EMERGING MANAGED FUTURES PROGRAM SPOTLIGHT: APPLIED CAPITAL

SYSTEMS
August 30, 2010

Evaluating an emerging manager is a fickle task. By definition, emerging means that a manager is up and coming (or maybe just coming, and not even up yet), and
likely has a shorter track record. The relative lack of experience and limited actual trading done by an emerging program usually leaves us with very little to evaluate
beyond what the manager tells us is going on. Because of this, we typically like to avoid attempting to highlight a manager until they have at least a 2-year track
record (preferably longer) and have had the opportunity to analyze the trading on our own books for at least a year.

However, many of our readers have asked for more information on emerging managers, and we’ve looked for ways to oblige that request without just throwing up a
spotlight on a manager and program we know very little about.

Enter Applied Capital Systems, whose manager we have known for many years and whose track record we have been tracking “live” on our books for the last 10
months, with their first client opening an account with Attain. So, we can hopefully appease the request for an emerging talent without sacrificing too much, seeing
as how we have been able to develop a level of familiarity and comfort with the actual trading that has occurred over the last year.

Today’s spotlight on Applied Capital Systems highlights an emerging manager that is familiar with both sides of the CTA industry. For many years Mr. Greg
Callegari, who is a principle in the ACS program, spent his time allocating to trend followers, while always wishing that a shorter term alternative was available.
Enter Mr. Antony Drew, who, after recently completing his studies at the University of Chicago, came to Mr. Callegari with a short-term commodity system that was
“different” from other multi-market managed futures programs. Mr. Drew and Mr. Callegari became partners and in October of 2009 officially launched Applied
Commodity Systems.

Who is the Manager

The trading models used by ACS were written by Tony Drew. Tony is the head trader at Applied and is charge of all trading and trading model development. In
contrast to many money managers who major in finance, engineering, or computer science, Mr. Drew took an unlikely path to becoming a CTA, graduating from
Georgetown University with a degree in Russian language and Philosophy with a metaphysics concentration. Tony was also an All American rugby player at
Georgetown.

Upon graduation, Mr. Drew jumped feet first into trading as a trading assistant on the Canadian Imperial Bank of Commerce World Markets interest-rate swap
desk. It was at CIBC that Tony first had exposure to the futures markets as the swaps desk routinely used 10-year note and 30-year bond futures contracts to
hedge their positions.

Mr. Drew soon realized he wanted to make a full time career out of trading futures, and enrolled in night classes to study finance and programming (one rarely goes
without the other these days). He even moved to Chicago to get closer to the action, taking a job on the trading desk with ABN AMRO. Moving to ABN proved to be
a smart decision as this is where Tony first met his future business partner & co-principle of Applied Capital Systems, Greg Callegari. While in Chicago, Mr. Drew
received his MBA from the University of Chicago with a concentration in behavioral and analytical finance. It was at U of C that Mr. Drew became a convinced that
systematic, technical trading was the most logical way to trade. He immersed himself into learning technical analysis and came away with his own price action
based indicators including the original ideas that are used for ACS. Tony lives in New York, and can be found skiing or playing tennis (both weather permitting we
would assume) when not behind the computer looking at the code for Applied’s trading models.

Mr. Greg Callegari began his career in 1995 when he worked at Barclays Plc in New York. Throughout his career, Greg has done due diligence on a wide variety
of managed futures programs and trading styles, first through his role running a global CTA allocation program he founded for Barclays in London and later working
in a similar capacity for ABN AMRO as a CTA allocator and proprietary trader.

Greg says he always aspired to run his own CTA, and actually has found that starting as an allocator allowed him to learn the necessities to becoming a successful
manager and how avoid the pitfalls that can plague other programs. According to Mr. Callegari “Being an allocator to CTA’s earlier in my career and a trader later
really helped me gain perspective on what models work and what does not. I saw firsthand what models worked and what did not, and our objective with Applied
was to create something that functioned better and had sustainability. Yet one of the biggest obstacles was creating a model which outperformed on a risk reward
basis and had shorter trade duration.” Greg lives in Chicago with his family of three kids plus his dogs – and has been known to get outdoors in

The final piece of the ACS team is Chris Stephan who is an administrative partner and an attorney. As a former partner at Kirkland Ellis, Mr. Stephan brings a
wealth of legal knowledge and business experience to Applied. As you would expect, Chris is in charge of all legal issues including compliance at Applied. He also
has input on day-to-day firm operations.

How Does the Program Work

Applied Capital Systems is what we may call a short to medium term systematic, multi-market CTA that employs mathematical models to analyze technical market
information in order to generate signals across a portfolio of thirty-six liquid futures markets. The program was developed by the partners of ACS and includes seven
individual trading models, along with portfolio overlaying volatility filters that look to eliminate “noise” from market data in order to portray a clearer view of the trend
or counter trend environment in each market.

While the team at Applied Capital tends to think of themselves as a short term program – the proper categorization might be shorter term. They do have some
models which will hold a trade for a single day only, but they also have some trades which could last several months to a year in their longest term models. On
average, their trades last about 12 days – making them shorter term than many of the classic systematic multi-market programs, yet not quite as short term as some
programs whose average hold time is 1-2 days.

As alluded to above with the program’s trading across multiple time frames (1 day to 1 year) - the ACS program is designed to be diversified across multiple facets
of risk – employing a multi-strategy, multi-market, and multi-time frame approach. The multi-strategy comes in through the use seven separate systems “applied” to
each of the markets they track. These seven different models include programs based on regression analysis, volatility breakout, pattern recognition, oscillator
based, counter-trend models and what the managers call “anticipated” trend models. The systems are employed together based on a belief that they will be
uncorrelated to one another over the long term, although it is possible for similar trades to be generated over the short term. Typically, each system is only active
about 60% of each year on average due to the various noise and volatility filters used to potentially identify poor trading periods.

While most of us know what a trend strategy is, and even a counter-trend strategy – Applied Capital’s “anticipated” trend strategies sure sound like something new.
And while some other programs actually do similar things, it is a far less common (read: unique) method - as traditionally this type of model is much more difficult to
develop as the program is attempting to identify a trend in the market BEFORE it happens. In contrast, most trend following managers look to enter into a trend
AFTER it has appeared (when prices breakout above a 100 day Bollinger Band, for example).

The “anticipated” trend strategies ACS is utilizing are designed somewhat differently, looking to predict future market moves rather than simply react to trends that
have already taken place. If you’re thinking no model could predict a future trend with accuracy any better than a coin flip, you are probably right. But if you go re-
read our recent newsletter: The Percent Profitable Fallacy, you’ll see it doesn’t really matter how good they are at predicting them. It’s all about doing really well
when they do predict them correctly and not doing really poorly when they don’t.

Applied Capital put a lot of thought into the latter part of that formula (not doing really poorly when they are wrong), the result of which is their portfolio wide risk
overlay/filter which only allows a fraction of the actual trades signaled because of the possibility that current market conditions may not be conducive to a winning
trade.

As for the multi-market, Applied trades the usual suspects amongst the active US futures markets - including currency, energy, equity, fixed-income, agriculture, and
metals sectors. All seven systems trade across all 36 markets.

Operationally, each of the seven systems orders are executed market on close (MOC) when Applied believes markets are typically more liquid. Another somewhat
unique aspect is Applied’s risk controls, where none of the systems have resting stops in the market. Rather, the ACS program uses what the managers call a “time”
stop where they give each trade a specific time frame within to work and then re-evaluate as necessary if the trade is not working as expected. They note that the
actual use of the time stop does not occur frequently and is designed and used more to enforce the short term trading theme of the program.

The systems also use what the manager calls “fair-value” targets, which are projected targets or cross over points for which each market will eventually reach.
These fair-value targets are different from traditional profit targets in that they are not based on the overall profitability of the trade; rather they have been
determined by the conditions of the marketplace. Once the system has detected a fair value point where it believes the market is fairly priced it will look to exit the
trade.

ACS also manages risk by employing dynamic updating portfolio parameters and weights. This entails using a restricted mean-variance weighting system along with
some forward looking dynamics (including expected returns and covariance) for selecting markets and weights for the next monthly trading period. Currently, each
trade can take up to 5% max risk of total portfolio capital although most trades are between 2% and 3%.

Despite the presence of multiple systems across 36 markets and multiple time frames, the program only trades 1000 R/T per million on average. This a low number
for a shorter term trading program, and Mr. Drew credits this to their active filtering that eliminates trades that have a lower chance of success.

Attain Comments

Since their ‘breakout’ in 2007 and 2008 – the last 24 months have been rather turbulent for most multi-market CTAs as they have battled declining volatility and high
correlation across portfolio components. Applied Capital started right in the thick of this poor period, and has stood out to us as a unique trader that has been able
to take advantage of both short-term trends and counter trend market moves. One unique feather in the Applied team’s cap is that they have had success trading
the f/x markets which many multi-market programs tend to struggle with given their often sharp pullbacks. Typically, currency markets are one of the most difficult
sectors to trade with a systematic program due to government intervention, as well as numerous spikes in the market around key reports and interest rate decisions.

Another positive point is that even though the Applied Capital Systems program is new to the CTA space, it is being managed by pair who “have been there before”
and been in and around large CTA allocations and trading volume. Greg’s experience allocating fund and bank capital to various CTAs, in particular, seems to have
taught him that the primary job of a CTA is to be a risk manager first, then a return generator, not the other way around. Furthermore, Greg’s experience as an
allocator to money managers has given him a unique point of view of the pitfalls that trip up new managers and trading programs. Because of this, we expect that
Applied Capital will be able to avoid many of the common organizational mistakes we see from new CTA’s.

Possible concerns include the fact that Applied Capital is a new CTA, of which nearly all experience some eventual bumps in the road, and the program’s
willingness to risk up to 5% on certain trades. On the $500K minimum, that represents a loss of -$25,000 on a single trade, which would be a bitter pill to swallow
for any investor. Many managers are found eventually decreasing their program’s leverage from what their testing shows to a more moderate number that is more
in line with client expectations, and if a few of those 5% risk levels are hit by Applied, we may see them do the same in the near future.

But for now, Applied has managed to avoid losing too much on any one trade, or even any series of trades – standing out in what has otherwise been a gloomy past
10 months for many CTA programs. Since getting started last October, Tony & Greg have outperformed many of their competitors in the multi-market sector, which
is made more impressive by the fact that they are trying to produce non correlated returns with the classic multi-market managers.

Finally, considering the program started off in drawdown right off the bat (-9.21%), it is nice to see them make a nice comeback over the last 3 months to new equity
highs. August is nearly in the books as well and it looks like Applied will be positing another number in the black, with our early estimates showing the program up
just over 0.60% for the month. With increased market volatility on the horizon for Q3 and Q4 of this year we expect that this program will finish the year out strong.

If the new normal is for quicker trends, reversals, and an overall continuation of the poor conditions for most other multi-market programs – a shorter term
systematic manager like Applied Capital may be worth considering for those adventurous enough to sign up with an emerging manager.

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.

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Feature | Week in Review: | Chart of the Week |

Chart of the Week : Applied Capital Performance Summary

Feature | Week in Review: | Chart of the Week |

Week in Review: : Grain and Bond rally good for multi-market programs, whle Stock
Volatility causes mixed results for rest
The past week featured more late summer, low volume, choppy activity with most major market players out on Holiday until after Labor Day weekend. Another
round of disappointing economic data put things on the defensive early in the week, although activity picked up late week with signs of future promise for corporate
earnings, news of more M&A possibilities and Fed Chairman Bernanke’s economy supporting statements.

Comments by the Fed Chairman predicting the current economic pace should pick up early next year helped thwart selling pressure from early in the week, although
he also injected into his statement the Fed has plenty of ammunition left to handle any deterioration that might arise in the future. The latter part of the statement
seemed to aid a rally in some sectors of commodities, especially in industrial metals as any sign growth might stabilize seemed to be a harbinger to demand ideas
for construction and manufacturing. The end result had Silver adding +5.73% followed by Palladium +5.56%, Copper +2.20%, Platinum +1.53% and Gold
+0.74%.
Energy sector price activity overlooked near record level inventories and lackluster demand on Chairman Bernanke’s soothing economic possibilities which put a
halt to an almost 3 week decline other than in Natural Gas. Heating Oil futures +3.23% led the way followed by RBOB Gasoline futures+4.90% and Crude Oil
+1.83%. Natural Gas futures -10.44% continued to be hampered by heavy supply prospects as drilling activity continues at a high rate despite poor price prospects.

Stock Index futures continued to trade sideways in a late summer low volume atmosphere, although the news front made for active swings throughout the week.
Early week declines from poor economic data was erased late on the speech from Fed Chair Bernanke and more rumblings of possible M&A activity. Mixed results
were seen again for a second week with Russell 2000 futures +0.98%, Mid-Cap 400 futures -0.21%, Dow futures -0.60%, S&P 500 futures -0.62% and the tech
heavy NASDAQ futures -1.99%.

The tug of war between current weaker economic reports and prospects for better conditions in the future led to a two-sided trade in Currency futures, albeit low
volume ahead of the holidays was the norm. Market participants continued to seek safety in the Swiss Franc +0.54%, Japanese Yen +0.45% and Euro +0.37% at
the expense of the British Pound -0.14 % and U.S. Dollar Index -0.24%. Rate futures experienced a breather after recent appreciation with U.S. 30-Year Treasury
bond futures off -0.58% followed by U.S. 10-Year Note futures -0.09%.

Agriculture and Soft commodities ended last week in a mostly weak atmosphere although world weather played a key role in some markets. The grain market were
mixed as Soybean +2.19% rallied on demand with Wheat -2.39% and Corn -0.05% taking a break after posting recent sharp rallies. The livestock experienced
resistance from a slowing in demand with Lean Hogs -3.08% and Live Cattle sliding -1.16%. In the Soft’s Cotton +3.02% and Sugar +0.05% continued to find
support on tightening world stocks with Cocoa -3.86% and Coffee -3.35% under pressure from better growing conditions after recent scares.

Managed Futures

With just 1 trading day remaining in the month, August is shaping up to be one of the best months in the past 18 for a large number of Multi-Market managers
tracked on the Attain platform. Extended moves in bond, grain, and soft markets has allowed managers like Clarke Capital Management to lead the charge –
Clarke is ahead an estimated +11.01% in his Global Magnum program, + 10.26% in Clarke Global Basic, and +4.38% in Clarke Worldwide.

Other Multi- Market managers enjoying the summer volatility include Hoffman Asset 250k +4.2%, 2100 Xenon Managed Futures 2x +4.18%, Integrated Managed
Futures Concentrated +3.29%, Covenant Capital Aggressive +2.83%, Quantum Leap Capital +2.51%, Futures Truth MS4 +1.78%, Dighton Capital USA +1.59%,
Hoffman Asset 125k +1.48%, Robinson Langley +1.27%, DMH Capital +1.20%, Auctos Capital +0.97%, Applied Capital Systems +0.68%, APA Modified +0.47%,
Mesirow Absolute Return +0.36%, Sequential Capital +0.14%, Futures Truth SAM 101 +0.13%, and APA Strategic Diversification +0.25%.

Multi- Market managers currently in the red include Mesirow Financial Low Volatility -0.02%, GT Capital -0.34%, Dominion Capital -0.42%, and Accela Capital -
0.60%.

Short term index traders have not fared as well with the increase in equity market volatility. Paskewitz Asset was ahead +0.44% coming into the day; however was
long and gave back some open trade gains likely taking the program into the red for the month. Roe Capital Management also has struggled to be on the right side
of the market – Jefferson is down -7.27% and Monticello Spread is down -6.92%.

Option trading managers started the month off slow; however with the turnaround in the currency and energy markets + a range bound stock market many option
programs are expecting to post gains for the month. The top performer has been Crescent Bay BVP whish is ahead an estimated +5.53% taking the program back
up near equity highs last seen in August 2008 – congratulations to the Crescent Bay team for managing the trading back to health.

Other Option managers in the black include FCI CPP +3.55%, Clarity Capital Management +2.68%, Kingsview Management +2.33%, Crescent Bay PSI +1.78%,
HB Capital +1.14%, Cervino Diversified 2x +1.14%, Cervino Diversified Options +0.51%, and ACE SIPC +0.05%.

Option managers in the red include FCI OSS -0.85%, Liberty Funds Group -2.89%, and Ace Diversified -9.97%.

Finally, Specialty market managers are looking to post broad based gains as there have been plenty of opportunities in agriculture, spread, and fixed income
markets. Agriculture specialist Rosetta Capital has been the top performer with an estimated gain of +4.77% thus far. Other agriculture trading from NDX has been
more modest with Abednego ahead 0.18% and Shadrach +0.88%. Spread trading from Emil Van Essen’s Low Minimum program has pushed ahead an estimated
+3.60% taking the year to date returns over +10%.

Trading Systems

Last week was a solid week for both day and swing trading systems with over half of the day and swing systems we track finishing with a profit for the week.

Leading the way on the swing system side was BAM 90 ES. BAM 90 ES entered the week long from 8/13 but quickly reversed to a short position on Monday.
Between the Monday close and Tuesday open there was an 11 point drop in the Emini S&P 500 market and BAM 90 ES took advantage of this by taking profit and
reversing long at the open on Tuesday. BAM 90 ES stayed long till Friday where it once again reversed its position and ended the week short. For the week BAM 90
ES finished at $1,760.00. Other positives for the week were Jaws US 60 at $220.00, MoneyBeans S at $314.17, Bounce EMD at $520.00, AG Mechwarrior ES at
$577.50, Strategic ERL at $610.00, Bounce ERL at $620.00, and Waugh CTO ERL at $900.00.

Unfortunately, some swing systems did finish in the red last week. The knockout punch for Moneymaker ES came on Monday when it got long near the open and
got hurt by the overnight drop in the Emini S&P 500 market. For the week, Moneymaker ES was down -$1,222.50. Other results were Strategic ES at -$707.50,
TurningPoint X2 ES at -$1,747.50, TurningPoint ES at -$1,747.50, and Strategic SP at -$5,837.50.

Leading the way on the day trading side was Compass SP. Compass SP got long on Wednesday and was actually profitable on the trade before a sell off during the
close took away profits and Compass SP ended up finishing near break even for the day. But on Thursday, Compass SP got short midday and was profitable on the
trade and once again it seemed like the action during the close would take away profits but the market sold off again during the close and this time Compass SP
benefited. For the week Compass SP was up $1,262.50 (as a sneak peak – Compass SP made +$2,725 today). Other positive results included NPI Traders NG at
$112.50, Clipper ERL At $216.46, Compass ES at $227.50, PSI! ERL at $520.00, BounceMOC EMD at $550.00, BounceMOC ERL at $627.50, BalancePoint ES at
$912.50, and Waugh ERL at $955.00.

Looking to bounce back next week will be UpperHand ES. On Thursday, Upperhand ES got short early on and was up atleast 6 points on the trade before the
Emini S&P 500 market reversed and stopped out UpperHand ES for a loss of -$380.00. For the week Upperhand ES was down -$551.67. Other results were NPI
Traders S at -$368.75 and NPI Traders US at -$748.75.

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.

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