Pardo Capital Limited pardo.altavra.com

The objective of Pardo Capital Limited's trading program is to achieve rates of return on invested capital that are somewhat greater than those available from other investments, while taking reasonable steps to protect capital relative to the rates of return sought. No assurance can be given that this objective will be met, and an investment in an account to be traded by Pardo Capital Limited should only be considered by individual and institutional investors that can assume the significant risk of commodity futures trading, including losses in excess of their initial investment. Pardo Capital Limited will attempt to accomplish this objective by following the trading methods set forth below.

Systematic and Discretionary Trading Approaches

Commodity traders may generally be classified as either systematic or discretionary. Systematic traders will typically make their trading decisions by relying primarily on trading programs or models that generate trading signals. Although the system utilized to generate trading signals may be changed from time to time (although generally infrequently), the trading instructions generated by the then current systems are typically followed without significant additional analysis or interpretation. Discretionary traders on the other hand -- while they may utilize market charts, computer programs and compilations of quantifiable fundamental information to assist them in making trading decisions -- make trading decisions on the basis of their own judgment and "trading instinct," not on the basis of trading signals generated by any program or model.

Technical and Fundamental Analysis

In addition to being distinguished from one another by the criterion of whether they trade systematically or on the basis of their own discretionary evaluations of the markets, commodity trading advisors are also distinguished as relying on either "technical" or "fundamental" analysis, or on a combination of the two.

Technical analysis is based on the theory that market prices reflect all known factors affecting supply and demand for a particular commodity and that the study of prices alone will provide means of anticipating future prices. Technical analysis requires a study of among other things: the daily, weekly and monthly fluctuations of prices, open interest and volume in an effort to predict the future course of price actions. These predictions are generally based on computer-generated signals using mathematical relationships, pattern recognition or any combination of such items. As an example, one method of technical analysis might evaluate the following set of factors on a daily basis: (1) the condition of the commodity interest market in terms of whether it is a trending or non-trending market, (2) the volatility the commodity interest has developed in the past as compared to current volatility levels, (3) current trade volume relative to past volume, and (4) the overall state of the commodity interest market to identify the proper points for initiating positions or allowing increases in existing positions.

Fundamental analysis studies external factors to the trading market that effect the supply and demand of a particular commodity interest in order to anticipate futures prices. Such factors include governmental policies, political and economic events, information related to weather conditions, crop conditions and the overall economics of a particular commodity interest. Fundamental analysis assumes that markets are imperfect, that information is not assimilated or disseminated and that econometric models can be constructed that generate equilibrium prices that may indicate current prices are not sustainable. As an example, with respect to an agricultural commodity interest, one fundamental factor that affects the supply of corn is the total acreage planted. The demand for corn consists of domestic consumption and exports and is based on such factors as the cost of corn in relation to the cost of competing products.

Although technical trading systems are comprised of a series of decision rules, some trading decisions are of a subjective nature, such as the selection of futures markets traded, the expiration months selected, the time of liquidation or rollover from one contract expiration to another, and the temporary suspension of trading prior to news releases. These subjective considerations are reviewed by the trading manager and are important non-technical considerations in implementing trading decisions.

PCL's XT99 Trading Program
Pardo Capital Limited will make its trading decisions by employing a systematic trading approach that relies primarily on technical analysis. Pardo Capital Limited will also rely, to a limited extent, on fundamental analysis in conjunction with proprietary methods concerning, for example, the addition or deletion of a particular futures market interest from its portfolio. While the fundamental decisions may substantially affect Pardo Capital Limited's performance, its primary reliance is on technical and algorithmic trading methods that are embedded in a trading environment referred to by Pardo Capital Limited as the Platform.

The Pardo Capital Limited's Platform embodies a diversified selection of purely algorithmic trading models of a mathematical, technical nature. They provide, at minimum, buy and sell entries and exits. At maximum, they may also include reversal orders, various types of protective and profit-protecting stops, and price targets.

The Platform offers diversification in at least these four different ways: by 1) market, 2) trading model, 3) variation of the style or orientation of a trading model, and 4) trading pace. The purpose of this degree of diversification is to attempt to 1) maximize profit, 2) minimize risk, 3) smooth fluctuations in the equity curve, and 4) maximize profit opportunities.

Market diversification is achieved by selecting different futures market interests with the least correlation. For example, a portfolio of coffee, crude oil and T-bond futures market interests offers greater diversification than a portfolio consisting of Swiss Francs, Deutsche Marks and British Pounds.

Trading method diversification is achieved by selecting a portfolio of various, different types of trading models or methods. For example, Pardo Capital Limited may elect to use a portfolio of trading models consisting of a volatility breakout model, a moving average model and a range breakout model.

Diversification by variation of the style of a trading model is achieved by using different trading models within a particular model “genre” or class which have “significant structural differences.” For example, a three-model portfolio can be created with models that share a volatility breakout entry mechanism but differ in their orientation to the trend. One model may be indifferent to trend, one may trade in the direction of the prevailing trend, and the third may trade counter to the current trend.

Diversification by trading pace is achieved by employing a portfolio of trading in which each trade has a different time horizon. For example, one model may exploit trading opportunities with a duration of hours, one may exploit trading events spanning a two-to-four day horizon, and the third may exploit events that span a one-to-three week event horizon.

The methods included in the Platform include amplifications of some better-known trading systems such as the volatility breakout system and the range breakout system. It is anticipated that Pardo Capital Limited will incorporate algorithmic strategies with countertrend and pattern-recognition based components.

A key feature of the Platform is its dynamic nature. It is an essential part of the Pardo Capital Limited Platform that the “mix” of trading methods be changed in accordance with Pardo Capital Limited’s proprietary methods as well as with regards to changing market conditions.

All models and markets are under continuous observation and evaluation. Models and markets can and will be deleted and added in a periodic re-mixing of all components of the Platform on all of the four “diversification fronts.” In addition, new methods are constantly under evaluation and development for future use. Furthermore, current methods are continuously evaluated and compared to new methods.

Another unique feature of the Platform is the method used in its construction. All models are tested and built via Walk-Forward Analysis. This is a reliable model development method that Robert Pardo invented, pioneered and refined to its current form. Furthermore, all models are created with Pardo Capital Limited's exclusive and proprietary model development technology.

Pardo Capital Limited is dedicated to continuous research. This will inevitably lead to enhancements of its testing methods and the Platform itself. New types of trading models are currently under exploration and will be added when completed. Enhancements to the current models are under exploration and will be introduced when perfected.

Further diversification via additional domestic markets is under continuous evaluation. Diversification via foreign markets is also under exploration. A variety of artificial intelligence methods are under consideration for integration into the Platform and Pardo Capital Limited's proprietary development methods.

Whereas the main focus of Pardo Capital Limited is technical and algorithmic, it is possible that methods will be applied from other disciplines as well. For example, Robert Pardo is versed in various discretionary trading methods that may be employed from time to time.

One of Pardo Capital Limited's overriding concerns is risk control. Towards this end, methods that blend algorithmic and discretionary approaches are used to determine portfolio mix. Similar blends of methods are applied to the periodic evaluation of the trading models that comprise the Platform.

Furthermore, Pardo Capital Limited reserves the right to override all trading models and Platform elements during trading conditions that are beyond the realm of normalcy caused by unforeseen political events, natural disasters, etc.

Since the trading methods of Pardo Capital Limited are based primarily upon a variety of trading techniques employed by Pardo Capital Limited, as well as the experience and judgment of its principal, this description is, of necessity, general and is not intended to be exhaustive.

Pardo Capital Limited believes that its money management discipline is an important element of the overall trading program. This discipline is comprised of the following major components:

Diversification
Pardo Capital Limited trades futures contracts and options on futures contracts on, among other things, financial instruments, including fixed income and money market instruments; stock, financial and economic indices; currencies; metals; industrial items; and agricultural and tropical items. The portfolio will be designed, at Pardo Capital Limited's discretion, to gain exposure to opportunities in the majority of actively traded market groups, while simultaneously limiting, to the extent possible, the exposure in any one particular group. Futures contracts and options on futures contracts that may be traded by Pardo Capital Limited include, but are not limited to, such contracts involving: copper, silver, gold, corn, wheat, the soybean complex, orange juice, Canadian dollars, British pounds, German marks, Swiss francs, Japanese yen, United States Treasury bills, notes, and bonds, the Standard and Poor’s 500 Stock Price Index, the New York Stock Exchange Index, and the Value Line Index.

Pardo Capital Limited may trade any of the commodity interest contracts that are now, or may hereafter be, offered for trading on U.S. exchanges and markets. Trading on non-U.S. exchanges and markets may be added in the future. Pardo Capital Limited may also trade in spot and forward contracts, currencies and other similar instruments. Pardo Capital Limited may, from time to time, in its sole discretion, add to or delete certain contracts from a portfolio. In addition, Pardo Capital Limited, may, in its sole discretion, trade other futures contracts and options on futures contracts.

Pardo Capital Limited continuously reviews the volatility, liquidity, and risk associated with the various commodities markets and, based upon its judgment, determines the commodities it will trade for an account and the number of contracts it will buy or sell in each such commodity. The determination of the number and diversity of the commodities traded and the number of contracts traded in each commodity and in total for an account is solely a matter of its judgment and discretion. Pardo Capital Limited increases and decreases the number of contracts held in any one commodity or all commodities based on factors that it deems relevant, such as the amount of funds in an account, increases or decreases in funds under management, changes in market volatility and market conditions, and other fundamental and technical factors. If Pardo Capital Limited believes a particular commodity, or group of related commodities, has significant profit potential it may concentrate assets in that area, subject to margin commitment limitations. Such concentration may result in a greater return or risk to the account.

The overall intent of Pardo Capital Limited's diversification policy is to increase opportunities for gain, decrease risk and provide more consistent returns. In order to provide for adequate diversification and reserves, the minimum account size is $50,000; provided, however, that under certain circumstances, Pardo Capital Limited may, in its sole discretion, accept smaller size accounts.

Risk Management
a) Pardo Capital Limited estimates that approximately 20% to 50% of the assets in a client's account will be committed to margin at any one time, although the percentage may, from time to time, be greater or less than these percentages, depending on market conditions, current margin requirements and changes in account equity. Generally, Pardo Capital Limited will not initiate new contract positions where the required initial margin deposit would exceed 75% of the total assets under management.

b) Should the net equity in the account at the end of any trading day decrease to a level which is 25% or less of the original account size, then Pardo Capital Limited will immediately cease entering new trades for such account and will liquidate all open positions in the account as soon as reasonably practicable in the sole judgment of Pardo Capital Limited.

c) Due to market factors, there can be no assurance that Pardo Capital Limited will be able to adhere to the trading suspension level, as set forth in (b) above, without sustaining additional losses in the account. In regard to the trading suspension, no new open positions will be undertaken by Pardo Capital Limited for the client until the Client notifies Pardo Capital Limited in writing of his or her desire to continue trading and to increase the net equity in the account to an acceptable level.

Robert Pardo, born in 1951, is the sole officer, director and stockholder of Pardo Capital Limited. Robert Pardo began a study of charting, technical analysis and algorithmic trading methods in 1976. In September 1980, Mr. Pardo founded The Pardo Corporation ("PC") and began developing a large selection of computer trading methods. In April 1983, he published and marketed the Chartist, a computerized trading program. Chartist was one of the first computer charting programs to be commercially marketed. In January 1984, PC published Swing Trader. This was the first program to bring powerful yet affordable strategy testing to the small trader. Since then, PC has continued to design and publish a variety of trading applications and tools - Advanced Chartist, Advanced Trader, Expert Trader, Blast, Dataman, Forecast, Lightning, Ranger, Tracer, Transformer and Wham.

In July 1988, Robert Pardo founded Pardo Group Limited, a consulting and research firm. In his capacity at Pardo Group Limited, Mr. Pardo has designed and tested thousands of trading ideas and traded models. Since 1988, Pardo Group Limited has done extensive in-depth work for trading firms designing and building custom strategies and trading applications.

Mr. Pardo is also the president of Pardo Capital Limited, a Commodity Trading Advisor (CTA) firm founded in June 1986 to manage money with a broad assortment of technical trading methods. He acquired a 50% interest in Sherman Trading Company, a commodity trading advisor and introducing broker, in July 1987. The name of Sherman Trading Company was changed to Pardo Capital Management at that time. The name of Pardo Capital Management was changed to Pardo Capital Limited in 1992. He was an Associated Person and Principal of Pardo Capital Management from July 1987 through February of 1988. From July 1987 to approximately February 1988, Pardo Capital Management managed approximately $1,000,000 in small managed accounts. Robert Pardo was an Associated Person with MDW, Ltd. from February 1992 to January 1993. MDW, Ltd. was a Commodity Trading Advisor and a Commodity Pool Operator (CPO).

Trading was terminated largely due to a disagreement between Robert Pardo and the other principal stockholder as to the future direction of Pardo Capital Limited. Robert Pardo purchased the other stockholder's interest in February 1988. The account equity was subsequently sold to another firm and PCL ceased doing business as a CTA.

Robert Pardo recently presented his ideas about the development of trading strategies in a book published in 1992 by J. Wiley and Sons entitled Design, Testing and Optimization of Trading Systems. Mr. Pardo has spoken on TV, radio, at various conferences, and published a number of articles about trading. He has been exploring expert systems, fuzzy logic and neural network trading applications for some time now and is familiar with a wide range of financial and numeric modeling methods.

In January 1993, Robert Pardo began the construction of a highly diversified trading platform referred to by Pardo Capital Limited as the Platform.

Since 1996, Pardo Capital Limited has managed customer funds. Pardo Capital Limited’s current trading program XT99 began trading in June 1999.

The descriptions above are from the manager's disclosure document.

THE RISK OF LOSS IN TRADING FUTURES, OPTIONS AND OFF-EXCHANGE FOREX CAN BE SUBSTANTIAL.  PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.  PLEASE READ THE CTA'S RISK DISCLOSURE DOCUMENT CAREFULLY BEFORE INVESTING MONEY.