to meet its obligations to DorsetÕs clients.
Under
CFTC regulations, FCMÕs are required to maintain customerÕs assets in a
segregated account. If a customerÕs FCM fails to do so, the customer may be
subject to risk of loss of funds in the event of its bankruptcy. Even if such
funds are properly segregated, the customer may still be subject to a risk of a
loss of his funds on deposit with the FCM should another customer of the FCM or
the FCM itself fail to satisfy deficiencies in such other customerÕs accounts.
Bankruptcy law applicable to all U.S. futures brokers requires that, in the
event of the bankruptcy of such a broker, all property held by the broker,
including certain property specifically traceable to the customer, will be
returned, transferred or distributed to the brokerÕs customers only to the
extent of each customerÕs pro-rata share of all property available for
distribution to customers. If any futures broker retained by the customer were
to become bankrupt, it is possible that the customer would be able to recover
none or only a portion of its assets held by such futures broker.
Technology/Computer Trading.
The manager relies on numerous forms of computer and
communications technologies which are subject to failure. Reasonable precautions to protect this
technology including the utilization of multiple computers, surge protection,
battery backup, etc., are implemented; however, these precautions are imperfect
and incomplete. As such, the
failure of any equipment maintained by either the Manager or by any service
providers is a constant risk to the ability of the Manager to transact business. Substantial losses by the ManagerÕs
clients are possible due to technology failures.
The Manager utilizes software that executes orders
electronically. Although, phone
backups are available and are used as needed, the failure of these electronic
execution programs could result in substantial losses to client accounts.
Adverse effects of Increased Regulation of Financial Futures
As a result of the stock market decline during
October 1987 and general volatility, there has been considerable public discussion,
and congressional investigation, of the desirability of imposing major
additional regulation on the financial and (in particular) the stock index
futures markets, including proposals for reduced speculative position limits
and significantly increased margin requirements.
Although it is not possible to predict what, if any,
regulatory changes will in fact be imposed on the financial and stock index
futures markets, any such regulations could significantly restrict DorsetÕs
access to, and ability to allocate and reallocate assets to and from, financial
and stock index futures positions, to the material detriment of the Dorset
Futures Trading Program. Any such
regulations may also impair the liquidity of the financial and stock index
futures markets, increasing the transaction cost associated with financial and
stock index futures contracts.
Proposed Regulatory Change Is Impossible to Predict.
The
futures markets are subject to comprehensive statutes, regulations and margin
requirements. In addition, the
CFTC and the exchanges are authorized to take extraordinary actions in the
event of a market emergency, including the retroactive implementation of
speculative position limits or higher margin requirements, the establishment of
daily price limits, and the suspension of trading. The regulation of futures transactions, inside the United
States, is a rapidly changing area of law and is subject to modification by
government and judicial action. In
addition, various national governments have expressed concern regarding the
need to regulate the ÒderivativesÓ markets in general. The effect of any later regulatory
change on a clientÕs account is impossible to predict, but could be substantial
and adverse.
12. Investor Privacy Policy
Dorset
obtains nonpublic information about clients from their account documentation,
as well as in the course of processing redemption requests. No such information is disclosed except
as necessary in the course of processing subscriptions and redemptions and
otherwise administering the account—and then only subject to customary
assurances of confidentiality.
Access to such information is restricted to the fullest extent permitted
by law, and Dorset maintains physical, electronic and procedural controls in
keeping with federal government standards to safeguard such information. These
standards are reasonably designed to (i) ensure the security and
confidentiality of an investorÕs records and information; (ii) protect against
any anticipated threats or hazards to the security or integrity of an
investorÕs records and information; and (iii) protect against unauthorized
access to or use of an investorÕs records or information that could result in
substantial harm or inconvenience to any investor. Stringent confidentiality agreements are required to be
completed and signed by any vendors used by Dorset Futures Corporation.
13. Performance Disclosure
This
document describes DorsetÕs E MINI trading program.
Dorset
offered an S&P 500 Index Trading Program, which was discontinued as of
December 28, 2006..
The following pages have separate performance
disclosure for each of the two trading programs.
# #
#
Dorset Futures
Monthly and Annual Rates of Return
|
Yr.
|
Jan.
|
Feb.
|
Mar.
|
Apr.
|
May
|
June
|
July
|
Aug.
|
Sep.
|
Oct.
|
Nov.
|
Dec.
|
YTD
|
|
2006
|
|
|
|
|
|
|
|
(3.11)
|
1.41
|
(6.89)
|
2.37
|
(1.36)
|
(7.62%)
|
|
2007
|
(1.01)
|
5.36
|
(3.88)
|
(3.21)
|
(2.40)
|
(2.40)
|
(2.63)
|
(2.47)
|
(0.6)
|
23.65
|
4.75
|
4.89
|
18.54%
|
|
2008
|
11.02
|
0.97
|
(0.08)
|
8.90
|
(0.57)
|
(6.64)
|
5.65
|
1.94
|
11.87
|
(0.11)
|
10.47
|
10.20
|
65.89%
|
|
2009
|
(1.15)
|
(6.25)
|
18.96
|
0.39
|
4.74
|
(0.76)
|
1.42
|
(1.23)
|
6.86
|
(1.44)
|
(8.01)
|
(7.96)
|
2.75%
|
|
2010
|
3.43
|
(2.44)
|
(2.71)
|
(0.38)
|
4.49
|
(8.92)
|
13.16
|
(2.62)
|
6.81
|
1.43
|
4.46
|
0.85
|
17.04%
|
|
2011
|
1.96
|
(0.41)
|
3.04
|
(1.03)
|
(2.74)
|
(1.68)
|
0.23
|
4.12
|
(3.32)
|
2.54
|
|
|
2.43%
|
Notes:
1.
Drawdown means losses experienced by composite
of all accounts over a specified period.
2.
Monthly Rate of Return is calculated by dividing
the Net Performance by the Adjusted Beginning Net Asset Value. The monthly returns are then compounded
to arrive at the year-to-date rate of return.
3.
Worst Peak-to-Valley drawdown is the greatest
cumulative percentage decline in net asset value of the composite account due
to losses during a period in which the initial net asset value is not equaled
or exceeded by a subsequent net asset value.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Dorset Futures
Monthly and Annual Rates of Return
|
Yr.
|
Jan.
|
Feb.
|
Mar.
|
Apr.
|
May
|
June
|
July
|
Aug.
|
Sep.
|
Oct.
|
Nov.
|
Dec.
|
YTD
|
|
2006
|
(13.94)
|
(2.05)
|
1.94
|
9.23
|
2.12
|
.84
|
.84
|
4.06
|
(4.00)
|
(9.20)
|
1.02
|
3.15
|
(7.87%)
|
Notes:
1. Drawdown
means losses experienced by composite of all accounts over a specified period.
2.
Monthly Rate of Return is calculated by dividing
the Net Performance by the Adjusted Beginning Net Asset Value. The monthly returns are then compounded
to arrive at the year-to-date rate of return.
3.
Worst Peak-to-Valley draw-down is the greatest
cumulative percentage decline in net asset value of the composite account due
to losses during a period in which the initial net asset value is not equaled
or exceeded by a subsequent net asset value.
