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DISCLOSURE DOCUMENT OF EVERGREEN COMMODITY ADVISORS, LLC
A COMMODITY TRADING ADVISOR REGISTERED WITH THE COMMODITY FUTURES TRADING COMMISSION AND A MEMBER FIRM OF THE NATIONAL FUTURES ASSOCIATION
Evergreen Commodity Advisors, LLC 141 W. Jackson Boulevard Suite 1710A Chicago, Illinois 60604 Telephone: 312-784-0454 Email: [email protected]
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT
EVERGREEN COMMODITY ADVISORS, LLC INTENDS TO USE THIS DISCLOSURE DOCUMENT BEGINNING ON MAY 1, 2016.
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 ADVISOR, SUCH AS A “STOP-LOSS” NECESSARILY LIMIT YOUR LOSSES MARKET CONDITIONS MAY MAKE ORDERS.
ORDERS BY YOU OR YOUR TRADING OR “STOP-LIMIT” ORDER, WILL NOT TO THE INTENDED AMOUNTS, SINCE IT IMPOSSIBLE TO EXECUTE SUCH
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 PAGES 8-9, A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO ii
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 3-6. 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.
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TABLE OF CONTENTS Page 1.
Introduction ..........................................................................................................................1
2.
Background of the Principals ...............................................................................................1
3.
Futures Commission Merchant and Introducing Broker ....................................................................................................... 1
4.
Conflicts of Interest..............................................................................................................2
5.
Principal Risk Factors ..........................................................................................................3
6.
Trading Methodology ..........................................................................................................6
7.
Proprietary Trading ..............................................................................................................8
8.
Fees and Expenses ...............................................................................................................8
9.
Notionally Funded Accounts Disclosure .............................................................................9
10.
Performance Information ...................................................................................................10
11.
The Futures and Options Markets ......................................................................................12
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1.
INTRODUCTION
Evergreen Commodity Advisors, LLC (“Evergreen” or “Advisor”) is a limited liability company organized on September 26, 2014 under the laws of the State of Illinois. Evergreen has been registered with the Commodity Futures Trading Commission (“CFTC”) as a Commodity Trading Advisor (“CTA”) since October 28, 2015, and has been a member of the National Futures Association (“NFA”) since November 3, 2015. Following its formation and prior to its CFTC registration becoming effective, Evergreen acted as CTA exempt for registration under CFTC Regulation 4.14(a)(10), and began managing accounts in January of 2015. The main business address of the Advisor is 141 W. Jackson Boulevard, Suite 1710A, Chicago, Illinois 60604, Telephone: 312-784-0454; Email: [email protected]. The Principals of Evergreen are Kelcy Voth and Bryan Vaverek. Evergreen’s trading performance is set forth on page 10. The Advisor is offering Clients an opportunity to participate in a managed account program which seeks capital appreciation of Clients’ assets through speculative trading in commodity futures and options on commodity futures. There is no representation being made that this program will be successful in achieving this goal. 2.
BACKGROUND OF THE PRINCIPALS
Kelcy Voth is one of the Principals of Evergreen. He is responsible for marketing, trading, operations and management. From September through December of 2010, he was employed as a trader at HTG Capital Partners LLC, a Chicago-based futures proprietary trading firm. From January of 2011 through the present, he has been a self-employed futures trader. In September of 2014, Mr. Voth formed Evergreen along with Mr. Vaverek in order to offer the trading strategies they had learned over the years to private investors. Mr. Voth became registered as an Associated Person (“AP”) of the Advisor on October 28, 2015 and was approved as a Principal of the Advisor on that date. Bryan Vaverek is one of the Principals of Evergreen. He is responsible for marketing, trading, operations and management. He has been a self-employed futures trader since September of 2010. In September of 2014, he and Mr. Voth formed Evergreen in order to offer the trading strategies they had learned over the years to private investors. Mr. Vaverek became registered as an AP of the Advisor on October 28, 2015 and was listed as a Principal of the Advisor on that date. There have been no material civil, administrative, or criminal proceedings pending, on appeal, or concluded against Evergreen or its Principals in the past five years. 3.
FUTURES COMMISSION MERCHANT AND INTRODUCING BROKER
Clients are free to choose their Futures Commission Merchant (“FCM”) and Introducing Broker. However, Evergreen may recommend that Clients maintain their accounts Wedbush Securities Inc. (“Wedbush”), a registered FCM.
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Accounts maintained at Wedbush will be charged brokerage commissions ranging from $0.25 to $1.50 per half turn. Accounts maintained at other FCMs may be charged give-up fees ranging from $1.00 to $3.00 per half turn. Evergreen will not receive any portion of brokerage commissions or give-up fees charged to Clients’ accounts. Wedbush is registered under the Commodity Exchange Act, as amended, as an FCM and is also registered under the Securities Exchange Act, as amended, as a broker dealer, and is a member of NFA and the Financial Regulatory Authority (“FINRA”). Wedbush is a clearing member of the Chicago Mercantile Exchange, Chicago Board of Trade, Minneapolis Grain Exchange, ICE EU, and ICE Futures. Wedbush main office is located at 1000 Wilshire Boulevard, 9th Floor Los Angeles, California 90017. It also maintains an office at 141 W. Jackson Boulevard, Suite 1710-A, Chicago, Illinois 60604. As the result of Wedbush’s activities, Wedbush may be named as a party to legal actions, arbitrations and administrative claims arising in connection with the conduct of its futures and securities business. There have been no material administrative, civil, or criminal proceedings against Wedbush Futures’ business since its inception. Wedbush’s broker dealer, however, has been subject to material, administrative, civil or criminal proceedings over the past five years. The following is a list of those proceedings: SEC Market Access (SEC Admin Release 3472340, IA Release 40-3845); FINRA Market Access (Disciplinary Proceeding No. 20090206344-01); NASDAQ Market Access (Disciplinary Proceeding No. 20110263118-02); FINRA Blue Sheets Trade Submission (Disciplinary Proceeding No. 2012034934301); FINRA Municipal Securities Rulemaking Board (Disciplinary Proceeding No. 20120320803-01). Below are explanations of each proceeding listed above. More details can be found in Wedbush’s FINRA Broker check document, which can be found here: http://brokercheck.finra.org/Report/Download/36346366 4.
CONFLICTS OF INTEREST
Evergreen and its Principals may actively solicit for and manage other client accounts. In addition, Evergreen and its Principal may trade for their own accounts and the accounts of their principals and their family members (collectively, “Proprietary Accounts”). In conducting such activities, Evergreen and its Principals may have conflicts of interest in allocating management time and administrative functions. Further, Clients may participate in a "block" order that may include positions for unrelated client accounts of Evergreen, as well as Proprietary Accounts. In all cases, a systematic, non-preferential method of allocating the fill prices of any block order that results in a split fill will be used. Neither Evergreen nor its Principals will enter into any trade for Proprietary Accounts where they knowingly favor any account over a Client’s accounts. Evergreen may use the same trading methods and strategies for its other clients’ or Proprietary Accounts. Therefore, the foregoing accounts may compete for the same position. In addition, no assurance is given that the performance of all such accounts will be identical or even similar because the trades in the various accounts may be of varying duration or even opposite of those held by Clients’ accounts. Proprietary Accounts may unknowingly trade ahead of or against Client accounts, and/or may unknowingly receive preferential treatment as compared to Client accounts. In rendering trading advice to any client, Evergreen will not knowingly or deliberately favor any Proprietary Account or other client account over a Client’s account. 2
Evergreen may recommend that Clients maintain their accounts Wedbush Securities Inc. (“Wedbush”). Evergreen’s office is locating in Wedbush’s Chicago office. Because of this arrangement, Evergreen receives addition benefits from Wedbush, such as clerical support, office equipment and supplies. As a result of this arrangement, Evergreen may be more inclined to recommend Wedbush to Client than if it did not receive such benefits from Wedbush. In addition, a conflict of interest exists insofar as the Advisor is compensated on an incentive fee basis, which may increase the likelihood that the Advisor may engage in trading which is riskier than that which is described in the trading program. 5.
PRINCIPAL RISK FACTORS
Prospective clients should consider all of the risk factors described below and elsewhere in this Disclosure Document before participating in the program. Futures Trading Is Speculative and Volatile. Futures prices are highly volatile. Price movements for such interests are influenced by, among other things: changing supply and demand relationships; weather, agricultural, trade, fiscal, monetary, and exchange control programs and policies of governments; United States and foreign political and economic events and policies; changes in national and international interest rates and rates of inflation; currency devaluations and revaluations; and emotions of the marketplace. None of these factors can be controlled by the Advisor and no assurance can be given that the Advisor's trading actions will result in profitable trades for a Client or that a Client will not incur substantial losses. Futures Trading Is Highly Leveraged. A futures position can be established with margin typically between 2% and 20% of the total value of the commodity interest contract purchased or sold. This can permit an extremely high degree of leverage. Accordingly, a relatively small price movement in a contract may result in immediate and substantial losses to the investor. Thus, like other leveraged investments, any trade may result in losses in excess of the amount invested. When the market value of a particular open position changes to a point where the margin on deposit in a participating customer's account does not satisfy the applicable maintenance margin requirement imposed by the customer's FCM, the customer, and not the Advisor, will receive a margin call from the FCM. If the customer does not satisfy the margin call within a reasonable time, the FCM will close out the customer's position. Futures Markets May Be Illiquid. The markets may become illiquid due, for example, to daily price fluctuation limits, making it impossible for a trader to close out a position against which the market is moving. Daily price fluctuation limits have occasionally moved the daily limit for several consecutive days with little or no trading and similar occurrences could prevent the Advisor from promptly liquidating unfavorable positions and subject clients to substantial losses that could exceed the margin initially committed to such trades. Conversely, speculative position limits or other market constraints may prevent an Advisor from acquiring positions otherwise indicated by its strategy, eliminating profit opportunities or making it impossible to protect against further losses. This combination implies a high degree of risk. Futures trading is a zero-sum, risk transfer activity in which, by definition, for every gain there is an offsetting loss rather than a mutual participation over time in economic growth. An account’s success depends entirely on the 3
Advisor’s ability to predict or follow future price movements or otherwise implement its trading strategies. There can be no assurances of the Advisor’s success in doing so. Trading Spreads. The Advisor’s program involve placing spreads, which involves holding a long and a short position in two related futures contracts with the objective of profiting from a changing price relationship. Spread trades are generally subject to less margin requirements, and are generally considered to be less risky. Please note that a spread trade may be subject to more risk than a long or short position in the event that the price of each “leg” of a spread moves against the position. Accordingly, under certain market conditions, the Advisor’s program could involve greater risk of loss than programs trading in outright positions. In addition, the Advisor places spreads with “legs” in futures contracts that settle at different times of a trading day. With respect to such spreads, one leg of the spread will settle earlier in the trading day than the other leg of the spread. Accordingly, after the leg with the earlier settlement time has settled, the other leg of such spread will continue to trade and change in price through the duration of the trading day. This could distort the value of the spread at the end day of the trading day as reflected on the FCM’s statements. While the Advisor believes that such distortions will be minimal and will self-correct once the markets for both legs of the spread reopen on the next trading day, these distortions could render the FCM’s statements inaccurate as far as presenting value of an account maintaining such a spread position. In addition, the Advisor’s management fee is calculated on daily basis based on an account’s Net Assets (as defined in the Section entitled, “Fees and Expense”), which includes the value of an account based in what is reflected in the FCM’s statements. Accordingly, the management fee calculation on a given trading day might not accurately reflect the value of an account in terms of the performance of the Advisor’s trading of the account. However, the Advisor believes that over time any distortions in the value of the account will cancel themselves out resulting in a management fee calculation that is fair and equitable to Clients. Trading of Options. The Advisor may trade options on futures contracts. Each option on a commodity futures contract or physical commodity is a right, purchased for a certain price, to either buy or sell a commodity futures contract or physical commodity during a certain period of time for a fixed price. Although successful commodity options trading requires many of the same skills as does successful commodity futures trading, the risks involved are somewhat different. For example, if the Advisor buys an option (either to sell or purchase a futures contract or commodity), it will pay a “premium” representing the market value of the option. Unless the price of the futures contract or commodity underlying the options changes and it becomes profitable to exercise or offset the option before it expires, the client’s account may lose the entire amount of such premium (together with the costs of commissions and fees incurred to purchase such options). Conversely, if a client sells an option (either to sell or purchase a futures contract or commodity) it will be credited with the premium but will have to deposit margin due to its contingent liability to take or deliver the futures contract or commodity underlying the option in the event the option is exercised. The writer of the option is however at unlimited risk with respect to the call option written, and risk on the put option of the amount should the price of the futures contract drop to zero. Sellers of options are subject to the loss which occurs in the underlying futures position or underlying commodity (less any premium received). The ability to trade in or exercise options may be restricted in the event that such trading on U.S. commodity exchanges is restricted by both the CFTC and such exchanges, and it has been at certain times in the past.
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It should be recognized, though, that the loss from a spread can be as great as – or even greater than – that which might be incurred in having an outright futures or options position. An adverse widening or narrowing of the spread during a particular time period may exceed the change in the overall level of futures or option prices, and it is possible to experience losses on both of the futures or options contracts involved (that is, on both legs of the spread). In addition, spread trading increases transaction costs because the Clients will be charged commissions on each leg of the spread. A Client’s FCM May Fail. Under CFTC regulations, FCMs are required to maintain customers' assets in a segregated account. If a Client's FCM fails to do so, the Client may be subject to a risk of loss of his funds on deposit with his FCM in the event of its bankruptcy. In addition, under certain circumstances, such as the inability of another customer of the FCM or the FCM itself to satisfy substantial deficiencies in such other customer's account, a participating customer may be subject to a risk of loss of his funds on deposit with his FCM, even if such funds are properly segregated. In the case of any such bankruptcy or customer loss, a Client might recover, even in respect of property specifically traceable to the customer, only a pro rata share of all property available for distribution to all of the FCM's customers or potentially recover no assets at all. Substantial Fees and Expenses. A Client is subject to substantial brokerage commissions and other transaction costs as well as management and incentive fees. Accordingly, a Client’s account will have to earn substantial trading profits to avoid depletion of the Client’s funds due to such commissions, costs, and fees. The Client, and not the Advisor, is directly responsible for paying to the Client's FCM or, as appropriate, all margins, option premiums, brokerage commissions and fees, and other transaction costs and expenses incurred in connection with transactions effected for the customer's account by the Advisor. The Advisor considers the interests of its Clients paramount and manages all accounts to further the interests of customers. Nevertheless, no assurance can be given by the Advisor as to any minimum or maximum number of transactions which will be entered into for a Client's account during any period for which the account is managed by the Advisor. Tax liability. Clients should satisfy themselves as to the income tax and other tax consequences of an investment in a managed account program with specific reference to their own tax situation by obtaining advice from their own tax counsel before participating in a managed account program. Performance Compensation in General. Because Evergreen receives performance-based compensation, Evergreen has an incentive to trade or invest in a more speculative manner than it otherwise would. Day Trading. The Advisor may very actively trade the Clients’ accounts, and may engage in “day-trading,” which involves initiating and exiting a position on the same trading day. When day-trading, several positions may be initiated and exited on the same trading day. Because Clients will be charged brokerage commissions each time a trade is placed, Clients will incur substantial brokerage commissions. While the Advisor believes that the profits resulting from the trading program will more than compensate for these increased transactional costs, there is no assurance that this will occur. 5
Position Trading. The Advisor will also position trade the Client accounts, which involves holding positions for longer periods of time. Positions held overnight may be more vulnerable to risk of loss if a market-moving event occurs when the markets are closed. If this occurs, it may be impossible to liquidate positions, which may subject Clients to substantial losses. Electronic Trading. The Advisor may place trades on the various electronic trading platforms offered by the exchanges. In the event that there is a failure or disruption of these platforms, it is possible that, for a certain time period, the Advisor may not be able to enter new orders, execute existing orders, or modify or cancel orders that were previously entered. In addition, a system failure may also result in loss of orders or order priority. Trading Strategies Involve Proprietary Methods. Because specific elements of the Advisor’s trading strategies are proprietary, Clients will not be able to determine the full details of the systems or whether the strategies are being followed. Concentration Risk. The Advisor’s trading program involves trading exclusively in futures markets, and primarily in energy futures. Because the Advisor’s trading will be concentrated in this area, the program is not as diverse as other trading programs, and thus may be subject to greater risk of loss in the event that the Advisor is unable to trade profitably in these markets. Trading Disruptions. Following the terrorist attacks of September 11, 2001, the United States financial markets were closed for several days. In addition, once they were reopened, these markets experienced extreme volatility and a lack of liquidity. There can be no assurance that world events will not cause severe market disruptions in the future. If such market disruptions were to occur again, Clients’ performance could be adversely affected due to the fact that Clients’ assets will be invested in these markets. For instance, the Advisor’s ability to liquidate a position in order to limit losses could be hindered. Notional Funding. The Advisor will accept notionally funded accounts of up to 50%. Notionally funded accounts may not be able to participate in all trades of the Advisor’s trading program if the account does not have sufficient funds available for margin requirements. This may cause the performance of notionally funded accounts to differ from the performance of accounts without notional funding. 6.
TRADING METHODOLOGY
Introduction The Advisor seeks capital appreciation of Clients’ accounts through speculative trading in commodity futures and options on commodity futures. There is no representation being made that the trading program offered by the Advisor will be successful in achieving this goal. The Advisor currently offers the Evergreen Trading Program (the “Program”). The Advisor recommends that Clients open accounts with a minimum of $100,000 for the Program in order to ensure that Clients will have sufficient equity in their accounts to fully participate in the program. However, the Advisor reserves the right to waive these minimum funding requirements. 6
The trading program utilized by Evergreen is proprietary and confidential. description below is therefore general by necessity and is not intended to be exhaustive.
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Description of the Trading Program Types of Transactions The Advisor’s objective is to achieve appreciation of Clients’ assets through speculative trading in commodity futures and options. The Advisor intends to focus on trading energy futures contracts, such as WTI Crude Oil Futures, RBOB Gasoline Futures, Brent Crude Oil Futures, and Heating Oil Futures. The Advisor will trade calendar and inter-market spreads in such markets, and may maintain outright futures and option positions in such markets. The Advisor may trade or invest in any type of commodity futures and options that is now, or may hereafter be, offered for trading on U.S. exchanges or markets including, but not limited to metals, agricultural products, softs, stock indices, interest rates and currencies. In General Money managers generally rely on either fundamental or technical analysis, or a combination thereof, in making trading decisions and attempting to identify price trends in a commodity interest. "Fundamental analysis" is the consideration of factors external to the market of a particular instrument. For example, weather and political events which affect the supply and demand of that particular instrument, in order to predict future prices of that instrument. As an example, some of the fundamental factors that affect the supply of commodities (e.g., agricultural products such as corn and soybeans) include the acreage planted, weather during the growing season, harvesting and distribution of the commodity and the previous year's crop carryover. The demand for such commodities is determined in part by domestic consumption and exports and is a product of many factors, including general world economic conditions, exports and the cost of competing products which might be substituted as alternate sources of food or fiber. Technical analysis is not based on the anticipated supply and demand of the "cash" or "physical" (i.e., actual) commodity; instead, technical analysis is based on the theory that a study of the markets themselves (in particular, of trends of prices established by the markets for various instruments during selected historical periods) provides a means of anticipating prices. Technical analysis of the markets often includes a study of the actual daily, weekly and monthly price fluctuations, as well as volume variations and changes in open interest, utilizing charts and/or computers for analysis of these items and other technical market data. Both general methodologies have been employed with success by traders and investors in the past, however, neither trading method can be assured of success in a particular interval of time. The Trading Program The Program seeks to profit from placing spread trades in Crude Oil Futures and its related products, such a Gasoline and Heating Oil Futures. The spreads placed may be calendar spreads (e.g., maintaining a long position in the January contract and a short position in the 7
February contract is the same futures contract) or inter-commodity spreads (e.g., maintain a long position in a futures contract and a short position in a related futures contract). In order to determine positions, Evergreen analyzes various technical indicators, including but not limited to order flow, volume, moving averages, moving linear regressions, and overbought/oversold indicators. Evergreen also considers fundamental factors and seasonal trends when making trading decisions. While these indicators assist Evergreen in finding opportunities in the markets, the firm relies heavily on past trading experience of Kelcy Voth and Bryan Vaverek, Evergreen’s Trading Principals, when making trading decisions. As market conditions are constantly changing, Evergreen believes that having the ultimate discretion over the trades allows it to effectively adapt to challenging market conditions. The Program typically results in 3% of the total assets of the Clients’ accounts being used to margin positions. However, this percentage may be substantially different at Evergreen’s discretion. Please note that the Program’s margin to equity percentage exceeded 28% during 2015. 7.
PROPRIETARY TRADING
The Advisor and its Principals may trade for their own accounts (“Proprietary Accounts”). The records and policies associated with the Advisor’s trading of Proprietary Accounts or other client accounts will not be available for inspection by Clients. 8.
FEES AND EXPENSES
Clients’ accounts shall be charged the fees as set forth below. Once these fees are earned, the Advisor will retain the fees regardless of an account's subsequent performance. a.
Management Fee
The Advisor will receive a two percent (2%) annualized management fee based on the Net Assets in the Client's account. The management fee is calculated on a daily basis, and is equal to an account’s Net Assets multiplied by 1/365 of the annualized management fee percentage set forth above. The management fee is paid quarterly, and is the sum of the daily management fees calculated during the previous quarter. Net Assets are the account's total assets less liabilities, including realized and unrealized gains and losses. If the account is closed prior to the end of the quarter, the management fee shall be charged as if the date of such closure is the last day of the quarter. Please note that the Advisor reserves the right to negotiate a higher or lower management fee with individual Clients. The Advisor may accept partially funded (“notional”) accounts. The management fees charged to such an account will be based on the nominal value (actual fund plus the notional amount committed) of the account. The percentage of management fees based on an account’s actual funds is computed by dividing the management fees charged to the account by the actual funds in the account. For example, if a Client is charged a 2% management fee, a $100,000 account traded as $200,000 account is charged 2% of $200,000, or $4,000 annually. The percentage of management fees charged based on actual funds is then computed by dividing $4,000 by $100,000 (the actual account size), which equals a management fee of 4%.
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b.
Incentive Fee
The Advisor will receive an incentive fee based on a percentage Net New Profits the Advisor generates in an account for a quarter. More specifically, the Advisor will receive up to 20% of the Net New Profits. Net New Profits are the amount, if any, by which the account's Net Assets at the end of the quarter (after deducting the management fees for the quarter) exceed the previous quarter-end Net Assets of the account (or Net Assets at the start of trading, if trading commence after the beginning of a quarter), disregarding capital additions and withdrawals. For example, when quarter-end Net Assets are $200,000 (after deducting the management fees and assuming there are no capital additions or withdrawals) and the highest previous quarter-end Net Assets were $160,000 (after payment of the incentive fee for that quarter), the incentive fee would be charged based on the $40,000 in Net New Profits for the current quarter. If a Client’s account experiences aggregate net investment losses (both realized and unrealized) for any incentive period, such losses (the “Carryforward Loss”) shall be deducted from Net New Profits for each succeeding quarter for the purpose of determining the incentive fee for each such quarter until the full amount of the Carryforward loss has been offset by Net New Profits. Please note that the Advisor reserves the right to negotiate a higher or lower incentive fee with individual Clients. 9.
NOTIONALLY FUNDED ACCOUNTS DISCLOSURE
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 advisor’s 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 one of the commodity trading advisor’s programs. 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 commission 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; and (3) the conversion chart below may be used to convert actual rates of return (“RORs”) to the corresponding RORs for particular funding levels.
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Rate of Return -20% -10% -5% 0% 5% 10% 20%
100% funded -20% -10% -5% 0% 5% 10% 20%
75% funded -30% -15% -7.5% 0% 7.5% 15% 30%
50% funded -40% -20% -10% 0% 10% 20% 40%
It is anticipated that additions or withdrawals will not materially affect RORs of notionally funded accounts. This is because any additions or withdrawals of actual funds will result in a corresponding increase or decrease in the nominal funding level of an account. For example, assume that a Client opens an account with an actual funding level of $90,000, and instructs the Advisor to trade the account at a nominal level of $100,000. If the Client withdraws $10,000 of actual funds from the account, the Advisor will reduce the nominal trading level of the account to $90,000. Further, it is anticipated that trading profits and losses also will not materially affect RORs of notionally funded accounts. This is because any trading profits and losses will result in a corresponding increase or decrease in the nominal funding level of an account. For example, assume that a Client opens an account with an actual funding level of $90,000 and instructs the Advisor to trade the account at a nominal of $100,000. If the account achieves a profit of $10,000, the Advisor will increase the nominal trading level of the account to $110,000. Conversely, if the account sustains a loss of $10,000, the Advisor will reduce the nominal trading level of the account to $90,000. Please note, however, that the increased leverage resulting from notional funding may lead to more frequent and larger margin calls in the event of a draw-down. 10.
PERFORMANCE INFORMATION
The performance of accounts managed by Evergreen is set forth on the page that immediately follows. Please note that prior to Evergreen being registered as a CTA in October of 2015 and becoming an NFA member firm in November of 2015, Evergreen directed customer accounts under an exemption from CTA registration under CFTC Regulation 4.14(a)(10). The performance of these accounts is set forth on the page that immediately follows.
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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS Trading Performance of Evergreen Commodity Advisors, LLC 1/1/2015 to 3/31/2016 Name of CTA: Evergreen Commodity Advisors, LLC Program: Evergreen Trading Program Inception of Trading Pursuant to This Program: January, 2015 Inception of Trading by CTA: January, 2015 No. of open Accounts traded pursuant to this Program: 7 Nominal Funding Level of All Accounts: $580,126 Nominal Funding Level of Accounts in this Program: $580,126 Largest monthly drawdown: -0.50%, April 2015 Largest peak- to-valley monthly drawdown: -0.50% March 2015 to April 2015 Number of Profitable Accounts Opened and Closed Since 0, n/a January 2015 and their Performance Ranges: Number of Unprofitable Accounts Opened and Closed 0, n/a Since January 2015 and their Performance Ranges: MONTHLY AND ANNUAL RATES OF RETURN Month January February March April May June July August September October November December Annual Rate of Return
2016 2.38% 0.33% 0.66%
3.40%
2015 5.02 % 6.29 % 3.64 % -0.50 % 2.62% 1.65% 3.15% 3.30% 1.41% 2.25% 0.95% 3.25% 38.31%
Notes: 1) Largest Monthly Drawdown: Represents the largest loss experienced by the Program in any calendar month expressed as a percentage of beginning net asset value. The term "drawdown" means losses experienced by the Program over a specified period. 2) Largest Peak-to-Valley Monthly Drawdown: Represents the greatest cumulative percentage decline in month end net asset value due to losses sustained by the Program during any period in which the initial month end net asset value is not equaled or exceeded by a subsequent month end net asset value. 3) The Monthly Rate of Return is computed by the dividing Net Performance by Beginning Equity plus or minus the weighted average of additions and withdrawals.
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11.
THE FUTURES AND OPTIONS MARKETS
Futures Contracts. A futures contract is an agreement, made through the facilities of an established exchange, by which the seller agrees to deliver and the buyer agrees to accept, a certain quantity of a specified grade of a commodity during a designated delivery month at a specified price. Certain futures contracts, such as those in Eurodollar time deposits or stock indices, are closed out by cash settlement of the profit or loss of an open position rather than by delivery. Speculative traders rarely expect to take delivery of any commodity under a futures contract. Rather, they hope to realize profits from fluctuations in the price of futures contracts, "offsetting" such contracts by taking an equal and opposite position in the same contract before delivery is due. A margin deposit is required to initiate both "long" and "short" futures positions. Additional margin is required if unrealized losses in open positions reduce the margin on deposit below required minimums. Unlike margin in the securities industry, which essentially constitutes a loan from a client's stockbroker, margin in futures trading acts as a deposit to give assurance to a trader's futures broker of the trader's ability to pay for any losses which may be incurred on the trader's positions. Options Contracts. An option on a futures contract gives the purchaser of the option the right to take a position at a specified price (the “strike" or "exercise" price) in the underlying futures contract. A "call" option gives the purchaser the right to take a long position in the underlying futures contract, and the purchaser of a "put" option acquires the right to take a short position in the underlying contract. The purchase price of an option is referred to as its "premium". The seller (or "writer") of an option is obligated to take a futures position at a specified price opposite to the option buyer if the option is exercised. Selling such options involves risks similar to those involved in trading futures contracts, in that options are speculative and highly leveraged. Specific market movements of the commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option is subject to the risk of losing the entire purchase price of the option, plus the fees and commissions associated with the transaction. The writer of an option is subject to the risk of potentially unlimited loss in excess of the premiums received, plus the fees and commissions associated with the transaction. Regulation. Futures exchanges in the United States and the trading conducted thereon are subject to regulation under the Commodity Exchange Act, as amended (the "Act"), by the CFTC. The Advisor is registered with and subject to regulation by the CFTC as a commodity trading advisor. Registration with the CFTC is not, and must not be considered as any indication of CFTC approval. The NFA is the self-regulatory body of the United States futures industry, of which the Advisor is a member. The NFA has responsibility for processing the registrations of commodity trading advisors and their associated persons, as well as most other CFTC registered persons. Margins. Margin is the amount of funds that must be deposited by a trader with his or her commodity broker to secure the obligation either to make or accept delivery under a futures contract or to make an offsetting sale or purchase. Because futures contracts are customarily bought and sold on margins which range upward from less than two percent of the purchase price of the contract, price fluctuations occurring in commodity futures markets may create profits and losses that are greater than are customary in other forms of investment. The margin deposit required of an account will be reduced or increased daily as a consequence of fluctuations in the market price of the open contracts held for the account, and additional deposits may become 12
necessary as a consequence of adverse market movements. Exchanges impose, and may at any time increase, minimum margin requirements, and brokers may, in their discretion, further increase the amount of margin required from any account. The foregoing is not a complete summary of the complex and highly various futures and options markets. Each client should familiarize himself or herself with the futures and options markets, carefully read the Risk Disclosure Statement in the front of this Disclosure Document and the following description of certain of the risks connected with futures and options trading before opening an account.
4852-1619-0513, v. 1
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A COMMODITY TRADING ADVISOR REGISTERED WITH THE COMMODITY FUTURES TRADING COMMISSION AND A MEMBER FIRM OF THE NATIONAL FUTURES ASSOCIATION
Evergreen Commodity Advisors, LLC 141 W. Jackson Boulevard Suite 1710A Chicago, Illinois 60604 Telephone: 312-784-0454 Email: [email protected]
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT
EVERGREEN COMMODITY ADVISORS, LLC INTENDS TO USE THIS DISCLOSURE DOCUMENT BEGINNING ON MAY 1, 2016.
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 ADVISOR, SUCH AS A “STOP-LOSS” NECESSARILY LIMIT YOUR LOSSES MARKET CONDITIONS MAY MAKE ORDERS.
ORDERS BY YOU OR YOUR TRADING OR “STOP-LIMIT” ORDER, WILL NOT TO THE INTENDED AMOUNTS, SINCE IT IMPOSSIBLE TO EXECUTE SUCH
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 PAGES 8-9, A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO ii
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 3-6. 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.
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TABLE OF CONTENTS Page 1.
Introduction ..........................................................................................................................1
2.
Background of the Principals ...............................................................................................1
3.
Futures Commission Merchant and Introducing Broker ....................................................................................................... 1
4.
Conflicts of Interest..............................................................................................................2
5.
Principal Risk Factors ..........................................................................................................3
6.
Trading Methodology ..........................................................................................................6
7.
Proprietary Trading ..............................................................................................................8
8.
Fees and Expenses ...............................................................................................................8
9.
Notionally Funded Accounts Disclosure .............................................................................9
10.
Performance Information ...................................................................................................10
11.
The Futures and Options Markets ......................................................................................12
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1.
INTRODUCTION
Evergreen Commodity Advisors, LLC (“Evergreen” or “Advisor”) is a limited liability company organized on September 26, 2014 under the laws of the State of Illinois. Evergreen has been registered with the Commodity Futures Trading Commission (“CFTC”) as a Commodity Trading Advisor (“CTA”) since October 28, 2015, and has been a member of the National Futures Association (“NFA”) since November 3, 2015. Following its formation and prior to its CFTC registration becoming effective, Evergreen acted as CTA exempt for registration under CFTC Regulation 4.14(a)(10), and began managing accounts in January of 2015. The main business address of the Advisor is 141 W. Jackson Boulevard, Suite 1710A, Chicago, Illinois 60604, Telephone: 312-784-0454; Email: [email protected]. The Principals of Evergreen are Kelcy Voth and Bryan Vaverek. Evergreen’s trading performance is set forth on page 10. The Advisor is offering Clients an opportunity to participate in a managed account program which seeks capital appreciation of Clients’ assets through speculative trading in commodity futures and options on commodity futures. There is no representation being made that this program will be successful in achieving this goal. 2.
BACKGROUND OF THE PRINCIPALS
Kelcy Voth is one of the Principals of Evergreen. He is responsible for marketing, trading, operations and management. From September through December of 2010, he was employed as a trader at HTG Capital Partners LLC, a Chicago-based futures proprietary trading firm. From January of 2011 through the present, he has been a self-employed futures trader. In September of 2014, Mr. Voth formed Evergreen along with Mr. Vaverek in order to offer the trading strategies they had learned over the years to private investors. Mr. Voth became registered as an Associated Person (“AP”) of the Advisor on October 28, 2015 and was approved as a Principal of the Advisor on that date. Bryan Vaverek is one of the Principals of Evergreen. He is responsible for marketing, trading, operations and management. He has been a self-employed futures trader since September of 2010. In September of 2014, he and Mr. Voth formed Evergreen in order to offer the trading strategies they had learned over the years to private investors. Mr. Vaverek became registered as an AP of the Advisor on October 28, 2015 and was listed as a Principal of the Advisor on that date. There have been no material civil, administrative, or criminal proceedings pending, on appeal, or concluded against Evergreen or its Principals in the past five years. 3.
FUTURES COMMISSION MERCHANT AND INTRODUCING BROKER
Clients are free to choose their Futures Commission Merchant (“FCM”) and Introducing Broker. However, Evergreen may recommend that Clients maintain their accounts Wedbush Securities Inc. (“Wedbush”), a registered FCM.
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Accounts maintained at Wedbush will be charged brokerage commissions ranging from $0.25 to $1.50 per half turn. Accounts maintained at other FCMs may be charged give-up fees ranging from $1.00 to $3.00 per half turn. Evergreen will not receive any portion of brokerage commissions or give-up fees charged to Clients’ accounts. Wedbush is registered under the Commodity Exchange Act, as amended, as an FCM and is also registered under the Securities Exchange Act, as amended, as a broker dealer, and is a member of NFA and the Financial Regulatory Authority (“FINRA”). Wedbush is a clearing member of the Chicago Mercantile Exchange, Chicago Board of Trade, Minneapolis Grain Exchange, ICE EU, and ICE Futures. Wedbush main office is located at 1000 Wilshire Boulevard, 9th Floor Los Angeles, California 90017. It also maintains an office at 141 W. Jackson Boulevard, Suite 1710-A, Chicago, Illinois 60604. As the result of Wedbush’s activities, Wedbush may be named as a party to legal actions, arbitrations and administrative claims arising in connection with the conduct of its futures and securities business. There have been no material administrative, civil, or criminal proceedings against Wedbush Futures’ business since its inception. Wedbush’s broker dealer, however, has been subject to material, administrative, civil or criminal proceedings over the past five years. The following is a list of those proceedings: SEC Market Access (SEC Admin Release 3472340, IA Release 40-3845); FINRA Market Access (Disciplinary Proceeding No. 20090206344-01); NASDAQ Market Access (Disciplinary Proceeding No. 20110263118-02); FINRA Blue Sheets Trade Submission (Disciplinary Proceeding No. 2012034934301); FINRA Municipal Securities Rulemaking Board (Disciplinary Proceeding No. 20120320803-01). Below are explanations of each proceeding listed above. More details can be found in Wedbush’s FINRA Broker check document, which can be found here: http://brokercheck.finra.org/Report/Download/36346366 4.
CONFLICTS OF INTEREST
Evergreen and its Principals may actively solicit for and manage other client accounts. In addition, Evergreen and its Principal may trade for their own accounts and the accounts of their principals and their family members (collectively, “Proprietary Accounts”). In conducting such activities, Evergreen and its Principals may have conflicts of interest in allocating management time and administrative functions. Further, Clients may participate in a "block" order that may include positions for unrelated client accounts of Evergreen, as well as Proprietary Accounts. In all cases, a systematic, non-preferential method of allocating the fill prices of any block order that results in a split fill will be used. Neither Evergreen nor its Principals will enter into any trade for Proprietary Accounts where they knowingly favor any account over a Client’s accounts. Evergreen may use the same trading methods and strategies for its other clients’ or Proprietary Accounts. Therefore, the foregoing accounts may compete for the same position. In addition, no assurance is given that the performance of all such accounts will be identical or even similar because the trades in the various accounts may be of varying duration or even opposite of those held by Clients’ accounts. Proprietary Accounts may unknowingly trade ahead of or against Client accounts, and/or may unknowingly receive preferential treatment as compared to Client accounts. In rendering trading advice to any client, Evergreen will not knowingly or deliberately favor any Proprietary Account or other client account over a Client’s account. 2
Evergreen may recommend that Clients maintain their accounts Wedbush Securities Inc. (“Wedbush”). Evergreen’s office is locating in Wedbush’s Chicago office. Because of this arrangement, Evergreen receives addition benefits from Wedbush, such as clerical support, office equipment and supplies. As a result of this arrangement, Evergreen may be more inclined to recommend Wedbush to Client than if it did not receive such benefits from Wedbush. In addition, a conflict of interest exists insofar as the Advisor is compensated on an incentive fee basis, which may increase the likelihood that the Advisor may engage in trading which is riskier than that which is described in the trading program. 5.
PRINCIPAL RISK FACTORS
Prospective clients should consider all of the risk factors described below and elsewhere in this Disclosure Document before participating in the program. Futures Trading Is Speculative and Volatile. Futures prices are highly volatile. Price movements for such interests are influenced by, among other things: changing supply and demand relationships; weather, agricultural, trade, fiscal, monetary, and exchange control programs and policies of governments; United States and foreign political and economic events and policies; changes in national and international interest rates and rates of inflation; currency devaluations and revaluations; and emotions of the marketplace. None of these factors can be controlled by the Advisor and no assurance can be given that the Advisor's trading actions will result in profitable trades for a Client or that a Client will not incur substantial losses. Futures Trading Is Highly Leveraged. A futures position can be established with margin typically between 2% and 20% of the total value of the commodity interest contract purchased or sold. This can permit an extremely high degree of leverage. Accordingly, a relatively small price movement in a contract may result in immediate and substantial losses to the investor. Thus, like other leveraged investments, any trade may result in losses in excess of the amount invested. When the market value of a particular open position changes to a point where the margin on deposit in a participating customer's account does not satisfy the applicable maintenance margin requirement imposed by the customer's FCM, the customer, and not the Advisor, will receive a margin call from the FCM. If the customer does not satisfy the margin call within a reasonable time, the FCM will close out the customer's position. Futures Markets May Be Illiquid. The markets may become illiquid due, for example, to daily price fluctuation limits, making it impossible for a trader to close out a position against which the market is moving. Daily price fluctuation limits have occasionally moved the daily limit for several consecutive days with little or no trading and similar occurrences could prevent the Advisor from promptly liquidating unfavorable positions and subject clients to substantial losses that could exceed the margin initially committed to such trades. Conversely, speculative position limits or other market constraints may prevent an Advisor from acquiring positions otherwise indicated by its strategy, eliminating profit opportunities or making it impossible to protect against further losses. This combination implies a high degree of risk. Futures trading is a zero-sum, risk transfer activity in which, by definition, for every gain there is an offsetting loss rather than a mutual participation over time in economic growth. An account’s success depends entirely on the 3
Advisor’s ability to predict or follow future price movements or otherwise implement its trading strategies. There can be no assurances of the Advisor’s success in doing so. Trading Spreads. The Advisor’s program involve placing spreads, which involves holding a long and a short position in two related futures contracts with the objective of profiting from a changing price relationship. Spread trades are generally subject to less margin requirements, and are generally considered to be less risky. Please note that a spread trade may be subject to more risk than a long or short position in the event that the price of each “leg” of a spread moves against the position. Accordingly, under certain market conditions, the Advisor’s program could involve greater risk of loss than programs trading in outright positions. In addition, the Advisor places spreads with “legs” in futures contracts that settle at different times of a trading day. With respect to such spreads, one leg of the spread will settle earlier in the trading day than the other leg of the spread. Accordingly, after the leg with the earlier settlement time has settled, the other leg of such spread will continue to trade and change in price through the duration of the trading day. This could distort the value of the spread at the end day of the trading day as reflected on the FCM’s statements. While the Advisor believes that such distortions will be minimal and will self-correct once the markets for both legs of the spread reopen on the next trading day, these distortions could render the FCM’s statements inaccurate as far as presenting value of an account maintaining such a spread position. In addition, the Advisor’s management fee is calculated on daily basis based on an account’s Net Assets (as defined in the Section entitled, “Fees and Expense”), which includes the value of an account based in what is reflected in the FCM’s statements. Accordingly, the management fee calculation on a given trading day might not accurately reflect the value of an account in terms of the performance of the Advisor’s trading of the account. However, the Advisor believes that over time any distortions in the value of the account will cancel themselves out resulting in a management fee calculation that is fair and equitable to Clients. Trading of Options. The Advisor may trade options on futures contracts. Each option on a commodity futures contract or physical commodity is a right, purchased for a certain price, to either buy or sell a commodity futures contract or physical commodity during a certain period of time for a fixed price. Although successful commodity options trading requires many of the same skills as does successful commodity futures trading, the risks involved are somewhat different. For example, if the Advisor buys an option (either to sell or purchase a futures contract or commodity), it will pay a “premium” representing the market value of the option. Unless the price of the futures contract or commodity underlying the options changes and it becomes profitable to exercise or offset the option before it expires, the client’s account may lose the entire amount of such premium (together with the costs of commissions and fees incurred to purchase such options). Conversely, if a client sells an option (either to sell or purchase a futures contract or commodity) it will be credited with the premium but will have to deposit margin due to its contingent liability to take or deliver the futures contract or commodity underlying the option in the event the option is exercised. The writer of the option is however at unlimited risk with respect to the call option written, and risk on the put option of the amount should the price of the futures contract drop to zero. Sellers of options are subject to the loss which occurs in the underlying futures position or underlying commodity (less any premium received). The ability to trade in or exercise options may be restricted in the event that such trading on U.S. commodity exchanges is restricted by both the CFTC and such exchanges, and it has been at certain times in the past.
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It should be recognized, though, that the loss from a spread can be as great as – or even greater than – that which might be incurred in having an outright futures or options position. An adverse widening or narrowing of the spread during a particular time period may exceed the change in the overall level of futures or option prices, and it is possible to experience losses on both of the futures or options contracts involved (that is, on both legs of the spread). In addition, spread trading increases transaction costs because the Clients will be charged commissions on each leg of the spread. A Client’s FCM May Fail. Under CFTC regulations, FCMs are required to maintain customers' assets in a segregated account. If a Client's FCM fails to do so, the Client may be subject to a risk of loss of his funds on deposit with his FCM in the event of its bankruptcy. In addition, under certain circumstances, such as the inability of another customer of the FCM or the FCM itself to satisfy substantial deficiencies in such other customer's account, a participating customer may be subject to a risk of loss of his funds on deposit with his FCM, even if such funds are properly segregated. In the case of any such bankruptcy or customer loss, a Client might recover, even in respect of property specifically traceable to the customer, only a pro rata share of all property available for distribution to all of the FCM's customers or potentially recover no assets at all. Substantial Fees and Expenses. A Client is subject to substantial brokerage commissions and other transaction costs as well as management and incentive fees. Accordingly, a Client’s account will have to earn substantial trading profits to avoid depletion of the Client’s funds due to such commissions, costs, and fees. The Client, and not the Advisor, is directly responsible for paying to the Client's FCM or, as appropriate, all margins, option premiums, brokerage commissions and fees, and other transaction costs and expenses incurred in connection with transactions effected for the customer's account by the Advisor. The Advisor considers the interests of its Clients paramount and manages all accounts to further the interests of customers. Nevertheless, no assurance can be given by the Advisor as to any minimum or maximum number of transactions which will be entered into for a Client's account during any period for which the account is managed by the Advisor. Tax liability. Clients should satisfy themselves as to the income tax and other tax consequences of an investment in a managed account program with specific reference to their own tax situation by obtaining advice from their own tax counsel before participating in a managed account program. Performance Compensation in General. Because Evergreen receives performance-based compensation, Evergreen has an incentive to trade or invest in a more speculative manner than it otherwise would. Day Trading. The Advisor may very actively trade the Clients’ accounts, and may engage in “day-trading,” which involves initiating and exiting a position on the same trading day. When day-trading, several positions may be initiated and exited on the same trading day. Because Clients will be charged brokerage commissions each time a trade is placed, Clients will incur substantial brokerage commissions. While the Advisor believes that the profits resulting from the trading program will more than compensate for these increased transactional costs, there is no assurance that this will occur. 5
Position Trading. The Advisor will also position trade the Client accounts, which involves holding positions for longer periods of time. Positions held overnight may be more vulnerable to risk of loss if a market-moving event occurs when the markets are closed. If this occurs, it may be impossible to liquidate positions, which may subject Clients to substantial losses. Electronic Trading. The Advisor may place trades on the various electronic trading platforms offered by the exchanges. In the event that there is a failure or disruption of these platforms, it is possible that, for a certain time period, the Advisor may not be able to enter new orders, execute existing orders, or modify or cancel orders that were previously entered. In addition, a system failure may also result in loss of orders or order priority. Trading Strategies Involve Proprietary Methods. Because specific elements of the Advisor’s trading strategies are proprietary, Clients will not be able to determine the full details of the systems or whether the strategies are being followed. Concentration Risk. The Advisor’s trading program involves trading exclusively in futures markets, and primarily in energy futures. Because the Advisor’s trading will be concentrated in this area, the program is not as diverse as other trading programs, and thus may be subject to greater risk of loss in the event that the Advisor is unable to trade profitably in these markets. Trading Disruptions. Following the terrorist attacks of September 11, 2001, the United States financial markets were closed for several days. In addition, once they were reopened, these markets experienced extreme volatility and a lack of liquidity. There can be no assurance that world events will not cause severe market disruptions in the future. If such market disruptions were to occur again, Clients’ performance could be adversely affected due to the fact that Clients’ assets will be invested in these markets. For instance, the Advisor’s ability to liquidate a position in order to limit losses could be hindered. Notional Funding. The Advisor will accept notionally funded accounts of up to 50%. Notionally funded accounts may not be able to participate in all trades of the Advisor’s trading program if the account does not have sufficient funds available for margin requirements. This may cause the performance of notionally funded accounts to differ from the performance of accounts without notional funding. 6.
TRADING METHODOLOGY
Introduction The Advisor seeks capital appreciation of Clients’ accounts through speculative trading in commodity futures and options on commodity futures. There is no representation being made that the trading program offered by the Advisor will be successful in achieving this goal. The Advisor currently offers the Evergreen Trading Program (the “Program”). The Advisor recommends that Clients open accounts with a minimum of $100,000 for the Program in order to ensure that Clients will have sufficient equity in their accounts to fully participate in the program. However, the Advisor reserves the right to waive these minimum funding requirements. 6
The trading program utilized by Evergreen is proprietary and confidential. description below is therefore general by necessity and is not intended to be exhaustive.
The
Description of the Trading Program Types of Transactions The Advisor’s objective is to achieve appreciation of Clients’ assets through speculative trading in commodity futures and options. The Advisor intends to focus on trading energy futures contracts, such as WTI Crude Oil Futures, RBOB Gasoline Futures, Brent Crude Oil Futures, and Heating Oil Futures. The Advisor will trade calendar and inter-market spreads in such markets, and may maintain outright futures and option positions in such markets. The Advisor may trade or invest in any type of commodity futures and options that is now, or may hereafter be, offered for trading on U.S. exchanges or markets including, but not limited to metals, agricultural products, softs, stock indices, interest rates and currencies. In General Money managers generally rely on either fundamental or technical analysis, or a combination thereof, in making trading decisions and attempting to identify price trends in a commodity interest. "Fundamental analysis" is the consideration of factors external to the market of a particular instrument. For example, weather and political events which affect the supply and demand of that particular instrument, in order to predict future prices of that instrument. As an example, some of the fundamental factors that affect the supply of commodities (e.g., agricultural products such as corn and soybeans) include the acreage planted, weather during the growing season, harvesting and distribution of the commodity and the previous year's crop carryover. The demand for such commodities is determined in part by domestic consumption and exports and is a product of many factors, including general world economic conditions, exports and the cost of competing products which might be substituted as alternate sources of food or fiber. Technical analysis is not based on the anticipated supply and demand of the "cash" or "physical" (i.e., actual) commodity; instead, technical analysis is based on the theory that a study of the markets themselves (in particular, of trends of prices established by the markets for various instruments during selected historical periods) provides a means of anticipating prices. Technical analysis of the markets often includes a study of the actual daily, weekly and monthly price fluctuations, as well as volume variations and changes in open interest, utilizing charts and/or computers for analysis of these items and other technical market data. Both general methodologies have been employed with success by traders and investors in the past, however, neither trading method can be assured of success in a particular interval of time. The Trading Program The Program seeks to profit from placing spread trades in Crude Oil Futures and its related products, such a Gasoline and Heating Oil Futures. The spreads placed may be calendar spreads (e.g., maintaining a long position in the January contract and a short position in the 7
February contract is the same futures contract) or inter-commodity spreads (e.g., maintain a long position in a futures contract and a short position in a related futures contract). In order to determine positions, Evergreen analyzes various technical indicators, including but not limited to order flow, volume, moving averages, moving linear regressions, and overbought/oversold indicators. Evergreen also considers fundamental factors and seasonal trends when making trading decisions. While these indicators assist Evergreen in finding opportunities in the markets, the firm relies heavily on past trading experience of Kelcy Voth and Bryan Vaverek, Evergreen’s Trading Principals, when making trading decisions. As market conditions are constantly changing, Evergreen believes that having the ultimate discretion over the trades allows it to effectively adapt to challenging market conditions. The Program typically results in 3% of the total assets of the Clients’ accounts being used to margin positions. However, this percentage may be substantially different at Evergreen’s discretion. Please note that the Program’s margin to equity percentage exceeded 28% during 2015. 7.
PROPRIETARY TRADING
The Advisor and its Principals may trade for their own accounts (“Proprietary Accounts”). The records and policies associated with the Advisor’s trading of Proprietary Accounts or other client accounts will not be available for inspection by Clients. 8.
FEES AND EXPENSES
Clients’ accounts shall be charged the fees as set forth below. Once these fees are earned, the Advisor will retain the fees regardless of an account's subsequent performance. a.
Management Fee
The Advisor will receive a two percent (2%) annualized management fee based on the Net Assets in the Client's account. The management fee is calculated on a daily basis, and is equal to an account’s Net Assets multiplied by 1/365 of the annualized management fee percentage set forth above. The management fee is paid quarterly, and is the sum of the daily management fees calculated during the previous quarter. Net Assets are the account's total assets less liabilities, including realized and unrealized gains and losses. If the account is closed prior to the end of the quarter, the management fee shall be charged as if the date of such closure is the last day of the quarter. Please note that the Advisor reserves the right to negotiate a higher or lower management fee with individual Clients. The Advisor may accept partially funded (“notional”) accounts. The management fees charged to such an account will be based on the nominal value (actual fund plus the notional amount committed) of the account. The percentage of management fees based on an account’s actual funds is computed by dividing the management fees charged to the account by the actual funds in the account. For example, if a Client is charged a 2% management fee, a $100,000 account traded as $200,000 account is charged 2% of $200,000, or $4,000 annually. The percentage of management fees charged based on actual funds is then computed by dividing $4,000 by $100,000 (the actual account size), which equals a management fee of 4%.
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b.
Incentive Fee
The Advisor will receive an incentive fee based on a percentage Net New Profits the Advisor generates in an account for a quarter. More specifically, the Advisor will receive up to 20% of the Net New Profits. Net New Profits are the amount, if any, by which the account's Net Assets at the end of the quarter (after deducting the management fees for the quarter) exceed the previous quarter-end Net Assets of the account (or Net Assets at the start of trading, if trading commence after the beginning of a quarter), disregarding capital additions and withdrawals. For example, when quarter-end Net Assets are $200,000 (after deducting the management fees and assuming there are no capital additions or withdrawals) and the highest previous quarter-end Net Assets were $160,000 (after payment of the incentive fee for that quarter), the incentive fee would be charged based on the $40,000 in Net New Profits for the current quarter. If a Client’s account experiences aggregate net investment losses (both realized and unrealized) for any incentive period, such losses (the “Carryforward Loss”) shall be deducted from Net New Profits for each succeeding quarter for the purpose of determining the incentive fee for each such quarter until the full amount of the Carryforward loss has been offset by Net New Profits. Please note that the Advisor reserves the right to negotiate a higher or lower incentive fee with individual Clients. 9.
NOTIONALLY FUNDED ACCOUNTS DISCLOSURE
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 advisor’s 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 one of the commodity trading advisor’s programs. 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 commission 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; and (3) the conversion chart below may be used to convert actual rates of return (“RORs”) to the corresponding RORs for particular funding levels.
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Rate of Return -20% -10% -5% 0% 5% 10% 20%
100% funded -20% -10% -5% 0% 5% 10% 20%
75% funded -30% -15% -7.5% 0% 7.5% 15% 30%
50% funded -40% -20% -10% 0% 10% 20% 40%
It is anticipated that additions or withdrawals will not materially affect RORs of notionally funded accounts. This is because any additions or withdrawals of actual funds will result in a corresponding increase or decrease in the nominal funding level of an account. For example, assume that a Client opens an account with an actual funding level of $90,000, and instructs the Advisor to trade the account at a nominal level of $100,000. If the Client withdraws $10,000 of actual funds from the account, the Advisor will reduce the nominal trading level of the account to $90,000. Further, it is anticipated that trading profits and losses also will not materially affect RORs of notionally funded accounts. This is because any trading profits and losses will result in a corresponding increase or decrease in the nominal funding level of an account. For example, assume that a Client opens an account with an actual funding level of $90,000 and instructs the Advisor to trade the account at a nominal of $100,000. If the account achieves a profit of $10,000, the Advisor will increase the nominal trading level of the account to $110,000. Conversely, if the account sustains a loss of $10,000, the Advisor will reduce the nominal trading level of the account to $90,000. Please note, however, that the increased leverage resulting from notional funding may lead to more frequent and larger margin calls in the event of a draw-down. 10.
PERFORMANCE INFORMATION
The performance of accounts managed by Evergreen is set forth on the page that immediately follows. Please note that prior to Evergreen being registered as a CTA in October of 2015 and becoming an NFA member firm in November of 2015, Evergreen directed customer accounts under an exemption from CTA registration under CFTC Regulation 4.14(a)(10). The performance of these accounts is set forth on the page that immediately follows.
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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS Trading Performance of Evergreen Commodity Advisors, LLC 1/1/2015 to 3/31/2016 Name of CTA: Evergreen Commodity Advisors, LLC Program: Evergreen Trading Program Inception of Trading Pursuant to This Program: January, 2015 Inception of Trading by CTA: January, 2015 No. of open Accounts traded pursuant to this Program: 7 Nominal Funding Level of All Accounts: $580,126 Nominal Funding Level of Accounts in this Program: $580,126 Largest monthly drawdown: -0.50%, April 2015 Largest peak- to-valley monthly drawdown: -0.50% March 2015 to April 2015 Number of Profitable Accounts Opened and Closed Since 0, n/a January 2015 and their Performance Ranges: Number of Unprofitable Accounts Opened and Closed 0, n/a Since January 2015 and their Performance Ranges: MONTHLY AND ANNUAL RATES OF RETURN Month January February March April May June July August September October November December Annual Rate of Return
2016 2.38% 0.33% 0.66%
3.40%
2015 5.02 % 6.29 % 3.64 % -0.50 % 2.62% 1.65% 3.15% 3.30% 1.41% 2.25% 0.95% 3.25% 38.31%
Notes: 1) Largest Monthly Drawdown: Represents the largest loss experienced by the Program in any calendar month expressed as a percentage of beginning net asset value. The term "drawdown" means losses experienced by the Program over a specified period. 2) Largest Peak-to-Valley Monthly Drawdown: Represents the greatest cumulative percentage decline in month end net asset value due to losses sustained by the Program during any period in which the initial month end net asset value is not equaled or exceeded by a subsequent month end net asset value. 3) The Monthly Rate of Return is computed by the dividing Net Performance by Beginning Equity plus or minus the weighted average of additions and withdrawals.
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11.
THE FUTURES AND OPTIONS MARKETS
Futures Contracts. A futures contract is an agreement, made through the facilities of an established exchange, by which the seller agrees to deliver and the buyer agrees to accept, a certain quantity of a specified grade of a commodity during a designated delivery month at a specified price. Certain futures contracts, such as those in Eurodollar time deposits or stock indices, are closed out by cash settlement of the profit or loss of an open position rather than by delivery. Speculative traders rarely expect to take delivery of any commodity under a futures contract. Rather, they hope to realize profits from fluctuations in the price of futures contracts, "offsetting" such contracts by taking an equal and opposite position in the same contract before delivery is due. A margin deposit is required to initiate both "long" and "short" futures positions. Additional margin is required if unrealized losses in open positions reduce the margin on deposit below required minimums. Unlike margin in the securities industry, which essentially constitutes a loan from a client's stockbroker, margin in futures trading acts as a deposit to give assurance to a trader's futures broker of the trader's ability to pay for any losses which may be incurred on the trader's positions. Options Contracts. An option on a futures contract gives the purchaser of the option the right to take a position at a specified price (the “strike" or "exercise" price) in the underlying futures contract. A "call" option gives the purchaser the right to take a long position in the underlying futures contract, and the purchaser of a "put" option acquires the right to take a short position in the underlying contract. The purchase price of an option is referred to as its "premium". The seller (or "writer") of an option is obligated to take a futures position at a specified price opposite to the option buyer if the option is exercised. Selling such options involves risks similar to those involved in trading futures contracts, in that options are speculative and highly leveraged. Specific market movements of the commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option is subject to the risk of losing the entire purchase price of the option, plus the fees and commissions associated with the transaction. The writer of an option is subject to the risk of potentially unlimited loss in excess of the premiums received, plus the fees and commissions associated with the transaction. Regulation. Futures exchanges in the United States and the trading conducted thereon are subject to regulation under the Commodity Exchange Act, as amended (the "Act"), by the CFTC. The Advisor is registered with and subject to regulation by the CFTC as a commodity trading advisor. Registration with the CFTC is not, and must not be considered as any indication of CFTC approval. The NFA is the self-regulatory body of the United States futures industry, of which the Advisor is a member. The NFA has responsibility for processing the registrations of commodity trading advisors and their associated persons, as well as most other CFTC registered persons. Margins. Margin is the amount of funds that must be deposited by a trader with his or her commodity broker to secure the obligation either to make or accept delivery under a futures contract or to make an offsetting sale or purchase. Because futures contracts are customarily bought and sold on margins which range upward from less than two percent of the purchase price of the contract, price fluctuations occurring in commodity futures markets may create profits and losses that are greater than are customary in other forms of investment. The margin deposit required of an account will be reduced or increased daily as a consequence of fluctuations in the market price of the open contracts held for the account, and additional deposits may become 12
necessary as a consequence of adverse market movements. Exchanges impose, and may at any time increase, minimum margin requirements, and brokers may, in their discretion, further increase the amount of margin required from any account. The foregoing is not a complete summary of the complex and highly various futures and options markets. Each client should familiarize himself or herself with the futures and options markets, carefully read the Risk Disclosure Statement in the front of this Disclosure Document and the following description of certain of the risks connected with futures and options trading before opening an account.
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