MANAGED FUTURES STRATEGY FOCUS: SPREAD TRADING

November 8, 2010

While not everyone will admit it, I would bet more people than not have woken up in the middle of the night thinking they've found the perfect
way to guarantee they don't lose money trading futures - by going long and short simultaneously and locking in any difference. It takes a while
to explain to these people that the positions would be offset simultaneously, resulting in neither a gain nor a loss.

But all is not lost with this idea of not caring whether the market goes up or goes down, for while you can’t be long and short the same market
simultaneously, you can buy and sell NEARLY the same market simultaneously. For example, buying July 2010 Corn futures and selling
December 2010 Corn futures in what is known as a spread trade puts you both long and short nearly the same market, Corn Futures.

Turns out spread trading is more than just an interesting aspect of futures markets, with approximately 20% of the managers on Attain’s
expanded watchlist (recommended plus programs undergoing due diligence) incorporating spread trading in one fashion or another. In addition
the top performer on the recommended list thus far in 2010 – Rosetta Capital – is a long time spread trader.

What is Spread Trading?

Spread Trading is the simultaneous purchase and sale of something very similar, economically speaking. In commodity markets, that usually
means buying one contract month of a market while selling another contract month of the same market. For example, buying July 2010 Corn
futures and selling December 2010 Corn futures is a spread trade.

Depending on whether you buy or sell the spread - the goal of a spread trade is for the difference between the two sides of the trade to either
get further apart or closer together. In our example above, you would want either July Corn rising faster than December Corn does, or
December Corn falling faster than July Corn.

Doing a spread with different contract months of the same market is called a Calendar Spread, which are really a phenomenon unique to future
markets, as the same futures market (like Corn) has many different contracts based on when in the future they expire. (Corn has different
contracts which expire in March, May, July, September, and December each year). There is no such mechanism in the stock market. For
example, you can't buy the July IBM stock and sell the December IBM stock - there is only the stock and whatever price it is trading at.

There are other types of spreads which buy and sell different markets simultaneously. Some of these are in markets very closely related - such
as buying Soybeans and selling Soybean Oil (the crush spread) or buying Crude Oil and selling Gasoline (the crack spread). Other spreads may
be in less obviously related markets like Corn and Cattle (the cattle eat the corn), or Two Year Note futures and 30 year bond futures. Any time
you hear about the Yield Curve on the news, that is really the spread price between different interest rate products.

Benefits of Spread Trading:

One of the biggest appeals of spread trading is the perception that it can reduce risk, with the potential for losses on one side of a spread trade
hedged by gains on the other side. Fueling this perception is the fact that the margins for holding a spread trade are usually much less than the
margin required for putting on an outright position.

But this isn't to say spreads have no risk, as the two sides of the trade can and will go in completely opposite directions from time to time
causing substantial losses. And we actually heard three separate managers (Kim Ferizi of Auctos, Kip Thompson of Rosetta, and Emil Van Essen
of his self named CTA) comment on the perceived lower risk in spreads – saying that the low margins mask what can be a much riskier market
than the outright futures. Kim Ferizi of Auctos may have said it best: “…we believe Margin Requirements are a bit optimistic in Spread markets
due to an arguably higher Kurtosis in the returns of calendar spreads compared to outrights.”

Emil Van Essen of Emil Van Essen noted several other factors making spread trading attractive to a trading program, including “…spread prices
exhibiting more consistent behavior… and spreads being able to trade on factors such as term, shape of curve, rolls, and seasonality not always
influencing the outrights.”

Another benefit of spread trading is the ability to create synthetic positions and markets. John Roe, the manager of Roe Capital put it quite
nicely in saying the following:

Spread trading offers...the advantage of entering a synthetic position, one not possible to achieve [via] an outright position in the
futures. [And] the mechanics of a spread offer the benefit of reducing beta while not putting you delta neutral. I can leg into a short
term position and [then] take advantage of market volatility by legging out of my position when it benefits the constituent parts of my
trade, assuming the overall position and price activity allow for it. In short, spreads allow you to leverage into a position which would
have taken much more risk to get into via an outright position and yet offer the same leverage benefit of that outright position should
the trade work out. Of course it is possible to lose money on all legs of such a position, but the goal is to reduce risk, maintain alpha
and therefore profit.

Along those same lines, Kip Thompson of Rosetta mentions the advantages of each trade being a two sided trade, where:

“…by evaluating both sides of the trade,[we] are able to trade around the core position by “lifting one side” and or allowing the flexibilit
to exit one side temporarily. Example: Currently short near term Cattle due to worldwide supply issue forcing near term liquidation and
long far dated cattle because a hot summer resulted in a poor birth rate; [but can exit either side of the trade if either of those
conditions don’t pan out, while leaving the other side with exposure to the other fundamental factor]

Finally, spread prices can offer an alternate source of return when the underlying components are locked in a trading range. Consider the
following chart comparing the 2010 YTD percent gain/loss for Crude Oil futures on a backadjusted basis with the percent gain/loss for the
December 2011/December 2010 Crude Oil futures spread price (the difference between the Dec 11 and Dec 10 prices).
You can see that while Crude prices have been range bound most of the year, oscillating between up 20% on the year and down -20%; the
spread price has seen movement more than 20 times that amount – selling off over 60% to start the year, then rallying up 554% from the low
point. This graph alone should help explain the appeal of spread trading to many managers and their investors.

[Quick note - In Europe - Spread Trading means something completely different, with it being another name for spread betting. Spread betting
is essentially how mainly UK citizens can go short stock, indices, etc., as tax and other laws make it prohibitive to short stocks as we do here in
the US. Spread betting should not be confused with spread trading as we are discussing it here, as they are completely different.]

Spread Trading CTAs

Attain has five programs on its recommended list which specialize in spreads exclusively, and follows another four programs which incorporate
spreads into their models.

Recommended On Watchlist

Emil van Essen Spread Trading-High Auctos Capital Management Global

Min Diversified

Emil van Essen Spread Trading-Low

Min Global Ag, LLC

NDX Capital Management Abednego III Futures Neural Network

Roe Capital Mgmt - Monticello Equity

NDX Capital Management Shadrach Spreads

Rosetta Capital Management, LLC

Emil van Essen Spread Trading-Low Min: One of the more unique spread trading stories, the Emil Van Essen program looks to exploit volume
inflows and outflows around when the very large long only commodity tracking ETFs and other funds roll their futures contracts. With such
institutional money always long, they have to always exit (sell) the nearer month contract (resulting in sell volume), and enter (buy) the further
out contract (resulting in buy volume). Van Essen positions accounts to profit from this, more often than not being short the nearer month, and
long the further out month (they are currently short March ’11 Sugar and long May ’11 Sugar, for example). Of course, it isn’t as easy as it
sounds, with the trick being exactly when to get into and out of these ‘Roll Arbitrage’ positions. That timing, not the fact that they engage the
market in this way, is what gives Van Essen their edge, in their opinion. And it has been an edge, with just five losing months out of 34 since th
beginning of 2008 and positive returns in 2009 when nearly all managed futures programs which don’t sell options struggled. For more, see our
Managed Futures Spotlight: Emil Van Essen Spread Trading

NDX Capital Management Shadrach: NDX has one trick, and one trick only in both their Shadrach and Abednego programs, and that skill is
spread trading the Hog markets, Lean Hog futures to be exact. NDX uses both discretionary and systematic methods to decide when and where
to enter their calendar spread positions (i.e. Long Dec Hogs, short March Hogs), and they trade on both sides of the spread, sometimes looking
for it to expand, sometimes to contract. The discretionary methods used are based in pattern recognition and the advisor's pinpointing if
seasonal trends will play out in the current year, and if so, when they will start and end. The systematic methods are proprietary and haven't
been revealed to Attain, but we know they do use some Advanced GET logic. NDX burst onto the scene in 2006 with proprietary returns of over
100% per year, which were since removed from the track record, and have posted quite respectable returns since that time with a compounded
annual return of about 24%. They are a hairs breadth away from posting a new all time high. For more, see our Managed Futures Spotlight
NDX Capital Management

Rosetta Capital Management, LLC: Rosetta is a discretionary spread trader in the agriculture sector (mainly Grains and Livestock) that relies on
fundamental market analysis to pinpoint when the relationship between Livestock prices and the grains which feed such livestock are out of line
or moving back into line. They have been at for more than a decade (track record beginning Apr. 2000), but their performance was sideways to
down from April 2008 through July of this year while, in the managers words, fundamentals went out the window because of the financial crisis,
quantitative easing, and China. But they have since broken out to the upside in a big way with gains of +20% in October (+36% on the year).
Many had written off Rosetta as a maturing CTA unable to produce these types of returns again (they had 9 in their first 47 months, then 0 in
the next 77…), but we’re hopeful this is a sign of a return to their prior glory. For more, see our Managed Futures Spotlight: Rosetta Capital
Management
 Auctos Capital Management Global Diversified: Auctos Capital Management considers itself an “opportunistic strategy” in that they run 9 unique
fully automated systems across different time frames, strategies, and markets. System hold times can range from the 40 day average out to
250 days, the strategies look at 70 global markets, and the strategy diversification ranges from pattern recognition to volatility breakout to
rd
calendar spreading (our interest here). As it relates to spread trading, approximately 1/3 of their risk capital is budgeted to spread trading,
which they view as a possible return generator during times of range bound price action. They are relatively new (36 month track record), but
we have been tracking their strategy for live accounts over the past few months; and were impressed with their ability to post positive in 2009
while other diversified managers struggled.

Global Ag, LLC This fundamental discretionary Agriculture trader uses spreads enough to be mentioned here. Head trader David Skudder
explains his program by telling you that he does not rely on technical analysis nor charting for trading decisions, but rather on the information
flow that he and his team compile on a daily basis. That information flow consists of analysis ranging from crop reports to import/export
activities to currency movements. From their perspective, they are trying to identify any changing fundamental(s) that may provide or alter a
view on price direction. They will utilize spreads on both futures and options when they feel that type of trade gives them the best chance of
success given their anticipated direction. Risk is constantly evaluated in their program and positions may last less than 1 day or for weeks. How
is this going for Global Ag? Pretty well…. to the tune of being ahead +87.9% through October. Our excitement over that gaudy 2010 return
thus far is tempered by their lack of track record length (the end of this month will mark their second full year of trading), but this is definitely a
program to keep an eye on.

III Associates III Futures Neural Network: III Associates (pronounced triple i) definitely have a different approach, with the belief that
“machines can learn and trade”. Part of that learning has been the addition of spread trading to the III portfolio by the machines, which were
‘allowed’ to naturally evolve. It all sounds a bit spooky at first, but upon further inspection of III Associates they are doing some very advanced
stuff with computer hardware and custom made software. The results haven’t followed suit this year, unfortunately, with a YTD loss of about -
8% through September; but we’re intrigued by the direction ‘triple i’ are taking and will continue to monitor their progress.

Roe Capital Management, Inc. Monticello Equity Spreads Portfolio: Roe is an emerging manager with a unique methodology. They will enter
trades via an inter-market spread between the e-mini S&P 500 futures and e-mini Nasdaq 100 futures; with the emini S&P always the ‘leader’ in
the trade, where Roe will buy the SP and sell the Nasdaq when a long trade is signaled, and sell the SP and buy the Nasdaq when a short trade
is signaled. The program will typically look to enter the position with a ratio of five long ES contracts to one Short NQ contract, but trades can
also be entered at a ratio of 5/4 and 7/4. Another unique characteristic is their use of legging out of, and back into the spread, on a daily basis
depending on market conditions that day. All of this uniqueness has worked out so far, with a compound rate of return of about 15% and the
program right at all time equity highs 30 months after launching. For more, see our Managed Futures Spotlight: Roe Capital Management

Conclusion:

The unique benefits of spread trading, and the recent performance of some of the spread traders sure have an appeal. But what is most
appealing in our opinion about spread trading is the ability to open up another ‘dimension’ of sorts.

While you may be diversified in your current portfolio between a discretionary trader, long volatility multi-market manager, and short volatility
option selling program – each of those require directional movement (or lack thereof in the case of option selling) to see success. Spread tradin
opens up a new ‘dimension’ in which there doesn’t necessarily need to be large direction moves (or no directional moves) for profits. Just refer
back to the Crude chart above to see the differences in opportunities between the two ‘dimensions’ in Crude. And spread trading can open up
even more ‘dimensions’ in terms of creating new synthetic markets such as long Gold/Short Silver and so on.

While different sorts of spreading (think merger arbitrage) exist in markets around the world, the ease with which one can do various spread
trading techniques (be it calendar spreads in the same market such as Emil Van Essen and NDX execute, cross market spreads in related
markets the likes of which Rosetta does, or the unbalanced spreads of Roe Capital) in the futures markets appears unique to us.

Given this uniqueness, the fact that spread traders on average use very little margin; and that these managers are generally affordable
(minimums as low as $50K); we’re recommending to all of our clients to have some spread trading exposure in their portfolios.
Jeff Eizenberg

IMPORTANT RISK DISCLOSURE

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Feature | Week in Review |

Week in Review : New two year highs for stocks, commodities fuel multi-market
managed futures gains
The watershed QE2 announcement from the FOMC coupled with stronger readings from the consumer areas of the U.S. economy and a much anticipated
balancing of Congress from the November elections added to the overall commodity rally of the past few months. The much anticipated announcement from the
FOMC that QE2 will be a program consisting of $600 billion in additional Treasury debt purchases fanned the flame that inflation will indeed be a part of the future.
The good news continued to cascade from the economic front with a string of favorable consumer numbers and a better than hoped monthly non-farm payroll
number. The final touches of earnings season also produced another week of favorable figures. European business readings continued to be constructive, although
anxiety exists about possible sovereign debt problems. The Pacific Rim headlines also aided in the overall rally with news of rate hikes and another round of growth
reports pointing to firm economies in the region.

The food sector continued to be dominated by strong price activity, especially Cotton futures +13.55% on continued ideas of shorter crops in the U.S. and China Th
balance of the complex followed along with Sugar +9.07%, Soybeans +2.85% Wheat +1.59% Lean Hogs +1.13%, Corn +0.95% and Coffee +0.84%. The laggards
of the sector were Cocoa -2.25% followed by Live Cattle -1.28% and OJ -0.54%.

Metals traded to new multi-year highs as the added infusion of liquidity by the new QE2 plan from the U.S Fed continued to aid the strong rally. The sector was also
aided by rumors of new issues regarding sovereign debt in Europe and strong demand from Asian end users. Silver +8.89% led the rally followed by Palladium
+6.25%, Copper +5.76%, Platinum +3.62%, and Gold +2.95%.

Most sectors in the Energy complex eclipsed their two-year high as the commitment from the Federal Reserve and the favorable consumer reports and better non-
farm payrolls sparked ideas that strong demand will aid price appreciation. Crude Oil +6.66% led the complex higher followed by Heating Oil +6.57% and RBOB
Gasoline+5.86%. Natural Gas -2.50% was the lone underperformer as heavy supplies kept a cap on potential rally tries.

Stock Index futures moved to new two-year highs behind the added Fed action, another round of favorable earnings and favorable economic reports from the
consumer side of the equation kept sellers at bay. Russell 2000 Futures +4.84% led the impressive rally followed by Mid-Cap 400 futures +3.87%, S&P 500 futures
+3.58%, NASDAQ futures +2.96% and Dow futures +2.58%.

Activity in the currency futures was a mixed with market participants still not convinced how to proceed even after all the headlines that were not so friendly to the
U.S. Dollar. The main factor of uncertainty for the complex was the upcoming G20 Summit with no clear read on what will materialize from the meeting. The Swiss
Franc +2.19%, British Pound +0.85% and Euro +0.65% all posted price positive weeks. Japanese Yen -1.13% and the U.S. Dollar Index -0.98% suffered pre
meeting jitters.

Price activity for interest rate futures saw U.S. 30-Year Treasury Bonds -0.06% and 10-Year Treasury Notes +0.83% as investors seemed to favor shorting maturin
products awaiting news from the G20 Summit.

Managed Futures

The early returns are predicting another big month for multi-market programs. The macro commodity rally that started in late summer is showing no signs of letting
up soon and trendfollowers are loving it. Of course, there is always the potential for a quick turnaround, but for now, it is full steam ahead for the commodity
markets. The top performing program so far in November is Robison-Langley Capital (RL) Management at +6.38%. RL is long in many commodities but the trade
of note is in cotton, which has gone up nearly 30.00 since RL entered long. Each full point in Cotton is worth $500.

Other managers that have taken advantage of the commodity rally include Clarke Worldwide +6.29%, Covenant Capital Aggressive +5.10%, APA Modified +4.43%
Accela Capital Management Global Diversified +4.00%, Auctos Capital Management Global Diversified +3.56%, APA Strategic Diversification +3.24%, Integrated
Managed Futures Global Concentrated +2.93%, 2100 Xenon Managed Futures (2x) Program +2.40%, Quantum Leap Capital +1.38%, Mesirow Financial
Commodities Absolute Return +0.03%, and Mesirow Financial Commodities Low Volatility +0.05%.

Shorter-term multi-market managers have not fared as well as their trendfollowing counterparts over the last couple of months and same holds true thus far in
November. Programs in the red include Hoffman Asset Management -0.13%, Sequential Capital Management -0.14%, Futures Truth MS4 -0.17%, DMH -0.18%,
Futures Truth SAM 101 -0.60%, Clarke Capital Global Magnum -1.19%, Applied Capital Systems -1.20%, GT Capital -1.71%, Clarke Capital Global Basic -2.75%,
and Dominion Capital Management Sapphire -3.15%.

Short term stock index traders are mixed so far with Roe Jefferson +0.173% and Roe Monticello +0.49% in the black, while Paskewitz Asset Management
Contrarian 3X St. Index -5.47% is down to start the month.

In F/X trading, the P/E Standard Program is up +1.75% to start the Month.

For most option trading managers, November could not have come soon enough. After several months of struggling with the explosive runs in markets like Cotton
Wheat, and Currencies; diversified managers hope that the worst is behind them and that they can shift their focus to the markets ahead. After the first week of
trading things are starting off in the right direction with the following managers posting positive estimates: FCI OSS +2.13%, FCI CPP +1.77%, White River +1.32%
Liberty Funds Group +0.77%, ACE SIPC +0.34%, and HB Capital +0.21%.

Option trading managers currently in the red for the month include: Cervino Diversified -0.38%, Cervino Diversified 2x -0.69%, Crescent Bay PSI -1.52%, Crescent
Bay BVP -2.81%, ACE DCP -3.49%, and Clarity Capital -6.32%.

Specialty market managers have been one of the top performing manager groups so far in 2010 and will be looking to extend their gains into the end of the year.
After the first week of trading the estimates are mixed. Managers ahead so far include Cervino Gold +0.63%, AFG Forty Eighter Gold Options +0.36%, NDX
Shadrach +0.15%, and Rosetta Capital +0.12%. Managers currently down for the month include NDX Abednego -0.01%, 2100 Xenon Fixed Income -0.33%, Oak
Investment Group -0.89%, and Emil Van Essen -1.17%.

Trading Systems

Even though there was pretty important news realeased last week, there wasn’t much action on day and swing trading systems side. Many day trading systems
didn’t trade after Tuesday and the few times day trading systems did trade, they barely broke even or took a loss. While the few swing systems that did trade were
heavily influenced by the big move that occurred between Wednesday night and Thursday morning. Even though things were quiet, there were systems that
finished in the green.

On the day trading side Clipper ERL led the way with a profit of $520.00. It got long around noon on Tuesday and then rode the rally in the mini Russell 2000 until
the close for its only trade of the week. The other positive result was Waugh ERL at $370.00.

Upperhand ES made one trade last week and it was on Monday. Upperhand got long after a big move in the eMini S&P market. Unfortunately for Upperhand the
market reversed soon afterwards and headed down and Upperhand got stuck long. Upperhand hung on for the majority of the day but got stopped out near the end
of the day. For the week Upperhand ES finished at -$542.50. Other negative results were Compass ES at -$67.50, PSI! ERL at -$100.00, and Compass SP at -
$125.00.
Waugh CTO ERL had an excellent week. It was fairly active in the market with 4 trades which were all long trades. Waugh CTO got long at 1:30 pm as it usually
tends to do when it makes a trade and then gets out at the open the next day. The highlight of the week for Waugh CTO came on Nov 3rd, Waugh CTO got long
shortly after the FOMC announcement was released and held on through the close. Overnight the mini Russell 2000 market jumped 11 points and Waugh CTO
covered its long position for a profit of $1,420. The rest of the week Waugh CTO enjoyed similar moves though not as big. For the week Waugh CTO ERL finished
at $2,070.00. Other notable results were Waugh Swing ES at $95.00, Bam 90 M Squared ES at $380.28, Bam 90 Single Contract ES at $402.50, Jaws US 400 US
at $407.50, Bam 90 ES at $427.50, and Polaris at $582.50.

A few swing systems just kept on getting caught wrong footed last week and will be looking to rebound this week. In the red last week were AG Mechwarrior ES at
$347.50, Jaws 60 US at -$686.25, MoneyBeans S at -$942.50, Strategic ES at -$1,729.06, MoneyMaker ES at -$2,010.00, and Strategic v2 SP at -$8,421.85.

IMPORTANT RISK DISCLOSURE

Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect
investor returns.

Past performance is not necessarily indicative of future results. The performance data for the various Commodity Trading Advisor ("CTA") and Managed Forex
programs listed above are compiled from various sources, including Barclay Hedge, Attain Capital Management, LLC's ("Attain") own estimates of performance
based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the
individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes
proprietary results, and other important footnotes on the advisor's track record.

The dollar based performance data for the various trading systems listed above represent the actual profits and losses achieved on a single contract basis in client
accounts, and are inclusive of a $50 per round turn commission ($30 per e-mini contracts). Except where noted, the gains/losses are for closed out trades. The
actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market
behavior, the duration and extent of investor's participation (whether or not all signals are taken) in the specified system and money management techniques.
Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this
website.

Please read carefully the CFTC required disclaimer regarding hypothetical results below.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION
IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE
FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED
BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY
PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO
HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE
ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS
WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN
GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION
OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.

Feature | Week in Review |

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