<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 1998
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SMITH BARNEY WESTPORT FUTURES FUND L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN LIMITED PARTNERSHIP AGREEMENT)
<TABLE>
<S> <C> <C>
NEW YORK 6793 13-3939393
(STATE OF ORGANIZATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
SMITH BARNEY FUTURES MANAGEMENT INC.
GENERAL PARTNER
390 GREENWICH STREET
NEW YORK, NEW YORK 10013
(212) 723-5424
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICE)
------------------------
EMILY M. ZEIGLER, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NY 10019-6099
(212) 728-8000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT BEING OFFERING AGGREGATE AMOUNT OF
OF SECURITIES BEING REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units of Limited
Partnership Interest....... 120,000* 0 0 0
</TABLE>
- --------------------------------------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
* SMITH BARNEY INC. INTENDS TO MAKE A MARKET IN 120,000 UNITS OF LIMITED
PARTNERSHIP INTEREST ("UNITS") PREVIOUSLY REGISTERED ON REGISTRATION STATEMENT
NO. 333-24923. THERE IS NO REGISTRATION FEE DUE IN CONNECTION WITH THIS
REGISTRATION STATEMENT BECAUSE THE UNITS WERE PREVIOUSLY REGISTERED UNDER
REGISTRATION NO. 333-24923.
================================================================================
<PAGE> 2
SMITH BARNEY WESTPORT FUTURES FUND L.P.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
----------------------- ---------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover of Prospectus........................ Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Cover Page; Table of Contents
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Summary of the Prospectus; Risk Factors
4. Use of Proceeds.................................... Use of Proceeds
5. Determination of Offering Price.................... Cover Page; Plan of Distribution
6. Dilution........................................... *
7. Selling Security Holders........................... *
8. Plan of Distribution............................... Plan of Distribution
9. Description of Securities to be Registered......... Cover Page; Redemptions; The Limited
Partnership Agreement
10. Interests of Named Experts and Counsel............. Legal Matters
11. Information With Respect to the Registrant......... Summary of the Prospectus; Risk Factors; Com-
modity Futures Markets; Trading Policies;
Financial Statements; The General Partner;
The Advisor; Conflicts of Interest; Fees
and Expenses to the Partnership; The
Limited Partnership Agreement
12. Disclosure of Commission Position on Indemnifi-
cation for Securities Act Liability.............. *
</TABLE>
- ---------------
* Not applicable.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 19, 1998
120,000 OUTSTANDING UNITS OF LIMITED PARTNERSHIP INTEREST
SMITH BARNEY WESTPORT
FUTURES FUND L.P.
------------------
Smith Barney Westport Futures Fund L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of New York to engage in the
speculative trading of a diversified portfolio of commodity interests including
futures contracts, options and forward contracts.
Smith Barney Inc. ("SB") acts as the commodity broker/dealer for the
Partnership and its affiliate, Smith Barney Futures Management Inc., is the
General Partner of the Partnership (the "General Partner"). See "The General
Partner" and "The Commodity Broker/Dealer". All trading decisions are made for
the Partnership by John W. Henry & Company, Inc. ("JWH(R)" or the "Advisor").
The Advisor is not affiliated with the General Partner or SB. See "The Advisor"
and "Conflicts of Interest". SB intends to make a market in the Partnership's
units of limited partnership interest (the "Units"), although it is not
obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice, at the sole discretion of SB. The Units
that may be offered from time to time pursuant to this Prospectus were issued
and sold by the Partnership in a public offering which commenced May 30, 1997,
and terminated on February 1, 1998. Units were sold at $1,000 per Unit prior to
the commencement of trading and at Net Asset Value per Unit thereafter. When a
redemption/transfer request is received by the General Partner, SB may, at its
sole discretion, purchase such Units for its own account for immediate resale to
subscribers. Such purchases and sales will be at Net Asset Value per Unit. If SB
does not purchase the Units that are the subject of a redemption/transfer
request, the redemption will be effected by the General Partner and,
consequently, the number of Units outstanding in the Partnership will be
reduced. No assurance can be given as to the liquidity of, or the trading market
for, the Units as a result of any market-making activities undertaken by SB. The
Partnership will not receive any proceeds from the sale of any Units offered
pursuant to this Prospectus. No underwriting commissions are charged in
connection with this offering.
THESE ARE SPECULATIVE SECURITIES.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS. (SEE
"RISK FACTORS" AT PAGES 9-15). THIS OFFERING INVOLVES SIGNIFICANT RISKS AND THE
FOLLOWING LIST OF RISKS IS NOT COMPLETE:
-- COMMODITY TRADING IS SPECULATIVE AND VOLATILE (AN INVESTOR COULD LOSE ALL
OF HIS INVESTMENT.)
-- AUTHORIZATION OF SUBSTANTIAL FEES TO GENERAL PARTNER AND AFFILIATES (THE
PARTNERSHIP REQUIRES A RETURN OF 7.71% PER YEAR TO BREAK EVEN, ASSUMING A
PARTNERSHIP SIZE OF $120,000,000. SUBSTANTIAL INCENTIVE FEES MAY BE PAID
DURING A YEAR EVEN THOUGH THE PARTNERSHIP MAY INCUR A NET LOSS FOR THE
FULL YEAR.)
-- CONFLICTS OF INTEREST MAY EXIST IN THE MANAGEMENT OF THE PARTNERSHIP
(INCLUDING THE RELATIONSHIP BETWEEN THE GENERAL PARTNER AND THE COMMODITY
BROKER/DEALER; THE BROKERAGE RATE CHARGED BY THE COMMODITY BROKER/DEALER;
DISTRIBUTION OF PROFITS; ACCOUNTS OF SB, THE GENERAL PARTNER AND THEIR
AFFILIATES; CONTROL OF OTHER ACCOUNTS BY THE ADVISOR; OTHER ACTIVITIES
AND POOLS OPERATED BY SB; AND INCENTIVE FEES CHARGED BY THE ADVISOR).
THESE CONFLICTS OF INTEREST MAY ADVERSELY AFFECT THE NET PERFORMANCE OF
THE PARTNERSHIP.
-- NO PUBLIC MARKET FOR UNITS EXISTS.
-- LIMITED PARTNERS MAY HAVE LIMITED VOTING RIGHTS WITH RESPECT TO THE
PARTNERSHIP'S AFFAIRS.
-- WHILE THE GENERAL PARTNER DOES NOT INTEND TO MAKE DISTRIBUTIONS, PROFITS
EARNED IN ANY YEAR WILL RESULT IN AN INCREASE IN A LIMITED PARTNER'S TAX
LIABILITY.
(continued on next page)
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. THE
SECURITIES ARE SUITABLE FOR INVESTMENT ONLY BY A PERSON WHO CAN AFFORD TO LOSE
HIS ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGES 9-15.
THIS OFFERING IS NOT A MUTUAL FUND OR ANY OTHER TYPE OF INVESTMENT COMPANY
WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940 AND IS NOT SUBJECT TO
REGULATION THEREUNDER. SEE "RISK FACTORS" AT PAGES 9-15.
SUBSCRIBERS WILL BE REQUIRED TO MAKE CERTAIN REPRESENTATIONS AND WARRANTIES
IN THE SUBSCRIPTION AGREEMENT.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
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==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING THE PARTNERSHIP
PUBLIC COMMISSIONS(1) (1)(2)(3)
- ----------------------------------------------------------------------------------------------------------
Per Unit (minimum purchase: $5,000)(4).................. NAV (1) $0
==========================================================================================================
</TABLE>
(Notes on page ii)
------------------
SMITH BARNEY INC.
The date of this Prospectus and Disclosure Document is June 30, 1998
<PAGE> 4
SB is accepting subscriptions for Units with a minimum initial subscription
per investor of $5,000 (except that the minimum initial investment is $2,000 for
employee benefit plans, subject to higher minimums in certain states). This
Prospectus is to be used by SB in connection with offers and sales of the Units
and fractional Units (rounded to four decimal places) in market-making
transactions at the prevailing Net Asset Value per Unit as of the last business
day of the month ending at least 5 days after a subscription is accepted. Net
Asset Value is defined in the Glossary at page 101. A subscription may be
revoked by a subscriber if there are no Units available (i.e., no redemptions
requested) as of the end of a month. See "Plan of Distribution" and
"Subscription Procedure". The Partnership will dissolve no later than December
31, 2017. See "Summary of the Prospectus -- The Partnership -- Dissolution of
the Partnership".
- ---------------
NOTES:
(1) The Units are being offered by SB. SB will facilitate the transfer of
ownership of currently outstanding Units from limited partners wishing to
transfer their Units to subscribing investors upon approval by the General
Partner of new subscriptions. No underwriting commissions will be paid in
connection with this offering. SB may pay underwriting commissions of up to $50
per Unit sold out of its own funds. SB will pay a portion of the brokerage fees
it receives to its registered representatives ("Financial Consultants") who sell
Units in the offering and who are registered with the Commodity Futures Trading
Commission ("CFTC") as associated persons of a futures commission merchant for
continuing services to be provided by such persons to purchasers of Units. Those
services will include (i) answering questions regarding daily net asset value
and computations thereof, monthly statements, annual reports and tax information
provided by the Partnership, (ii) providing assistance to investors including
when and whether to redeem the Units or purchase additional Units (if available)
and (iii) general servicing of accounts. A Financial Consultant may be credited
with up to approximately 80% of the amount of brokerage fees attributable to
Units sold by him. The brokerage fees will be paid for the life of the
Partnership, although the rate at which such fees are charged may change. See
"Plan of Distribution" and "The Commodity Broker/Dealer -- Brokerage Fees". No
portion of SB's brokerage fees will be paid to any Financial Consultant who is
not registered with the CFTC as an associated person of a futures commission
merchant.
(2) The Partnership began its initial offering of Units on May 30, 1997 and
began trading on August 1, 1997 with an initial capitalization of $40,439,000.
As of March 31, 1998, the Partnership's Net Assets were $114,810,781 and the Net
Asset Value per Unit initially sold for $1,000 was $961.22. During the offering,
subscription amounts will be held in escrow at European American Bank, New York,
New York, until they are transferred to SB specifically for facilitating the
transfers described herein. The funds held in escrow will be invested as SB
shall from time to time direct by written instrument delivered to the escrow
agent in an interest bearing bank money market account. Subscription proceeds
resulting from SB's market-making activities will be offset by an equal amount
of transfer proceeds paid by SB to transferring investors. No new Units will be
sold as a result of this offering. Proceeds from the sale of Units made pursuant
to this Prospectus will not increase the number of Units outstanding nor the
size of the Partnership. If a subscription is accepted by the General Partner,
such subscription will purchase available Units and fractional Units (rounded to
four decimal places) in amounts provided by transferring investors in the
Partnership. See "Plan of Distribution" and "Use of Proceeds".
(3) The Limited Partnership Agreement requires the Partnership to bear all
of its offering expenses. See "Fees and Expenses to the Partnership" and
"Redemptions".
(4) The minimum additional subscription (to the extent available due to
redemptions) for investors who are already limited partners will be $1,000
(except in Maine, where the minimum additional subscription will be $5,000). In
the case of sales to employee-benefit plans including qualified corporate
pension and profit-sharing plans, "simplified employee pension plans,"
so-called, "Keogh" (H.R. 10) plans and Individual Retirement Accounts, and
subject to higher minimum investment standards imposed by certain states as
listed in Exhibit C hereto, the minimum purchase is $2,000. See "ERISA
Considerations."
------------------------
ii
<PAGE> 5
An annual report containing financial statements and the report of the
Partnership's independent accountants will be distributed to limited partners
not more than 90 days after the close of the Partnership's fiscal year.
------------------------
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission. Such reports and
other information can be inspected and copied at public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and its Northeast regional office at 7 World Trade Center, Suite 1300, New York,
NY 10048 and its Midwest regional office at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Partnership is an electronic
filer. The Commission maintains a Web site (http://www.sec.gov) that contains
such reports and other information regarding the Partnership.
------------------------
A COPY OF THE NASAA GUIDELINES FOR THE REGISTRATION OF COMMODITY POOL
PROGRAMS, AS AMENDED AND ADOPTED AS OF AUGUST 30, 1990, WILL BE PROVIDED TO ANY
PERSON, WITHOUT CHARGE, UPON REQUEST. SAID REQUEST MAY BE MADE IN WRITING TO THE
PARTNERSHIP, C/O SMITH BARNEY FUTURES MANAGEMENT INC., 390 GREENWICH STREET, NEW
YORK, NEW YORK 10013 OR BY CALLING (212) 723-5424.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER BY ANY PERSON WITHIN ANY JURISDICTION TO ANY PERSON TO WHOM
SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF ITS ISSUE.
UNTIL , 1998 (90 DAYS AFTER THE DATE HEREOF), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
iii
<PAGE> 6
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED BY THIS POOL AT PAGES 16-18
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGES 18 AND 19.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 9-15.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES
OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES,
INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO
REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS
PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO
COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN
NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
------------------------
iv
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Risk Disclosure Statement................. iv
Summary of the Prospectus................. 1
The Offering............................ 1
The Partnership......................... 2
Statement of Financial Condition........ 8
Risk Factors.............................. 9
Fees and Expenses to the Partnership...... 16
Potential Benefits to Investors........... 19
Conflicts of Interest..................... 20
Trading Policies.......................... 23
The General Partner....................... 24
Background.............................. 24
Principals.............................. 24
Other Pools Operated by the General
Partner............................... 28
The Advisor............................... 34
Fiduciary Responsibility.................. 61
The Commodity Broker/Dealer............... 62
Income Tax Aspects........................ 65
Summary of the Federal Income Tax
Consequences for United States
Taxpayers Who Are Individuals......... 65
Tax Consequences for Exempt
Organizations......................... 71
State, Local and Other Taxes............ 71
Summary of the United States Federal
Income Tax Consequences for Non-U.S.
Taxpayers............................. 72
Basis of Summary of Income Tax
Aspects............................... 72
Use of Proceeds........................... 73
Plan of Distribution...................... 73
Investment Requirements................... 74
</TABLE>
<TABLE>
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Page
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<S> <C>
Subscription Procedure.................... 75
The Limited Partnership Agreement......... 75
Liability of Limited Partners........... 76
Management of Partnership Affairs....... 76
Sharing of Profits and Losses........... 76
Additional Partners..................... 77
Restrictions on Transfer or
Assignment............................ 77
Dissolution of the Partnership.......... 77
Removal or Admission of General
Partner............................... 78
Amendments; Meetings.................... 78
Reports to Limited Partners............. 78
Power of Attorney....................... 79
Indemnification......................... 79
Redemption/Transfer....................... 79
ERISA Considerations...................... 80
Legal Matters............................. 83
Experts................................... 83
Additional Information.................... 83
Commodity Markets......................... 83
Commodity Futures....................... 83
Forward Contracts....................... 84
Uses of Commodity Markets............... 84
Options................................. 84
Regulation.............................. 85
Margins................................. 87
Financial Statements...................... 89
Glossary.................................. 101
Amended and Restated Limited Partnership
Agreement -- Exhibit A.................. A-1
Subscription Agreement -- Exhibit B....... B-1
Suitability Requirements -- Exhibit C..... C-1
</TABLE>
v
<PAGE> 8
(This page has been left blank intentionally.)
<PAGE> 9
SUMMARY OF THE PROSPECTUS
The following is a summary of the Prospectus. The Prospectus contains more
detailed information under the captions referred to below, and this summary is
qualified in its entirety by the information appearing elsewhere in this
Prospectus. See also the Glossary.
THE OFFERING
Securities Offered......Units at Net Asset Value per Unit as of the end of each
month during which SB conducts market-making activities.
Net Asset Value is defined in the Glossary at page 101.
Minimum Subscription....The minimum subscription is $5,000, except for
subscriptions by employee-benefit plans (and subject to
higher minimums imposed by certain states) which may be
made for a minimum of $2,000. The minimum investment for
subscribers who are already limited partners will be
$1,000 (except in Maine, where the minimum additional
subscription will be $5,000). The minimum subscription
will purchase Units and fractional Units (rounded to
four decimal places) as of the first day of the month
which is at least 6 days after a subscription is
accepted. See "Plan of Distribution". The General
Partner and its affiliates are free to purchase Units
for investment purposes provided that in no event will
total contributions by these entities equal or exceed
10% of the total contributions to the Partnership at any
time.
Plan of Distribution....SB intends to make a market in the Units (to the extent
that investors in the Partnership desire to
redeem/transfer Units) by matching redemption/transfer
requests with subscriptions for the Partnership's Units
which were previously issued. SB is not obligated to
conduct market-making activities and any such activities
may be discontinued at any time without notice, at the
sole discretion of SB. No assurance can be given as to
the liquidity of, or the trading market for, the Units
as a result of any market-making activities undertaken
by SB. This Prospectus is to be used by SB in connection
with offers and sales of the Units and fractional Units
(rounded to four decimal places) in market-making
transactions in the over-the-counter market at the
prevailing Net Asset Value per Unit as of the last
business day of the month ending at least 5 days after a
subscription is accepted. Subscriptions will be accepted
only to the extent that they can be matched with Units
for which redemption/transfer requests have been
received by the General Partner. All subscriptions
accepted by the General Partner will be held in the
escrow account until the first day of the month
beginning at least 6 days after receipt of the
subscription on which day subscription funds will be
transferred to SB for further payment to transferring
investors and the General Partner will cause the
Partnership's records to reflect the change in ownership
of the Units from the transferring investor to the
subscribing investor. Sales of Units made by SB as a
market-maker will not increase the number of Units
outstanding in the Partnership nor the size of the
Partnership. The General Partner may reject any
subscription for any reason. A subscription may be
revoked by a subscriber if SB determines not to conduct
market-making activities as of the end of a month.
Subscription amounts that are not used to purchase Units
(because of fluctuations in Net Asset Value per Unit
between the date the subscription is accepted and the
effective date of purchase) will be returned to
subscribers by SB. See "Plan of Distribution" and
"Subscription Procedure."
Use of Proceeds.........The Partnership will not receive any proceeds from the
sale of any Units offered pursuant to this Prospectus.
Proceeds received by SB as a result of its
1
<PAGE> 10
market-making in the Units will be utilized by SB to pay
amounts to transferring investors when a transfer of
Unit ownership is to occur. A subscription will be
either approved or rejected within four business days
from the receipt of the subscription by the General
Partner. All of the Partnership's assets are maintained
in the Partnership's trading accounts at SB and are
currently or may be used to trade in commodity interests
including futures contracts, options and forward
contracts. Such proceeds will be maintained in cash. See
"Use of Proceeds".
Purchase of Units
by Retirement Plans...Participants in employee-benefit plans may be capable of
purchasing Units with a portion of their retirement
assets. See "ERISA Considerations".
THE PARTNERSHIP
The Partnership.........Smith Barney Westport Futures Fund L.P. is a limited
partnership organized on March 21, 1997 under the laws
of the State of New York. See "The Limited Partnership
Agreement".
Risk Factors............An investment in the Partnership is speculative and
involves substantial risks. The risks of an investment
in the Partnership include, but are not limited to:
-- the speculative, volatile and highly leveraged nature
of trading in commodity futures, forward and option
contracts;
-- the fees and expenses which the Partnership incurs
regardless of the Partnership's trading performance,
including a brokerage charge of 6.5% per year and a
management fee of 4%; substantial incentive fees may
be paid during a year even though the Partnership
incurs a net loss for the full year;
-- that the Partnership is subject to certain conflicts
of interest (including those arising from the
relationship between the General Partner and the
commodity broker/dealer);
-- no public market for Units exists;
-- investors have limited voting rights with respect to
the Partnership's affairs;
-- profits earned in any year will result in an increase
in a limited partner's tax liability.
Dissolution of the
Partnership...........The Partnership will dissolve and its affairs be wound
up as soon as practicable upon the first to occur of the
following: (i) December 31, 2017; (ii) the vote to
dissolve the Partnership by limited partners owning more
than 50% of the Units; (iii) assignment by the General
Partner of all of its interest in the Partnership or
withdrawal, removal, bankruptcy or any other event that
causes the General Partner to cease to be a general
partner under the New York Revised Limited Partnership
Act unless the Partnership is continued as described in
the Limited Partnership Agreement; (iv) Net Asset Value
per Unit falls to less than $400 as of the end of any
trading day; or (v) the occurrence of any event which
shall make it unlawful for the existence of the
Partnership to be continued. See "Risk
Factors -- Dissolution of the Partnership, Cessation of
Trading" and "The Limited Partnership Agreement --
Management of Partnership Affairs".
2
<PAGE> 11
Offices.................The offices of the Partnership and the General Partner
are located at c/o Smith Barney Futures Management Inc.,
390 Greenwich Street, New York, New York 10013, (212)
723-5424.
Trading Policies........The Partnership's objective is to achieve capital
appreciation by engaging in speculative trading of a
diversified portfolio of commodity interests which may
include futures contracts, options, forward contracts
and physicals. There can be no assurance that the
Partnership's investment objective will be met. The
Partnership's trading policies, in summary, are to
invest Partnership funds only in commodity contracts
traded in sufficient volume to permit the ease of taking
and liquidating positions; that no additional positions
in a commodity will be initiated by the Advisor if such
positions would result in aggregate positions for all
commodities requiring as margin more than 66 2/3% of the
Partnership's assets allocated to that Advisor; that the
Partnership will not employ the trading technique
commonly known as "pyramiding"; that the Partnership
will not utilize borrowings except short-term borrowings
if the Partnership takes delivery of any cash
commodities; that the Partnership may, from time to
time, engage in spreads or straddles; and that the
Partnership will not permit the churning of its trading
accounts. See "Commodity Markets" and "Trading
Policies". The terms "pyramiding", "spreads" and
"straddles" are defined in the Glossary.
Management..............The General Partner of the Partnership is Smith Barney
Futures Management Inc., a corporation organized under
the laws of the State of Delaware and an affiliate of
Smith Barney Inc. ("SB"). SB acts as commodity
broker/dealer for the Partnership. The General Partner
administers the business and affairs of the Partnership
and has selected the Advisor to make trading decisions
for the Partnership. The Advisor is currently the
Partnership's sole advisor. The General Partner,
consistent with its fiduciary duties to the limited
partners, may select additional or replacement advisors
at any time in its sole discretion. However, the General
Partner has no current intention of selecting additional
advisors or replacing JWH. All of the Partnership's
assets in its trading accounts at SB will be available
for trading, subject to the trading policies of the
Partnership.
JWH utilizes its Original Investment Program, its
Financial and Metals Portfolio, its Global Financial
Portfolio and its Global Diversified Portfolio in its
management of the Partnership's assets. As of March 31,
1998, the Partnership's assets were allocated to the
programs in the following approximate percentages: 36%
to the Original Investment Program; 24% to the Financial
and Metals Portfolio; 26% to the Global Financial
Portfolio; and 14% to the Global Diversified Portfolio.
The Original Investment Program utilizes a very
long-term, quantitative approach which always maintains
a position, either long or short, in every market traded
by the program. The Financial and Metals Portfolio uses
quantitative trend analysis models, participates in four
major market sectors -- global interest rates,
currencies, stock indices and metals -- and attempts to
identify and capitalize on intermediate and long term
price movements in these markets using a systematic
approach. The Global Financial Portfolio offers access
to a small group of energy and financial markets,
including currencies, global interest rates and stock
indices. This program is designed to identify and
capitalize on long-term price movements using a
disciplined trend identification approach and always
maintains a position -- long or short -- in every market
traded by the program. The Global Diversified Portfolio
utilizes a systematic approach which attempts
3
<PAGE> 12
to identify and profit from market trends and to remain
neutral (i.e., no position taken) during non-trending
market periods.
The limited partners do not participate in the
management or control of the Partnership. Under the
Limited Partnership Agreement, responsibility for
managing the Partnership is vested solely in the General
Partner. The General Partner is a fiduciary to the
limited partners. As such, the General Partner must
exercise good faith and fairness in all dealings
affecting the Partnership. In the event that a limited
partner believes the General Partner has violated its
fiduciary responsibility to the limited partners, he may
seek legal relief for himself or on behalf of the
Partnership, if the General Partner has refused to bring
the action, or if an effort to cause the General Partner
to bring the action is not likely to succeed, or may
have a right to bring a class action on behalf of all of
the limited partners, under applicable laws, including
partnership, commodities or securities laws, to recover
damages from or require an accounting by the General
Partner. Limited partners may also be afforded certain
rights for reparations under the Commodity Exchange Act
("CEA") for violations of the CEA by the General
Partner. The General Partner may be removed and
successor general partners may be admitted upon the vote
of a majority of the outstanding Units. See "The Limited
Partnership Agreement" and "Fiduciary Responsibility".
Any limited partner, upon written request addressed to
the General Partner, may obtain from the General Partner
a list of the names and addresses of record of all
limited partners and the number of Units held by each
limited partner. Upon receipt of a written request
delivered in person or by certified mail, signed by
limited partners owning at least 10% of the outstanding
Units, that a meeting of the Partnership be called to
consider any matter upon which limited partners may vote
pursuant to the Limited Partnership Agreement, the
General Partner, by written notice to each limited
partner of record mailed within 15 days after such
receipt, must call a meeting of the Partnership. Such
meeting must be held at least 30 but not more than 60
days after the mailing of such notice and the notice
must specify the date, a reasonable time and place, and
the purpose of such meeting.
See "Risk Factors" and "Fees and Expenses to the
Partnership".
Fiscal Year.............The fiscal year of the Partnership will commence on
January 1 and end on December 31 each year ("fiscal
year").
Fees and Expenses
to the Partnership....The Partnership will pay substantial fees to the Advisor
and SB. The Partnership will pay the Advisor a monthly
management fee equal to 1/3 of 1% (4% per year) of
month-end Net Assets. The Partnership will also pay the
Advisor an incentive fee payable quarterly equal to 19%
of the New Trading Profits earned by the Advisor for the
Partnership, including unrealized appreciation on open
positions, as of the end of each period. New Trading
Profits does not include interest earned or accrued
during the period. Since the Advisor's incentive fee is
paid quarterly, substantial incentive fees may be paid
during a year even though the Partnership may incur a
net loss for the full year. Management and incentive
fees are subject to an overall limitation in the Limited
Partnership Agreement and the Revised Commodity Pool
Guidelines of the North American Securities
Administrators Association, Inc. (the "NASAA
Guidelines"), as described under "Fees and Expenses to
the Partnership -- Caps on Fees".
The Customer Agreement provides that the Partnership
will pay SB a monthly brokerage fee equal to 13/24 of 1%
of month-end Net Assets (6.5% per year) in lieu of
brokerage commissions on a per trade basis. (The
brokerage fee --
4
<PAGE> 13
together with National Futures Association ("NFA"),
exchange, floor brokerage, give-up, user and clearing
fees -- is subject to the limitation imposed by the
NASAA Guidelines, as described under "Fees and Expenses
to the Partnership -- Caps on Fees".) See "Fees and
Expenses to the Partnership -- The Commodity
Broker/Dealer". SB will pay a portion of such brokerage
fees to its Financial Consultants who have sold Units in
this offering and who are registered as associated
persons with the CFTC. Such Financial Consultants would
be credited with a maximum of 5% of Net Assets per year
in return for continuing services to be provided by them
to Unit holders as described under "The Commodity
Broker/Dealer -- Brokerage Fees". Brokerage fees will be
paid for the life of the Partnership, although the rate
at which such fees are paid may be changed. Based upon
the trading experience of the Partnership the fee that
the Partnership pays is estimated to equal $98 per
round-turn transaction (as defined in the Glossary), of
which $92 is brokerage commissions and $6 is other
trading-related fees. The General Partner will review,
at least annually, the brokerage rates charged to other
comparable commodity pools to the extent practicable, to
determine that the brokerage rates being paid by the
Partnership are competitive with such other rates. The
General Partner will renegotiate the Customer Agreement
if its fiduciary duties so require. Brokerage fees will
not exceed the limit imposed in the NASAA Guidelines.
The General Partner, consistent with the restrictions
imposed by the Limited Partnership Agreement attached
hereto as Exhibit A, as well as the NASAA Guidelines
discussed below, may negotiate for increased brokerage
fees in appropriate circumstances. The Partnership shall
seek the best prices and services available in its
commodity futures brokerage transactions. The NASAA
Guidelines provide that a brokerage commission is
presumptively reasonable if it is 80% of the published
retail rate plus pit brokerage fees or if it (including
pit brokerage fees) is 14% annually of the average Net
Assets of the Partnership (excluding Partnership assets
not directly related to trading activity). See "The
Commodity Broker/Dealer -- Brokerage Fees". The
brokerage fee payable to SB for a year would equal a
maximum of $7,800,000 per year assuming a Partnership
size of $120 million and Net Assets that remain at the
same level for the year. On these assumptions, Financial
Consultants could be credited with a maximum of
approximately $6,000,000.
The Partnership will pay or reimburse SB if previously
paid for NFA, exchange, clearing, user, give-up and
floor brokerage fees, all of which are estimated to be
up to .7% of Net Assets per year. The Partnership will
effect all transactions in spot and forward foreign
currencies with SB at prices quoted by SB which do not
include a mark-up.
The General Partner will bear such general and
administrative expenses of the Partnership as may be
incurred, but (except as noted below) the Partnership
will pay all of its legal, accounting, filing, reporting
and data processing expenses, incentive fees, management
fees, brokerage fees, expenses of this offering and
extraordinary expenses (only periodic filing and
reporting fees are subject to an overall limitation in
the Limited Partnership Agreement as described under
"Fees and Expenses of the Partnership -- Cap on Fees").
The aggregate annual expenses of every character paid or
incurred by the Partnership, including management fees,
advisory fees and all other fees, except for incentive
fees, commodity brokerage fees, the actual cost of legal
and audit services and extraordinary expenses, when
added to the customary and routine administrative
expenses of the Partnership, shall in no event exceed,
on an
5
<PAGE> 14
annual basis, 1/2 of 1% of Net Assets per month (6% per
year). For the purpose of this limitation, customary and
routine administrative expenses shall include all
expenses of the Partnership other than commodity
brokerage fees, incentive fees, the actual cost of legal
and audit services and extraordinary expenses.
Offering expenses related to the Partnership's Units
will be borne by the Partnership. Such expenses are
estimated at $225,000. The offering expenses that may be
paid or reimbursed to SB by the Partnership are capped
at 15% of the Partners' aggregate subscriptions. See
"Fees and Expenses to the Partnership", "Plan of
Distribution" and "Redemptions".
The table below summarizes the fees and expenses to the
Partnership:
<TABLE>
<CAPTION>
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
------------------ ---------------------------- ----------------------------
<S> <C> <C>
Advisor..... (JWH) Monthly management fee 1/3 of 1% (4% per year) of
(Subject to cap) month-end Net Assets.
Quarterly incentive fee 19% of New Trading Profits
(Subject to cap) earned by the Advisor for
the Partnership in each
calendar quarter.
Commodity Brokerage fee 13/24 of 1% of month-end Net
Broker....... (SB) (Subject to cap) Assets per month (6.5% per
year)(1) (a portion of
which will be credited to
SB Financial Consultants
who have sold Units in
this offering), and
reimbursement of other
actual transaction fees
paid in connection with
trading estimated at .7%
of Net Assets.
Others............ Periodic legal, accounting, Actual expenses incurred
filing and reporting fees, estimated at .32% of Net
expenses of the offering Assets per year (exclusive
as well as extraordinary of extraordinary
expenses expenses).
</TABLE>
----------------------------------------
(1) Brokerage fees will be paid for the life of the
Partnership, but the rate at which such fees will be
paid may change, provided that such fees (i) remain
competitive with the brokerage rates paid by public
commodity pools which are comparable to the
Partnership, (ii) will not be increased for the first
five years of trading if any Advisor is affiliated with
the General Partner and (iii) will not exceed the
limitations imposed by the NASAA Guidelines, which
provide that brokerage fees (together with NFA,
exchange, floor brokerage, give-up, user and clearing
fees) will be considered presumptively reasonable if
they do not exceed 14% annually of the Partnership's
Net Assets (excluding Partnership assets not directly
related to trading activity). SB may receive a benefit
with respect to Partnership assets maintained in cash
as described below under the heading "Fees and Expenses
to the Partnership -- Commodity Broker/Dealer."
Interest Income.........All of the Partnership's assets are maintained in cash
in brokerage accounts at SB. SB deposited the
Partnership's cash in segregated bank accounts as
required by CFTC regulations. Such accounts do not earn
interest. However, SB will pay monthly interest to the
Partnership on 80% of the average daily equity
maintained in cash in the Partnership's account at SB
during each month at a 30-day Treasury bill rate
determined weekly by SB based on the average
non-competitive yield on 3-month U.S. Treasury bills
maturing in 30 days (or on the maturity date closest
thereto) from the date on which such weekly rate is
determined. All assets in the Partnership's accounts may
be used to meet margin requirements. SB intends to
require the Partnership to meet its standard customer
margin requirements which may be greater than exchange
minimum levels. SB may benefit from the use of the
Partnership's cash to the extent that such use reduces
SB's interest expense in an amount greater than the
amount of interest payments received by the Partnership.
See "Commodity Markets -- Margins" and "The Commodity
Broker/ Dealer -- Customer Agreement".
6
<PAGE> 15
Break-even Analysis.....The General Partner estimates that during each fiscal
year, the Partnership would be required to make trading
profits equal to 7.71% assuming a Partnership size of
$120 million in order for the value of a Unit at year
end to equal the initial value of that Unit at the
beginning of the year. See "Fees and Expenses to the
Partnership".
Redemptions/Transfers...On 10 days' notice to the General Partner, a limited
partner may cause some or all of his Units to be
redeemed by the Partnership and/or purchased by SB for
transfer at their Net Asset Value as of the last day of
a month. Because Net Asset Value fluctuates daily,
Limited Partners will not know the redemption value of
their Units at the time their notice of redemption is
submitted. The General Partner reserves the right to
permit the redemption of Units more frequently than
monthly (but no more frequently than daily), provided
that such action is in the best interest of the
Partnership taking into account potential tax
consequences to Limited Partners. See "Redemptions". No
fee is charged for redemptions. A redemption/transfer
request may be effected by redemption of Units by the
General Partner and/or purchase and transfer of Units
pursuant to SB's market-making activities, at the option
of SB. In either case, the limited partner wishing to
redeem/transfer will receive Net Asset Value per Unit as
of the month-end that the redemption or transfer is
effective. The Partnership's assets are generally valued
at fair market value, or in the absence of a fair market
value, as determined in good faith by the General
Partner. Options are generally valued at the last sale
price or, in the absence of a last sale price, the last
bid price. The value of a futures contract equals the
unrealized gain or loss on the contract that is
determined by marking it to the current settlement price
for a like contract acquired on the day on which the
futures contract is being valued. A settlement price may
not be used if the market makes a limit move with
respect to a particular commodity. Forward contracts and
futures contracts, when no market quote is available,
will be valued at their fair market value as determined
by the General Partner.
Distributions...........Distributions of profits, if any, will be made in the
sole discretion of the General Partner and at such times
as the General Partner may decide. In view of the fact
that a limited partner may redeem his Units and no
charge is assessed upon redemption, the General Partner
has no current intention of making any distributions. In
any event, the General Partner does not intend to make
any distribution which would reduce the Net Asset Value
of a Unit below $1,000, or if the size of a distribution
would not warrant the administrative expense which would
be involved, or if, in the opinion of the General
Partner, a distribution would otherwise not be in the
best interests of the Partnership or the limited
partners. The determination of what is in the best
interests of the Partnership or limited partners will be
made on a case by case basis by the General Partner in
its sole discretion and consistent with its fiduciary
obligations to the Partnership and the limited partners.
To the extent that profits are retained by the
Partnership, the Net Assets of the Partnership will be
greater, thereby increasing the amount of the brokerage
fee which will be earned by SB. See "Conflicts of
Interest". A limited partner's tax liability for profits
of the Partnership may exceed the amount of any
distributions received from the Partnership. See "Risk
Factors -- Tax Consequences" and "Income Tax Aspects".
Income Tax Aspects......The trading activities of the Partnership, in general,
generate capital gain and loss and ordinary income.
Counsel to the Partnership has opined that the
Partnership will be treated as a partnership for federal
income tax purposes. Accordingly, the Partnership will
pay no federal income tax; rather, limited
7
<PAGE> 16
partners will be allocated their proportionate share of
the taxable income or losses realized by the Partnership
during the period of the Partnership's taxable year that
Units were owned by them. Unrealized gains on "Section
1256 contracts" as defined in the Internal Revenue Code
of 1986, as amended (the "Code") held by the Partnership
at the end of its taxable year must be included in
income under the "mark-to-market" rule and will be
allocated to partners in proportion to their respective
capital accounts. The mark-to-market rule does not apply
to the Partnership's positions in futures contracts on
most foreign exchanges and in foreign currency forward
contracts not in the interbank market, unless the
Partnership elects such treatment under Code Section
988.
The Partnership should not generate to Exempt
Organizations (as defined herein) unrelated business
taxable income that would result from an investment in a
publicly-traded partnership. See "Income Tax
Aspects -- Tax Consequences for Exempt Organizations".
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA. SMITH BARNEY WESTPORT FUTURES FUND L.P.
<S> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND MARCH 31, 1998
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
ASSETS:................................... $116,954,683 $103,029,348
============ ============
LIABILITIES AND PARTNERS' CAPITAL:
LIABILITIES:.............................. $ 2,143,952 $ 1,773,741
------------ ------------
PARTNERS' CAPITAL:
General Partner, 1,212.9836 and 1,002.9801
Unit equivalents outstanding in 1998 and
1997, respectively...................... 1,165,943 1,014,504
Limited Partners, 118,229.9202 and
99,102.5475 113,644,788 100,241,103
------------ ------------
Units of Limited Partnership Interest
outstanding in 1998 and 1997,
respectively............................ 114,810,731 101,255,607
------------ ------------
$116,954,683 $103,029,348
============ ============
Net Asset Value Per Unit.................. $ 961.22 $ 1,011.49
</TABLE>
See the Partnership's financial statements beginning on
page 89.
8
<PAGE> 17
RISK FACTORS
INVESTMENT IN THE UNITS IS SPECULATIVE AND INVESTORS SHOULD NOT INVEST IN
UNITS UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE
PURCHASERS SHOULD CONSIDER THE FOLLOWING RISKS BEFORE SUBSCRIBING FOR UNITS.
COMMODITY TRADING RISKS
COMMODITY TRADING IS SPECULATIVE. Commodity futures markets are highly
volatile. Profitability of the Partnership's commodity trading will depend on
the ability of the Advisor to analyze the commodity markets, which are
influenced by, among other things, changing supply and demand relationships,
weather, government agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates. See "Commodity Futures Markets". The Advisor's technical trading methods
do not generally take into account such fundamental factors except to the extent
such factors are reflected in the technical input data analyzed by the Advisor.
The Advisor may trade futures contracts on stock indices. Such contracts have
experienced substantial volatility. While a volatile market can produce trends
which might be identified by the trend-following strategies employed by the
Advisor, such markets can also be without sustained price trends. Participation
in a volatile market without significant trends could produce substantial losses
for the Partnership.
COMMODITY TRADING IS HIGHLY LEVERAGED. Because of the low margin deposits
normally required in commodity futures trading, a high degree of leverage is
typical of a commodity trading account. AS A RESULT, A RELATIVELY SMALL PRICE
MOVEMENT IN A COMMODITY CONTRACT MAY RESULT IN SUBSTANTIAL LOSSES TO THE
INVESTOR. For example, if at the time of purchase 10% of the price of the
futures contract is deposited as margin, a 10% decrease in the price of the
futures contract would, if the contract is then closed out, result in a total
loss of the margin deposit before any deduction for the brokerage fee. Thus,
like other leveraged investments, any purchase or sale of a commodity contract
may result in losses to the Partnership in excess of the amount initially
deposited by the Partnership as margin with respect to that contract. SB does
not intend to require the Partnership to deposit and maintain margin with
respect to its forward currency trading. The General Partner will, however,
impose trading limits on forward trading. See "Commodity Markets -- Margins".
COMMODITY TRADING MAY BE ILLIQUID. Most commodity exchanges limit
fluctuations in commodity contract prices during a single day by regulations
referred to as "daily price fluctuation limits" or "daily limits". During a
single trading day no trades may be executed at prices beyond the daily limit.
Once the price of a contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
be neither taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have moved the daily limit for
several consecutive days with little or no trading in the past. Similar
occurrences could prevent the Partnership from promptly liquidating unfavorable
positions and thus subject the Partnership to substantial losses. See "Commodity
Markets -- Regulations".
RISKS OF PURCHASING AND WRITING OPTIONS. The Partnership may engage in the
trading of commodity options on exchanges. Such trading involves risks
substantially similar to those involved in trading commodity 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. The writer of an option is subject to the
risk of loss resulting from the difference between the premium received for the
option and the price of the commodity or futures contract underlying the option
which the writer must purchase or deliver upon exercise of the option. The
Advisor currently does not trade options, but may do so in the future. The
Partnership may trade in over-the-counter currency options to the extent
permitted by CFTC regulation.
RISKS INHERENT IN TRADING STRATEGIES. Trading decisions of the Advisor
will be based on technical analysis. The buy and sell decisions based on
technical and trend-following strategies are not based on analysis of
fundamental supply and demand factors, general economic factors or anticipated
world events. The profitability of such trading programs depends upon occurrence
in the future of major price moves or trends in commodities. In the past there
have been periods without trends and such periods may recur. The past
9
<PAGE> 18
performance of such trading programs is not necessarily indicative of their
future profitability, and no trading program can consistently determine which
commodity futures contracts to enter into or when to enter into them. The best
commodity trading program will not be profitable if there are no trends of the
kind it seeks to identify and follow. Any factor which may lessen the prospect
of major trends in the future (such as increased government control of, or
participation in, the markets) may reduce the Advisor's ability to trade
profitably in the future. Any factor which would make it more difficult to
execute timely trades, such as a significant lessening of liquidity in a
particular market, would also be detrimental to profitability. AS A RESULT OF
THESE FACTORS AND THE GENERAL VOLATILITY OF THE COMMODITIES MARKETS, INVESTORS
SHOULD VIEW THEIR INVESTMENT AS LONG TERM (AT LEAST 2 YEARS) IN ORDER TO PERMIT
THE STRATEGIES OF THE ADVISOR TO FUNCTION OVER TIME. ALTHOUGH THE ADVISOR'S
STRATEGIES MAY BE VIEWED AS LONG-TERM, SUCH STRATEGIES MAY ENTAIL THE FREQUENT
OPENING AND CLOSING OF PARTICULAR TRADING POSITIONS. Further, commodity trading
advisors may alter their strategies from time to time in an attempt better to
evaluate market movements. As a result of such periodic modifications, it is
possible that the trading strategies used by the Advisor in the future may be
different from those presently in use. Further, the total amount of funds being
managed by the Advisor may be substantially increased by the addition of the
Partnership's account. Moreover, somewhat different trading strategies may be
required for accounts of differing sizes or trading objectives. See the
discussion of programs to be traded for the Partnership under "The Advisor".
Limited partners will be notified by the Partnership of material changes in the
Advisor's trading strategies.
POSSIBLE EFFECTS OF SPECULATIVE POSITION LIMITS. The CFTC and U.S.
exchanges have established limits referred to as "speculative position limits"
on the maximum net long or net short position which any person may hold or
control in particular futures and options on futures, and most exchanges have
established limits referred to as "trading limits" on the amount of fluctuation
in commodity futures contract prices on a single trading day. Currently, trading
limits do not generally apply to currency futures contracts. See "Commodity
Markets -- Regulation". All commodity futures and options accounts owned or
controlled directly or indirectly by the Advisor or its principals, including
the Partnership's account, are combined for speculative position limit purposes.
The Advisor believes that established speculative position and trading limits
will not adversely affect its trading for the Partnership. However, it is
possible that the trading instructions of the Advisor for the Partnership may
have to be modified and that positions held by the Partnership may have to be
liquidated in order to avoid exceeding such limits. Such modification or
liquidation, if required, could adversely affect the operations and
profitability of the Partnership. Furthermore, in the unlikely event that
positions in other pools operated by the General Partner but not advised by the
Advisor or other accounts managed by SB or its employees are required to be
aggregated with the Partnership's positions, it is more likely that the trading
instructions of the Advisor for the Partnership would have to be modified and
that positions held by the Partnership would have to be liquidated in order to
avoid exceeding such limits. Neither CFTC nor exchange position nor trading
limits apply to forward contracts in foreign currencies.
POSSIBLE EFFECTS OF COMPETITION. The Partnership may experience increased
competition for the best prices on the same commodity contracts, not only
because of the utilization by other persons of trend following trading
strategies, but also because at April 30, 1998, commodity accounts aggregating
approximately $2.1 billion were being managed by the Advisor. Trading orders for
such accounts similar to those of the Partnership are likely to occur
contemporaneously. The Advisor enters trading orders either through the SB order
desk or through a floor broker approved by the General Partner. Orders placed
with SB are transmitted through a floor broker selected by SB and the order fill
is then relayed to the Advisor. For orders entered through a floor broker
approved by the General Partner such orders are given with instructions to the
floor broker to give up the trade to SB for order clearance and the Advisor
provides SB with a list of such "give up" trades initiated by the floor broker.
There is no specific limit under any agreement between the Advisor and the
Partnership as to the number of accounts which may be managed or advised by the
Advisor, so that such competition could be further increased if the Advisor
chooses to manage additional accounts in the future. The performance of the
Partnership's investments in commodity interests could also be adversely
affected by the manner in which particular orders are entered by the Advisor for
all such accounts traded by the Advisor.
TRADING IN FORWARD FOREIGN CURRENCIES. The Partnership will engage in the
trading of forward contracts in foreign currencies. In this connection, the
Partnership contracts with SB to make or take future delivery of a
10
<PAGE> 19
particular foreign currency. Although the foreign currency market is not
believed to be necessarily more volatile than the market in other commodities,
there is less protection against defaults in the forward trading of currencies
than there is in trading such currencies on an exchange since such forward
contracts are not guaranteed by an exchange or clearing house. Investors are not
afforded the regulatory protections of such exchanges or the CFTC; rather, banks
and dealers act as principals in such markets. Neither the CFTC nor banking
authorities regulate trading in forward foreign currencies. There are no limits
on daily price movements or on speculative positions in this market. Moreover,
principals are not required to continue to make markets in these contracts. The
CFTC has indicated that it may assert jurisdiction over forward contracts in
foreign currencies and attempt to prohibit certain entities from engaging in
such transactions. In the event that such prohibition included the Partnership,
the Partnership would cease trading such contracts. The Advisor may trade
forward contracts in foreign currencies extensively for the Partnership's
account and thus, such a cessation of forward trading could have a substantial
adverse effect on the performance of the Advisor for the Partnership. There are
no limits on the Advisor's ability to trade currency forwards other than the
trading policies of the Partnership. See "Trading Policies".
TRADING ON FOREIGN EXCHANGES AND TRADING IN PHYSICAL COMMODITIES. The
Partnership may trade in commodity contracts on exchanges located outside the
U.S. such as the London International Financial Futures Exchange and the Sydney
Futures Exchange. Trading on such exchanges is not regulated by the CFTC and
may, therefore, be subject to more risks than trading on domestic exchanges such
as the risks of exchange controls, expropriation, burdensome taxation, moratoria
and political or diplomatic events. See "Commodity Markets -- Regulation". In
addition, the rights and responsibilities of the Partnership in the event of an
exchange or clearing house default or bankruptcy are likely to differ from those
existing on U.S. exchanges. There are no limits on the Advisor's ability to
trade on CFTC-approved foreign markets in accordance with the Partnership's
trading policies. See "Trading Policies." The Partnership may engage in spot
commodity transactions (transactions in physical commodities), including
contracts on foreign currencies. Such spot transactions are not regulated by the
CFTC. Some of such transactions may be entered into in conjunction with exchange
for physical transactions. In any principal transactions entered by the
Partnership, the Partnership is subject to the risk of the inability of, or
refusal by, a counterparty to perform with respect to the underlying contract.
Such transactions may be entered into with SB or an affiliate at prices quoted
by SB which will not include a mark-up.
RISKS OF PARTNERSHIP FUNDS HELD IN FOREIGN DEPOSITORIES. The Partnership's
funds held in connection with contracts on U.S. contract markets that are priced
and settled in a foreign currency may be held in accounts denominated in a
foreign currency with a depository located outside the United States or its
territories. The Partnership currently does not intend to maintain any of its
assets with depositories located outside the United States or its territories.
There are no limits on the amount of funds that may be held in foreign
depositories or in funds that may be denominated in foreign currencies. See "Use
of Proceeds". Such accounts are subject to the risk that events could occur
which would hinder or prevent the availability of these funds for distribution
to customers including the Partnership. Such accounts may also be subject to
foreign currency exchange rate risks. The Partnership has agreed with SB, its
futures commission merchant, that in order to avoid the possible dilution of
other customer funds, any Partnership claims based on such funds will be
subordinated in the unlikely event that both of the following conditions are
met: (A) SB is placed in receivership or bankruptcy and (B) there are
insufficient funds available for distribution denominated in the foreign
currency as to which the Partnership has a claim to satisfy all claims against
those funds. The Partnership has agreed with SB that if both conditions (A) and
(B) occur, the Partnership's claim against SB's assets attributable to funds
held overseas in a particular foreign currency may be satisfied out of
segregated customer funds held in accounts denominated in dollars or other
foreign currencies only after each customer whose funds are held in dollars or
in such other foreign currencies receives its pro rata portion of such funds.
RISKS OF PARTNERSHIP STRUCTURE
SUBSTANTIAL FEES AND EXPENSES TO THE PARTNERSHIP. The Partnership is
obligated to pay brokerage fees, legal, accounting and reporting expenses and
filing fees regardless of whether the Partnership realizes profits.
11
<PAGE> 20
Incentive fees payable by the Partnership are based upon New Trading Profits
earned by the Advisor for the Partnership at the end of each calendar quarter,
including any unrealized appreciation on open commodity positions. Such
appreciation may never be realized by the Partnership; however, any such lost
appreciation would have to be recovered before another incentive fee would be
payable. It should be noted that since the Advisor's incentive fee is paid
quarterly, substantial incentive fees may be paid during a year even though the
Partnership may incur a net loss for the full year. Therefore, it is possible
that the Partnership could incur substantial incentive fees in a year in which
it had no net trading profits or in which it actually lost money. A $1,000 Unit
would have to increase 7.71% (assuming a partnership size of $120 million) in a
given one-year period of trading operations (that is, $77.12) for the redemption
value per Unit to equal $1,000. The Partnership is therefore required to make
trading profits and interest income equal to the aforementioned percentage in
order to avoid depletion or exhaustion of its assets from these expenses. See
"Fees and Expenses to the Partnership".
CONFLICTS OF INTEREST. Conflicts of interest exist in the structure and
operation of the Partnership's business. These conflicts include (1) the
conflict between the duty of the General Partner to act in the best interests of
the Partnership and any advantage to SB, an affiliate of the General Partner,
resulting from the trading of the Partnership's account, and (2) the probable
competition for positions with the Partnership by SB, the Advisor, the General
Partner and other commodity pools and accounts organized or advised by such
persons, or their principals, affiliates or customers. The Limited Partnership
Agreement requires the General Partner to review brokerage rates at least
annually and to determine that such rates are competitive with those charged to
other similar commodity pools. In addition, the General Partner, as a fiduciary
to the limited partners, must resolve any conflict in favor of the limited
partners. See "Conflicts of Interest".
NO PUBLIC MARKET FOR UNITS EXISTS. Although a limited partner may transfer
his Units as of the first day of any fiscal quarter, no market exists for their
sale and none is likely to develop. In addition, a transferee of a Unit can only
become a substituted limited partner with the General Partner's consent. See
"The Limited Partnership Agreement -- Restrictions on Transfer or Assignment".
However, a limited partner may require the Partnership to redeem some or all of
his Units at their Net Asset Value as of the last day of any month beginning six
months after trading commences on 10 days' notice to the General Partner. Under
extraordinary circumstances, including market conditions that would prohibit the
liquidation of positions, the Partnership may delay redemptions beyond the end
of the applicable month. See "Redemptions".
LIMITED PARTNERS WILL NOT PARTICIPATE IN MANAGEMENT. Purchasers of the
Units are not entitled to participate in the management or control of the
Partnership or the conduct of its business. Limited Partners have limited voting
rights with respect to the Partnership's affairs. See "The Limited Partnership
Agreement -- Management of Partnership Affairs".
EXPIRATION OF MANAGEMENT AGREEMENT WITH THE ADVISOR. The Management
Agreement between the General Partner and the Advisor expires on June 30, 1999.
No assurance is given that the services of the Advisor will be available on the
terms contained in its Management Agreement after its expiration (provided,
however, that in any contract renewal or renegotiation the Advisor will carry
forward all losses attributable to it), or that a new advisor would agree to
such terms. See "The Advisor -- Management Agreement". In the event that a new
advisor is selected, New Trading Profits earned by the new advisor will not be
reduced by cumulative net realized trading losses, if any, incurred by the prior
advisor. Any fees paid to a new or replacement advisor will comply with NASAA
Guidelines. Subject to the caps of fees to which the Partnership is generally
subject, the fees payable by the Partnership to the Advisor could increase
following the termination of a management agreement, either according to the
terms of a new management agreement, or if a new advisor were selected by the
General Partner for the Partnership.
DISSOLUTION OF THE PARTNERSHIP; CESSATION OF TRADING. The Partnership will
dissolve on December 31, 2017, unless earlier dissolved pursuant to the Limited
Partnership Agreement, regardless of its financial condition or market positions
on such date. Liquidation of positions at such date may result in losses to the
Partnership. The Partnership may cease trading and liquidate all open positions
prior to its dissolution. The General Partner will dissolve the Partnership if
Net Asset Value per Unit falls below $400 as of the end of a
12
<PAGE> 21
trading day. See "The Limited Partnership Agreement -- Dissolution of the
Partnership" and "The Limited Partnership Agreement -- Management of Partnership
Affairs".
In the event of early cessation of trading, the Partnership would continue
to accrue legal, accounting, reporting and filing expenses.
NO INDEPENDENT REVIEW. The Partnership, the General Partner and SB are
affiliated entities and are represented by single counsel. Therefore, to the
extent the Partnership and this offering would benefit by independent review,
such benefit will not be available in this offering. There may also be an
absence of arm's-length negotiations with respect to some of the terms of this
offering, including with respect to the Customer Agreement and Selling Agreement
with SB. The General Partner believes that the terms received by the Partnership
with respect to such negotiation are no less favorable to the Partnership than
they would be as a result of arm's-length negotiations. The Advisor is
represented by its own counsel.
OPERATING HISTORY OF PARTNERSHIP AND GENERAL PARTNER. The CFTC requires
commodity pool operators to disclose to prospective pool participants the actual
performance record of their pools for at least the previous five years. You
should note that the Partnership has been trading only since August 1, 1997.
However, as of March 31, 1998, the General Partner operates twenty-one other
active commodity pools. The performance records of these pools are set forth
under the caption "The General Partner -- Other Pools Operated by the General
Partner". Investors should note that the Advisor is not the sole advisor to each
of such pools operated by the General Partner, and that the trading strategies
of the other advisors of those pools may also vary from those employed by the
Advisor and the Partnership. INVESTORS SHOULD NOTE THAT THE PERFORMANCE RECORDS
OF THE GENERAL PARTNER'S OTHER COMMODITY POOLS ARE NOT INDICATIVE OF THE
PERFORMANCE OF THE PARTNERSHIP.
RELIANCE ON ADVISOR AND KEY PERSONNEL. The Partnership will rely on the
Advisor to manage its portfolio. There can be no assurance that the trading
systems and strategies used by the Advisor will prove to be successful under all
or any market conditions. In addition, the Advisor relies on key personnel to
implement its trading strategies and is therefore subject to the risk that those
individuals may be unable to implement such trading strategies. The General
Partner may terminate the Advisor in certain circumstances and may replace the
Advisor with a new advisor or may make trading decisions for the Partnership
itself, but it is extremely unlikely that the General Partner or replacement
advisor would trade in the same way that the terminated Advisor traded for the
Partnership. See "The Advisor -- Management Agreement".
RESTRICTIONS ON TRANSFER OR ASSIGNMENT. The Limited Partnership Agreement
provides that a limited partner may assign or transfer his Units upon notice to
the General Partner. No assignment or transfer of Units will be effective
against the Partnership or the General Partner until the commencement of the
next month after the General Partner receives such notice. Without the consent
of the General Partner (which consent may be withheld at its sole and absolute
discretion for the purpose of preserving the Partnership's tax status or to
avoid adverse legal consequences to the Partnership), no assignee may become a
substituted limited partner. An assignee who becomes a substituted limited
partner will be subject to all of the rights and liabilities of a limited
partner of the Partnership. An assignee who does not become a substituted
limited partner will be entitled to receive the share of the profits or the
return of capital to which his assignor would otherwise be entitled, but will
not be entitled to vote, to an accounting of Partnership transactions, to
receive tax information or to inspect the books and records of the Partnership.
A redemption/transfer request in the proper form will be deemed a notice of
transfer.
LEGAL AND REGULATORY RISKS
TAX LIABILITY MAY EXCEED CASH DISTRIBUTIONS. Cash will be distributed to
the partners in the sole discretion of the General Partner, and the General
Partner may determine not to make a distribution in any particular year of the
Partnership. The Partnership's taxable income for a fiscal year (including both
realized income and income resulting from marking to market positions in
regulated futures contracts) will be taxable to the partners in accordance with
their pro rata shares of Partnership profits for tax purposes whether or not any
cash has been distributed to the partners. As a result, cash distributions to a
limited partner in a given year may be less than the taxes payable by that
partner with respect to Partnership profits for that year. However, subject to
certain conditions and exceptions, each partner may redeem his Units (as of the
end of any month)
13
<PAGE> 22
in order to provide funds for the payment of taxes or for any other purpose. See
"Redemptions" and "Income Tax Aspects".
POSSIBILITY OF TAXATION AS A CORPORATION. The General Partner has been
advised by Willkie Farr & Gallagher, its attorneys, that under current federal
income tax laws and regulations and given the factual assumptions set forth
under "Income Tax Aspects", the Partnership will be classified as a partnership
and not as a corporation. Such opinion is not binding on the Internal Revenue
Service. No ruling has been obtained from the Internal Revenue Service in this
regard and the Partnership does not intend to apply for any such ruling. The
facts and authorities relied upon by counsel in their opinion may change in the
future. See "Income Tax Aspects -- Classification as a Partnership". If the
Partnership were to be treated as a corporation for federal income tax purposes,
income or loss of the Partnership would not be passed through to the partners,
and the Partnership would be subject to tax on its income at the rate of tax
applicable to corporations. In addition, all or a portion of distributions of
Partnership income would generally be taxable to the partners as corporate
dividends, and the partners' tax on such distributions would be in addition to
the corporate tax paid by the Partnership on the same income.
TAXATION OF COMMODITY INTERESTS. Commodity interests are subject to
special tax rules, which rules will apply to the taxation of Partnership income
and loss. There can be no assurance that the Internal Revenue Service will not
issue regulations that would adversely affect the expected treatment of
Partnership transactions or that such regulations would not be given retroactive
effect. Finally, Willkie Farr & Gallagher cannot opine on whether and to what
extent Partnership transactions would be taken into account by the Internal
Revenue Service in determining the tax consequences of transactions entered into
by a partner in his individual capacity. See "Income Tax Aspects".
ABSENCE OF REGULATION APPLICABLE TO SECURITIES MUTUAL FUNDS AND THEIR
ADVISORS. Since the purpose of the Partnership is to trade commodities, the
Partnership has not registered as a securities investment company, or "mutual
fund", subject to extensive regulation by the Securities and Exchange Commission
imposed upon such entities under the Investment Company Act of 1940, as amended
(the "1940 Act"). Therefore, investors may not be accorded the protective
measures provided by such legislation. In addition, the Advisor is not
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended or any similar state law. However, the General Partner is a
CFTC-registered commodity pool operator and the Advisor is a CFTC-registered
commodity trading advisor. See "Commodity Markets -- Regulation". Any
determination that the Partnership be required to register as an investment
company under the 1940 Act could have serious adverse consequences for the
Partnership, the General Partner, the Advisor and the limited partners. In the
event of such determination (or for any other reason), the General Partner may,
in its discretion, withdraw from the Partnership, causing its dissolution.
REGULATION OF COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS. The
General Partner is a registered commodity pool operator and the Advisor is a
registered commodity trading advisor, as required by Federal law. Any
determination by the CFTC to terminate, suspend, revoke or not renew the
registration of the General Partner would cause the General Partner to withdraw
as general partner of the Partnership; the limited partners would then determine
to select a replacement general partner (as provided in the Limited Partnership
Agreement) or to dissolve the Partnership. Any determination by the CFTC to
terminate, suspend, revoke or not renew the registrations of the Advisor would
cause the General Partner to terminate the Management Agreement with the
Advisor, as permitted in the Management Agreement. The General Partner could
reallocate the Partnership's assets managed by the Advisor to other advisors, or
appoint a new advisor (including itself).
SALES AND DISTRIBUTION RISKS
PARTICIPATION OF PROMOTERS. SB and the General Partner have been
instrumental in the organization of the Partnership and may be deemed
"promoters" of the Partnership within the meaning of Rule 405 under the
Securities Act of 1933. No selling agent which is not affiliated with the
General Partner and SB has made an investigation of the offering or has
participated in the negotiation of its terms or the structuring of the
Partnership.
14
<PAGE> 23
NO ASSURANCE THAT UNITS WILL BE AVAILABLE. The offering of Units is being
made by SB acting in its market-making capacity. SB is not obligated to conduct
market-making activities and any such activities may be discontinued at any time
without notice, at the sole discretion of SB. SB will sell only Units for which
redemption/transfer requests have been submitted by a limited partner. See "Plan
of Distribution".
CONSIDERATIONS FOR NON-U.S. INVESTORS. Non-U.S. investors should note that
Units are denominated in U.S. dollars and that changes in rates of exchange
between currencies may cause the value of the investment to diminish or to
increase. Non-U.S. investors should consult their own tax advisors concerning
local tax implications of this investment.
The foregoing list of Risk Factors does not purport to be a complete
explanation of the risks involved in this offering. Potential investors should
read the entire Prospectus before determining to invest in the Units.
15
<PAGE> 24
FEES AND EXPENSES TO THE PARTNERSHIP
The Partnership is subject to the following fees and expenses which are
described in more detail below:
<TABLE>
<CAPTION>
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------------------- --------------------------------------- ---------------------------------------
<S> <C> <C>
Advisor.................. Monthly management fee 1/3 of 1% (4% per year) to JWH of
(JWH) (Subject to cap) month-end allocated Net Assets. (This
fee is subject to an overall
limitation in the Limited Partnership
Agreement and the NASAA Guidelines,
as described below.)
Quarterly incentive fee 19% to JWH of New Trading Profits
(Subject to cap) earned for the Partnership in each
calendar quarter. (Incentive fees are
subject to the limits imposed by the
NASAA Guidelines and the Limited
Partnership Agreement, as described
below.)
Commodity Brokerage fee 13/24 of 1% of month-end Net Assets per
Broker.................... (Subject to cap) month (6.5% per year)(1) (a portion
(SB) of which, up to 5% of Net Assets per
year, will be credited to SB
Financial Consultants who have sold
Units in this offering), and
reimbursement of other actual
transaction fees paid in connection
with trading estimated at .7% of Net
Assets. (The brokerage
fee -- together with NFA, exchange,
floor brokerage, give-up, user and
clearing fees -- are subject to the
limitation imposed by the NASAA
Guidelines, as described below.)
Others......................... Periodic legal, accounting, filing and Actual expenses incurred estimated at
reporting fees, expenses of the .32% of Net Assets per year
offering as well as extraordinary (exclusive of extraordinary
expenses expenses). (Periodic filing and
reporting fees and expenses of the
offering are subject to an overall
limitation in the Limited Partnership
Agreement as described below.)
</TABLE>
- ---------------
(1) Brokerage fees will be paid for the life of the Partnership, but the rate at
which such fees will be paid may change, provided that such fees (i) remain
competitive with the brokerage rates paid by public commodity pools which
are comparable to the Partnership, (ii) will not be increased for the first
five years of trading if any Advisor is affiliated with the General Partner
and (iii) together with NFA, exchange, floor brokerage, give-up, user and
clearing fees, will not exceed the limitations imposed by the NASAA
Guidelines. SB may receive a benefit with respect to Partnership assets
maintained in cash as described below under the heading "Fees and Expenses
to the Partnership -- Commodity Broker/Dealer."
CAPS ON FEES. Fees to which the Partnership is subject are in turn subject
to several limitations imposed by the Limited Partnership Agreement or the NASAA
Guidelines or both as follows. (A) The Limited Partnership Agreement contains an
overall limitation on expenses which provides that the aggregate annual fees and
expenses of every kind paid or incurred by the Partnership ("Aggregate
Expenses"), including management fees, advisory fees and all other fees except
for incentive fees and commodity brokerage fees, when added to the customary and
routine administrative expenses of the Partnership, shall in no event exceed, on
an annual basis, 1/2 of 1% of Net Assets per month as required by the NASAA
Guidelines. For the purpose
16
<PAGE> 25
of this limitation, customary and routine administrative expenses include all
expenses of the Partnership other than commodity brokerage fees, incentive fees,
the actual cost of legal and accounting services and extraordinary expenses.
Periodic filing and reporting fees are also subject to this overall limitation.
There is no cap on the costs of legal and accounting services or extraordinary
expenses. (B) In addition, as provided in the Limited Partnership Agreement and
the NASAA Guidelines, the aggregate incentive fee paid by the Partnership shall
not exceed 15% of New Trading Profits, except that an additional 2% incentive
fee may be paid for each 1% by which the Partnership's Aggregate Expenses are
reduced below 6% annually. (C) Furthermore, the NASAA Guidelines also provide
that brokerage fees (together with NFA, exchange, floor brokerage, give-up, user
and clearing fees) will be considered presumptively reasonable if they do not
exceed 14% annually of the Partnership's Net Assets (excluding Partnership
assets not directly related to trading activity).
In addition, the Limited Partnership Agreement prohibits the payment of
management and incentive fees to any person who receives brokerage commissions
or fees on transactions for the Partnership, as well as the payment by any
broker of rebates or give-ups to any advisor. Such prohibitions may not be
circumvented by any reciprocal business arrangements.
In no event will organizational and offering expenses exceed 15% of the
Partners' capital contributions.
ADVISOR. THE PARTNERSHIP PAYS THE ADVISOR A MONTHLY MANAGEMENT FEE EQUAL
TO 1/3 OF 1% (4% PER YEAR) OF MONTH-END NET ASSETS ALLOCATED TO THE ADVISOR. THE
PARTNERSHIP ALSO PAYS AN INCENTIVE FEE PAYABLE QUARTERLY EQUAL TO 19% OF NEW
TRADING PROFITS EARNED BY JWH FOR THE PARTNERSHIP. The quarterly incentive fee
payable to the Advisor (for purposes of calculating the Net Asset Value as of
the end of the month that is not the end of a quarter) will be accrued on a
monthly basis. New Trading Profits are computed solely based on commodity
trading. "New Trading Profits" earned by the Advisor is defined in the
Management Agreement as the excess, if any, of Net Assets managed by the Advisor
at the end of the fiscal period over Net Assets managed by the Advisor at the
end of the highest previous fiscal period or Net Assets allocated to the Advisor
at the date trading commences, whichever is higher, and as further adjusted to
eliminate the effect on Net Assets resulting from new capital contributions,
redemptions, reallocations or capital distributions, if any, made during the
fiscal period decreased by interest or other income, not directly related to
trading activity, earned on the Partnership's assets during the fiscal period,
whether the assets are held separately or in margin accounts.
If any payment is made to the Advisor with respect to New Trading Profits
earned by the Advisor for the Partnership, and the Partnership thereafter incurs
a net loss for any subsequent period, the Advisor will retain the amount
previously paid in respect of New Trading Profits. If Net Assets allocated to
the Advisor are reduced due to redemptions, distributions or reallocations,
there will be a proportional reduction in the related loss carryforward amount
that must be recouped before the Advisor is eligible to receive another
incentive fee. In the event redemptions, distributions or reallocations (net of
additions) are made at other than a quarter-end, the incentive fee, if any, will
be computed and paid as if it were a quarter-end. Since the incentive fee is
paid quarterly, substantial incentive fees may be paid to the Advisor during a
fiscal year even though the account managed by the Advisor may incur a net loss
for the full year. For example, if at the end of the last fiscal quarter the
Advisor had earned New Trading Profits of $500,000, it would be paid an
incentive fee of 19% thereof, or $95,000. That Advisor would be entitled to
retain that $95,000 even if the Partnership's account experienced losses during
the subsequent fiscal quarter. However, the Advisor would not be again entitled
to an incentive fee until such losses incurred by the Advisor were recovered.
COMMODITY BROKER/DEALER. SB acts as commodity broker/dealer for the
Partnership. The Partnership has agreed to pay SB a monthly commodity brokerage
fee equal to 13/24 of 1% of month-end Net Assets (6.5% per year). The
Partnership pays a flat rate brokerage fee instead of per transaction brokerage
commissions. However, based upon the trading experience of the Partnership, the
fee that the Partnership will pay is estimated to equal $98 per round-turn
transaction (of which $92 is brokerage commission and $6 is other
trading-related fees). The brokerage rate may be substantially higher than the
rate which SB charges certain other customers with accounts of a similar size.
The brokerage fees will be paid for the life of the Partnership,
17
<PAGE> 26
although the rates at which such fees are paid may change. See "The Commodity
Broker/Dealer -- Brokerage Fees". Brokerage fees will not exceed the limit
imposed by the NASAA Guidelines. The Partnership enters into spot and forward
transactions with SB as principal at prices quoted by SB which reflect a price
differential between the bid and the ask prices (which differential includes
anticipated profits and costs to SB as dealer), but do not include a mark-up.
The spread charged on related party trades will be at competitive market prices.
Thus, the price quoted to the Partnership will be less than or equal to the
price quoted to any other SB account for the same forward or spot transaction.
The Partnership's funds will be maintained in cash and deposited by SB in
segregated bank accounts as required by CFTC regulations. Such accounts do not
earn interest. SB has informal arrangements with various banks with which it
does business pursuant to which it obtains overdraft privileges which are
extended as a result of the total banking relationship between SB and the banks
which includes the deposit of customer funds so segregated (although such funds
cannot be attached by the bank in the event of the failure of SB to repay the
overdraft). As a result of such overdraft privileges, SB is usually able to
reduce its other short term borrowings which generally carry a higher interest
rate than the 30-day U.S. Treasury bill yield.
The Partnership will pay, or will reimburse SB if previously paid by SB on
behalf of the Partnership, for any NFA, exchange, floor brokerage, give-up, user
or clearing fees applicable to the Partnership's trading. Such fees and charges
will be paid to the exchange on which the trades are effected, to the floor
broker or brokerage executing a transaction, to the clearing association for
such exchange or to the NFA. Although it is impossible to predict the amount of
such fees accurately, based on the past performance of the Advisor, the
Partnership could pay up to approximately .7% of Net Assets per year to cover
these fees. This is an estimate and not a cap. Such fees are subject to various
caps as discussed in this section under "Caps on Fees".
OTHERS. The Partnership is obligated to pay periodic legal, accounting,
filing, reporting and data processing fees and the expenses of the offering
which may equal up to approximately .32% of Net Assets ($375,000) per year,
assuming a Partnership size of $120 million. The Limited Partnership Agreement
requires the Partnership to bear all of its offering expenses. See "Commodity
Broker/Dealer" above. The Partnership also bears any extraordinary expenses
incurred by it. Any and all other general and administrative expenses of the
Partnership are borne by the General Partner.
BREAK-EVEN ANALYSIS
The following table is a summary of fees and expenses expressed both as a
dollar amount and as a percentage of a $1,000 investment in the Partnership. See
"Fees and Expenses to the Partnership." The break-even point per Unit (that is,
the trading profit the Partnership must realize in the first year of a limited
partner's investment so that such investment at the end of the year is equal to
its value at the beginning of the year), assuming a limited partner purchases
Units at $1,000 each as of the beginning of the year and redeems its Units at
the end of the first year of its investment, is 7.71%, or $77.12 per Unit
(assuming the estimated Partnership size is $120,000,000). The minimum initial
investment in the Partnership is $5,000, except that investments by
employee-benefit plans may be made for a minimum of $2,000 (subject to higher
minimums in certain states).
<TABLE>
<CAPTION>
ESTIMATED
PARTNERSHIP
SIZE
------------
<S> <C>
$120,000,000
------------
Selling Price Per Unit(1)................................... $ 1,000.00
------------
Interest Income Credit(2)................................... $ (39.36)
Brokerage Fees(3)........................................... $ 74.83
Operating and Offering Expenses(4).......................... $ 3.20
Advisor's Management Fee(5)................................. 38.45
Amount of Trading Income Required for the Partnership's Net
Asset Value per Unit at the End of One Year to Equal the
Selling Price per Unit.................................... $ 77.12
------------
Percentage of Selling Price per Unit........................ 7.71%
============
</TABLE>
18
<PAGE> 27
- ---------------
(1) Units may be purchased at the prevailing Net Asset Value per Unit during
months that SB conducts market-making activities.
(2) The Partnership will earn interest income on 80% of the average daily equity
maintained in the Partnership's cash accounts at a rate equal to the average
yield on the 30-day U.S. Treasury bills issued during each month. For
purposes of this analysis, interest income was estimated at 3.94% of the
Partnership's Net Asset Value (assuming an estimated annual interest rate of
4.92%).
(3) Brokerage fees were estimated at 7.2% (6.5% for brokerage fees and .7% for
other trading-related expenses) of Net Assets. In calculating the brokerage
fee, Net Assets equals the equity maintained in cash at the end of the month
plus unrealized gain (loss) on open positions and accrued interest income
for the month.
(4) Operating and offering expenses include expenses of this offering, periodic
legal, accounting, filing and reporting fees, but do not include
extraordinary expenses. These expenses are expected to be $375,000 assuming
a Partnership size of $120,000,000. This estimate is comprised of (i)
expenses of this offering of $225,000, (ii) legal expenses of $65,000, (iii)
accounting expenses of $50,000 and (iv) other expenses (such as filing and
reporting fees) of $35,000.
(5) The Partnership's Advisor will be paid a monthly management fee at the
annual rate of 4% of Net Assets. In calculating the management fee, Net
Assets equals the equity maintained in cash at the end of the month plus
unrealized gain (loss) on open positions and accrued interest income for the
month, less the monthly brokerage fee amount and operating expenses.
The Advisor's quarterly incentive fee is not reflected in the break-even
analysis because it is based on New Trading Profits after deduction of all of
the Partnership's expenses.
POTENTIAL BENEFITS TO INVESTORS
Investment in the Units is speculative and involves risks, including the
risk of loss. See "Risk Factors". However, investment in the Partnership offers
the following potential advantages:
PROFESSIONAL TRADING MANAGEMENT. Commodity trading decisions are made for
the Partnership by the Advisor. The Advisor manages the commodity investments of
the Partnership pursuant to the trading policies of the Partnership and certain
trend-following techniques and other technical strategies. The performance of
commodity accounts managed by the Advisor is described under "The Advisor".
DIVERSIFICATION. The assets of the Partnership will normally be invested
in a number of commodities, so that each limited partner will obtain greater
diversification in commodities traded than would be possible trading
individually unless substantially more than the $5,000 minimum investment
($2,000 in the case of employee-benefit plans, and subject to higher minimums in
certain states) required by the Partnership were committed to the commodity
markets. See "Trading Policies" and "The Advisor".
Allocating a portion of the risk segment of a portfolio to a managed
futures investment, such as the Partnership, can add a potentially valuable
element of diversification to a traditionally structured stock and bond
portfolio. Historically, the returns of many managed futures investments have
exhibited a substantial degree of non-correlation with the performance of the
general equity and debt markets (as reflected in the performance of various
market indices such as the Standard & Poor's 500 Index for domestic equities,
the Lehman Brothers Bond Index for debt and the Morgan Stanley Europe,
Australasia and the Far East (EAFE) Index for international equities),
suggesting that a managed futures component may provide a valuable complement to
a traditional portfolio.
This benefit of adding a managed futures component to a portfolio is an
application of Modern Portfolio Theory. Modern Portfolio Theory is an analytical
framework that suggests that it is possible for an investor to construct a
portfolio using multiple asset classes that attempts to balance desired returns
with tolerable risk (volatility as measured by standard deviation). This
objective can be achieved by adding investments for which the desired return has
a low to negative or non-correlation to the other assets in the portfolio.
Consequently, allocating a limited portion of the risk segment of a portfolio to
a managed futures program
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such as the Partnership, if the managed futures performance is in fact
non-correlated with stocks and bonds, can potentially improve the overall return
and reduce the volatility of the total portfolio over the long term.
Although the General Partner generally endorses the Modern Portfolio
Theory, there can be no assurance that any managed futures investment will be
successful, avoid substantial losses or generate performance non-correlated with
the equity or debt markets. Furthermore, non-correlation is not negative
correlation. Even if the performance of the Partnership is non-correlated with
these markets, this does not mean that the Partnership's results will not
parallel either or both during significant periods of time. In any event, unless
a managed futures investment is successful, it cannot add a potentially valuable
element of diversification to a portfolio.
LIMITED LIABILITY. Unlike an individual who invests directly in commodity
futures or forward contracts, an investor in the Partnership cannot be
individually subjected to margin calls and cannot lose more than the amount of
his contribution to the Partnership and his share of the Partnership's profits
(including distributions of profits and payments on redemption of his Units). It
is possible for a limited partner to lose the entire amount of his contribution
to the Partnership. See "Commodity Markets -- Margins" and "The Limited
Partnership Agreement -- Liability of Limited Partners".
INTEREST INCOME. SB will pay the Partnership interest on 80% of the
average daily equity maintained in cash in the Partnership's trading accounts
with SB. An individual trader would generally not receive interest on the funds
in his commodity account unless he committed substantially more than the $5,000
minimum investment required by the Partnership. See "The Commodity
Broker/Dealer -- Customer Agreement".
BROKERAGE FEES. The Partnership pays SB a fixed monthly brokerage fee
equal to 13/24 of 1% of month-end Net Assets (6.5% per year) in lieu of
brokerage commissions on a per trade basis. The Partnership will also pay
certain fees in connection with its trading as described under "Fees and
Expenses to the Partnership -- Others." See "Fees and Expenses to the
Partnership -- Commodity Broker/Dealer". Certain public customers of SB may pay
lower commission rates than the Partnership will pay, and other commodity
brokerage firms might offer lower rates to an account the size of the
Partnership's because different accounts require different levels of service and
monitoring based upon the number of advisors and the volume and complexity of
trading. In addition, pursuant to its Customer Agreement with SB, the
Partnership will receive several administrative services, such as account
reconcilement, payment of fees and expenses, crediting of interest income and
assistance with regulatory filings and monthly reports. These types of services
may not be provided to certain other public customers of SB and may account for
the possibly higher fees paid by the Partnership. See "Commodity
Broker/Dealer -- Customer Agreement". Brokerage fees will be paid for the life
of the Partnership, although the rate at which such fees are paid may change.
See "Conflicts of Interest" and "The Commodity Broker/Dealer -- Brokerage Fees".
ADMINISTRATIVE CONVENIENCE. The Partnership provides investors with many
services designed to simplify the administrative details involved in engaging
directly in commodities transactions, including maintaining the books and
accounts of trading activities, preparing monthly and annual reports to limited
partners and supplying limited partners with information necessary for
individual federal tax returns. See "The Limited Partnership
Agreement -- Reports to Limited Partners".
CONFLICTS OF INTEREST
The following inherent or potential conflicts of interest should be
considered by prospective investors before subscribing for Units:
RELATIONSHIP BETWEEN THE GENERAL PARTNER AND THE COMMODITY
BROKER/DEALER. The General Partner is an affiliate of SB, which acts as the
commodity broker/dealer and market-maker for the Partnership. Since SB charges
the Partnership a monthly brokerage fee based on Net Assets rather than a per
transaction commission, the General Partner has no incentive to select advisors
that will generate a large number of trades to benefit SB. Instead, the General
Partner may have a conflict of interest between its responsibility to manage the
Partnership for the benefit of the limited partners and its interest in
selecting advisors that will generate a small number of trades, thus incurring
small amounts of charges incidental to trading so that Net Assets, from
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which SB's fees are paid, remain relatively higher. Furthermore, the less active
the trading, the fewer services SB will be required to provide to the
Partnership with respect to such trading. In addition, the General Partner may
have an incentive to select advisors that trade more forward and spot contracts
than futures and options contracts, since forward and spot prices may include a
profit margin to SB as dealer. Because the General Partner is an affiliate of
SB, the General Partner has a potential conflict of interest in its decision to
replace the futures commission merchant, if necessary. The fact that the General
Partner and SB are affiliated creates a potential conflict in that the fees
received by SB may not have been set by "arm's-length" negotiation. The General
Partner is a fiduciary to the limited partners and, as such, must resolve any
conflict in favor of the limited partners. Prospective investors should be aware
that because SB and certain Financial Consultants (excluding principals of the
General Partner) receive a portion of the commodity brokerage fees generated by
the Partnership and allocated to outstanding Units sold by them, SB and such
Financial Consultants may have a conflict of interest in advising subscribers as
to whether they should redeem their Units or purchase additional Units. Except
as otherwise set forth in this section, no other conflict of interest exists on
the part of any other principal of SB. See "The Commodity
Broker/Dealer -- Brokerage Fees".
BROKERAGE RATE CHARGED BY THE COMMODITY BROKER/DEALER. Pursuant to the
Customer Agreement between the Partnership and SB, SB acts as the commodity
broker/dealer for the Partnership. Because the General Partner is an affiliate
of SB, the General Partner may have a conflict of interest between its
responsibility to manage the Partnership for the benefit of the limited partners
and its interest in obtaining brokerage rates which are favorable to SB. SB
charges the Partnership a monthly brokerage fee equal to 13/24 of 1% of
month-end Net Assets (6.5% per year). Although the Customer Agreement is
non-exclusive, so that the Partnership has the right to seek lower brokerage
rates from other brokers at any time, the General Partner believes that the
arrangements between the Partnership and SB are consistent with arrangements
other comparable commodity pools have entered into with other futures commission
merchants and are fair to the Partnership and does not intend to negotiate with
SB to obtain lower commission rates or to refer brokerage transactions to other
firms. However, the General Partner will review, at least annually, the
commission rates charged to other comparable commodity pools to determine that
the brokerage fee being paid by the Partnership is competitive with such other
rates. The General Partner, as a fiduciary to the limited partners, must resolve
any conflict in favor of the limited partners. Therefore, at the time of such
review, the General Partner will consider whether any action need be taken in
light of its obligations to the Partnership, and will advise the limited
partners of any action so taken. Limited partners would not be able to require
the General Partner to take any specific action, but could vote to terminate the
Customer Agreement with SB (with the vote of limited partners owning more than
50% of the Units) if independent counsel provides the General Partner with an
opinion that such vote would not affect their status as limited partners. See
"The Limited Partnership Agreement -- Amendments; Meetings".
DISTRIBUTION OF PROFITS. The General Partner has sole discretion as to the
distribution of profits, if any, to the limited partners. The determination of
what is in the best interest of the Partnership or limited partners will be made
on a case by case basis by the General Partner in its sole discretion and
consistent with its fiduciary obligations to the Partnership and the limited
partners. To the extent that profits are retained by the Partnership rather than
distributed, the Net Assets of the Partnership, which determine the brokerage
fees payable in any year, will be increased, thereby increasing the maximum
amount of fees which can be earned by SB. In addition, the amount of funds in
segregated accounts at banks which extend overdraft privileges to SB will be
greater to the extent that profits are retained. See "The Commodity
Broker/Dealer -- Customer Agreement". Thus, the General Partner may have a
conflict of interest between its obligation to the limited partners in
considering a distribution of profits and its interest in increasing fees
payable to SB. Any such conflict must be resolved in favor of the limited
partners. In any event, the General Partner does not intend to make any
distribution which would reduce the Net Asset Value of a Unit below $1,000, or
if the size of a distribution would not warrant the administrative expense which
would be involved, or if, in the opinion of the General Partner, a distribution
would otherwise not be in the best interests of the Partnership or the limited
partners. The General Partner has no current intention of making any
distributions.
ACCOUNTS OF SB, THE GENERAL PARTNER AND THEIR AFFILIATES. The officers,
directors and employees of SB and the General Partner, as well as SB and the
General Partner themselves, may trade in commodity contracts
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for their own accounts. The records of any such trading will not be available
for inspection by limited partners. In addition, SB is a futures commission
merchant and effects transactions in commodity futures contracts for its
customers. Thus, it is possible that SB could effect transactions for the
Partnership in which the other parties to the transactions are its officers,
directors or employees or its customers. Such persons might also compete with
the Partnership in making purchases or sales of contracts without knowing that
the Partnership is also bidding on such contracts. Trading decisions for the
Partnership are not currently made by the General Partner, SB or their
affiliates. CFTC regulations require that SB, to the extent possible, insure
that each order received from the Partnership which is executable at or near the
market price be transmitted to the floor of the appropriate contract market
before any order in the same commodity for any proprietary account of SB.
CONTROL OF OTHER ACCOUNTS BY THE ADVISOR. The Advisor manages the accounts
of clients other than the Partnership including other commodity pools and
intends to manage such accounts in the future. The Advisor acts as advisor to
the following pools operated by the General Partner: Shearson Select Advisors
Futures Fund L.P., Shearson Mid-West Futures Fund L.P. ("Midwest"), Smith Barney
Mid-West Futures Fund II, L.P. ("Midwest II"), Hutton Investors Futures Fund
L.P. II, Smith Barney Diversified Futures Fund L.P., F-1000 Futures Fund L.P.
Michigan Series II, Smith Barney Principal Plus Futures Fund L.P., Smith Barney
Diversified Futures Fund L.P. II and Smith Barney Principal Plus Futures Fund
L.P. II. The Advisor is the sole advisor to Midwest and Midwest II. In addition,
Mr. Henry, the Advisor and the Advisor's affiliates may trade for their own
accounts. The records of any such trading will not be available for inspection
by limited partners. It is possible that as a result of a neutral allocation
system, testing a new quantitative model or program, trading proprietary
accounts more aggressively, or other actions not constituting a violation of
fiduciary duties, the Advisor or its principals or affiliates may take positions
in their proprietary accounts that are opposite or ahead of a client (including
the Partnership). As a result, positions in proprietary accounts of Mr. Henry,
the Advisor and the Advisor's affiliates may be taken which are in competition
with positions taken for the Partnership. In addition, the principals of the
Advisor devote time to other business activities. All commodity futures and
options positions held by all accounts owned or controlled directly or
indirectly by the Advisor and its principals, including the portion of the
Partnership's account managed by the Advisor will be aggregated for purposes of
determining compliance with speculative position limits. As a result, the
Partnership might not be able to enter into or maintain certain positions if
such positions, when added to the positions held by such other accounts, would
exceed the applicable limits. If trading orders must be revised as a result of
the application of speculative position limits, the Advisor will modify such
orders in a manner which will not substantially disproportionately affect the
Partnership as compared with the Advisor's other accounts. In addition, the
Advisor will not knowingly or deliberately use trading strategies for the
Partnership which are inferior to those used for any other client or account nor
favor any other account over the Partnership in any way, although the Advisor
may offer different trading programs and various factors affecting different
types and sizes of accounts may require the utilization of different strategies
or methods for such accounts. See "Commodity Markets -- Regulation". See also
"Risk Factors -- Possible Effects of Competition" and "The Advisor -- Management
Agreement" with respect to other potential conflicts of interest arising in
connection with the operations and activities of the Advisor.
OTHER ACTIVITIES OF SB. SB maintains a commodity research department which
makes trading recommendations on a daily basis. In addition, SB sponsors
commodity trading programs in which certain customers participate. The trading
records of such programs will not be made available to limited partners. In such
programs and in its trading recommendations, transactions may be made or
recommended which are similar or opposed to transactions being made for the
Partnership. SB will not provide advisory services to the Partnership.
OTHER COMMODITY POOLS. The General Partner and its predecessors over the
last five years have sponsored and established over forty-five commodity pools
and may sponsor or establish other commodity pools which may compete with the
Partnership. See "The General Partner -- Other Pools Operated by the General
Partner". Neither the General Partner nor SB will knowingly or deliberately
favor any such pools over the Partnership in their dealings on behalf of such
other pools. In addition, the General Partner may in the future serve as an
advisor or co-advisor to such other commodity pools or to the Partnership. If
the General Partner were to serve as a trading advisor to the Partnership, there
would be a conflict between its duty to
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determine its management fees in the best interests of the Partnership and its
interest in maximizing fees paid to itself (subject to limitations imposed by
the NASAA Guidelines as set forth in the Partnership Agreement). Of course, the
General Partner is bound by its fiduciary duties as a general partner to resolve
this potential conflict in the best interest of the limited partners.
GENERAL PARTNER'S CHOICE OF ADVISORS. The Limited Partnership Agreement
empowers the General Partner to make trading decisions for the Partnership
itself or to delegate some or all of its authority to make such decisions to one
or more trading advisors. The Limited Partnership Agreement empowers the General
Partner on behalf of the Partnership to enter into, renew, terminate or
renegotiate a management agreement with such advisors pursuant to which the
Partnership will be obligated to pay management and/or incentive fees to the
advisors. The Partnership has entered into the Management Agreement described
herein with JWH as sole advisor. The General Partner has no current intention of
selecting additional advisors for the Partnership. However, the General Partner
may have a conflict of interest between its obligations to act in the best
interests of the limited partners and its own interest in receiving fees from
the Partnership in the future. The General Partner believes that the fees
charged to the Partnership are fair to the Partnership and acknowledges its
fiduciary duty to negotiate future contracts including contracts with itself in
the best interests of the limited partners.
TRADING POLICIES
The objective of the Partnership is to preserve and to achieve substantial
appreciation of its assets through speculative trading in commodity interests
including futures contracts, options and forward contracts. Commodity futures
and options trading may be conducted on all major United States and on certain
foreign commodities exchanges. The Partnership does not intend to act as a
dealer. The Partnership will attempt to accomplish its trading objectives by
following the trading policies set forth below:
1. Partnership funds will be invested only in commodity contracts
which are traded in sufficient volume to permit, in the opinion of the
Advisor trading that contract, ease of taking and liquidating positions.
2. No Advisor will initiate additional positions in any commodity if
such additional positions would result in aggregate positions for all
commodities requiring as margin more than 66 2/3% of the Partnership's
assets allocated to the Advisor. For the purpose of this limitation,
forward contracts in currencies will be deemed to have the same margin
requirements as the same or similar futures contracts traded on the Chicago
Mercantile Exchange.
3. The Partnership will not employ the trading technique commonly
known as "pyramiding", in which the speculator uses unrealized profits on
existing positions as margin for the purchase or sale of additional
positions in the same or related commodities.
4. The Partnership will not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities,
provided that neither the deposit of margin with a commodity broker nor
obtaining and drawing on a line of credit with respect to forward contracts
shall constitute borrowing.
5. From time to time trading strategies such as spreads or straddles
may be employed on behalf of the Partnership. The term "spread" or
"straddle" describes a commodity trading strategy involving the
simultaneous buying and selling of contracts on the same commodity but
involving different delivery dates or markets and in which the trader
expects to earn a profit from a widening or narrowing of the difference
between the prices of the two contracts.
6. The Partnership will not permit the churning of its commodity
trading accounts.
The trading policies described above (except the Partnership's basic
investment policies, Nos. 3, 4 and 6) may be altered by the General Partner
without approval by the limited partners if it is determined that such change is
in the best interests of the Partnership (based upon factors including but not
limited to the performance of various futures markets, advisors and the risks
associated with modified trading policies). The limited partners will be
notified by mail within seven business days of any material changes in trading
policies.
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The limited partners may also change the trading policies of the Partnership in
accordance with the Limited Partnership Agreement, as set forth in Section 17(c)
thereof, set forth in Exhibit A hereto. Such procedures are also summarized
under "The Limited Partnership Agreement -- Amendments; Meetings".
THE GENERAL PARTNER
BACKGROUND
The Partnership's General Partner and commodity pool operator is Smith
Barney Futures Management Inc. which is a Delaware corporation that is wholly
owned by Salomon Smith Barney Holdings, Inc., which is the sole owner of SB.
Salomon Smith Barney Holdings, Inc. is a wholly owned subsidiary of Travelers
Group, Inc., a publicly-held company whose shares are listed on the New York
Stock Exchange and is engaged in various financial service and other businesses.
The General Partner is the successor to the business of Smith Barney Futures
Partners, Inc. (which was the surviving entity of the merger on August 2, 1993
of three commodity pool operators: Smith Barney Futures Partners, Inc., Lehman
Brothers Capital Management Corp. and Hutton Commodity Management Inc.). The
General Partner is a commodity pool operator and a member of the NFA under the
registration and memberships of Smith Barney Futures Partners, Inc, which became
registered with the CFTC as a commodity pool operator and a member of the NFA on
September 2, 1986. The principal offices of the General Partner are located at
390 Greenwich Street - 1st floor, New York, New York 10013; telephone (212)
723-5424.
PRINCIPALS
The officers and directors of the General Partner are Jack H. Lehman, III
(Chairman and Director), David J. Vogel (Director and President), Michael R.
Schaefer (Director), Steven J. Keltz (Secretary and Director), Daniel A.
Dantuono (Chief Financial Officer, Treasurer and Director), Daniel R. McAuliffe,
Jr. (Director), Shelley Ullman (Senior Vice President and Director) and Maureen
O'Toole (Senior Vice President). Each director and officer is subject to
re-appointment annually.
Mr. Lehman, age 52, is a Senior Executive Vice President and Director of
SB's commodity division. In addition, he has been a Director of the General
Partner since July 1993 and was Co-Chairman of SB's commodity division from July
1992 through May 1996. Before joining SB, he was employed for twenty years at
SLB where from 1982 through April 1992 he was a Senior Executive Vice President
and Director of Commodities. He was a director and the Chairman of Lehman
Brothers Capital Management Corp., one of the predecessors of the General
Partner. Mr. Lehman is a past Chairman of the Futures Industry Association and
currently serves on its Executive Committee. He has been a member of the Board
of Governors of the Commodity Exchange, Inc. and the Comex Clearing Association.
Mr. Vogel, age 53, became an Executive Vice President of SB and a Director
of the General Partner on August 2, 1993. In May 1996, he was appointed
President of the General Partner. From January 1993 to July 1993, Mr. Vogel was
an Executive Vice President of SLB. Formerly, Mr. Vogel was the chairman and CEO
of LIT America, Inc. (September 1988 through December 1992) and an Executive
Vice President of Thomson McKinnon Securities Inc. (June 1979 through August
1988). Mr. Vogel is also a past chairman of the Futures Industry Association, a
past director of Comex Clearing Corporation and the Commodity Exchange Inc. and
a past Governor of the Chicago Mercantile Exchange.
Mr. Schaefer, age 48, has been involved in the securities and commodities
brokerage business for over twenty-five years and has been an Executive Vice
President of SB since early 1992. He has been employed with the firm in various
capacities associated with its commodity businesses since 1981. His principal
areas of responsibility include futures research, trade execution, clearing and
administration. He is a member of various major U.S. commodity exchanges and a
Director of the NFA. He has been a Director of the General Partner since its
organization in 1986.
Mr. Keltz, age 48, is an Associate General Counsel in the Law Department of
SB. He became Secretary and Director of the General Partner on August 2, 1993.
He is a Director of SB since October 1995. From
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October 1988 through July 1993, Mr. Keltz was employed by SLB as First Vice
President and Associate General Counsel where he provided legal counsel to
various derivative products businesses. Mr. Keltz was Vice President, Product
Manager -- Futures and an Associate General Counsel for PaineWebber Incorporated
from 1985 through September 1988.
Mr. Dantuono, age 40, is a Senior Vice President of SB (since March 1994)
prior to which he was a First Vice President since August 1993. Mr. Dantuono was
Vice President at SLB where he was employed since 1980. He has been Chief
Financial Officer, Treasurer and Director of the General Partner since August
1993. Prior to August 1993, Mr. Dantuono was Controller and Treasurer of a
corporate predecessor of the General Partner.
Mr. McAuliffe, age 48, is a Senior Vice President of SB (since August 1990)
and became a director of the General Partner in April 1994. Mr. McAuliffe is
Director of Administration for Smith Barney Managed Futures. From 1986 through
1997, he was responsible for the marketing and sales of retail futures products,
including public and private futures funds and managed account programs. Prior
to joining SLB, Mr. McAuliffe was employed by Merrill Lynch Pierce Fenner &
Smith from 1983 through 1986. Prior to joining Merrill Lynch, Mr. McAuliffe was
employed by Citibank from 1973 to 1983. He is a member of the Managed Futures
Association and the Marketing Division of the Futures Industry Association.
Ms. Ullman, age 39, is a Senior Vice President of SB (since October 1989)
and a Senior Vice President and director of the General Partner (since May 1997
and April 1994, respectively). Previously, Ms. Ullman was a First Vice President
of SLB and a vice president and assistant secretary of a predecessor of the
General Partner, with responsibility for execution, administration, operations
and performance analysis for managed futures funds and accounts.
Ms. O'Toole, age 40, is a Senior Vice President of SB (since April 1995)
and a Senior Vice President of the General Partner (since May 1997). Ms. O'Toole
is Director of Managed Futures Sales and Marketing for SB. Prior to joining SB
in March 1993, Ms. O'Toole was the director of managed futures quantitative
analysis at Rodman and Renshaw from 1989 to 1993. Ms. O'Toole began her career
in the futures industry in 1981 when she joined Drexel Burnham Lambert in the
research department of the Financial Futures Division. She has an MBA with a
concentration in Finance from Northwestern University.
The General Partner employs a team of approximately 40 professionals whose
primary emphasis is on maintaining quality control among the funds' advisors.
A full time staff of due diligence professionals use state-of-the-art
technology and on-site evaluations to monitor new and existing futures money
managers. The accounting and operations staff provide processing of trading
activity and reporting to limited partners and regulatory authorities.
There have been no administrative, civil or criminal actions pending, on
appeal or concluded against the General Partner or any of its individual
principals within the past five years that are material to a decision whether to
invest in the Partnership.
The Limited Partnership Agreement requires the General Partner to maintain
a cash investment in the Partnership equal to the greater of (a) 1% of the
aggregate capital contributions of all partners or (b) $25,000. As of March 31,
1998, the General Partner had contributed $1,189,000 to the Partnership. The
General Partner will share in profits and losses of the Partnership in
proportion to its share of Partnership capital on the same basis as the limited
partners. The General Partner's capital contribution to the Partnership will be
treated as Units of General Partnership Interest for the purpose of Partnership
accounting. Units of General Partnership Interest are equal in all respects to
Units held by limited partners, except as to liability and the ability to vote.
See "The Limited Partnership Agreement -- Sharing of Profits and Losses" and
"Amendments; Meetings." The Limited Partnership Agreement also requires that the
General Partner maintain an overall net worth (including capital contributions)
equal to the greater of (a) 5% of the total contributions (including
contributions by the General Partner) to all limited partnerships to which it is
a general partner (including the Partnership) plus (prior to the termination of
the Public Offering) 5% of the Units being offered for sale in the Partnership
or (b) $50,000.
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David J. Vogel, the initial Limited Partner of the Partnership, acquired
one Unit of limited partnership interest for $1,000 to permit the Partnership to
be organized as a limited partnership under the laws of the State of New York.
Mr. Vogel owned 6 Units as of March 31, 1998. No other principal of the General
Partner owns any Units, although they are not precluded from purchasing such
Units.
As of March 31, 1998, the General Partner acts as general partner to
twenty-one other active commodity pools that are currently trading. The
performance of all of these pools for the past five years and year-to-date
period is set forth beginning on page 28.
The statements of financial condition of the Partnership and the General
Partner at December 31, 1997 and the reports of the independent accountants
thereon is set forth beginning on page 88.
THE PARTNERSHIP -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, net unrealized appreciation (depreciation) on open
futures and forward contracts and interest receivable. Because of the low margin
deposits normally required in commodity futures trading, relatively small price
movements may result in substantial losses to the Partnership. While substantial
losses could lead to a decrease in liquidity, no such losses occurred during the
period ended December 31, 1997 or during the first quarter of 1998.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, additions and redemptions of Units and
distributions of profits if any.
Between May 30, 1997 (commencement of the offering period) and July 31,
1997, 40,035 Units were sold at $1,000 per Unit. Proceeds of the offering were
held in an escrow account and were transferred, along with the General Partner's
contribution of $404,000 to the Partnership's trading account on August 1, 1997
when the Partnership commenced trading. For the period ended December 31, 1997,
there were additional sales of 59,076.5475 Units totaling $56,807,000 and
contributions by the General Partner representing 597.9801 Unit equivalents
totaling $575,000. For the period ended December 31, 1997, 10 Units were
redeemed totaling $9,689.
For the three months ended March 31, 1998, Partnership capital increased
13.4% from $101,255,607 to $114,810,731. This increase was attributable to the
addition of 21,097.2073 Units totaling $20,997,000 partially offset by the
redemption of 1,759.8311 Units resulting in an outflow of $1,705,107 and by the
net loss from operations of $5,736,769 for the quarter ended March 31, 1998.
RESULTS OF OPERATIONS
For the period from August 1, 1997 (commencement of trading operations) to
December 31, 1997, the net asset value per Unit increased 3.0% from $982.44 to
$1,011.49. There were no operations in 1996 and 1995. The net asset value of
$982.44 at commencement of trading operations is reflective of charging offering
and organizational expenses against the initial capital of the Partnership for
financial reporting purposes.
The Partnership experienced net trading gains of $7,178,621 before
commissions and expenses in 1997. These gains were attributable to gains
incurred in the trading of U.S. and non-U.S. interest rates, metals and
currencies and were partially offset by losses experienced in the trading of
energy products, grains, indices and softs.
During the Partnership's first quarter of 1998, the net asset value per
Unit decreased 5.0% from $1,011.49 to $961.22. The Partnership experienced a net
trading loss before commissions and expenses in the first quarter of 1998 of
$3,652,439. Losses were recognized in the trading of commodity futures in
currencies,
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U.S. interest rates, grains, metals and softs and were partially offset by gains
in energy products and non-U.S. interest rates.
Commodity futures markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisor to
identify correctly those price trends. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisor is able to identify them,
the Partnership expects to increase capital through operations.
Interest income on 80% of the Partnership's daily equity maintained in cash
was earned at the 30-day U.S. Treasury bill rate determined weekly by SB based
on the average non-competitive yield on 3-month U.S. Treasury bills maturing in
30 days.
Brokerage commissions are calculated on the Partnership's net asset value
as of the last day of each month and, therefore, are affected by trading
performance, additions and redemptions.
Management fees are calculated on the portion of the Partnership's net
asset value allocated to the Advisor at the end of the month and, therefore, are
affected by trading performance, additions and redemptions.
Incentive fees are based on the New Trading Profits generated by the
Advisor at the end of the quarter, as defined under "Fees and Expenses to the
Partnership" and in the advisory agreement between the Partnership, the General
Partner and the Advisor.
27
<PAGE> 36
SMITH BARNEY WESTPORT FUTURES FUND L.P.
AUGUST 1, 1997 (COMMENCEMENT OF TRADING OPERATIONS) TO MARCH 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
PERCENTAGE RATE OF RETURN 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
January.................................................... (3.04) --
February................................................... 0.02 --
March...................................................... (2.01) --
April...................................................... -- --
May........................................................ -- --
June....................................................... -- --
July....................................................... -- --
August..................................................... -- (3.43)
September.................................................. -- (2.59)
October.................................................... -- 3.24
November................................................... -- (0.24)
December................................................... -- 4.40
Annual (or Period) Rate of Return.......................... (4.97)% 1.15%
=================================================================================================
Inception of Trading: August 1, 1997
Aggregate Subscriptions: $ 118,820,000 (3/98)
Current Net Asset Value: $ 114,810,781 (3/98)
Worst Monthly Percentage Draw-Down: 3.43% (8/97)
Worst Peak-to-Valley Draw-Down: 5.93% (8/97-9/97)
- ------------------------------------------------------------------------------------------------------------------------------
Notes to this table appear at page 33.
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
OTHER POOLS OPERATED BY THE GENERAL PARTNER
Tables 1, 2 and 3 below set forth in capsule format, as prescribed by CFTC
regulations, the performance of the other commodity pools which have been
operated by the General Partner during the past five years. Table 1 sets forth
the performance of commodity pools currently operated by the General Partner for
the period from January 1, 1993 through March 31, 1998. Table 2 sets forth the
performance of commodity pools which were previously operated by the General
Partner during that period and which have ceased trading operations as of March
31, 1998. Table 3 sets forth the performance of commodity pools for that same
period previously operated by the General Partner for which it does not act as
commodity pool operator as of March 31, 1998. Additional information regarding
currently operated pools follows Table 1.
Each of the funds has as its investment purpose to profit by speculation in
commodity interests. As of March 31, 1998, the only active funds operated by the
General Partner which did not have net asset values in excess of their
respective initial offering amounts were: Smith Barney Newport Futures Fund
L.P., Smith Barney Great Lakes Futures Fund L.P., Smith Barney Telesis Futures
Fund, L.P., Smith Barney AAA Futures Fund L.P. and the Partnership. This
situation is attributable to the failure of the trading systems employed by the
respective advisors to speculate profitably over the period tabulated. It may be
noted that each of the funds has traded for two years or less and their trading
programs, which should be considered long-term, may not have had a sufficient
time in which to take full effect.
Smith Barney Futures Management Inc. offers other pools which have only one
trading advisor but whose performance may differ from the Partnership's
performance. Differences are due to different trading advisors (and programs
traded) as well as different partnership or organizational structures. JWH is
the sole advisor to Midwest and Midwest II. The combination of programs employed
by JWH in trading the Partnership's account vary from those used on behalf of
Midwest and Midwest II.
28
<PAGE> 37
TABLE 1
CAPSULE PERFORMANCE OF OTHER POOLS CURRENTLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT INC.
FOR THE PERIOD JANUARY 1993 THROUGH MARCH 31, 1998
[CAPTION]
<TABLE>
<CAPTION>
LARGEST MONTHLY
CURRENT PERCENT DRAW-DOWN
INCEPTION AGGREGATE TOTAL -----------------
TYPE OF OF SUBSCRIPTIONS NAV PERCENT
NAME OF POOL POOL TRADING $(000) $(000) (%) DATE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shearson Select Advisors Futures Fund A Jul-87 50,507 5,356 9.72 (May-97)
Hutton Investors Futures Fund II A Jul-87 30,304 20,216 5.87 (Jul-94)
Shearson Mid-West Futures Fund 1 Dec-91 60,804 57,740 9.18 (May-97)
Smith Barney International Advisors A Mar-92 32,312 3,529 7.08 (Nov-93)
Currency Fund
F-1000 Futures Fund Series VIII 2,A Aug-92 36,000 8,046 3.84 (Feb-96)
- -----------------------------------------------------------------------------------------------------------
F-1000 Futures Fund Series IX 2,A Mar-93 24,005 6,690 4.26 (Feb-96)
Smith Barney Global Markets Futures 1,A Aug-93 20,226 8,558 9.19 (Aug-97)
Fund (formerly Erisa Futures Fund)
Smith Barney Diversified Futures Fund A Jan-94 256,756 140,929 8.12 (Feb-96)
F-1000 Futures Fund Michigan Series I 1,2,A May-94 10,697 13,571 5.86 (Feb-96)
Smith Barney Mid-West Futures Fund II 1 Sep-94 90,217 57,740 9.23 (May-97)
- -----------------------------------------------------------------------------------------------------------
F-1000 Futures Fund Michigan Series II 1,2,A Jun-95 20,490 24,932 5.08 (Feb-96)
Smith Barney Tidewater Futures Fund 1 Jul-95 15,701 14,821 18.24 (Aug-97)
Smith Barney Principal Plus Futures 2,A Nov-95 37,507 33,886 5.94 (Feb-96)
Fund
Smith Barney Diversified Futures Fund A Jan-96 131,148 116,927 8.57 (Feb-96)
II
SB/Michigan Futures Fund 1,A Jul-96 11,591 12,823 8.08 (Aug-97)
- -----------------------------------------------------------------------------------------------------------
Smith Barney Principal Plus Futures 2,A Aug-96 22,581 21,423 5.98 (Aug-97)
Fund II
Smith Barney Newport Futures Fund 1 Dec-96 25,855 14,111 17.43 (Mar-98)
Smith Barney Great Lakes Futures Fund 1 Jan-97 10,102 9,665 7.62 (Aug-97)
Smith Barney Westport Futures Fund Aug-97 118,820 114,811 3.43 (Aug-97)
Smith Barney Potomac Futures Fund 1 Oct-97 2,572 2,687 3.03 (Feb-98)
- -----------------------------------------------------------------------------------------------------------
Smith Barney Telesis Futures Fund 1 Feb-98 6,598 6,566 0.54 (Feb-98)
- -----------------------------------------------------------------------------------------------------------
Smith Barney AAA Futures Fund 1 Mar-98 50,040 48,505 3.07 (Mar-98)
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
LARGEST PEAK-TO-VALLEY PERCENTAGE ANNUAL RATE OF RETURN
DRAW-DOWN (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
--------------------------- -----------------------------------------------
PERCENT TIME PERIOD 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shearson Select Advisors Futures Fund 22.59 (Aug-93 to Jan-95) 20.62 (13.96) 26.91 21.57 13.06 (9.73)
Hutton Investors Futures Fund II 13.66 (Jul-94 to Jan-95) 29.40 (4.66) 41.78 29.11 17.82 (5.49)
Shearson Mid-West Futures Fund 19.90 (Jul-94 to Jan-95) 39.88 (8.64) 36.24 26.76 12.95 (9.66)
Smith Barney International Advisors 24.08 (Oct-93 to Feb-96) 0.95 (10.40) (5.04) 22.68 18.51 4.20
Currency Fund
F-1000 Futures Fund Series VIII 12.22 (Sep-93 to Oct-94) 18.93 (10.41) 12.69 3.96 3.15 1.59
- ------------------------------------------------------------------------------------------------------------------------
F-1000 Futures Fund Series IX 8.41 (Jun-95 to Oct-95) 3.91 (4.13) 12.89 3.51 8.87 (0.31)
Smith Barney Global Markets Futures 12.08 (Dec-96 to May-97*) (0.59) (7.19) 20.91 17.70 4.13 1.04
Fund (formerly Erisa Futures Fund)
Smith Barney Diversified Futures Fund 14.50 (Jun-95 to Oct-95) - (3.29) 12.86 14.54 3.83 (3.18)
F-1000 Futures Fund Michigan Series I 8.80 (Jun-95 to Oct-95) - 1.38 14.25 2.79 10.47 (0.79)
Smith Barney Mid-West Futures Fund II 15.45 (Feb-97 to May-97) - (7.54) 31.74 26.26 12.73 (9.66)
- ------------------------------------------------------------------------------------------------------------------------
F-1000 Futures Fund Michigan Series II 7.27 (Feb-96 to May-96) - - 2.25 9.49 11.61 (2.65)
Smith Barney Tidewater Futures Fund 18.24 (Aug-97 to Aug-97) - - (1.25) 7.83 6.12 15.27
Smith Barney Principal Plus Futures 8.85 (Feb-96 to Aug-96) - - 5.75 4.37 10.45 (1.85)
Fund
Smith Barney Diversified Futures Fund 10.75 (Mar-97 to Sept-97*) - - - 12.51 (0.10) (1.40)
II
SB/Michigan Futures Fund 8.09 (Aug-97 to Oct-97*) - - - 18.58 5.90 1.22
- ------------------------------------------------------------------------------------------------------------------------
Smith Barney Principal Plus Futures 6.71 (Aug-97 to Sept-97*) - - - 12.97 4.45 (0.28)
Fund II
Smith Barney Newport Futures Fund 45.20 (Mar-97 to Mar-98*) - - - 7.34 (21.84) (26.90)
Smith Barney Great Lakes Futures Fund 11.29 (Mar-97 to Sept-97*) - - - - 2.67 (4.11)
Smith Barney Westport Futures Fund 5.93 (Aug-97 to Sept-97) - - - - 1.15 (4.97)
Smith Barney Potomac Futures Fund 3.03 (Feb-98 to Feb-98) - - - - 2.95 3.15
- ------------------------------------------------------------------------------------------------------------------------
Smith Barney Telesis Futures Fund 0.64 (Feb-98 to Mar-98*) - - - - - (0.64)
- ------------------------------------------------------------------------------------------------------------------------
Smith Barney AAA Futures Fund 3.07 (Mar-98 to Mar-98*) - - - - - (3.07)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
Notes follow Table 3
TYPE OF POOL LEGEND
- -----------------
1-Privately Offered
2-Principal Protected
3-Multi-Advisor
A-More than one trading advisor but not a multi-advisor pool as that term is
defined in Part 4 of the regulations of the CFTC.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
29
<PAGE> 38
ADDITIONAL INFORMATION FOR POOLS CURRENTLY OPERATED BY THE
GENERAL PARTNER AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
GENERAL GENERAL
PARTNER PARTNER
COMMENCEMENT OF NUMBER OF UNITS INITIAL
NAME OF POOL TRADING PARTICIPANTS OWNED INVESTMENT
------------ --------------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Select Advisors Futures Fund............. Jul-87 579 34 $507,000
Hutton Investors Futures Fund II......... Jul-87 404 44 $314,000
SLB Mid-West Futures Fund................ Dec-91 679 322 $ 25,000
Smith Barney International Advisors
Currency Fund.......................... Mar-92 133 8,000 $144,760
F-1000 Futures Fund Series VIII.......... Aug-92 575 175 $384,000
F-1000 Futures Fund Series IX............ Mar-93 468 103 $249,000
Smith Barney Global Markets Futures
Fund................................... Aug-93 115 108 $ 75,000
Smith Barney Diversified Futures Fund.... Jan-94 6,630 2,049 $781,000
F-1000 Futures Fund Michigan Series I.... May-94 23 110 $110,000
Smith Barney Mid-West Futures Fund II.... Sep-94 1,032 609 $ 97,000
F-1000 Futures Fund Michigan Series II... Jun-95 2 207 $207,000
Smith Barney Tidewater Futures Fund...... Jul-95 183 128 $ 52,000
Smith Barney Principal Plus Futures
Fund................................... Nov-95 1,404 376 $376,000
Smith Barney Diversified Futures Fund
II..................................... Jan-96 5,622 1,084 $ 87,000
SB/Michigan Futures Fund................. Jul-96 2 102 $ 52,000
Smith Barney Principal Plus Futures Fund
II..................................... Aug-96 1,254 203 $203,000
Smith Barney Newport Futures Fund........ Dec-96 424 240 $ 44,000
Smith Barney Great Lakes Futures Fund.... Jan-97 2 99 $ 51,000
Smith Barney Westport Futures Fund....... Aug-97 4,860 1,213 $405,000
Smith Barney Potomac Futures Fund........ Oct-97 53 33 $ 17,000
Smith Barney Telesis Futures Fund........ Feb-98 116 66 $ 48,000
Smith Barney AAA Futures Fund............ Mar-98 810 501 $501,000
</TABLE>
IT SHOULD NOT BE ASSUMED THAT PARTICIPANTS IN THE PARTNERSHIP WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
FUNDS. THE RESULTS SET FORTH IN THE FOLLOWING TABLES ARE NOT INDICATIVE OF, AND
HAVE NO BEARING ON, ANY RESULTS THAT MAY BE OBTAINED BY THE PARTNERSHIP NOR ARE
THE PAST RESULTS OF SUCH FUNDS A GUARANTEE OF THE FUTURE PERFORMANCE OF THE
PARTNERSHIP. THIS IS DUE IN LARGE PART TO THE FACT THAT THE RESULTS CONTAINED IN
THESE TABLES DERIVE TO AN EXTENT FROM THE UNCERTAIN NATURE AND FUNCTION OF
COMMODITIES MARKETS AS WELL AS THE DIVERGENT TRADING STRATEGIES, POLICIES AND
METHODS OF THE ADVISORS DIRECTING VARIOUS FUNDS.
30
<PAGE> 39
TABLE 2
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT INC.
FOR THE PERIOD JANUARY 1993 THROUGH MARCH 31, 1998 AND WHICH HAVE CEASED
TRADING OPERATIONS AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
LARGEST MONTHLY
NAV PERCENT DRAW-DOWN
INCEPTION AGGREGATE BEFORE -------------------
TYPE OF OF TERMINATION SUBSCRIPTION TERMINATION PERCENT
NAME OF POOL POOL TRADING DATE $(000) $(000) (%) DATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Venture Fund Nov-80 Feb-95 15,153 1,412 11.91 (Jan-94)
Matterhorn Commodity Partners Jun-81 Mar-93 15,153 1,989 3.68 (Jan-93)
Matterhorn Commodity Partners II Apr-84 Mar-93 10,653 2,453 3.68 (Jan-93)
Hutton Investors Futures Fund III A Apr-88 Dec-93 7,614 612 8.03 (Dec-93)
Ayco Futures Fund 1 May-88 Jul-94 5,114 161 29.35 (Apr-94)
- -------------------------------------------------------------------------------------------------------------------------
F-1000 Guarantee Futures Fund II 2 Jun-88 Aug-93 101,012 33,053 1.15 (Jan-93)
F-1000 Guarantee Futures Fund III 2 Aug-88 Aug-93 55,824 10,955 1.23 (May-93)
Parnel Futures Fund 1 Nov-88 Oct-94 2,885 74 19.43 (Feb-94)
F-1000 Guarantee Futures Fund IV 2 Dec-88 Feb-94 45,692 16,389 5.93 (Jan-94)
F-1000 Futures Fund VI 2 May-90 May-95 32,996 21,805 3.11 (Jul-94)
- -------------------------------------------------------------------------------------------------------------------------
Peregrine Futures Fund A Dec-91 Sep-95 9,767 432 16.21 (Aug-93)
Shearson Lehman Brothers
Erisa Futures Fund 1,A Jan-92 Jun-93 14,026 15,244 2.50 (Jun-93)
Signet Partners 1,A Jan-93 Feb-95 522 191 11.97 (Aug-93)
Smith Barney Offshore Futures Fund 3,A Aug-93 Aug-94 2,704 1,945 6.50 (Jan-94)
Monetary Venture Fund 1 Feb-87 Apr-96 2,368 164 12.37 (Apr-94)
- -------------------------------------------------------------------------------------------------------------------------
Shearson Lehman Futures 1000 Plus 2,A May-91 May-96 63,088 40,673 3.00 (Feb-96)
Shearson Hutton Performance
Partners A Jun-89 Dec-97 16,541 1,225 8.12 (Aug-97)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LARGEST PEAK-TO-VALLEY
DRAW-DOWN PERCENTAGE ANNUAL RATE OF RETURN
----------------------------- (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
PERCENT -----------------------------------------------
NAME OF POOL (%) TIME PERIOD 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commodity Venture Fund 39.53 (Jan-92 to Feb-95*) (2.16) (26.37) (8.44) - - -
Matterhorn Commodity Partners 3.68 (Jan-93 to Jan-93) 7.02 - - - - -
Matterhorn Commodity Partners II 3.68 (Jan-93 to Jan-93) 5.19 - - - - -
Hutton Investors Futures Fund III 8.31 (Jun-93 to Dec-93*) (5.56) - - - - -
Ayco Futures Fund 78.99 (Jul-89 to Apr-94*) (36.84) (45.77) - - - -
- -------------------------------------------------------------------------------------------------------------------------
F-1000 Guarantee Futures Fund II 1.72 (Mar-93 to May-93) 4.79 - - - - -
F-1000 Guarantee Futures Fund III 1.77 (Mar-93 to May-93) 4.15 - - - - -
Parnel Futures Fund 38.09 (Jan-94 to Apr-94*) 25.49 (28.79) - - - -
F-1000 Guarantee Futures Fund IV 7.22 (Jan-94 to Feb-94*) 5.81 (7.22) - - - -
F-1000 Futures Fund VI 8.58 (Jul-94 to Jan-95) 22.03 (2.43) 18.61 - - -
- -------------------------------------------------------------------------------------------------------------------------
Peregrine Futures Fund 32.42 (Jul-93 to Nov-93*) (20.56) 5.91 (3.05) - - -
Shearson Lehman Brothers
Erisa Futures Fund 3.47 (May-93 to Jun-93*) 12.68 - - - - -
Signet Partners 11.97 (Aug-93 to Aug-93) 29.21 53.32 (0.36) - - -
Smith Barney Offshore Futures Fund 6.50 (Jan-94 to Jan-94) 2.22 2.68 - - - -
Monetary Venture Fund 37.41 (Jan-92 to Jan-95*) (3.18) (27.47) 32.05 5.76 - -
- -------------------------------------------------------------------------------------------------------------------------
Shearson Lehman Futures 1000 Plus 11.16 (Aug-93 to Jan-95) 10.82 (6.41) 12.79 1.59 - -
Shearson Hutton Performance
Partners 24.12 (Aug-93 to Jan-95) 4.38 (10.59) 18.04 2.42 (10.l2) -
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
Notes follow Table 3
TYPE OF POOL LEGEND
- --------------
1-Privately Offered
2-Principal Protected
3-Offshore
4-Multi-Advisor
A-More than one trading advisor but not a multi-advisor pool as that term is
defined in Part 4 of the regulations of the CFTC.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
31
<PAGE> 40
TABLE 3
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT INC.
FOR THE PERIOD JANUARY 1993 THROUGH MARCH 31, 1998 AND FOR WHICH SMITH BARNEY
FUTURES MANAGEMENT INC. NO
LONGER ACTS AS COMMODITY POOL OPERATOR AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
LARGEST MONTHLY
NAV PERCENT DRAW-DOWN
INCEPTION AGGREGATE BEFORE -------------------
TYPE OF OF TRANSFER SUBSCRIPTIONS TRANSFER PERCENT
NAME OF POOL POOL TRADING DATE $(000) $(000) (%) DATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Trend Timing Fund Jan-80 May-95 16,625 1,275 14.67 (Feb-94)
Commodity Trend Timing Fund II Dec-82 Apr-95 34,428 1,412 14.48 (Feb-94)
Shearson Lehman Hutton Guarantee
Futures Fund I 2,3 Apr-89 Jul-93 10,202 1,562 2.76 (May-93)
Premier Futures Limited 3,A Jun-91 Jul-93 9,878 6,157 1.37 (Mar-93)
Lehman Brothers Japan Futures Fund 3,A Feb-91 Jul-93 53,007 72,267 0.93 (Mar-93)
------------------------------------------------------------------------------------------------------------------------
New Millennium Futures Fund Limited 3 Mar-91 Jul-93 10,366 1,210 3.10 (Jun-93)
Delafund 3 Jan-93 Jul-93 2,521 1,542 15.35 (May-93)
Harbourer Futures Fund 3 May-93 Dec-94 25,003 12,657 5.10 (Feb-94)
Greenbrier Futures Fund 1 Jul-92 Dec-96 24,678 26,716 10.23 (Aug-94)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LARGEST PEAK-TO-VALLEY
DRAW-DOWN PERCENTAGE ANNUAL RATE OF RETURN
------------------------------ (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
PERCENT ----------------------------------------------
NAME OF POOL (%) TIME PERIOD 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commodity Trend Timing Fund 54.35 (Aug-93 to Feb-95*) 17.23 (50.55) (5.08) - - -
Commodity Trend Timing Fund II 54.67 (Aug-93 to Feb-95*) 16.74 (50.43) (6.86) - - -
Shearson Lehman Hutton Guarantee
Futures Fund I 3.24 (Mar-93 to May-93) 11.10 - - - - -
Premier Futures Limited 1.37 (Mar-93 to Mar-93) 29.84 - - - - -
Lehman Brothers Japan Futures Fund 0.93 (Mar-93 to Mar-93) 14.46 - - - - -
------------------------------------------------------------------------------------------------------------------------
New Millennium Futures Fund Limited 26.94 (Apr-91 to Mar-93*) 9.08 - - - - -
Delafund 22.20 (May-93 to Jul-93*) (18.12) - - - - -
Harbourer Futures Fund 5.10 (Feb-94 to Feb-94) 42.95 39.20 - - - -
Greenbrier Futures Fund 15.48 (Aug-94 to Jun-95) 33.45 16.74 (1.09) 17.60 - -
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
Notes follow Table
TYPE OF POOL LEGEND
- --------------
1-Privately Offered
2-Principal Protected
3-Offshore
4-Multi-Advisor
A-More than one trading advisor but not a multi-advisor pool as that term is
defined in Part 4 of the regulations of the CFTC.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
32
<PAGE> 41
NOTES TO TABLES 1, 2 AND 3
POOLS OPERATED BY SMITH BARNEY FUTURES MANAGEMENT INC.
(a) "Draw-Down" is defined as losses experienced by a pool over a specified
period of time.
(b) "Largest Monthly Draw-Down" is the largest monthly loss experienced by the
pool in any calendar month expressed as a percentage of the total equity in
the pool and includes the month and year of such draw-down.
(c) "Largest Peak-to-Valley Draw-Down" is the greatest cumulative percentage
decline in month-end net asset value (regardless of whether it is
continuous) due to losses sustained by the pool during any period in which
the initial month-end net asset value of such draw-down is not equaled or
exceeded by a subsequent month-end net asset value. The months and year(s)
of such decline from the initial month-end net asset value to the lowest
month-end net asset value are indicated. In the case where the pool is in a
current draw-down, or was in a current draw-down at the termination or
transfer date, the month of the lowest net asset value of such draw-down is
disclosed followed by an asterisk (*).
For purposes of the Largest Peak-to-Valley Draw-Down calculation, any
draw-down which began prior to the beginning of the five most recent
calendar year period is deemed to have occurred during such five calendar
year period.
(d) "Annual (Year to Date) Rate of Return" is calculated by compounding the
Monthly ROR (as described below) over the months in a given year, i.e.,
each Monthly ROR, in hundredths, is added to one (1) and the result is
multiplied by the subsequent Monthly ROR similarly expressed. One is then
subtracted from the product and the result is multiplied by one hundred
(100).
Monthly rate of return ("Monthly ROR") is calculated by dividing each
month's net performance by the corresponding beginning net asset value
adjusted for time-weighted additions or time-weighted withdrawals.
33
<PAGE> 42
THE ADVISOR
The General Partner has selected JWH as the Partnership's sole trading
advisor. The Advisor manages the Partnership's assets in accordance with the
trading policies set forth above. The General Partner, consistent with its
fiduciary duties to the limited partners, may select additional or replacement
advisors at any time in its sole discretion, however, the General Partner has no
present intention of selecting additional advisors or replacing JWH. In
selecting the Advisor for the Partnership, the General Partner considered past
performance, trading style, volatility of markets traded and fee requirements.
The Advisor has 16 years of trading performance.
Neither the Advisor nor any of its principals currently own any Units,
although they are not precluded from purchasing Units.
JWH utilizes its Original Investment Program, Financial and Metals
Portfolio, Global Financial Portfolio and Global Diversified Portfolio in
managing the Partnership's assets. As of March 31, 1998, 36%, 24%, 26% and 14%,
respectively, of the Partnership's assets were allocated to each Program. The
General Partner may alter the percentages allocated to each program and add or
delete programs to and from the total mix.
The following descriptions include background information, information
concerning the Advisor's trading strategy and the performance record for the
Advisor. Investors should note that the summaries of trading strategies were
prepared by the Advisor.
JOHN W. HENRY & COMPANY, INC.
BACKGROUND
John W. Henry & Company, Inc. (JWH(R)) is a nontraditional United
States-based global investment management firm. JWH is an established leader in
the managed futures industry and as of April 30, 1998 managed approximately $2.1
billion in client assets invested in financial instruments outside the
"traditional" realm of stocks and bonds. JWH's asset management services utilize
global foreign exchange, financial futures and commodities markets. Assets are
managed by JWH for leading money center banks, brokerage firms, retirement
plans, insurance companies, multinational corporations, private banks, and
family offices spanning the Americas, Europe and Asia. Funds for which JWH acts
as manager or co-manager regularly have appeared on industry lists of
top-performing futures funds.
John W. Henry & Company began managing assets in 1981 as a sole
proprietorship, and was later incorporated in the state of California as John W.
Henry & Co., Inc. to conduct business as a commodity trading advisor. JWH
reincorporated in the State of Florida in 1997. The sole shareholder of JWH is
the John W. Henry Trust dated July 27, 1990. The trustee and sole beneficiary of
the Trust is John W. Henry. The firm is registered as a commodity trading
advisor as of November 1980 and as a commodity pool operator as of July 1989
with the Commodity Futures Trading Commission and is a member of the National
Futures Association. "JWH" is the registered trademark of John W. Henry &
Company, Inc.
PRINCIPALS
Mr. John W. Henry, age 48, is chairman of the JWH Board of Directors and is
trustee and sole beneficiary of the John W. Henry Trust dated July 27, 1990. Mr.
Henry is also a member of the Investment Policy Committee of JWH. He currently
concentrates his activities at JWH on portfolio management, business issues and
frequent dialogue with trading supervisors. Mr. Henry is the exclusive owner of
certain trading systems licensed to Elysian Licensing Corporation, a corporation
wholly owned by Mr. Henry, and sublicensed by Elysian Licensing Corporation to
JWH and utilized by JWH in managing client accounts.
Mr. Henry has served on the Board of Directors of the National Association
of Futures Trading Advisors and the Managed Futures Trade Association, and has
served on the Nominating Committee of the National Futures Association. Mr.
Henry currently serves on the Board of Directors of the FIA and is chairman of
the FIA Task Force on Derivatives for Investment. He also currently serves on a
panel created by the Chicago Mercantile Exchange and the Chicago Board of Trade
to study cooperative efforts related to electronic trading, common clearing, and
the issues regarding a potential merger. In 1989, Mr. Henry established
residency in Florida and since that time has performed services from that
location as well as at the offices of
34
<PAGE> 43
JWH in Westport, Connecticut. Mr. Henry is a principal of Westport Capital
Management Corporation, Global Capital Management Limited, JWH Investment
Management, Inc., JWH Asset Management, Inc., and JWH Financial Products, Inc.,
all of which are affiliates of JWH. Since the beginning of 1987, Mr. Henry has
devoted, and will continue to devote, considerable time to business activities
unrelated to JWH and its affiliates.
Mr. Mark H. Mitchell, age 48, is vice chairman, counsel to the firm and a
member of the JWH Board of Directors. He is also vice chairman and a director of
JWH Asset Management, Inc., and JWH Financial Products, Inc. Prior to his
employment at JWH in January 1994, Mr. Mitchell was a partner of Chapman and
Cutler, a Chicago law firm, where he headed its futures law practice since
August 1983. From August 1980 to March 1991, he served as General Counsel of the
National Association of Futures Trading Advisors and, from March 1991 to
December 1993, he served as General Counsel of the Managed Futures Association.
Mr. Mitchell is currently a member of the Commodity Pool Operator/Commodity
Trading Advisor Advisory Committee and the Special Committee for the Review of a
Multi-tiered Regulatory Approach to NFA rules, both of the National Futures
Association. In addition, he has served as a member of the Government Relations
Committee of the Managed Futures Association and of the Executive Committee of
the Law and Compliance Division of the Futures Industry Association. In 1985, he
received the Richard P. Donchian Award for Outstanding Contributions to the
Field of Commodity Money Management. He has been editor of Futures International
Law Letter and of its predecessor publication, Commodities Law Letter. He
received an A.B. with honors from Dartmouth College and a J.D. from the
University of California at Los Angeles, where he was named to the Order of the
Coif, the national legal honor society.
Mr. Mark S. Rzepczynski, Ph.D., age 41, is the director of research and
trading at JWH. Mr. Rzepczynski will be a principal of JWH as soon as his CFTC
registration is granted. He is responsible for overseeing research and trading
functions at the firm. Prior to joining JWH, Mr. Rzepczynski's last management
responsibility was as vice president and director of taxable credit and
quantitative research in the fixed income division of Fidelity Management and
Research. While at Fidelity from May 1995 to April 1998, he oversaw credit and
quantitative research recommendations for all Fidelity taxable fixed income
funds. From April 1993 to April 1995, Mr. Rzepczynski was a portfolio manager
and director of research for CSI Asset Management, Inc., a fixed-income money
management subsidiary of Prudential Insurance. Mr. Rzepczynski has a B.A. (Cum
Laude) Honors in Economics from Loyola University of Chicago, and an A.M. and
Ph.D. in Economics from Brown University.
Ms. Elizabeth A. M. Kenton, age 32, is the chief administrative officer, a
senior vice president and the director of compliance of JWH. Ms. Kenton is also
a senior vice president of JWH Investment Management, Inc., director of Westport
Capital Management Corporation, the vice president of JWH Asset Management, Inc.
and JWH Financial Products, Inc. and a director of Global Capital Management
Limited. Since joining JWH in March 1989, Ms. Kenton has held positions of
increasing responsibility in Research and Development, Administration and
Regulatory Compliance. Prior to her employment at JWH, Ms. Kenton was Associate
Manager of Finance and Trading Operations at Krieger Investments, a currency and
commodity trading firm. From July 1987 to September 1988, Ms. Kenton worked for
Bankers Trust Company as a Product Specialist for foreign exchange and Treasury
options trading. She received a B.S. in Finance from Ithaca College.
Mr. David M. Kozak, age 50, is general counsel, a vice president and
secretary of JWH. He is also secretary of JWH Investment Management, Inc., JWH
Asset Management, Inc., and JWH Financial Products, Inc., and a director and
secretary of Westport Capital Management Corporation. Prior to joining JWH in
September 1995, Mr. Kozak was employed at the law firm of Chapman and Cutler,
where he was an associate from September 1983 and a partner from 1989. Mr. Kozak
has concentrated in commodity futures law since 1981, with emphasis in the area
of commodity money management. Mr. Kozak is currently a director of the MFA,
Chairman of the subcommittee on CTA and CPO issues of the Committee on Futures
Regulation of the Association of the Bar of the City of New York, a member of
The NFA Special Committee on CPO/CTA Disclosure Issues, the Government Relations
Committee of the Managed Futures Association and the Visiting Committee of the
University of Chicago Library. He received a B.A. from Lake Forest College, an
M.A. from The University of Chicago, and a J.D. from Loyola University of
Chicago.
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Mr. Kevin S. Koshi, age 34, is an executive vice president and a member of
the Investment Policy Committee of JWH. He is responsible for the implementation
and oversight of JWH's proprietary strategies and investments. Mr. Koshi joined
JWH in August 1988 as a professional in the Finance Department, and since 1990
has held positions of increasing responsibility in the Trading Department. He
received a B.S. in Finance from California State University at Long Beach.
Mr. Matthew J. Driscoll, age 31, is chief trader, vice president and a
member of the Investment Policy Committee of JWH. He is responsible for the
supervision and administration of all aspects of order execution strategies and
implementation of trading policies and procedures. Mr. Driscoll joined JWH in
March 1991 as a member of its trading department. Since joining the firm he has
held positions of increasing responsibility as they relate to the department and
implementation of JWH's trading strategies and procedures. In 1993, Mr. Driscoll
was promoted to manager of JWH's overseas trading desk. He has played a major
role in the development of JWH's 24-hour trading operation. Mr. Driscoll
attended Pace University.
Mr. Christopher E. Deakins, age 38, is director of investor services and a
vice president of JWH. He is responsible for general business development and
oversees the investor services function. Prior to joining JWH in August 1995, he
was a vice president, national sales, and a member of the Management Team for
RXR Capital Management, Inc. His responsibilities consisted of business
development, institutional sales, and broker dealer support. Prior to joining
RXR in August 1986, he was engaged as an account executive for Prudential-Bache
Securities starting in February 1985. Prior to that, he was an account executive
for Merrill Lynch. He received a B.A. in Economics from Hartwick College.
Mr. Edwin B. Twist, age 47, is a director of JWH and has held that position
since August 1993. He is also a director of JWH Investment Management, Inc., JWH
Asset Management, Inc. and JWH Financial Products, Inc. Mr. Twist joined JWH as
Internal Projects Manager in September 1991. Mr. Twist's responsibilities
include assistance in the day-to-day administration and internal projects of
JWH's Florida office. Mr. Twist was Secretary and Treasurer of J.W. Henry
Enterprises Corp., a Florida corporation engaged in administrative and financial
consulting services, for which he performed financial, consulting and
administrative services from January 1991 to August 1991.
Ms. Nancy O. Fox, C.P.A., age 32, is a vice president and the director of
investment support of JWH. She is responsible for the day-to-day activities of
the Investment Support Department, including all aspects of operations and
performance reporting. Prior to joining JWH in January 1992, Ms. Fox was a
senior accountant at Deloitte & Touche, where she served commodities and
securities industry clients and held positions of increasing responsibility
since July 1987. Ms. Fox is a member of the AICPA and the New Jersey Society of
C.P.A.s. She received a B.S. in Accounting and Finance from Fairfield University
and an M.B.A. from the University of Connecticut.
Mr. Julius A. Staniewicz, age 39, is the senior strategist in JWH's Product
Development Department and a member of the Investment Policy Committee of JWH.
He is also president of JWH Asset Management, Inc. and JWH Financial Products,
Inc. and a vice president of Westport Capital Management Corporation. Prior to
joining JWH in March of 1992, Mr. Staniewicz was employed with Shearson Lehman
Brothers as a financial consultant since April 1991. Prior to that, beginning in
1990, Mr. Staniewicz was a vice president of Phoenix Asset Management, a
commodity pool operator and introducing broker, where he helped develop futures
funds for syndication and institutional investors. From 1986 to 1989, Mr.
Staniewicz worked in the managed futures department at Prudential-Bache
Securities, Inc., lastly as an assistant vice president and co-director of
managed futures. In that capacity, he oversaw all aspects of forming and
offering futures funds, including the selection and monitoring of commodity
trading advisors. Mr. Staniewicz received a B.A. in Economics from Cornell
University.
Ms. Eilene Nicoll, age 44, is the vice president of trading administration
and a member of the Investment Policy Committee of JWH. Prior to joining JWH in
July 1997, Ms. Nicoll was a vice president beginning in January 1997 at
Commercial Materials LLC, a newly organized corporation which had not yet begun
operations. She was a vice president and director at West Course Capital, Inc.,
a CTA, from January 1994 until it dissolved in December 1996. At West Course
Capital, Inc., Ms. Nicoll was responsible for operations and administration.
Prior to joining West Course Capital, Inc., she was a vice president at Refco,
Inc. from May 1991 to December 1993. While at Refco, she was also a principal of
Nikkhah & Nicoll Asset
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Management Inc., a CPO. Ms. Nicoll was at Shearson Lehman Brothers from January
1987 to December 1990 as vice president-futures, and from January to May 1991 at
Moore Capital Management, Inc. where she was involved in all aspects of the
commodity trading advisor business, including administration, marketing and
allocation of proprietary capital. Ms. Nicoll received her B.A. in psychology
from Brooklyn College.
Mr. Paul D. Braica, CPA, age 34, is the managing director of administration
of JWH. He is also treasurer of JWH Financial Products Inc. Since joining JWH in
April 1996, Mr. Braica has held positions of increasing responsibility in
internal audit, risk management and administration. Prior to joining JWH, he was
employed with Ernst & Young LLP as an Auditor from December 1994 to March 1996
and as a Tax Manager from July 1986 to September 1993. From October 1993 to
November 1994 he was the director of fund accounting at Organizer Systems, Inc.
Mr. Braica received his B.A. in economics from Gettysburg College, his M.B.A.
from Rutgers University and his M.S. in taxation from Seton Hall University.
Mr. Kevin J. Treacy, FCA, age 37, is a vice president of JWH. He is also
the treasurer of JWH Asset Management Inc. Prior to joining JWH in September
1997, Mr. Treacy was the chief financial officer of Kenmar Advisory Corp.
("Kenmar"), a CPO, from August 1993 to August 1997. While at Kenmar, Mr. Treacy
was also a principal of multiple Kenmar affiliates which were registered as CTAs
and CPOs and an Introducing Broker. At Kenmar he was responsible for corporate
finance and administration for the firm and its affiliates. Beginning in
September 1986, Mr. Treacy worked for E.S. Jacobs, a corporation specializing in
leveraged buyouts and venture capital investments, where he held positions of
increasing responsibility, lastly as the firm's chief financial officer until
July 1993. He received his Bachelor of Commerce and Masters in Accounting from
University College Dublin.
Ms. Florence Y. Sofer, age 32, is director of marketing of JWH. She is
responsible for the development and implementation of strategic marketing and
communications programs. Ms. Sofer joined JWH as a marketing manager in June
1997 from GAM Funds, Inc. where she was a marketing manager from June 1994 to
May 1997. From October 1993 to June 1994, Ms. Sofer relocated from Washington,
D.C. to New York, New York. Prior to that she was a senior marketing analyst
with MCI Telecommunications, Inc. from May 1992 to October 1993. She received
her B.A. in Economics and International Relations from The American University
and an M.B.A. with an emphasis in marketing from George Washington University.
Following are the additional principals of JWH:
Mr. Andrew D. Willard is the director of technology of JWH.
Ms. Lynn Radlauer Lubell is the vice president of the Office of the
Chairman of JWH. Ms. Lubell will be a principal of JWH as soon as her CFTC
registration is granted.
Each of the following persons is a vice president of JWH: Mr. William G.
Kelley and Mr. Robert B. Lendrim.
Each of the following persons is an assistant vice president of JWH: Ms.
Wendy Goodyear, Mr. Mark Sprankel, Mr. Kenneth S. Webster, CPA, and Mr. Michael
P. Flannery.
THE INVESTMENT POLICY COMMITTEE
The Investment Policy Committee (the "IPC"), which is composed of key
professionals from throughout JWH, is one vehicle for decision-making at JWH
about the content and application of JWH investment programs. Composition of the
IPC, and participation in its discussions and decisions by non-members, may vary
over time. The IPC is an interdepartmental advisory body which meets
periodically to discuss issues relating to the JWH trading programs and their
application to markets, including research on markets and strategies in relation
to the proprietary trading models employed by JWH. JWH's proprietary research
group may determine new markets which should be traded in given portfolios, or
determine markets which should be removed from given portfolios. Non-proprietary
recommendations from research are then presented to and discussed by the IPC,
which may recommend them to the chairman for approval. Proprietary research
findings are reviewed directly by the chairman before implementation. All
recommendations of the IPC are subject to final approval by the chairman. The
IPC does not make particular trading decisions. The trading department initiates
and liquidates positions and manages JWH portfolios in accordance with the
firm's proprietary trading methodology, which is not overruled unless the chief
trader or director of trading
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administration determines that doing so is in the best interest of clients. No
trade indications are overruled without the express approval of the chairman.
The chairman may also notify the trading department at any time of special
situations which he deems may require a modification in applying the
methodology.
LEGAL AND ETHICAL CONCERNS
There have been no administrative, civil or criminal actions pending, on
appeal or concluded against the Advisor or any of its individual principals
except as noted below.
In September 1996, JWH was named as co-defendant in class action lawsuits
brought in the California Superior Court, Los Angeles County and in the New York
Supreme Court, New York County. Additional complaints containing the same
allegations as the earlier California complaints were filed in California in
March 1997. The California complaints were consolidated under the caption "In re
Dean Witter Managed Futures Litigation" in May 1997. The New York complaints
were consolidated under the caption "In re Dean Witter Managed Futures Limited
Partnerships Litigation" in July 1997. The actions, which seek unspecified
damages, purport to be brought on behalf of investors in certain Dean Witter,
Discover & Co. commodity pools, some of which are advised by JWH, and are
primarily directed at Dean Witter's alleged fraudulent selling practices in
connection with the marketing of those pools. JWH is essentially alleged to have
aided and abetted or directly participated with Dean Witter in those practices.
JWH believes the allegations against it are without merit; it intends to contest
these allegations vigorously and is convinced that it will be shown to have
acted properly and in the best interest of investors.
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same as or opposite to client positions due to testing a
new quantitative model or program, a neutral allocation system, and/or trading
pursuant to individual discretionary methods and on occasion such orders may
receive better fills than client accounts. Records for these accounts will not
be made available to clients. Employees and principals of JWH (other than Mr.
Henry) are not permitted to trade on a discretionary basis in futures, options
on futures or forward contracts. However, such principals and employees may
invest in investment vehicles which trade futures, options on futures, or
forward contracts, when an independent trader manages trading in such vehicles,
or through the JWH Employee Fund, L.P., for which JWH is the trading advisor.
The records of these accounts also will not be made available to clients.
JWH TRADING POLICIES
The JWH Investment Process
Regardless of recent performance in any one market, or widely held opinions
on future market direction, JWH maintains a disciplined investment process. The
consistent application of JWH's investment techniques facilitates the ability to
participate in rising or falling markets without bias. The first step in the JWH
investment process is the identification of sustained price movements -- or
trends -- in a given market. While there are many ways to identify trends, JWH
uses mathematical models that attempt to distinguish real trends from interim
volatility. It also presumes that trends often exceed in duration the
expectation of the general marketplace.
JWH believes that, because trends often last longer than most market
participants expect, significant returns can be generated from positions held
over a long period of time. As such, JWH attempts to pare losing positions
relatively quickly while allowing profitable positions to mature. Most losing
positions are closed within a few days or weeks, while others -- those where a
profitable trend continues -- are retained. Positions held for two to four
months are not unusual, and positions have been held for more than one year.
Historically, only thirty to forty percent of all trades made pursuant to the
investment methods have been profitable. Large profits on a few trades in
positions that typically exist for several months have produced favorable
results overall. Generally, most losing positions are liquidated within weeks.
The greatest cumulative percentage decline in daily net asset value JWH has
experienced in any single program on a composite basis was nearly sixty percent.
Investors should understand that similar or greater drawdowns are possible in
the future.
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To reduce exposure to volatility in any particular market, most JWH
programs participate in several markets at one time. In total, JWH participates
in up to 60 markets, encompassing interest rates, foreign exchange, and
commodities such as agricultural and energy products and precious metals. Most
investment programs maintain a consistent portfolio composition to allow
opportunities in as many major market trends as possible.
Throughout the investment process, risk controls are maintained in an
attempt to reduce the possibility of an extraordinary loss in any one market.
Proprietary research is conducted on an ongoing basis to refine the JWH
investment strategies and attempt to reduce volatility while maintaining the
potential for profitable performance.
JWH at its sole discretion may override computer-generated signals and may
at times use discretion in the application of its quantitative models which may
affect performance positively or negatively. This could occur, for example, when
JWH determines that markets are illiquid or erratic, such as may occur during
holiday seasons. Subjective aspects of JWH's quantitative models also include
the determination of leverage, commencement of trading an account, contracts and
contract months, and effective trade execution.
Program Modifications
In an effort to maintain and improve performance, JWH has conducted, and
continues to conduct, extensive research. While the basic philosophy underlying
the firm's investment approach has remained intact throughout its history, the
potential benefits of employing more than one investment methodology
alternatively, or in varying combinations, is a subject of continual testing,
review and evaluation. Extensive research and analysis may suggest substitution
of alternative investment methodologies with respect to particular contracts in
light of relative differences in historical trading performance achieved through
testing different methodologies. In addition, risk management research and
analysis may suggest modifications regarding the relative weighting among
various contracts, the addition or deletion of particular contracts for a
program or a change in the degree of leverage employed.
As capital in each JWH program increases, additional emphasis and weighting
may be placed on certain markets which have historically demonstrated the
greatest liquidity and profitability. Furthermore, the weighting of capital
committed to various markets in the investment programs is dynamic, and JWH may
vary the weighting at its discretion as market conditions, liquidity, position
limit considerations and other factors warrant. Investors generally will not be
informed of changes.
Leverage
Leverage adjustments have been and continue to be an integral part of JWH's
trading methods. At its discretion, JWH may adjust leverage in certain markets
or entire programs. Leverage adjustments may be made at certain times for some
programs but not for others. Factors which may affect the decision to adjust
leverage include: ongoing research, program volatility, current market
volatility, risk exposure, and subjective judgement and evaluation of these and
other general market conditions. Such decisions to change leverage may
positively or negatively affect performance, and will alter risk exposure for an
account. Leverage adjustments may lead to greater profits or losses, more
frequent and larger margin calls, and greater brokerage expense. No assurance is
given that such leverage adjustments will be to the financial advantage of JWH
clients. JWH reserves the right, in its sole discretion, to adjust its leverage
policy without notification to investors.
Addition, Redemption and Reallocation of Capital for Fund Accounts
JWH has developed the following procedures for trading fund accounts, such
as the Partnership, that provide for the addition, redemption and/or
reallocation of capital. Investors who purchase or redeem units in a fund are
most frequently permitted to do so at a price equal to the net asset value per
unit ("NAV") on the close of business on the last business day of the month or
quarter. In addition, funds often may reallocate capital among advisors at the
close of business on the last business day of the month. In order to provide
market exposure commensurate with equity in the account on the date of these
transactions, JWH's general practice is to adjust positions as near as possible
to the close of business on the last trading date of the month. The intention is
to provide for additions, redemptions and reallocations at an NAV that will be
the same for each of these transactions and to eliminate possible variation in
the NAVs that could occur as a result of inter-
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day price changes, if, for example, additions were calculated on the first day
of the subsequent month. Therefore JWH may, in its sole discretion, adjust its
investment of the assets associated with the addition, redemption and
reallocation of capital as near as possible to the close of business on the last
business day of the month to reflect the amount then available for trading.
Based on JWH's determination of liquidity or other market conditions, JWH may
decide to commence trading earlier in the day on, or before, the last business
day of the month, or, at its sole discretion, delay adjustments to trading for
an account to a date or time after the close of business on the last day of the
month. No assurance is given that JWH will be able to achieve the objectives
described above in connection with funding level changes. The use of discretion
by JWH in the application of this procedure may affect performance positively or
negatively.
Physical and Cash Commodities
JWH may, from time to time, trade in physical or cash commodities for
immediate or deferred delivery, including specifically gold bullion, as well as
futures, options and forward contracts when it believes that cash markets offer
comparable or superior market liquidity or ability to execute transactions at a
single price. Cash transactions, as opposed to futures transactions, relate to
the purchase and sale of specific physical commodities. Whereas futures
contracts are generally uniform except for price and delivery time, cash
contracts may differ from each other with respect to such terms as quantity,
grade, mode of shipment, terms of payment, penalties, risk of loss and the like.
There are no limitations on daily price movements of cash or forward contracts
transacted through banks, brokerage firms or government dealers, and those
entities are not required to continue to make markets in any commodity. In
addition, the CFTC does not comprehensively regulate cash transactions which are
subject to the risk of these entities' failure or inability or refusal to
perform with respect to such contracts.
THE ORIGINAL INVESTMENT PROGRAM (ALLOCATION AS OF MARCH 31, 1998: 36%)
The Original Investment Program was the first program offered by JWH and
began trading client assets in 1982. The program is a broadly diversified
portfolio that offers access to a spectrum of worldwide financial and
nonfinancial markets using a disciplined trend identification investment
approach. This program has experienced an improved risk/reward profile since
1992, when the sector allocations were altered and enhanced risk management
procedures were implemented. The Original Investment Program utilizes a long
term, quantitative approach which always maintains a position -- long or
short -- in every market traded by the Program.
THE FINANCIAL AND METALS PORTFOLIO (ALLOCATION AS OF MARCH 31, 1998: 24%)
The Financial and Metals Portfolio is JWH's largest and most widely
recognized program. The program began trading client capital in 1984 and as of
April 30, 1998 has over $1 billion in investor assets. The program attempts to
deliver attractive risk adjusted returns in the global financial and precious
metals markets. Currency positions may be held both as outrights, where trading
positions are taken in foreign currencies versus the U.S. dollar, and
crossrates, where foreign currencies are traded against each other in the
interbank market and occasionally on futures exchanges.
The Financial and Metals Portfolio is designed to identify and capitalize
on intermediate and long term price movements in these markets using a
systematic approach to ensure disciplined investment decisions. If a trend is
identified, the program attempts to take a position; in nontrending market
environments, the program may remain neutral or liquidate open positions.
THE GLOBAL FINANCIAL PORTFOLIO (ALLOCATION AS OF MARCH 31, 1998: 26%)
The Global Financial Portfolio began trading client capital in 1994 and
offers access to a small group of energy and financial markets, including global
currencies, interest rates and stock indices. The program is designed to
identify and capitalize on long-term price movements using a disciplined trend
identification approach. This program always maintains a position -- long or
short -- in every market traded by the Portfolio. In 1997 the sector allocation
for this program was altered to include precious metals.
THE GLOBAL DIVERSIFIED PORTFOLIO (ALLOCATION AS OF MARCH 31, 1998: 14%)
The Global Diversified Portfolio began trading client assets in 1988. This
program is one of JWH's most diversified programs. The program is designed to
identify and capitalize on long-term price movements using a
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systematic approach. This program does not maintain continuous positions and may
take a neutral stance (i.e., no position) if a long-term trend fails to develop
or during periods of nontrending markets.
SECTORS TRADED
On a combined basis, these four Portfolios provide access to a wide variety
of market sectors around the world. Some of the sectors traded are: Global
Interest Rates, Foreign Exchange, Global Stock Indices, Energy, Precious and
Base Metals and Agriculture.
OTHER JWH PROGRAMS
In addition to the programs to be utilized on behalf of the Partnership,
JWH currently operates seven different investment programs for U.S. and foreign
investors, none of which are currently utilized by JWH for the Partnership. Each
program is operated separately and independently.
The World Financial Perspective began trading client capital in 1987 and
seeks to capitalize on market opportunities by holding positions from multiple
currency perspectives, including the British pound, German mark, Japanese yen,
Swiss franc, and the U.S. dollar. This program always maintains a
position -- long or short -- in every market it trades. JWH began trading client
capital in the International Foreign Exchange Program in 1986. This program is
designed to identify and capitalize on intermediate and long-term price
movements in a broad range of major and minor currencies in the interbank
market. Positions are taken as outrights against the U.S. dollar, or cross
rates, which eliminates dependence on the dollar. The G-7 Currency Portfolio,
which began trading client capital in 1991, invests in the highly liquid
currencies of the Group of Seven industrialized nations and Switzerland. Not all
of these currencies are traded at all times. Because this program excludes minor
currencies, which may be less liquid, and maintains a lower degree of leverage,
the performance characteristics are different from those of the International
Foreign Exchange Program. Using a more conservative approach compared to the
leverage used in the other JWH programs, the International Currency and Bond
Portfolio, which began trading client capital in 1993, targets the long end of
interest rate and currency futures of major industrialized nations. Foreign
exchange positions are held both as outrights -- trading positions taken in
foreign currencies versus the U.S. dollar -- and cross rates -- trading foreign
currencies against each other. The Worldwide Bond Program, which began trading
client capital in 1996, invests through financial futures in the long-term
portion of global interest rate markets, including the U.S. 30-year bond, U.S.
10-year note, British long gilt, the French, German and Italian bond and
Australian 10-year bond. This program is not limited to investments that have
the potential to profit in a stable or declining interest rate environment;
rather, the program attempts to capitalize on dominant trends, whether rising or
falling, in bond markets around the world. The Dollar Program began trading
client capital in 1996 and specializes in the foreign exchange sector using
outright trading, an approach that has significantly contributed to the success
of other JWH programs. The Dollar Program trades four of the world's major
currencies -- Japanese yen, German mark, Swiss franc, and British
pound -- versus the U.S. dollar, and does not participate in cross rates. The
JWH GlobalAnalytics(TM) Family of Programs, which began trading client capital
in June 1997, is an integrated investment system consisting of a family of
programs, collectively known as JWH GlobalAnalytics(TM). The family of programs
combines different trend identification methodologies into a single, broadly
diversified investment portfolio. JWH GlobalAnalytics(TM) trades a wide range of
financial and commodity markets. Certain energy and agricultural contracts not
previously available through other JWH investment programs are also included.
InterRate(TM) began trading client capital in 1988 and closed in 1996. This
program was designed to enhance returns available in short-term instruments
investing in U.S. treasury bills to provide both secure income and collateral
for a portfolio of interbank forward and exchange-traded futures contracts. The
Yen Financial Portfolio, which began trading client capital in 1992 and closed
in 1996, offered investors access to a select group of Japanese financial
futures markets which historically have presented some of the most favorable
profit opportunities for JWH. The Delevered Yen Financial and Metals Profile,
which began trading in 1995 and closed in 1996, was opened at the request of a
client. This program was traded at approximately one half of the leverage of the
Financial and Metals Portfolio and was traded from the perspective of the
Japanese yen.
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PAST PERFORMANCE
Table A-1 sets forth the composite performance capsule results of all
accounts traded according to the Original Investment Program of JWH for the
period January 1993 through March 1998.
Table A-2 sets forth the composite performance capsule results of all
accounts traded according to the Financial and Metals Portfolio for the period
January 1993 through March 1998.
Table A-3 sets forth the composite performance capsule results of all
accounts traded according to the Global Financial Portfolio for the period June
1994 through March 1998.
Table A-4 sets forth the composite performance capsule results of all
accounts traded according to the Global Diversified Portfolio of JWH for the
period January 1993 through March 1998.
Table A-5 reflects the composite capsule performance results of all other
trading programs directed by JWH during the periods indicated by the table.
Table A-6 reflects the composite capsule performance results of all trading
programs directed by JWH Investments, Inc. ("JWHII"), an affiliate of JWH
registered as a commodity trading advisor and an investment advisor which has
ceased operations, during the periods indicated by the table.
Tables B-1, B-2, B-3 and B-4 were prepared by the General Partner and set
forth the results of each program or portfolio that the Advisor will use for the
Partnership's account for the periods indicated in the tables, adjusted for the
brokerage, management and incentive fees and other expenses to be paid by the
Partnership and interest to be earned by the Partnership. Partnership interest
was estimated using historical 30-day Treasury bill rates during the time
periods presented on Tables B-1, B-2, B-3 and B-4. Such rates may be higher than
current 30-day Treasury bill rates that will be used to calculate Partnership
interest income. The application of historical rates may compare more closely to
the Advisor's interest income which was most likely earned at the then
prevailing interest rates of a particular time period. Performance for the
period August 1, 1997 (inception of Partnership trading) through March 31, 1998,
represents the actual performance of the respective portfolio as traded for the
Partnership.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
42
<PAGE> 51
TABLE A-1
JOHN W. HENRY & COMPANY, INC.
ORIGINAL INVESTMENT PROGRAM
JANUARY 1, 1993 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Percentage monthly rate of return
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January................................... (1.3) 3.4 5.3 2.2 (2.9) (0.8)
February.................................. 2.2 0.2 (7.4) 17.9 1.5 9.5
March..................................... (4.1) 1.6 1.0 16.6 4.4 (3.5)
April..................................... - 0.5 3.8 9.1 0.2 10.4
May....................................... - 1.1 (6.5) (4.4) 5.5 0.1
June...................................... - (4.4) 8.0 1.7 6.6 (4.1)
July...................................... - 2.0 (4.4) (0.0) (7.1) 14.9
August.................................... - (0.8) (2.3) (3.9) (4.7) (3.6)
September................................. - (6.0) 8.2 (3.9) (2.8) 0.6
October................................... - 3.6 10.4 3.3 (14.1) (1.5)
November.................................. - (0.0) 5.2 1.1 10.2 3.5
December.................................. - 4.9 1.1 6.8 (0.0) 11.4
Annual (or Period) Rate of Return......... (3.2)% 5.7% 22.6% 53.2% (5.7)% 40.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/93-3/31/98) 19.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Inception of Client Account Trading by CTA: October 1982
Inception of Client Account Trading in Program: October 1982
Number of Open Accounts as of March 31, 1998: 23
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $2,226,449,635 (3/98)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $2,231,477,271 (3/98)
Aggregate Assets (Excluding "Notional" Equity) in
Program: $363,749,579 (3/98)
Aggregate Assets (Including "Notional" Equity) in
Program: $368,777,215 (3/98)
Largest Monthly Draw-Down: 16.3% (10/94)
Largest Peak-to-Valley Draw-Down: 31.0% (7/94-10/94)
</TABLE>
- --------------------
Notes follow Table A-6
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
43
<PAGE> 52
TABLE A-2
JOHN W. HENRY & COMPANY, INC.
FINANCIAL AND METALS PORTFOLIO
JANUARY 1, 1993 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Percentage monthly rate of return
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January.......................... (3.5) 4.4 6.0 (3.8) (2.9) 3.3
February......................... (4.0) (2.2) (5.5) 15.7 (0.6) 13.9
March............................ (1.6) (0.7) 0.7 15.3 7.2 (0.3)
April............................ - (2.9) 2.3 6.1 0.9 9.3
May.............................. - (8.3) (1.7) 1.2 1.3 3.3
June............................. - 4.1 2.2 (1.7) 4.5 0.1
July............................. - 15.8 (1.1) (2.3) (6.1) 9.7
August........................... - (3.7) (0.8) 2.1 (4.1) (0.8)
September........................ - 2.2 3.2 (2.1) 1.5 0.2
October.......................... - 2.0 14.3 0.3 1.7 (1.1)
November......................... - 2.5 10.9 2.6 (4.4) (0.3)
December......................... - 2.9 (2.6) 1.7 (3.5) 2.9
Annual (or Period) Rate of
Return.......................... (8.8)% 15.2% 29.7% 38.5% (5.3)% 46.8%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return (1/1/93-3/31/98) 20.2%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Inception of Client Account Trading by CTA: October 1982
Inception of Client Account Trading in Program: October 1984
Number of Open Accounts as of March 31, 1998: 35
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $2,226,449,635 (3/98)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $2,231,477,271 (3/98)
Aggregate Assets in Program: $1,205,712,396 (3/98)
Largest Monthly Draw-Down: 9.8% (7/94)
Largest Peak-to-Valley Draw-Down: 30.5% (6/94-1/95)
</TABLE>
- --------------------
Notes follow Table A-6
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
44
<PAGE> 53
TABLE A-3
JOHN W. HENRY & COMPANY, INC.
GLOBAL FINANCIAL PORTFOLIO
JUNE 1994 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Percentage monthly rate of return
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January.................................. (1.5) 2.7 4.8 (4.8) -
February................................. (0.1) (0.6) (4.2) 25.6 -
March.................................... 2.0 (0.4) 2.4 44.4 -
April.................................... - (0.4) 1.3 7.0 -
May...................................... - (3.7) (1.5) (5.1) -
June..................................... - (2.2) 1.4 (1.0) 9.8
July..................................... - 5.4 (3.1) 1.4 (7.4)
August................................... - (1.4) 4.3 4.6 (8.8)
September................................ - (2.1) 8.1 (4.9) (4.0)
October.................................. - 4.2 8.8 4.0 (8.3)
November................................. - (1.5) 6.3 0.4 (17.4)
December................................. - 5.3 0.8 1.8 (7.7)
Annual (or Period) Rate of Return........ 0.4% 4.9% 32.4% 86.2% (37.7)%
- ---------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (6/94-3/31/98) 13.4%
- ---------------------------------------------------------------------------------------------------------------------------
Inception of Client Account Trading by CTA: October 1982
Inception of Client Account Trading in Program: June 1994
Number of Open Accounts as of March 31, 1998: 7
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $2,226,449,635 (3/98)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $2,231,477,271 (3/98)
Aggregate Assets in Program: $142,395,815 (3/98)
Largest Monthly Draw-Down: 19.5% (11/94)
Largest Peak-to-Valley Draw-Down: 48.9% (7/94-1/95)
</TABLE>
- --------------------
Notes follow Table A-6
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
45
<PAGE> 54
TABLE A-4
JOHN W. HENRY & COMPANY, INC.
GLOBAL DIVERSIFIED PORTFOLIO
JANUARY 1, 1993 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Percentage monthly rate of return
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January.................................. (3.2) 1.5 (1.3) (6.9) (2.6) 1.7
February................................. 3.8 (0.4) (9.8) 13.5 (0.8) 16.6
March.................................... (1.4) (1.0) 1.3 8.5 4.0 2.9
April.................................... - (7.2) 7.1 7.3 0.9 6.6
May...................................... - (0.8) (9.1) 1.2 7.9 1.5
June..................................... - (2.1) 1.7 (1.7) 10.8 1.0
July..................................... - 11.5 2.2 (8.9) (2.6) 14.3
August................................... - (7.8) 4.5 (5.0) (6.4) (0.0)
September................................ - (0.2) 7.6 (5.1) 2.1 (4.2)
October.................................. - 4.5 14.6 (2.2) (3.6) 0.1
November................................. - (0.5) 9.1 5.9 5.6 3.1
December................................. - 7.3 (1.0) 14.9 (4.1) 6.1
Annual (or Period) Rate of Return........ (1.0)% 3.3% 26.9% 19.6% 10.1% 59.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/93-3/31/98) 21.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Inception of Client Account Trading by CTA: October 1982
Inception of Client Account Trading in Program: June 1988
Number of Open Accounts as of March 31, 1998: 10
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $2,226,449,635 (3/98)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $2,231,477,271 (3/98)
Aggregate Assets in Program: $179,713,018 (3/98)
Largest Monthly Draw-Down: 11.2% (2/96)
Largest Peak-to-Valley Draw-Down: 24.1% (6/95-10/95)
</TABLE>
- --------------------
Notes follow Table A-6
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
46
<PAGE> 55
TABLE A-5
OTHER TRADING PROGRAMS DIRECTED BY JWH
FOR THE PERIOD JANUARY 1993 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
INCEPTION NUMBER AGGREGATE
OF CLIENT OF ASSETS LARGEST LARGEST
TRADING IN OPEN IN PROGRAM MONTHLY PEAK-TO-VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS MARCH 31, 1998 DRAW-DOWN DRAW-DOWN
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
International Foreign Aug-86 4 $83,385,590 8.3% (5/97) 35.9% (9/92-1/95)
Exchange Program
World Financial Perspective Apr-87 2 $32,672,614 11.6% (3/93) 25.9% (7/94-1/95)
G-7 Currency Portfolio Feb-91 6 $67,606,010 12.3% (11/94) 31.4% (10/92-1/95)
International Currency and Jan-93 2 $31,123,146 7.8% (7/94) 23.6% (7/94-1/95)
Bond Portfolio
Dollar Program Jul-96 2 $29,473,897 8.4% (5/97) 11.6% (5/97-9/97)
Worldwide Bond Program Jul-96 2 $20,001,820 3.8% (4/97) 6.2% (12/96-5/97)
JWH GlobalAnalytics(TM) Jun-97 2 $70,615,750 4.5% (8/97) 4.5% (8/97-8/97)
Family of Programs
KT Diversified Program Jan-84 N/A-Closed N/A-Closed 19.6% (8/93) 33.9% (8/93-2/94)
InterRate(TM) Dec-88 N/A-Closed N/A-Closed 3.1% (11/94) 19.7% (9/92-11/93)*
Delevered Yen Denominated Oct-95 N/A-Closed N/A-Closed 3.2% (2/96) 5.1% (2/96-8/96)
Financial and Metals Profile
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
International Foreign (4.9) 71.1 3.7 16.9 (6.3) (4.5)
Exchange Program (3 Months)
World Financial Perspective 6.0 10.4 40.9 32.2 (15.2) 13.7
(3 Months)
G-7 Currency Portfolio (2.2) 21.0 14.5 32.2 (4.9) (6.3)
(3 Months)
International Currency and 0.0 17.0 19.9 36.5 (2.3) 14.8
Bond Portfolio (3 Months) (3 Months)
Dollar Program (2.0) 6.8 10.6 - - -
(3 Months) (6 Months)
Worldwide Bond Program 1.8 9.5 17.8 - - -
(3 Months) (6 Months)
JWH GlobalAnalytics(TM) 1.7 17.6 - - - -
Family of Programs (3 Months) (7 Months)
KT Diversified Program - - - (14.0) 20.6
(2 Months)
InterRate(TM) - 5.8 5.2 3.4 (5.4)
(7 Months)
Delevered Yen Denominated - 9.4 0.2 - -
Financial and Metals Profile (12 Months) (3 Months)
</TABLE>
- --------------------
Notes follow Table A-6
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
47
<PAGE> 56
TABLE A-5 (CONTINUED)
OTHER TRADING PROGRAMS DIRECTED BY JWH
FOR THE PERIOD JANUARY 1993 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
INCEPTION NUMBER LARGEST
OF CLIENT OF AGGREGATE LARGEST PEAK-TO-
TRADING IN OPEN ASSETS MONTHLY VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS IN PROGRAM DRAW-DOWN DRAW-DOWN
- --------------------------------------------------------------------------------------------------------------
YEN FINANCIAL JAN-92 N/A-CLOSED N/A-CLOSED (See Below) (See Below)
PORTFOLIO:
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Account 1 Jan-92 N/A-Closed N/A- Closed 7.3% (7/95) 30.5% (4/95-7/96*)
Account 2 Jan-93 N/A-Closed N/A-Closed 6.9% (7/95) 29.0% (4/95-7/96*)
Account 3 Jan-94 N/A-Closed N/A-Closed 6.0% (7/95) 26.6% (4/95-7/96*)
Account 4 Jun-94 N/A-Closed N/A-Closed 6.5% (7/95) 22.3% (4/95-7/96*)
Account 5 Aug-94 N/A-Closed N/A-Closed 7.1% (7/95) 30.4% (4/95-7/96*)
Account 6 Jan-95 N/A-Closed N/A-Closed 7.5% (7/95) 35.5% (4/95-7/96*)
Account 7 Mar-94 N/A-Closed N/A-Closed 6.7% (7/96) 15.9% (2/96-7/96)
Account 8 Apr-92 N/A-Closed N/A-Closed 3.9% (9/93) 3.9% (9/93-9/93)
Account 10 Mar-94 N/A-Closed N/A-Closed 5.4% (5/94) 10.5% (4/94-12/94*)
Account 11 Nov-93 N/A-Closed N/A-Closed 9.0% (8/95) 18.8% (4/95-8/95*)
Account 12 Nov-93 N/A-Closed N/A-Closed 6.3% (5/94) 16.5% (4/94-1/95*)
Account 13 Dec-92 N/A-Closed N/A-Closed 4.9% (7/95) 15.8% (12/93-1/95)
Account 14 Jan-93 N/A-Closed N/A-Closed 6.2% (7/95) 15.8% (4/95-12/95*)
Account 15 Apr-93 N/A-Closed N/A-Closed 5.8% (5/94) 19.9% (11/93-9/94*)
Account 16 Jan-94 N/A-Closed N/A-Closed 5.5% (5/94) 11.0% (4/94-8/94*)
Account 17 Dec-92 N/A-Closed N/A-Closed 6.0% (7/95) 12.4% (4/95-10/95*)
Account 18 Mar-94 N/A-Closed N/A-Closed 6.2% (7/95) 18.5% (4/95-4/96*)
Account 19 Dec-94 N/A-Closed N/A-Closed 6.6% (7/95) 21.1% (4/95-4/96*)
Account 20 Jun-94 N/A-Closed N/A-Closed 5.1% (7/94) 10.4% (6/94-11/94*)
Account 21 Jun-94 N/A-Closed N/A-Closed 3.6% (7/94) 9.9% (6/94-1/95)
Account 22 Apr-94 N/A-Closed N/A-Closed 4.7% (5/94) 7.0% (4/94-9/94*)
Account 23 Mar-94 N/A-Closed N/A-Closed 6.3% (5/94) 11.0% (4/94-9/94*)
Account 24 Apr-94 N/A-Closed N/A-Closed 9.1% (5/94) 12.9% (4/94-9/94*)
Account 25 Apr-93 N/A-Closed N/A-Closed 6.1% (5/94) 17.9%(11/93-12/94*)
Account 26 Sep-93 N/A-Closed N/A-Closed 6.0% (5/94) 14.1% (4/94-12/94*)
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1997 1996 1995 1994 1993
- --------------- ---------------------------------------------------------------
YEN FINANCIAL ----------------- (See Account Detail Below) -----------------
PORTFOLIO:
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(3.3) (8.5) 20.6 (13.0) 76.4
(3 Months)
(0.1) (9.9) 21.0 (8.8) 71.4
(1 Month)
(2.4) (10.9) 22.4 (7.5) -
(1 Month) (12 Months)
1.4 (0.6) 24.2 (1.6) -
(3 Months) (7 Months)
(2.4) (6.0) 21.1 (4.3) -
(3 Months) (5 Months)
(3.7) (13.5) 13.2 - -
(3 Months) (12 Months)
4.0 7.8 28.1 (11.2) -
(3 Months) (10 Months)
- - - - 62.6
(9 Months)
- - - (7.4) -
(10 Months)
- - 20.0 (13.4) 5.2
(8 Months) (2 Months)
- - (0.6) (15.0) 4.8
(1 Month) (2 Months)
- (4.1) 31.4 (14.1) 69.2
(3 Months)
- - 10.9 (4.1) 43.6
(12 Months)
- - - (19.0) 25.3
(9 Months) (9 Months)
- - - (6.7) -
(8 Months)
- 0.3 26.6 (5.1) 73.9
(1 Month)
- (6.3) 18.5 (10.1) -
(4 Months) (10 Months)
- (7.8) 18.3 0.2 -
(4 Months) (1 Month)
- - - (7.9) -
(7 Months)
- - 48.1 (6.6) -
(3 Months) (7 Months)
- - - (4.6) -
(6 Months)
- - - (9.7) -
(7 Months)
- - - (9.8) -
(6 Months)
- - - (16.6) 26.5
(12 Months) (9 Months)
- - - (12.4) 3.2
(12 Months) (4 Months)
</TABLE>
- --------------------
Notes follow Table A-6
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
48
<PAGE> 57
TABLE A-6
OTHER TRADING PROGRAMS DIRECTED BY JWHII
FOR THE PERIOD JANUARY 1992 THROUGH JULY 31, 1995
<TABLE>
<CAPTION>
INCEPTION NUMBER LARGEST
OF OF LARGEST PEAK-TO-
TRADING OPEN AGGREGATE ASSETS MONTHLY VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS IN PROGRAM DRAW-DOWN DRAW-DOWN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial and Metals Portfolio Sep-91 N/A-Closed N/A-Closed 16.6% 34.4% (1/92-5/92)
(1/92)
InterRate(TM) Feb-92 N/A-Closed N/A-Closed 9.3% (9/92) 20.6% (8/92-11/93*)
<CAPTION>
PERCENTAGE RATE OF RETURN
NAME OF PROGRAM 1995 1994 1993 1992
<S> <C> <C> <C> <C>
Financial and Metals Portfolio 30.3 (0.8) 46.1 (4.0)
(7 Months)
InterRate(TM) - - (9.9) 2.8
(11 Months) (11 Months)
</TABLE>
- --------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
49
<PAGE> 58
JWH AND JWHII
NOTES TO PERFORMANCE SUMMARY
NOTES TO TABLES A-1, A-2, A-3, A-4, A-5 AND A-6
(a) "Draw-Down" is defined as losses experienced by an account over a specified
period of time.
(b) "Largest Monthly Draw-Down" is the largest monthly loss experienced by any
single account in the program in any calendar month expressed as a
percentage of the total equity in the account and includes the month and
year of such draw-down.
(c) "Largest Peak-to-Valley Draw-Down" is the greatest cumulative percentage
decline in month-end net asset value (regardless of whether it is
continuous) due to losses sustained by any account in the trading program
during any period in which the initial month-end net asset value of such
draw-down is not equaled or exceeded by a subsequent month-end net asset
value. The months and year(s) of such decline from the initial month-end
net asset value to the lowest month-end net asset value are indicated. In
the case where the trading program is in a current draw-down, or was in a
current draw-down when the trading program closed, the month of the lowest
net asset value of such draw-down is disclosed followed by an asterisk(*).
For purposes of the Largest Peak-to-Valley Draw-Down calculation, any
peak-to-valley draw-down which began prior to the beginning of the most
recent five calendar year period is deemed to have occurred during such
five calendar year period.
(d) "Annual (or Period) Rate of Return" is calculated by compounding the
Adjusted ROR (as described below) over the months in a given year, i.e.,
each Adjusted ROR, in hundredths, is added to one (1) and the result is
multiplied by the subsequent Adjusted ROR similarly expressed. One is then
subtracted from the product and the result is multiplied by one hundred
(100). The Compound Average Annual Rate of Return is similarly calculated
except that before subtracting one (1) from the product, the product is
exponentially changed by the factor of one (1) divided by the number of
years in the performance summary and then one (1) is subtracted. The
Compound Average Annual Rate of Return appears on Table A-1, A-2, A-3 and
A-4.
Adjusted rate of return ("Adjusted ROR") is calculated by dividing net
performance by the sum of beginning equity plus additions minus
withdrawals. For such purposes, all additions and withdrawals are
effectively treated as if they had been made on the first of the month even
if, in fact, they occurred later, unless, beginning in 1991, they are
material to the performance of a program, in which case they are
time-weighted. If time weighting is materially misleading, then the Only
Accounts Traded method is utilized.
ADDITIONAL NOTES TO ALL PERFORMANCE RECORDS:
An investor should note that the composite capsule performance
presentations include individual accounts that, even though traded according to
the same investment program, have materially different rates of return. The
reasons for this are numerous material differences among accounts a) procedures
governing timing for the commencement of trading and means of moving toward full
portfolio commitment for new accounts; b) the period during which accounts are
active; c) trading size to equity ratio resulting from the procedures for the
commencement of trading and appropriate means of moving toward full portfolio
commitment of new accounts and capital; d) the size of the account, which can
influence the size of positions taken and restrict the account from
participating in all markets available to an investment program; e) the amount
of interest income earned by an account, which will depend on the rates paid by
an FCM on equity deposits and/or on the portion of an account invested in
interest-bearing obligations such as U.S. Treasury bills; f) the amount of
management and incentive fees paid to JWH and the amount of brokerage
commissions paid which will vary and will depend on the fees negotiated by the
client with the broker; g) the timing of orders to open or close positions; h)
the market conditions, which in part determine the quality of trade executions;
i) client trading restrictions, including futures versus forward contracts and
contract months; j) variations in fill prices; and k) the timing of additions
and withdrawals. Notwithstanding these material differences among accounts, the
composite remains a valid representation of the accounts included therein. For
the purpose of determining whether there exist material differences among
accounts traded pursuant to
50
<PAGE> 59
the same trading program, JWH utilizes the method described herein. The gross
trading performance of each JWH investment program and each individual JWH
account within the relevant program is reviewed and the following parameters
established by the Division of Trading and Markets of the CFTC are calculated:
(i) if the arithmetic average of two percentages is greater than 10 percentage
points and the difference between the two is less than 10% of their average;
(ii) if the arithmetic average of the two percentages is greater than 5 points
but less than 10 points and the difference between the two is 1.5 percentage
points or less; and (iii) if the arithmetic average of the two percentages is
less than 5 points and the difference between the two is 1.0 percentage point or
less. If one of the parameters (i)-(iii) is satisfied in the review, then the
results within the designated range are deemed "materially the same" or "not
materially different". The parameters (i)-(iii) determine if differences between
accounts are materially different. JWH further evaluates performance on a gross
trading basis for materiality in an overall context each JWH investment program
and each individual JWH account within the relevant program not satisfying the
above parameters to determine whether any material differences that are detected
could produce misleading composite performance results after review of the
reasons for the differences. With the exception of accounts that were
established at levels below JWH's current minimum account size, JWH's policy is
to provide separate performance capsules when an account is consistently
performing differently on a gross trading basis than the other JWH accounts
traded pursuant to the same trading program and the continued inclusion of that
account in the composite would create a distortion in the composite rate of
return.
During the periods covered by the capsule performance records, and
particularly since 1989, JWH increased and decreased leverage in certain markets
and entire trading programs, and also altered the composition of the markets and
contracts for certain programs. In general, before 1993, JWH programs used
greater leverage than they currently do. In addition, the subjective aspects
listed in the "Trading Techniques" section have been utilized more often in
recent years and therefore may have had a more pronounced effect on performance
results during recent periods. The choice of an investment program (although all
accounts may be traded in accordance with the same approach, such approach may
be modified periodically as a result of ongoing research and development by JWH)
will have an effect on performance results. In reviewing the JWH capsule
performance records, prospective investors should bear in mind the possible
effects of these variations on rates of return and in the application of JWH's
investment methods.
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any single account
represented in the records. Investors are further cautioned that the data set
forth in the performance capsule records are not indicative of any results which
may be attained by JWH in the future since past performance is not necessarily
indicative of future results. JWH has decreased leverage in certain markets and
entire programs on several occasions over the last five years. These actions
have reduced the volatility of certain programs when compared to the volatility
prior to the decreases in leverage. While historical returns represent actual
performance achieved, investors should be aware that the degree of leverage
currently utilized may be significantly different from that used during previous
time periods.
Prior to December 1991 for JWH and July 1992 for JWHII, performance tables
are presented on a cash basis except as otherwise stated in the footnotes to the
tables. The recording of items on a cash basis should not, for most months, be
materially different to presenting such rates of return on an accrual basis. Any
differences in the monthly rates of return between the two methods would be
immaterial to the overall performance presented.
Beginning with the change to the accrual basis of accounting for incentive
fees in December 1991 for JWH and July 1992 for JWHII, the net effect to monthly
net performance and the rate of return in the performance tables of continuing
to record interest income, management fees, commissions and other expenses on a
cash basis is materially equivalent to the full accrual basis. JWH began
reflecting all items of net performance on an accrual basis for the capsule
performance records of the G-7 Currency Portfolio in July 1992, the
International Currency and Bond Portfolio in January 1993, the Worldwide Bond
Program and the Dollar Program in July 1996, and the JWH GlobalAnalytics(TM)
Family of Programs in June 1997.
Due to the commencement of trading in July 1996 of a new multi-program fund
managed by JWH, JWH developed a new method for treating the accrual of incentive
fees for the multi-advisor funds and multi-program accounts it manages. For
these accounts, JWH agreed that it would earn incentive fees only when overall
fund performance for multi-advisor funds, or overall JWH performance for
multi-program accounts, as
51
<PAGE> 60
the case may be, is profitable. As applied, this new method presents incentive
fees due for each program on a stand-alone basis -- in essence, to reflect the
performance results that would have been experienced by an investor in that
program, regardless of any external business arrangements (such as a
multi-advisor structure or the use of multiple JWH programs) that might have
affected actual incentive fees paid. The new method was applied initially to
August 1996 performance. In that month, a one-time adjustment to performance
rate of return was made to each affected program to show the impact of this
adjustment from program inception through August 1996. In the case of certain
programs, the adjustment had a material (i.e., greater than 10%) impact on the
rate of return that otherwise would have been shown. In the case of accounts
that closed before JWH received an incentive fee due to the operation of such
netting arrangements, a balancing entry was made to offset the effect of
incentive fee accrual on ending equity.
ADDITIONAL FOOTNOTE TO THE GLOBAL DIVERSIFIED PORTFOLIO COMPOSITE TRACK RECORD
AND JWHII INTERRATE(TM) PERFORMANCE SUMMARIES UTILIZING THE FULLY-FUNDED SUBSET
METHOD (THE "SUMMARIES"):
The level of Actual Funds in the accounts that make up the Summaries
currently requires additional disclosure. Actual Funds are the amount of
margin-qualifying assets on deposit. Nominal Account Size is a dollar amount
which clients have agreed to in writing and which determines the level of
trading in the account regardless of the amount of Actual Funds. Notional Funds
are the amount by which the Nominal Account Size exceeds the amount of Actual
Funds. The amount of notional equity in the accounts that compose the Summaries
requires additional disclosure under current CFTC policy. The Summaries include
notional equity in excess of the 10% disclosure threshold established by the
CFTC and reflect the adoption of a method of presenting rate-of-return and
performance disclosure authorized by the CFTC, referred to as the Fully Funded
Subset method. This method permits notional and fully funded accounts to be
included in a single performance record.
To qualify for use of the Fully Funded Subset method, the Advisory requires
that certain computations be made in order to arrive at the Fully Funded Subset,
and that the accounts for which performance is so reported meet two tests which
are designed to provide assurance that the Fully Funded Subset and the resultant
Adjusted Rates of Return are representative of the programs.
These computations have been performed for the Global Diversified Portfolio
from January 1, 1992 through June 30, 1996, and for JWHII InterRate(TM), from
its inception to its close. They were designed to provide assurance that the
performance presented to the Summaries and calculated on a Fully Funded Subset
basis would be representative of such performance calculated on a basis which
includes notional equity in Beginning Equity. The Adjusted Rates of Return in
the Records are calculated by dividing Net Performance by the sum of Beginning
Equity plus Additions minus Withdrawals. JWH and JWHII believe that this method
yields substantially the same adjusted rates of return as would the Fully Funded
Subset method were there any "fully funded" accounts, and that the Adjusted
Rates of Return for the Records are representative of the programs for the
periods presented.
Rates of return determined on the basis of Beginning Equity (Actual Funds)
can be calculated from the Adjusted Rates of Return by dividing such Adjusted
Rates of Return by a fraction, the numerator of which is Beginning Equity
(Actual Funds) and the denominator of which is Beginning Equity. Alternatively,
these rates of return can be calculated by dividing Net Performance by Beginning
Equity (Actual Funds). As an example, in the Global Diversified Portfolio for
the month of August 1992, the Adjusted Rate of Return was 6.1 percent; an
account which had 50 percent Actual Funds would have had an Adjusted Rate of
Return of 12.2 percent (6.1%/50%).
ADDITIONAL NOTES FOR THE FINANCIAL AND METALS PORTFOLIO COMPOSITE PERFORMANCE
SUMMARY
In May 1992, 35 percent of the assets in the Financial Metals Portfolio
were deleveraged 50 percent at the request of a client. The deleveraging
materially affected the rates of return in JWH's performance records. The 1992
annual rate of return for these deleveraged accounts was negative 24.3 percent.
The 1992 annual rate of return for the Financial and Metals Portfolio Composite
Performance Summary was negative 10.9 percent. If these accounts had been
excluded from the Financial and Metals Portfolio Composite Performance Summary,
the 1992 annual rate of return would have been negative 3.9 percent. The effect
of this deleveraging was eliminated in September 1992.
52
<PAGE> 61
Additionally, the Financial and Metals Portfolio Composite Performance
Record includes the performance of several accounts that do not participate in
global markets due to their smaller account equities which do not meet the
minimums established for this program. Accounts not meeting such minimums can
experience performance materially different than the performance of an account
which meets the minimum account size. The performance of such accounts has no
material effect on the overall Financial Metals Portfolio Composite Performance
Summary.
In May 1991 and March 1992, respectively, two proprietary accounts began
trading pursuant to the Financial and Metals Portfolio. Both accounts appear in
the capsule performance from their inception until August 1995. The maximum
percentage of proprietary funds during this time was less than 0.5% and had no
material impact on the rate of return.
ADDITIONAL NOTE FOR YEN FINANCIAL PORTFOLIO COMPOSITE PERFORMANCE SUMMARIES
The Yen Financial Portfolio was traded from the Japanese yen perspective.
Accounts were opened with either U.S. dollars or Japanese yen deposits. Accounts
originally opening with U.S. dollars established additional interbank positions
in Japanese yen in an effort to enable such accounts to generate returns similar
to returns generated by accounts with yen-denominated balances. Over time, as
profits and losses were recognized in yen-denominated Japanese markets, accounts
held varying levels of U.S. dollars and Japanese yen. Additionally, the
interbank position was adjusted periodically to reflect the actual portions of
the account balances remaining in U.S. dollars. Because performance was affected
by fluctuations in the dollar/yen conversion rate, and investors were able to
open accounts with either U.S. dollars or Japanese yen deposits, performance
records from the perspective of both denominations are presented.
Accordingly, as the equity mix between U.S. dollars and Japanese yen
varies, performance from each perspective will also vary.
The performance of the Yen Financial Portfolio is presented on an
individual account basis due to material differences among accounts' historical
performance. Account performance varied historically due to a number of factors
unique to this portfolio, including whether the portfolio was denominated in
dollars or yen, the extent of hedging currency conversions, the amounts and
frequency of currency conversions, and account size. Several of these factors
that materially influenced performance depended on clients' specific choices
that effectively customized client portfolios.
ADDITIONAL NOTE FOR GLOBAL FINANCIAL PORTFOLIO COMPOSITE PERFORMANCE SUMMARY
Since the inception of the Global Financial Portfolio, the timing of
individual account openings has had a material impact on compounded rates of
return. Based on the account startup methodology used by JWH, the performance of
individual accounts composing the Global Financial Portfolio Composite
Performance Summary has varied. In 1994, the two accounts that were open
generated separate rates of return of -44% and -17%. For the period January 1995
through June 1995, the three open accounts achieved separate rates of return of
101%, 75% and 67%. As of June 1995, these accounts maintained mature positions
and were performing consistently with each other. Due to the six-month period in
1995 of varied performance, the three accounts therefore achieved an annual rate
of return for 1995 of 122%, 92% and 78%. In April 1995, JWH established a new
leverage level for the Global Financial Portfolio. The new level is one-half the
previous level employed.
ADDITIONAL NOTES TO THE PERFORMANCE SUMMARIES FOR THE GLOBAL DIVERSIFIED
PORTFOLIO, ORIGINAL INVESTMENT PROGRAM, THE GLOBAL FINANCIAL PORTFOLIO, THE
INTERNATIONAL CURRENCY AND BOND PORTFOLIO, AND THE G-7 CURRENCY PORTFOLIO
The performance capsules for the above-mentioned programs each presently
include one proprietary account trading or which has been traded pursuant to an
investment in a fund. These proprietary accounts have been traded in exactly the
same manner that client funds would be traded, and have been subject to all of
the same fees and expenses that would be charged to a client investment in the
fund. Therefore, there is no material impact on the rates of return presented.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
53
<PAGE> 62
TABLE B-1
JOHN W. HENRY & COMPANY, INC.
PRO FORMA AND ACTUAL PERFORMANCE
ORIGINAL INVESTMENT PROGRAM
JANUARY 1993 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Percentage monthly rate of return
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Actual Performance(i) Pro Forma Performance(ii)
1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
January............................. (2.07) 3.15 4.53 2.35 (3.70) (1.12)
February............................ 1.88 (0.06) (7.70) 16.18 1.57 8.38
March............................... (4.73) 1.30 0.84 14.68 3.98 (3.36)
April............................... - (0.09) 3.95 7.84 0.39 8.41
May................................. - 0.78 (6.92) (4.30) 5.26 0.03
June................................ - (4.58) 8.24 1.35 6.85 (3.31)
July................................ - 1.67 (5.25) (0.26) (7.14) 12.71
August.............................. - (2.12) (2.17) (4.24) (5.17) (3.72)
September........................... - (6.19) 8.69 (4.15) (3.20) 0.36
October............................. - 3.41 9.51 3.10 (13.77) (1.90)
November............................ - (0.67) 4.81 1.09 10.09 3.01
December............................ - 4.64 0.99 6.95 (0.40) 9.70
Annual (or Period) Rate of Return... (4.95)% 0.67% 18.99% 45.55% (7.45)% 31.10%
- ---------------------------------------------------------------------------------------------------------------------------------
Compound Average Pro Forma Annual Rate of Return (1/1/93-3/31/98) 14.23%
- ---------------------------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down:
Past Five-Year and Year-to-Date Period 13.77% (10/94)
For the Period August 1997 Through March 1998 6.19% (9/97)
Largest Peak-to-Valley Draw-Down:
Past Five-Year and Year-to-Date Period 26.50% (7/94-10/94)
For the Period August 1997 Through March 1998 8.18% (8/97-9/97*)
</TABLE>
- --------------------
Notes follow Table B-4
(i) Represents the actual performance of this portfolio as traded for the
Partnership for the period August 1, 1997 (inception of trading) through
March 31, 1998.
(ii) Represents pro forma performance based upon the advisors composite
performance. See Notes to Table B.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
54
<PAGE> 63
TABLE B-2
JOHN W. HENRY & COMPANY, INC.
PRO FORMA AND ACTUAL PERFORMANCE
FINANCIAL AND METALS PORTFOLIO
JANUARY 1993 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Percentage monthly rate of return
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Actual Performance (i) Pro Forma Performance (ii)
---------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------
January............................ (4.28) 3.79 5.61 (4.19) (3.32) 2.69
February........................... (4.22) (2.64) (6.04) 14.99 (0.88) 11.92
March.............................. (1.91) (0.86) 0.42 15.33 6.85 (0.58)
April.............................. - (3.19) 2.07 5.31 0.56 8.28
May................................ - (8.71) (2.22) 1.03 0.92 2.95
June............................... - 3.85 2.15 (1.70) 4.20 0.04
July............................... - 15.39 (1.60) (2.66) (6.45) 9.09
August............................. - (4.10) (0.96) 1.56 (4.44) (1.07)
September.......................... - 1.59 3.10 (2.44) 1.20 (0.04)
October............................ - 2.13 13.55 (0.13) 1.20 (1.34)
November........................... - 2.36 10.25 2.20 (4.77) (0.63)
December........................... - 2.58 (2.35) 1.41 (3.71) 2.69
Annual (or Period) Rate of
Return........................... (10.07)% 10.85% 24.78% 32.66% (9.10)% 38.40%
- ----------------------------------------------------------------------------------------------------------
Compound Average Pro Forma Annual Rate of Return (1/1/93-3/31/98) 14.93%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Largest Monthly Draw-Down:
Past Five-Year and Year-to-Date Period 8.71% (5/97)
For the Period August 1997 through March 1998 4.28% (1/98)
Largest Peak-to-Valley Draw-Down:
Past Five-Year and Year-to-Date Period 19.56% (7/94-1/95)
For the Period August 1997 through March 1998 10.07% (1/98-3/98*)
</TABLE>
- --------------------
Notes follow Table B-4
(i) Represents the actual performance of this portfolio as traded for the
Partnership for the period August 1, 1997 (inception of trading) through
March 31, 1998.
(ii) Represents pro forma performance based upon the advisors composite
performance. See Notes to Table B.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
55
<PAGE> 64
TABLE B-3
JOHN W. HENRY & COMPANY, INC.
PRO FORMA AND ACTUAL PERFORMANCE
GLOBAL FINANCIAL PORTFOLIO
JUNE 1994 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Percentage monthly rate of return
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Actual Performance(i) Pro Forma Performance(ii)
-------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
January............................... (2.67) 2.28 4.18 (5.33) -
February.............................. (0.36) (1.15) (4.62) 27.25 -
March................................. 1.50 (1.02) 2.15 41.41 -
April................................. - (0.98) 1.11 6.47 -
May................................... - (4.35) (1.85) (4.21) -
June.................................. - (2.52) 1.18 (1.06) 8.15
July.................................. - 4.67 (3.58) 1.12 (8.35)
August................................ - (2.23) 3.84 3.70 (9.36)
September............................. - (2.82) 7.74 (4.55) (4.52)
October............................... - 3.56 7.21 3.42 (8.68)
November.............................. - (1.88) 5.92 0.21 (17.90)
December.............................. - 4.85 1.02 1.36 (8.11)
Annual (or Period) Rate of Return..... (1.57)% (2.10)% 26.12% 80.74% (40.90)%
- ---------------------------------------------------------------------------------------------------------------------------------
Compound Average Pro Forma Annual Rate of Return (6/94-3/31/98) 7.04%
- ---------------------------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down:
Past Five-Year and Year-to-Date Period 17.90% (11/94)
For the Period August 1997 through March 1998 2.82% (9/97)
Largest Peak-to-Valley Draw-Down:
Past Five-Year and Year-to-Date Period 48.27% (7/94-1/95)
For the Period August 1997 through March 1998 4.99% (8/97-9/97)
</TABLE>
- --------------------
Notes follow Table B-4
(i) Represents the actual performance of this portfolio as traded for the
Partnership for the period August 1, 1997 (inception of trading) through
March 31, 1998.
(ii) Represents pro forma performance based upon the advisors composite
performance. See Notes to Table B.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
56
<PAGE> 65
TABLE B-4
JOHN W. HENRY & COMPANY, INC.
PRO FORMA AND ACTUAL PERFORMANCE
GLOBAL DIVERSIFIED PORTFOLIO
JANUARY 1993 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Percentage pro forma monthly rate of return
- -----------------------------------------------------------------------------------------------------------------------
Actual Performance(i) Pro Forma Performance(ii)
------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January................................. (3.75) 1.33 (1.37) (7.01) (3.11) 1.44
February................................ 3.44 (0.60) (9.58) 13.13 (1.41) 15.29
March................................... (1.60) (1.35) 1.27 8.48 4.59 2.48
April................................... - (7.78) 6.91 6.80 0.76 6.20
May..................................... - (1.19) (9.33) 0.96 7.20 1.22
June.................................... - (2.25) 1.50 (1.68) 9.81 1.15
July.................................... - 11.01 2.09 (8.91) (2.58) 13.05
August.................................. - (7.37) 4.88 (4.94) (6.29) (0.07)
September............................... - (0.61) 8.19 (5.17) 1.80 (3.90)
October................................. - 4.26 13.42 (2.19) (3.71) (0.23)
November................................ - (0.89) 8.67 5.79 5.32 3.31
December................................ - 6.27 (0.70) 14.34 (4.16) 5.51
Annual (or Period) Rate of Return....... (2.03)% (0.67)% 25.98% 17.53% 7.04% 53.86%
- -----------------------------------------------------------------------------------------------------------------------
Compound Average Pro Forma Annual Rate of Return (1/1/93-3/31/98) 17.89%
- -----------------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down:
Past Five Years and Year to Date Period 9.58% (2/96)
For the Period August 1997 through March 1998 7.37% (8/97)
Largest Peak-to-Valley Draw-Down:
Past Five Years and Year to Date Period 21.03% (6/95-10/95)
For the Period August 1997 through March 1998 7.94% (8/97-9/97)
</TABLE>
- --------------------
Notes follow Table
(i) Represents the actual performance of this portfolio as traded for the
Partnership for the period August 1, 1997 (inception of trading) through
March 31, 1998.
(ii) Represents pro forma performance based upon the advisors composite
performance. See Notes to Table B.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
57
<PAGE> 66
NOTES TO TABLES B-1, B-2, B-3 AND B-4
Tables B-1, B-2, B-3 and B-4 were prepared by the General Partner and
present the results of applying certain arithmetical calculations to various
figures in the Advisor's performance record for the program or portfolio which
will be traded for the Partnership in order to indicate approximately what the
month-to-month effect on such figures would have been had the accounts in
question been charged the brokerage, management, incentive fees and other
expenses which will be paid by the Partnership, as opposed to the brokerage
commissions and management, incentive fees and other expenses which they did in
fact pay, and received interest income on 80% of the accounts' equity.
Adjustments for pro forma other expenses and secondary offering expenses were
made to each of the Tables B-1, B-2, B-3 and B-4, where applicable, based upon
an assumed average partnership size of $120 million. The pro forma calculations
are made on a month-to-month basis, i.e., the pro forma adjustment to brokerage
commissions, management, incentive fees, other expenses and interest income in
one month does not affect the actual figures which are used in the following
month for making the similar pro forma calculations for that period, except for
pro forma incentive fees as described in Note 4. Accordingly, the pro forma
tables do not reflect on a cumulative basis the effect of the difference between
the fees and commissions charged to and interest earned by the Partnership and
the fees and commissions charged to and interest earned by the accounts in the
actual performance tables.
1. Pro forma brokerage fees for each month have been calculated by adding the
sum of (a) actual ending equity, actual management and incentive fees,
actual brokerage commissions, actual other expenses and pro forma interest
income minus actual interest income (the "Base Amount"), and (b)
multiplying the result by 13/24 of 1%, plus estimated NFA, exchange,
"give-up" and floor brokerage fees.
2. Pro forma management fees for each month have been calculated by taking the
Base Amount, subtracting pro forma brokerage fees, pro forma other expenses
and multiplying the result by 1/3 of 1%.
3. Pro forma other expenses have been calculated by taking the Base Amount,
subtracting pro forma brokerage fees and multiplying the result by 1/12 of
.32%.
4. Pro forma incentive fees have been calculated by: (a) adding to the actual
net performance, actual management and incentive fees, actual brokerage
commissions and actual other expenses, (b) subtracting actual interest
income, pro forma brokerage fees, pro forma management fees and pro forma
other expenses and (c) multiplying the resulting figure by 19%. Pro forma
incentive fees were calculated on a monthly basis (in accordance with
generally accepted accounting principles) and reflect the reversal of
previously accrued incentive fees when profits sufficient to generate
incentive fees are recognized as of the end of an interim month in a
quarter but lost in a subsequent month in such quarter. In the case where
there is cumulative negative net performance, which must be reversed before
an incentive fee becomes payable, and there are net withdrawals, the
cumulative negative net performance amount has been proportionately
reduced.
5. Pro forma interest income has been calculated by: (a) adding actual
beginning equity to the sum of: actual ending equity, actual management and
incentive fees, actual brokerage commissions and actual other expenses, (b)
subtracting actual interest income, (c) dividing this sum by two, (d)
multiplying by 80% and (e) then multiplying the result by the monthly
historical 30-day Treasury bill rate. For purposes of the calculation of
pro forma interest income, Partnership interest was estimated using
historical 30-day Treasury bill rates of the time period presented on
Tables B-1, B-2, B-3 and B-4. Such rates may be higher than current 30-day
Treasury bill rates that will be used to calculate Partnership interest
income. The application of historical rates may compare more closely to the
interest income reflected in the Advisors' performance tables which was
most likely earned at the then prevailing interest rates of a particular
time period.
6. Pro forma monthly rate of return ("Pro Forma Monthly ROR") equals pro forma
net performance divided by the actual beginning equity (from the historical
performance tables) or equity adjusted for material additions and
withdrawals, where applicable.
7. Pro forma annual rate of return equals the Pro Forma Monthly ROR compounded
over the number of periods in a given year, i.e. each Pro Forma Monthly ROR
in hundredths is added to one (1) and the
58
<PAGE> 67
result is multiplied by the previous period's Pro Forma Monthly ROR
similarly expressed. One is then subtracted from the product. The Compound
Pro Forma Average Annual Rate of Return for the entire period presented is
similarly calculated except that before subtracting one (1) from the
product, the product is exponentially changed by the factor of one (1)
divided by the number of years in the period presented and then one (1) is
subtracted. The compound pro forma average annual rate of return for the
entire period appears as the last entry in the column.
8. "Largest Monthly Draw-Down" is the largest pro forma monthly loss
experienced by the program on a composite basis in any calendar month
expressed as a percentage of the total equity in the program and includes
the month and year of such draw-down.
9. "Largest Peak-to-Valley Draw-Down" is the greatest cumulative pro forma
percentage decline in month end net asset value (regardless of whether it
is continuous) due to losses sustained by the trading program during any
period in which the initial composite month-end net asset value of such
peak-to-valley draw-down is not equaled or exceeded by a subsequent month's
composite ending net asset value. The months and year(s) of such decline,
from the initial month-end net asset value to the lowest month-end net
asset value, are indicated.
MANAGEMENT AGREEMENT
The Management Agreement that the General Partner and the Partnership have
entered into with the Advisor provides that the Advisor has sole discretion in
determining the investment of the assets of the Partnership allocated by the
General Partner to the Advisor subject to the Partnership's trading policies.
The agreement continues in effect until June 30, 1999 and is renewable by the
General Partner for additional one-year periods upon notice to the Advisor not
less than 30 days prior to the expiration of the previous period. The agreement
can be terminated by the General Partner on 30 days' written notice to the
Advisor if (i) the Net Asset Value per Unit declines as of the close of business
on any day to $400 or less, (ii) the Net Assets allocated to an Advisor
(adjusted for redemptions, reallocations and withdrawals, if any) decline by 50%
or more as of the end of a trading day from such Net Assets' previous highest
value, (iii) limited partners owning at least 50% of the outstanding Units vote
to require the General Partner to terminate the agreement, (iv) the Advisor
fails to comply with the terms of the agreement, (v) the General Partner, acting
in good faith, upon due consideration by its Board of Directors reasonably
determines that the performance of the Advisor has been such that the General
Partner's fiduciary duties to the Partnership require termination of the
agreement, or (vi) the General Partner reasonably believes that the application
of speculative position limits resulting from the aggregation of the
Partnership's positions with those of the accounts managed by the Advisor and
its principals (if any) will substantially adversely affect the results of the
Partnership's commodity trading. The agreement also provides that the Advisor
may terminate the agreement upon 30 days' notice to the General Partner in the
event that (i) the Trading Policies are changed in a manner which the Advisor
reasonably believes will adversely affect the performance of its trading
strategies, (ii) at any time after June 30, 1998 or (iii) the General Partner or
Partnership fails to comply with the terms of the agreement. The Advisor may
immediately terminate the agreement if (i) the General Partner fails to consent
to the Advisor's making a material change in the trading program outlined
herein, (ii) the General Partner requires the Advisor to liquidate its positions
other than in order that the General Partner may reallocate the Partnership's
assets, meet margin calls on the Partnership's account or fund redemptions or
(iii) if the General Partner's registration as a commodity pool operator or its
membership in the NFA is terminated or suspended. The General Partner may
immediately terminate the agreement of the Advisor if its controlling principal
dies, becomes incapacitated, or is otherwise not managing the trading programs
of the Advisor, or if the Advisor merges, consolidates with another entity not
controlled by John W. Henry, sells a substantial portion of its assets to an
entity not controlled by John W. Henry, or becomes insolvent or bankrupt, or if
its registration with the CFTC or membership in NFA is suspended or terminated.
The compensation payable by the Partnership to the Advisor under the
Management Agreement is described under "Fees and Expenses to the Partnership."
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<PAGE> 68
Under the Management Agreement the Advisor and its principals are free to
render advisory services with respect to other clients and accounts and may use
the same or different trading strategies which are utilized in managing the
Partnership's investments. However, the Advisor represents and agrees that any
such other services will not affect its capacity to continue to render services
to the Partnership of the quality and nature contemplated by the Management
Agreement. Further, if trading recommendations must be revised as a result of
the application of speculative position limits, the Advisor is required to
modify such orders in a manner which will not substantially disproportionately
affect the Partnership as compared with the Advisor's other accounts trading
that program. In addition, the Advisor represents and agrees that it will not
knowingly or deliberately use trading strategies or methods for the Partnership
that are inferior to those used for any other client or account nor favor any
other client or account over the Partnership in any way, although the Advisor
may offer different trading programs and the Advisor's trading will not
necessarily experience the same results as other accounts managed by the Advisor
due to differences in such variables including differing sizes of accounts,
accounts with different trading policies, fees, commissions or levels of
diversification, accounts experiencing differing inflows or outflows of equity,
accounts which commence trading at different times, accounts which have
different portfolios or different fiscal years, accounts utilizing different
executing brokers and accounts with other differences.
The agreement provides that with respect to any action in which the Advisor
is a party arising out of or in connection with the Management Agreement, the
sale of Units of the Partnership or the management of the Partnership's assets,
the Partnership and the General Partner shall indemnify and hold harmless the
Advisor, subject to receipt of an independent legal opinion regarding the
applicable standard of conduct, against any loss, liability, damage, cost,
expense (including attorneys' and accountants' fees), judgments and amounts paid
in settlement, incurred by such person in connection with such action if the
Advisor acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Partnership, and if such actions did not
involve negligence, intentional misconduct, or a breach of fiduciary obligations
to the Partnership as a commodity trading advisor in accordance with applicable
law. To the extent that the Advisor has been successful in defense of any
action, no independent legal opinion is needed.
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FIDUCIARY RESPONSIBILITY
Duties of the General Partner. Except as described below, the General
Partner, to the exclusion of all limited partners, conducts and manages the
business of the Partnership including, without limitation, the investment of the
funds of the Partnership. The General Partner may delegate its responsibility
for the investment of the Partnership's assets to one or more qualified trading
advisors. The General Partner monitors the trading and performance of the
Partnership and does not "churn" or permit the "churning" of the Partnership's
account. The General Partner is further authorized to enter into the Customer
Agreement with SB described herein under "The Commodity
Broker/Dealer -- Customer Agreement" and to cause the Partnership to pay SB a
brokerage fee equal to 13/24 of 1% of month-end Net Assets allocated to trading
(6.5% per year) per month. The General Partner may take such other actions as it
deems necessary or desirable to manage the business of the Partnership
including, but not limited to, the following: opening bank accounts with state
or national banks; paying, or authorizing the payment of, distributions to the
partners and expenses of the Partnership, such as incentive fees, brokerage
fees, legal and accounting fees, printing and reporting fees, and registration
and other fees of governmental agencies; and investing or directing the
investment of funds of the Partnership not being utilized as margin deposits.
The General Partner shall seek the best prices and services available in its
commodity futures brokerage transactions. The General Partner reviews, not less
often than annually, the brokerage rates charged to public commodity pools which
are comparable to the Partnership to determine, to the extent practicable, that
the brokerage fee paid by the Partnership is competitive with such other rates.
See "The Limited Partnership Agreement -- Management of Partnership Affairs" and
"Risk Factors -- Dissolution of the Partnership; Cessation of Trading".
The General Partner has sole discretion in determining what distributions
(other than on redemptions of Units), if any, the Partnership will make to its
partners. See "The Limited Partnership Agreement -- Sharing of Profits and
Losses". The General Partner takes such actions as it deems necessary or
appropriate at any time to admit new or substituted limited partners to the
Partnership. See "The Limited Partnership Agreement -- Additional Partners" and
"The Limited Partnership Agreement -- Restrictions on Transfer or Assignment".
General Partner as a Fiduciary. Under New York law, the General Partner
has a responsibility to the limited partners to exercise good faith and fairness
in all dealings affecting the Partnership. The General Partner has fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership. The General Partner shall not permit the limited partners to
contract away the fiduciary obligation owed to the limited partners by the
General Partner under common law. The law of fiduciary duties is a developing
and changing area of the law and limited partners who have questions concerning
the responsibilities of the General Partner should consult their counsel. In the
event that a limited partner believes the General Partner has violated its
fiduciary responsibility to the limited partners, he may seek legal relief for
himself or on behalf of the Partnership, if the General Partner has refused to
bring the action, or if an effort to cause the General Partner to bring the
action is not likely to succeed, or may have a right to bring a class action on
behalf of all of the limited partners, under applicable laws, including
partnership, commodities or securities laws, to recover damages from or require
an accounting by the General Partner. Limited partners may also be afforded
certain rights for reparations under the CEA for violations of the CEA by the
General Partner. There can be no assurance, however, that adequate remedies will
be available to the limited partners in the event that the General Partner fails
to perform its fiduciary obligations to the Partnership. In addition, a limited
partner may institute legal proceedings against the General Partner if it or a
duly selected trading advisor engages in excessive trading. Limited partners
should be aware that it would be difficult to establish that commodity trading
has been excessive due to the broad trading authority given to the General
Partner under the Limited Partnership Agreement and the Advisor under the
Management Agreement, the scarcity of judicial decisions providing standards
defining excessive trading, and the exculpatory provisions in the Limited
Partnership Agreement.
The Limited Partnership Agreement provides that the Partnership shall
indemnify and hold harmless the General Partner or its affiliates, subject to
receipt of an independent legal opinion regarding the applicable standard of
conduct, against any loss, liability, expense (including attorneys' and
accountants' fees),
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judgments and amounts paid in settlement, if the General Partner (or its
affiliate) determined in good faith that the course of conduct which caused the
loss or liability was in the best interests of the Partnership, the General
Partner (or its affiliate) was acting on behalf of or performing services for
the Partnership and if such loss or liability was not the result of negligence
or misconduct. The General Partner would be able to defend itself on that basis
if it were involved in a lawsuit, as established in New York law. No
indemnification of the General Partner or its affiliates is permitted for losses
resulting from a violation of the Securities Act of 1933 or of any state
securities law. In addition, indemnification of the General Partner and its
affiliates in connection with any action against the General Partner may only be
made if consistent with applicable provisions of the New York Revised Limited
Partnership Act. The provisions of the Limited Partnership Agreement are
consistent with New York standards of fiduciary duty.
The Limited Partnership Agreement provides further that the General Partner
shall not be personally liable for the return or repayment of all or any portion
of the capital or profits of any partner (or assignee), it being expressly
agreed therein that any such return of capital or profits made pursuant to the
Limited Partnership Agreement shall be made from the assets (which shall not
include any right of contribution from the General Partner) of the Partnership.
The effect of the above provisions may be that an investor in the Units
would have a more limited right of action than would be the case had such
provisions not existed. The CFTC has issued a statement of policy relating to
indemnification of officers and directors of a futures commission merchant and
its controlling persons under which it has taken the position that whether such
indemnification is consistent with the policies expressed in the CEA will be
determined by the CFTC on a case-by-case basis.
The limited partners may be afforded certain rights for reparations under
the CEA. The CFTC has adopted rules implementing the reparations provisions of
the CEA which provide that any person may file a complaint for a reparations
award with the CFTC for violation of the CEA against a floor broker, a futures
commission merchant and its associated persons, a commodity trading advisor or a
commodity pool operator. The General Partner is registered with the CFTC as a
commodity pool operator and a commodity trading advisor; the Advisor is
registered with the CFTC as a commodity trading advisor; and SB is registered
with the CFTC as a futures commission merchant. In addition, the NFA has adopted
certain arbitration rules which, in appropriate circumstances, might provide
rights to limited partners. The General Partner, the Advisor and SB are members
of the NFA.
THE COMMODITY BROKER/DEALER
Smith Barney Inc., the Partnership's market-maker and commodity
broker/dealer through which the Partnership executes its trades, is a clearing
member of The Board of Trade of the City of Chicago, the Chicago Mercantile
Exchange, and other principal U.S. commodity exchanges. It is also registered
with the SEC as a securities broker-dealer and with the CFTC as a futures
commission merchant, and is a member of the NFA, the National Association of
Securities Dealers, Inc. and major securities exchanges, including the New York
Stock Exchange. SB has approximately 500 domestic and international offices and
over 10,000 Financial Consultants. Its principal office is located at 390
Greenwich Street, New York, New York 10013; telephone (212) 816-6000.
SB provides commodity brokerage and clearing services for both retail and
professional participants in the commodity futures markets, including clearing
services for other commodity pools and other members of the commodity exchanges
of which it is a clearing member.
BROKERAGE FEES. The Partnership has entered into a non-exclusive Customer
Agreement (as described below) with SB pursuant to which SB executes trades on
behalf of the Partnership. Pursuant to the Customer Agreement, the Partnership
pays SB a monthly brokerage fee equal to 13/24 of 1% of month-end Net Assets
(6.5% per year) in lieu of per transaction fees and regardless of how many or
how few trades are executed during a month. This fee does not include exchange,
floor brokerage, user, give-up, clearing and NFA fees which will be paid by the
Partnership with respect to futures and options transactions. The Partnership
shall
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seek the best price and services available in its commodity futures brokerage
transactions. SB acts as principal on any spot and forward transactions entered
into by the Partnership. Such transactions are entered into at prices quoted by
SB which reflect a spread between the bid and ask (which spread includes
anticipated profits and costs to SB as dealer), but does not include a mark-up.
The spread charged on related party trades will be at or below market price. SB
pays a portion of its brokerage fee to its Financial Consultants who are
registered as associated persons of a futures commission merchant and who have
sold Units in this offering so long as they are still employed by SB. Such
Financial Consultants provide ongoing services to investors including (i)
answering questions regarding daily net asset value and computations thereof,
monthly statements, annual reports and tax information provided by the
Partnership; (ii) providing assistance to investors in deciding whether and when
to redeem their Units or purchase additional Units; and (iii) general servicing
of accounts. Such Financial Consultants receive a portion of the fees
attributable to Units for the sale of which they were responsible. For this
purpose fees are deemed to be attributable to Units sold by a Financial
Consultant in the proportion which the number of such Units bears to the number
of all Units outstanding at any time. For example, if a Financial Consultant
were responsible for the sale of 200 Units and there were 40,000 Units
outstanding, .5% (200 divided by 40,000) of the aggregate amount available for
such payments would be attributable to the Units sold by a Financial Consultant
and the Financial Consultant would currently be credited with approximately 80%
of the amount attributable to the Units sold by him.
The brokerage fee charged to the Partnership may not equal the lowest rates
which SB charges to any speculative account, including the accounts of its
employees, and may not be as low as rates which might be charged by other
commodity broker/dealers because different accounts require different levels of
service and monitoring based upon the number of advisors and the volume and
complexity of trading. In addition, pursuant to its Customer Agreement with SB,
the Partnership will receive several administrative services, such as account
reconcilement, payment of fees and expenses, crediting interest income and
assistance with preparation of all regulatory filings and monthly reports. These
types of services may not be provided to other speculative accounts of SB and
may account for the possibly higher rates charged to the Partnership. Since the
Customer Agreement is nonexclusive, and since the Partnership is not permitted
to enter into an exclusive brokerage agreement, the Partnership would have the
right to seek lower brokerage rates from other broker/dealers. The General
Partner believes that the arrangements between SB and the Partnership are
consistent with arrangements made between comparable commodity pools and other
broker/dealers and are fair to the Partnership. Therefore, the General Partner
does not intend to negotiate with any other broker/dealers for services to the
Partnership nor does it intend to negotiate with SB to obtain a better rate.
However, the General Partner will review, at least annually, the brokerage rates
charged to other comparable commodity pools to the extent practicable, to
determine that the brokerage rates being paid by the Partnership are competitive
with such other rates. The General Partner will renegotiate the Customer
Agreement if its fiduciary duties so require. In accordance with the Limited
Partnership Agreement, limited partners owning more than 50% of the outstanding
Units may terminate the Customer Agreement with SB (an affiliate of the General
Partner) on sixty days' notice without penalty. See "Conflicts of Interest".
CUSTOMER AGREEMENT. The Partnership has entered into a Customer Agreement
with SB pursuant to which SB executes transactions for the Partnership's
accounts in accordance with orders placed by the Advisor. In addition to
specifying the services performed by SB, which include the execution of orders
and the rendering of bookkeeping and clerical assistance to the Partnership and
the General Partner, the Customer Agreement provides that SB will pay monthly
interest to the Partnership on 80% of the average daily equity maintained in
cash in the Partnership's trading account at SB during each month (i.e., the sum
of the daily cash balances in such accounts divided by the total number of
calendar days in that month) at a 30-day Treasury bill rate determined weekly by
SB based on the average non-competitive yield on 3-month U.S. Treasury bills
maturing in 30 days (or on the maturity date closest thereto) from the date on
which such weekly rate is determined.
The Customer Agreement also provides that with respect to any action in
which SB or its affiliates is a party (other than an action by or in the right
of the Partnership), the Partnership shall indemnify and hold harmless such
person, subject to receipt of an independent legal opinion regarding the
applicable standard of
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conduct, against any loss, liability, damage, cost, expense (including
attorneys' and accountants' fees), judgments and amounts paid in settlement, if
the indemnified person acted in good faith and in a manner reasonably believed
to be in the best interests of the Partnership, and if such actions did not
involve negligence, misconduct, or a breach of fiduciary obligations. To the
extent that the indemnified party has been successful in defense of any action,
no independent legal opinion is needed.
The Customer Agreement further provides that SB and the Partnership have
the right to offset any unrealized gains and losses on the Partnership's open
positions and to net any open orders for the purchase or sale of any property of
the Partnership.
LITIGATION. There have been no administrative, civil or criminal actions
pending, on appeal or concluded against SB or any of its individual principals
within the past five years that are material to a decision whether to invest in
the Partnership, except as follows.
Between May 1994 and the present, Salomon Brothers Inc ("SBI"), SB and The
Robinson Humphrey Company, Inc. ("R-H"), all currently subsidiaries of Salomon
Smith Barney Holdings Inc. ("SSBHI"), along with a number of other
broker-dealers, were named as defendants in approximately 25 federal court
lawsuits and two state court lawsuits, principally alleging that companies that
make markets in securities traded on NASDAQ violated the federal antitrust laws
by conspiring to maintain a minimum spread of $.25 between the bid and asked
price for certain securities. The federal lawsuits and one state court case were
consolidated for pre-trial purposes in the Southern District of New York in the
fall of 1994 under the caption In re NASDAQ Market-Makers Antitrust Litigation,
United States District Court, Southern District of New York No. 94-CIV-3996
(RWS); M.D.L. No. 1023. The other state court suit, Lawrence A. Abel v. Merrill
Lynch & Co., Inc. et al.; Superior Court of San Diego, Case No. 677313, has been
dismissed without prejudice in conjunction with a tolling agreement.
In the consolidated action, the plaintiffs purport to represent a class of
persons who bought one or more of what they currently estimate to be
approximately 1,650 securities on NASDAQ between May 1, 1989 and May 27, 1994.
They seek unspecified monetary damages, which would be trebled under the
antitrust laws. The plaintiffs also seek injunctive relief, as well as
attorney's fees and the costs of the action. (The state cases seek similar
relief.) Plaintiffs in the consolidated action filed an amended consolidated
complaint that defendants answered in December 1995. On November 26, 1996, the
Court certified a class composed of retail purchasers. A motion to include
institutional investors in the class and to add class representatives was
granted. In December 1997, SBI, SB and R-H, along with several other
broker-dealer defendants, executed a settlement agreement with the plaintiffs.
This agreement has been preliminarily approved by the U.S. District Court for
the Southern District of New York but is subject to final approval.
On July 17, 1996, the Antitrust Division of the Department of Justice filed
a complaint against a number of firms that act as market makers in NASDAQ
stocks. The complaint basically alleged that a common understanding arose among
NASDAQ market makers which worked to keep quote spreads in NASDAQ stocks
artificially wide. Contemporaneous with the filing of the complaint, SBI, SB and
other defendants entered into a stipulated settlement agreement, pursuant to
which the defendants would agree not to engage in certain practices relating to
the quoting of NASDAQ securities and would further agree to implement a program
to ensure compliance with federal antitrust laws and with the terms of the
settlement. In entering into the stipulated settlement, SBI and SB did not admit
any liability. There are no fines, penalties, or other payments of monies in
connection with the settlement. In April 1997, the U.S. District Court for the
Southern District of New York approved the settlement. In May 1997, plaintiffs
in the related civil action (who were permitted to intervene for limited
purposes) appealed the district court's approval of the settlement. The appeal
is pending.
The Securities and Exchange Commission ("SEC") is also conducting a review
of the NASDAQ marketplace, during which it has subpoenaed documents and taken
the testimony of various individuals including SBI and SB personnel. In July
1996, the SEC reached a settlement with the National Association of
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Securities Dealers and issued a report detailing certain conclusions with
respect to the NASD and the NASDAQ market.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms, including
SB, in the U.S. Bankruptcy Court for the Central District of California.
Plaintiff alleged, among other things, that the defendants recommended and sold
to plaintiff unsuitable securities. The case (County of Orange et al. v. Bear
Stearns & Co. Inc. et al.) has been stayed by agreement of the parties.
In the course of its business, SB, as a major futures commission merchant
and broker-dealer is a party to various claims and routine regulatory
investigations and proceedings which the General Partner believes do not have a
material effect on the business of SB.
INCOME TAX ASPECTS
The General Partner has been advised by its counsel, Willkie Farr &
Gallagher, that, in its opinion, the following summary describes the material
federal income tax consequences to a United States taxpayer who invests in the
Partnership, subject to the uncertainties referred to herein. The legal opinions
appearing in this section are the legal opinions of Willkie Farr & Gallagher.
The following summary is based upon the Code, and rules, regulations and
existing interpretations relating thereto, any of which could be changed at any
time. A complete discussion of all federal, state and local tax aspects of an
investment in the Partnership is beyond the scope of the following summary, and
prospective investors should consult their own tax advisers particularly as
respects the effect of their own individual tax characteristics.
CLASSIFICATION AS A PARTNERSHIP
Treasury Regulations (the "check-the-box regulations") that were adopted in
1996 permit the Partnership to elect treatment as a partnership for federal
income tax purposes. Even if the Partnership does not affirmatively elect
treatment as a partnership, the check-the-box regulations provide that the
Partnership will be classified as a partnership for federal tax purposes so long
as it has two or more members.
Pursuant to Code Section 7704, "publicly traded partnerships" are taxed as
corporations. If the Partnership were treated as an association taxable as a
corporation for federal income tax purposes, the income of the Partnership would
be taxed to the Partnership at corporate rates, no Partnership losses could be
used by the Partners to offset their own income and all or a portion of any
distribution by the Partnership to the partners would be taxed to them as
dividends to the extent of the current and accumulated earnings and profits of
the Partnership. See "Application of 'Publicly Traded Partnership' Rules to the
Partnership". The discussion which follows assumes that the Partnership will be
treated as a partnership for federal income tax purposes.
IN GENERAL
The Partnership will pay no federal income tax. Rather in the opinion of
Willkie Farr & Gallagher, each limited partner will report on his federal income
tax return his distributive share of the Partnership's income, gains, losses,
deductions, credits and other items for the Partnership's taxable year ending
with or within the partner's taxable year. A limited partner's distributive
share of such items for federal income tax purposes will be determined under the
Limited Partnership Agreement generally on a pro rata basis in accordance with
his capital account. A limited partner must report (and pay taxes on) his share
of partnership income for a particular taxable year whether or not any cash is
actually distributed to him for that year.
SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES
FOR UNITED STATES TAXPAYERS WHO ARE INDIVIDUALS
The following discussion applies only to limited partners who are citizens
or residents of the United States for federal income tax purposes, and who are
taxed as individuals. Corporate limited partners should consult
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their own tax counsel as to the federal, state and local tax aspects of an
investment in the Partnership and, in particular, should consider the discussion
of the New York State corporate franchise tax under "State, Local and Other
Taxes" below.
ALLOCATION OF TAX ITEMS
Limited partners will be allocated their proportionate share of the taxable
income or losses realized by the Partnership during the period of the
Partnership's taxable year that Units were owned by them. For this purpose,
transfers or assignments of Units will be effective only as of the first day of
the month after the month in which the General Partner consents to such transfer
or assignment. The allocation of taxable income for Federal income tax purposes
by the Partnership may differ from the way in which the benefits of the income
have been allocated among the Partners for financial purposes as a consequence
of new Limited Partners joining the Partnership and existing Partners adding
capital to, or withdrawing capital from, the Partnership during a taxable year
of the Partnership. For example, a partner may redeem Units at a time at which
the Partnership has realized gains which are offset by unrealized losses. The
unrealized losses will reduce the amount paid to the partner on redemption but,
when later realized, may not be allocated for tax purposes to the redeemed
partner. Alternatively, if a partner redeems Units when there are net unrealized
gains, the redeemed partner will be paid for his share of such gain, but when
they are later realized any resulting tax liability may have to be borne by the
remaining partners.
Unrealized gains/losses on many commodity interests held by the Partnership
at the end of its taxable year must be included in income under the
"mark-to-market" rule described below. For federal income tax purposes, these
gains/losses will be allocated to partners in proportion to their respective
capital accounts. The General Partner will determine each Partner's share of the
Partnership's gain or loss for tax purposes by marking to market the
Partnership's investments as of the end of each month of the taxable year and by
allocating the resulting gain or loss to those Partners who were Partners of the
Partnership during the month to which such gain or loss relates. Some ambiguity
exists under current law regarding the application of the mark-to-market rules
to Partners who redeem or transfer their interests other than at the end of the
Partnership's taxable year. Mark-to-market gains and losses might be allocated
only to those Partners holding interests in the Partnership at the end of the
Partnership's year and the Partnership may not be entitled to a basis adjustment
with respect to gains and losses on "Section 1256 contracts" (defined below in
"Commodity Provisions") regardless of whether the gains or losses may be
allocated monthly.
LIMITATIONS ON DEDUCTIONS
(1) Basis: A partner may not deduct Partnership losses to the extent they
exceed his basis in the Partnership as of the time he seeks to take that
deduction. A limited partner's initial tax basis for his interest in the
Partnership will be the amount of money he contributes to the Partnership. This
initial basis will be increased by the Partnership's income previously allocated
to him for tax purposes and by additional contributions and will be reduced by
the Partnership's losses previously allocated to him for tax purposes, and by
any distributions previously made to him by the Partnership. Losses denied under
this limitation are suspended and may be carried forward and deducted in
subsequent taxable years, subject to this and all other applicable limitations.
(2) At Risk: Similarly, a partner may not deduct Partnership losses for
tax purposes for a particular taxable year to the extent they exceed the amount
he has "at risk" for his interest in the Partnership at the end of that year. At
the end of a taxable year, a limited partner will be "at risk" for tax purposes
to the extent of the total of all money he has contributed to the Partnership
(except to the extent that the money contributed has been borrowed by the
limited partner either without recourse to the limited partner or from a person
with an interest in the Partnership or a person related to such a person), plus
his share of Partnership income for tax purposes previously allocated to him,
reduced by the amount of the Partnership's losses previously allocated to him
and reduced by the amount of any prior distributions to him. Losses denied under
this limitation are suspended and may be carried forward and deducted in
subsequent taxable years, subject to this and all other applicable limitations.
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(3) Capital Losses: An allocable share of the Partnership's capital losses
may be used to offset short-term or long-term capital gains realized by a
partner, plus (for taxpayers other than corporations) up to $3,000 ($1,500 in
the case of a married individual filing a separate return) a year of ordinary
income. Generally, noncorporate taxpayers may carry forward, but may not carry
back, unused net capital losses. A noncorporate taxpayer may elect, however, to
carry unused net capital losses from trading in Section 1256 contracts back to
each of the three preceding years to the extent of the capital gain net income
for such preceding year from trading in Section 1256 contracts (or of overall
capital gain net income for the year, if less).
(4) Passive Activity: The Partnership's income will not be treated as a
"passive activity" for purposes of the limitation on the deduction of passive
activity losses.
(5) Miscellaneous Itemized Deductions: If the Partnership is treated as
engaged merely in an investment activity (and not in a trade or business), a
limited partner taxed as an individual would be allowed a deduction for his
share of general partnership expenses (which could include management fees,
incentive fees and legal and audit expenses but not commodity trading expenses)
only to the extent that the total of all of his investment and other
miscellaneous expenses exceeds 2% of his adjusted gross income. Whether the
Partnership will be engaged in a trade or business or in an investment activity
will depend on the extent and nature of the Partnership's trading activity in
any taxable year and could vary from year to year. However, based on the
contemplated extent of trading of the Partnership, the General Partner has been
advised by its legal counsel that the Partnership's activities should be
classified as a trade or business, rather than as an investment activity. It is
often difficult to distinguish among investment, trading and dealership
activities, and it is possible that the Service could conclude, based on its
independent examination of the facts regarding the Partnership's operations,
that the Partnership's transactions constitute dealer transactions or investing
in securities. Such determinations on the part of the Service may significantly
alter the tax consequences of a limited partner's investment in the Partnership
as described herein.
Section 68 of the Code further limits an individual partner's ability to
deduct certain itemized deductions that otherwise are deductible against taxable
income. Specifically, for regular income tax purposes (but not for alternative
minimum tax purposes), the amount of itemized deductions that non-corporate
partners (other than estates and trusts) having adjusted gross income in excess
of a "threshold" amount (as defined below) will be allowed to deduct is reduced
by an amount equal to the lesser of (i) 3% of such partner's adjusted gross
income or (ii) 80% of the amount of the otherwise allowable itemized deductions
for the taxable year. The "threshold" amount for 1998 is $124,500 ($62,250 for
married persons filing separately). For purposes of Section 68, itemized
deductions are determined after application of the other loss disallowance rules
of the Code and do not include any deductions for medical expenses, investment
interest expense or for certain losses under Section 165(a) of the Code.
(6) Syndication Fees: Neither the Partnership nor any partner will be
entitled to any deduction for syndication expenses, that is, amounts paid or
incurred in connection with issuing and marketing the Units. There is a risk
that some portion of the brokerage fees to be paid to SB would be treated as a
nondeductible payment by the Partnership of syndication expenses.
(7) Investment Interest: A noncorporate taxpayer may deduct the total of
all his interest expense incurred or continued to purchase or carry "property
held for investment" only to the extent of his net "investment income" from all
such property he holds. A Unit of the Partnership should be considered "property
held for investment", and the interest expense incurred by a limited partner to
purchase or carry a Unit and such limited partner's distributive share of
Partnership investment interest expense should generally be subject to this
limitation.
The deduction of investment interest that is disallowed under these rules
is not lost permanently but may be claimed as an investment interest deduction
in succeeding taxable years subject to the limitation. A limited partner's net
investment income will not include that portion of investment income derived
from long-term capital gains unless the partner elects to treat such gains as
short-term gains.
Under the Code, a taxpayer may not deduct interest on indebtedness incurred
or continued to purchase or carry obligations, the interest on which is exempt
from tax. In the case of a limited partner owning tax-exempt
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obligations, the Service might take the position that the limited partner's
allocable portion of any interest expense of the Partnership should be viewed in
whole or in part as incurred to enable the limited partner to purchase or carry
the tax-exempt obligations and that the deduction of any interest by the limited
partner should be denied in whole or in part.
CAPITAL GAIN
The trading activities of the Partnership will, as a general rule, generate
capital gain and loss, and ordinary income. Partnership transactions would
result in ordinary income if the Partnership were considered to hold property
for sale to customers in the ordinary course of a trade or business. The
Partnership does not expect to hold its commodity interests for sale to
customers, and in particular does not expect to effect transactions in physical
commodities (other than spot and forward currency transactions), on a regular
basis. Certain foreign currency transactions could result in ordinary income as
discussed below.
The Taxpayer Relief Act of 1997 made certain changes to the Code with
respect to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets. This 20% rate applies to sales on or after July 29, 1997 only if
the asset was held for more than 18 months at the time of disposition. Capital
gains on the disposition of assets on or after July 29, 1997 held for more than
one year and up to 18 months at the time of disposition will be taxed as
"mid-term gain" at a maximum rate of 28%. A rate of 18% instead of 20% will
apply after December 31, 2000 for assets held for more than five years. However,
the 18% rate applies only to assets acquired after December 31, 2000 unless the
taxpayer elects to treat an asset held prior to such date as sold for fair
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate is reduced to 10% and the 10% rate
for assets held for more than five years is reduced to eight percent. The 60%
portion of gain of Section 1256 contracts that is treated as long-term capital
gains is eligible for the reduced rates for gains on assets held more than 18
months.
INTEREST INCOME
SB will pay interest on a portion of the average daily cash equity in the
brokerage account. Interest paid to the Partnership will be taxable currently to
the limited partners as ordinary income. In addition, any interest earned by an
investor on any subscription amounts that may be held in escrow will also be
taxable as ordinary income to him and should be reported in accordance with his
regular method of accounting.
COMMODITY PROVISIONS
The Partnership will engage in speculative trading in commodities,
commodity options and commodity futures contracts on all major United States and
certain foreign commodity exchanges and will trade in forward contracts in
foreign currencies. The Advisors may from time to time employ trading strategies
such as spreads or straddles on behalf of the Partnership. Special tax rules
generally apply to transactions in commodity interests.
(1) Mark-to-Market: Under the Code, all positions in Section 1256
contracts held by the Partnership at the end of its taxable year will be marked
to their market value, and any unrealized gain or loss on those positions will
be included in the income of the partners as if each position had been sold for
its fair market value on the last day of the Partnership's taxable year. (If,
however, the taxable year of the Partnership is different from the taxable year
of a partner, the operation of the mark-to-market rule is unclear, and the
treatment described herein may be challenged by the Service.) The General
Partner will mark to market the Partnership's investments as of the end of each
month of the taxable year. Section 1256 contracts generally include (i)
regulated futures contracts ("RFCs"), which are futures contracts traded on
regulated United States (and certain foreign) exchanges (including cash
settlement contracts such as Eurodollar or stock index contracts), (ii) most
foreign currency forward contracts traded in the interbank market (hereinafter
"interbank contracts"), and (iii) domestic (and certain foreign) exchange-traded
options on commodities, including options on RFCs, debt securities and stock
indices. Accordingly, it is expected that the mark-to-market rule will apply to
many of the Partnership's transactions in commodity interests. However, the
mark-
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to-market rules will not apply to the Partnership's positions in futures
contracts on most foreign exchanges and in foreign currency forward contracts
not in the interbank market, unless the Partnership elects such treatment under
the provisions of Code Section 988, as discussed below. If the Partnership does
not make that election, a partner may elect to have the partner's share of
foreign currency gain or loss on certain of the Partnership's Section 1256
contracts treated as ordinary income or loss, as described below.
After positions in Section 1256 contracts held by the Partnership at the
end of its taxable year are marked to market, the resulting gain or loss will be
combined with any gain or loss realized by the Partnership from positions in
Section 1256 contracts closed during that year. Provided such positions were
held as capital assets and were not part of a "hedging transaction", nor part of
a "straddle" (see below), 60% of the resulting net gain or loss will be treated
as a long-term capital gain or loss and 40% of such net gain or loss will be
treated as a short-term gain or loss, regardless of the period of time
particular positions were actually held by the Partnership. (However, gain or
loss from positions treated as Section 1256 contracts under the Code Section 988
election provisions, if elected by the Partnership, would be treated entirely as
short-term capital gain or loss.)
(2) Straddles: If the Partnership incurs a loss upon the disposition of
any position which is part of a "straddle" (i.e., two or more offsetting
positions), recognition of that loss for tax purposes will be deferred until the
Partnership recognizes the gain in the offsetting position of the straddle. This
rule would apply to all of the positions in a straddle which includes one or
more Section 1256 contracts but which does not consist entirely of Section 1256
contracts (a "mixed straddle"), but not to a straddle all of the positions of
which are Section 1256 contracts. (Depending upon whether the Partnership makes
certain elections, the Section 1256 contract components of a mixed straddle may
be treated as not subject to the mark-to-market rules.) This provision would
also apply to the Partnership's positions in futures contracts on most foreign
exchanges and in forward contracts on foreign currency (other than interbank
contracts), which could result in the deferral of deductions for losses
resulting from the disposition of such positions or from the disposition of
Section 1256 contracts which offset those positions. The Partnership can
specifically identify particular positions as being components of a straddle, in
which case a realized loss would be allowable only upon the liquidation of all
of the components of the identified straddle. The Partnership's trading
strategies may include the use of spreads or straddles, with or without making
such identifications.
Interest and other carrying charges allocable to positions which are part
of a straddle must be capitalized, rather than deducted currently.
(3) Wash and Short Sale Rules: The "short sale" rules may apply to
positions held by the Partnership so that what might otherwise be characterized
as long-term capital gain would be characterized as short-term capital gain or
potential short-term capital loss as long-term capital loss. Furthermore, "wash
sale" rules, which prevent the recognition of a loss from the sale of a security
where a substantially identical security is (or has been) acquired within a
prescribed time period, also apply where certain offsetting positions (other
than identified straddle positions) are entered into within the prescribed
period.
(4) Section 988: Currency gain or loss from transactions in (i) bank
forward contracts not traded in the interbank market and (ii) currency futures
contracts traded on a foreign exchange may be treated as ordinary income or loss
under Code Section 988. The Partnership may elect, in effect, to recognize gain
or loss from instruments described in clauses (i) and (ii) of the preceding
sentence under the mark-to-market rules of Code Section 1256. Pursuant to that
election, gain or loss from such positions would be treated entirely as
short-term capital gain or loss. The Partnership has made the election necessary
to gain such treatment.
(5) Partner-Partnership Positions: It is unclear to what extent the loss
deferral, short sale, capitalization and wash sale rules would apply to
straddles consisting of Partnership transactions and transactions by a partner
in his individual capacity. Each prospective limited partner should review the
application of these rules to his own particular tax situation, with special
regard to the potential interaction between Partnership operations and
commodities transactions entered into by the prospective limited partner in his
individual capacity.
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APPLICATION OF 'PUBLICLY TRADED PARTNERSHIP' RULES TO THE PARTNERSHIP
Under Code Section 7704, certain publicly traded partnerships are treated
as corporations for federal income tax purposes. Publicly traded partnerships,
as defined in Code Section 7704(b), are partnerships the interests in which are
traded on an established securities market or are readily tradeable on a
secondary market (or the substantial equivalent thereof).
Even if a partnership is considered to be publicly traded, Code Section
7704(c) provides that such a partnership will not be treated as a corporation
for federal income tax purposes if, as to each taxable year of its existence,
(i) with certain exceptions to be prescribed by forthcoming Treasury
Regulations, the partnership is not required to register under the 1940 Act, and
(ii) at least 90% of its gross income is "qualifying income," such as interest,
dividends, gains from the disposition of stock or securities, and, in the case
of a partnership that has as a principal activity the buying and selling of
commodities and commodity instruments, income and gains from such commodities
transactions.
On the basis of its examination of the Partnership's objectives and trading
policies as described herein, Willkie Farr & Gallagher has concluded that at
least 90% of the annual gross income of the Partnership will consist of
qualifying income, as defined above. Based on that conclusion, the Partnership
could be expected to satisfy the gross income requirement in each of its taxable
years, beginning with the current taxable year. Further, Willkie Farr &
Gallagher has concluded that, so long as the Partnership is engaged primarily in
commodity trading, it will not be required to register under the 1940 Act.
Therefore, the Partnership does not expect to be taxed as a corporation under
Code Section 7704 even if it were to be viewed as publicly traded.
Should the aforementioned facts, assumptions and representations fail to be
accurate for any reason, the IRS may take the position that the Partnership
should be treated as an association taxable as a corporation for federal income
tax purposes. The continued treatment of the Partnership as a partnership also
is dependent upon existing Code provisions, regulations promulgated thereunder
and administrative interpretations thereof, all of which are subject to change.
Therefore, no assurances can be given that the Partnership's classification for
federal income tax purposes may not be changed during the term of its existence.
PARTNERSHIP AUDIT PROCEDURES
The Partnership's federal income tax information return may be audited.
While partners have certain rights to participate in a partnership audit, some
of these rights are not available to partners owning less than a 1% profit
interest in a partnership with more than 100 partners. Accordingly, a limited
partner may not be able to participate in an audit of the Partnership's
information return, but could nevertheless be bound by a settlement reached in
that audit unless he has filed a timely pre-settlement notice with the Service
stating that he will not be bound by the settlement. An audit of the
Partnership's returns may result in an audit of a limited partner's tax return
and lead to adjustments of income and loss unrelated to an investment in the
Partnership.
REDEMPTION OF UNITS
To the extent of his tax basis in his Units, cash distributed to a limited
partner by the Partnership upon redemption of Units will constitute a return of
capital that will not be reportable as taxable income, but will reduce his tax
basis in his Units. To the extent that cash distributions exceed a limited
partner's tax basis in his Units, an event which should only arise upon
redemption, such distributions will be taxable to him as gain from the sale or
exchange of the Units. Upon complete redemption of all of a limited partner's
Units, the limited partner may recognize loss to the extent of any unrecovered
basis in the redeemed Units. If the limited partner is not a "dealer" with
respect to the Units and has held his Units for more than one year, any gain or
loss on their redemption will be long-term capital gain or loss.
BROKER REPORTING AND BACKUP WITHHOLDING
The subscription documents require each prospective investor in the
Partnership to furnish the investor's "taxpayer identification number." If the
number furnished is not correct, the investor may be subject to
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penalties imposed by the Service and payments to the investor in redemption of
Units (and, possibly, other Partnership distributions) may become subject to 31%
backup withholding.
The Partnership is not required to treat either its commodities
transactions or redemptions of Units as requiring separate reporting to
investors under Code Section 6045, since the information required to be
furnished by that section is identical to that furnished to each investor on
Schedule K-1 of Form 1065. The same information will be furnished to the Service
on Form 1065. Accordingly, investors will not receive separate Forms 1099-B with
respect to such transactions.
ALTERNATIVE MINIMUM TAX
The alternative minimum tax for individuals is imposed on "alternative
minimum taxable income" ("AMTI") in excess of an exemption amount of $33,750
($45,000 for married individuals filing a joint return and $22,500 for married
individuals filing separate returns). A 26% rate applies to the first $175,000
of a taxpayer's AMTI in excess of the exemption amount, and a 28% rate applies
to AMTI more than $175,000 above the exemption amount. The exemption amount is
phased out at a rate of 25 cents on the dollar for AMTI in excess of $112,500
($150,000 for married individuals filing a joint return and $75,000 for married
individuals filing separate returns). AMTI consists of taxable income determined
with certain adjustments and increased by the amount of items of tax preference.
AMTI may not be offset by certain interest deductions, including (in certain
circumstances) interest incurred to purchase or carry Units in the Partnership.
Corporations are also subject to an alternative minimum tax.
TAX CONSEQUENCES FOR EXEMPT ORGANIZATIONS
The following is a brief summary of the federal income tax consequences to
entities otherwise exempt from such tax (such as employee benefit plans,
individual retirement plans, individual retirement accounts and charitable
organizations) ("Exempt Organizations").
In general, an investment in the Partnership is not expected to result in
significant amounts of "unrelated business income." If, however, any portion of
an Exempt Organization's allocable share of Partnership income is treated as
"unrelated business taxable income", the Exempt Organization will be liable for
a tax on that amount (plus all other unrelated business taxable income for the
taxable year), minus applicable modifications and deductions, at the rates
applicable to corporations.
Unrelated business income includes certain income derived from
"debt-financed property." Such "debt-financed property" generally will include
securities purchased on margin. However, the Service has stated in private
rulings that margin accounts maintained with respect to certain commodities
trading do not create indebtedness and therefore such commodities traded on
margin do not constitute "debt-financed property." However, there is no
published authority for this view, private rulings have no value as precedent
and the Partnership will not seek a ruling from the Service on this issue.
Therefore, there is a risk that the Partnership's income could be viewed as
generated from debt-financed property and would therefore constitute unrelated
business income.
If the Partnership were to purchase physical commodities with borrowed
funds (whether upon delivery under a futures or forward contract or otherwise)
and to sell those commodities at a gain, such gain would likely constitute
unrelated business income. The Partnership is entitled to engage in such
leveraged purchases of physical commodities. See "Trading Policies."
STATE, LOCAL AND OTHER TAXES
In addition to federal income taxes, limited partners may be subject to
other taxes, such as state or local income taxes, and estate, inheritance or
intangible property taxes which may be imposed by various jurisdictions. A
non-New York corporate limited partner that is not otherwise subject to New York
State taxation may become subject to the New York State Corporate Franchise Tax.
The current minimum New York State corporate franchise tax ranges between $1,500
and $325, based on gross payroll, and the tax
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liability could be greater depending on the application of alternate statutory
formulas for determining the amount of the corporate partner's net income that
is allocable to New York State. In general, such non-New York State corporate
limited partners will be subject to the Franchise Tax on their income allocable
to New York unless (1) at least 90% of the Partnership's gross income is from
dividends, interest, securities loans and gains from the sale of stock or
securities or foreign currencies, or other income derived with respect to the
Partnership's investments in stock, securities or currencies, and/or from income
and gains from commodities (which are not described in Code Section 1221(1) but
are of a kind customarily dealt in on an organized commodity exchange) or from
futures, forwards and options with respect to such commodities, or (2) such
partner's partnership interest is less than 1% or the tax basis in the interest
does not exceed $1,000,000. While the Partnership expects to satisfy the 90%
income test described above, no assurance can be given as to whether an
investment in the Partnership will create a Franchise Tax liability. Non-New
York corporate limited partners that are subject to New York taxes solely as a
result of their investment in the Partnership may make an irrevocable election
to be subject to New York taxes only on their share of Partnership income
allocable to New York.
The Partnership expects to take the position that it trades for its own
account and is exempt from the New York City Unincorporated Business Tax.
Non-New York City corporate limited partners are subject to the New York City
General Corporate Tax on income allocable to the City. The current minimum
General Corporate Tax is $300, although the actual tax liability could be
greater depending on how the corporate partner's income is allocated to New York
City.
Each prospective limited partner should consult his own tax counsel with
regard to state, local and other taxes.
SUMMARY OF THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES FOR NON-U.S. TAXPAYERS
A non-resident alien individual, foreign corporation or foreign partnership
not otherwise engaged in a United States trade or business or acting as a dealer
in commodities will not be deemed to be engaged in a United States trade or
business by virtue of an investment as a limited partner in the Partnership.
Capital gains earned by the Partnership and allocated to such a foreign limited
partner will, as a general rule, not be subject to United States federal income
taxation or withholding, but may be subject to taxation by the jurisdiction in
which such foreign limited partner is resident, organized or operating. Interest
income earned by the Partnership on its margin account with SB and interest
earned by limited partners on escrow deposits will, as a general rule, likewise
not be subject to the United States federal income tax or withholding, but may
be subject to tax in other jurisdictions to which such foreign limited partner
is connected. Prospective foreign limited partners who are engaged in a United
States trade or business or who act as dealers in commodities may be subject to
United States income tax and should consult their tax advisors before investing
in the Partnership.
BASIS OF SUMMARY OF INCOME TAX ASPECTS
Except as otherwise set forth, the foregoing statements regarding the
federal income tax consequences to Limited Partners of an investment in the
Partnership are based upon the provisions of the Code as currently in effect and
the existing administrative and judicial interpretations thereunder. No
assurance can be given that administrative, judicial or legislative changes
(other than those discussed above) will not occur that would make the foregoing
statements incorrect or incomplete. Further, the foregoing discussion is not
intended as a substitute for careful tax planning, particularly since certain of
the income tax consequences of an investment in the Partnership may not be the
same for all taxpayers. Accordingly, prospective investors in the Partnership
are urged to consult their tax advisers with specific reference to their own tax
situation under federal law and the provisions of applicable state, local and
municipal laws before subscribing for Units.
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USE OF PROCEEDS
Subscription amounts will be held in escrow at European American Bank, New
York, New York, until they are transferred to SB specifically for facilitating
the transfers described herein. Subscription proceeds resulting from SB's
market-making activities will be offset by an equal amount of transfer proceeds
paid by SB to transferring investors. No new Units will be sold as a result of
this offering. Proceeds from the sale of Units made pursuant to this Prospectus
will not increase the number of Units outstanding nor the size of the
Partnership. If a subscription is accepted by the General Partner, such
subscription will purchase Units and fractional Units (rounded to four decimal
places) equivalent to transfers by investors in the Partnership. Offering
expenses will be paid as incurred by the Partnership. In no event will such
expenses exceed 15% of all limited partners' aggregate subscriptions. Escrow
charges consist of the following: (i) a $2,500 fee per escrow account, (ii) all
maintenance fees incurred in the cost of operating the bank money market
account, (iii) a wire charge of $5.00-$22.00 and (iv) miscellaneous
distributions and subscription charges.
All of the Partnership's assets are maintained in the Partnership's
commodity trading accounts at SB and will be used for trading in commodity
futures contracts, forward contracts and other commodity interests in accordance
with the trading techniques and policies described under the captions "Trading
Policies" and "The Advisor." See also "Risk Factors -- Commodity Trading Risks."
All of the assets of the Partnership are maintained in cash and segregated as
customer funds under the CEA, except that margin with respect to certain
non-U.S. futures and options transactions are maintained in separate secured
amount accounts at U.S. banks not affiliated with the General Partner as
required by CFTC regulations. The General Partner estimates that approximately
80-95% of the Partnership's assets will be segregated as customer funds. The
Partnership's funds held in connection with contracts on U.S. contract markets
that are priced and settled in a foreign currency may be held in accounts
denominated in a foreign currency with a depository located outside the United
States or its territories, although it currently does not intend to do so. See
"Risk Factors." SB will deposit the assets of the Partnership (other than margin
for non-U.S. futures and options) in segregated bank accounts as required by the
CFTC. The banks will not pay interest on such accounts. However, SB will pay
monthly interest to the Partnership on 80% of the average daily equity
maintained in cash in the Partnership's account at SB during each month (i.e.,
the sum of the daily cash balances in such accounts divided by the total number
of calendar days in that month) at a 30-day Treasury bill rate determined weekly
by SB based on the average non-competitive yield on 3-month U.S. Treasury bills
maturing in 30 days (or on the maturity date closest thereto) from the date on
which such weekly rate is determined. The Partnership will make no loans. The
assets of the Partnership will not be commingled with the assets of any other
entity, nor used as margin for any other account. Deposit of assets with a
commodity broker as margin shall not constitute commingling. The Partnership
estimates that its margin-to-equity ratio will generally be in the range of 10%
to 40%.
PLAN OF DISTRIBUTION
SB intends to make a market in the Units (to the extent that investors in
the Partnership desire to redeem/transfer Units) by matching redemption/transfer
requests with subscriptions for the Partnership's Units which were previously
issued. SB is not obligated to conduct market-making activities and any such
activities may be discontinued at any time without notice, at the sole
discretion of SB. No assurance can be given as to the liquidity of, or the
trading market for, the Units as a result of any market-making activities
undertaken by SB. This Prospectus is to be used by SB in connection with offers
and sales of the Units and fractional Units (rounded to four decimal places) in
market-making transactions at the prevailing Net Asset Value per Unit as of the
last business day of the month ending at least 5 days after a subscription is
accepted. Subscriptions will be accepted only to the extent that they can be
matched with Units for which redemption/ transfer requests have been received by
the General Partner. All subscriptions accepted by the General Partner will be
held in the escrow account until the first day of the month beginning at least 6
days after receipt of the subscription on which day subscription funds will be
transferred to SB for further payment to transferring investors and the General
Partner will cause the Partnership's records to reflect the change in ownership
of the Units from the transferring investor to the subscribing investor. Sales
of Units made by SB as
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a market-maker will not increase the number of Units outstanding in the
Partnership nor the size of the Partnership.
The Units are offered on a limited basis by SB, pursuant to a Market-Making
Agreement between the Partnership and SB. SB will facilitate the transfer of
ownership of currently outstanding Units from investors wishing to
redeem/transfer their Units to subscribing investors assuming approval by the
General Partner of new subscriptions. See "Risk Factors -- No Assurance That
Units Will Be Available". The Partnership will pay no selling commissions to SB
or any such members. The General Partner is an affiliate of SB. SB will receive
brokerage fees from the Partnership in its capacity as commodity broker/dealer
for the Partnership. Such fees may be deemed to be underwriting compensation. SB
will pay a portion of its brokerage fees to its Financial Consultants who sell
Units in the offering. Any additional firm (other than a foreign broker who
offers solely to non-U.S. clients) selected by SB that receives continuing
compensation in the form of a portion of the commodity brokerage fees paid by
the Partnership will be registered with the NFA as a futures commission merchant
or an introducing broker. Further, any associated person of SB or such other
firm who receives continuing compensation in the form of a portion of the
commodity brokerage fees paid by the Partnership will be registered with the NFA
as an associated person of a futures commission merchant or an introducing
broker (qualified as an associated person by having taken the Series 3 or 31
Commodities Exam or having been "grandfathered" as an associated person
qualified to do commodity brokerage). In connection with the sale of Units, SB
may implement sales incentive and promotional programs for its Financial
Consultants who sell Units. Such programs may offer Financial Consultants bonus
compensation and/or gift items based on sales of Units. No such programs will be
offered to Financial Consultants unaffiliated with SB. SB will submit any
proposed sales incentive program to the NASD for approval prior to its
implementation. Additionally, SB will be reimbursed approximately $120,000 in
connection with travel expenses for its employees and approximately $30,000 for
expenses relating to sales seminars for SB personnel. In no event will the total
compensation paid to SB, its employees and any participating member firms in
connection with the distribution of Units exceed 10% of the proceeds of the
offering. (For this purpose, "total compensation" does not include brokerage
fees.)
The General Partner may reject any subscription for any reason within a
reasonable time. A subscriber may revoke his subscription if SB determines not
to conduct market-making activities as of the end of a month. Subscription
amounts that are not used to purchase Units (because of fluctuations in Net
Asset Value per Unit between the date the subscription is accepted and the
effective date of purchase) will be returned to subscribers together with any
interest earned in escrow.
INVESTMENT REQUIREMENTS
The minimum initial investment in Units is $5,000 except that investments
by employee-benefit plans may be made for a minimum of $2,000 (subject to higher
minimums in certain states). See Exhibit C hereto and "ERISA Considerations".
Investors who are already limited partners may purchase additional Units with a
minimum of $1,000 (except in Maine, where the minimum additional subscription
will be $5,000).
Each investor must represent and warrant in the Subscription Agreement
attached hereto as Exhibit B that he either has (i) a net worth of at least
$150,000 (exclusive of home, furnishings and automobiles) or (ii) a net worth of
at least $45,000 and an annual income of $45,000. Certain states have higher
suitability requirements which are set forth in Exhibit C to this Prospectus.
BY EXECUTING THE SUBSCRIPTION AGREEMENT, INVESTORS ARE NOT WAIVING ANY
RIGHTS THEY MAY HAVE UNDER THE SECURITIES ACT OF 1933.
Each investor, by executing and returning the Subscription Agreement,
represents and warrants that (1) he has received a copy of the Prospectus as
appropriately supplemented; (2) he meets all applicable suitability standards as
set forth in the Prospectus as appropriately supplemented; (3) he consents to
the execution and delivery of a Customer Agreement between SB and the
Partnership and to the payment to SB of fees as described in the Prospectus;
and, (4) if he is not a citizen or resident of the United States for federal
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income tax purposes, that he is not a dealer in commodities and he agrees to pay
or reimburse the General Partner or SB for any taxes imposed as a result of his
status as a limited partner.
All of the representations and warranties are primarily intended to assure
and confirm that the investor is fully aware of and understands the elements of
the Partnership's structure and operation prior to making his investment. In
addition, they are intended to enable the Partnership, the General Partner and
SB to comply with certain requirements under the Commodity Exchange Act and
various state securities laws.
In addition, each of representations (1) through (3) above is intended to
foreclose to the investor the possibility of alleging the opposite of such
representation and warranty in litigation by the investor against the General
Partner, the Partnership or SB. The General Partner, the Partnership and SB
would rely on such representations and warranties to respond to arguments made
to the contrary in the event of such litigation.
Representation (4) is intended to require a non-U.S. investor subject to
that representation to be responsible for any taxes imposed as a result of that
investor's status as a limited partner and enable the Partnership and General
Partner to comply with federal tax laws. Each investor must also be either a
citizen or a resident of the United States for U.S. tax purposes or must agree
to reimburse SB or the Partnership for any taxes, including but not limited to
withholding tax, incurred in connection with the investor's interest in the
Partnership. See "Income Tax Aspects -- Summary of United States Federal Income
Tax Consequences for non-U.S. Taxpayers."
The General Partner may reject a subscription for any reason within a
reasonable time (within four business days of receipt of payment by the General
Partner).
POTENTIAL INVESTORS SHOULD CONSIDER THE UNITS AS A LONG-TERM (AT LEAST TWO
YEAR) INVESTMENT TO PERMIT THE TRADING METHODS TO BE EMPLOYED IN MANAGING THE
PARTNERSHIP'S INVESTMENTS TO FUNCTION OVER A SIGNIFICANT PERIOD OF TIME. SEE
"RISK FACTORS -- COMMODITY TRADING IS SPECULATIVE", "RISK FACTORS -- TRADING
STRATEGIES" AND "THE ADVISOR -- TRADING STRATEGIES".
SUBSCRIPTION PROCEDURE
In order to purchase Units, an investor must complete and execute a copy of
the Subscription Agreement attached hereto as Exhibit B and deliver and/or mail
the Subscription Agreement to any branch office of SB.
Payment for subscriptions may be made by the subscriber authorizing his
Financial Consultant to debit his SB account for a minimum of $5,000 (or for a
minimum of $2,000 for subscriptions made by employee-benefit plans). $5,000 will
purchase a number of Units determined by their Net Asset Value as of the
effective date of the purchase (the first day of the month beginning at least 6
days after receipt and acceptance of the subscription). SB may determine not to
offer Units during any particular month. The number of Units available for
purchase will be determined each month based on redemption/transfer requests
received by the General Partner 10 days or more before month-end. Subscribers
who authorize SB to debit their securities account must have their subscription
payment in their account on the specified settlement date and such account will
be debited on or before the effective date of the purchase following
notification to the subscriber of the acceptance of the subscription. That
notification will occur within a reasonable time.
Subscription amounts that are not used to purchase Units in the month of
the subscription will be returned to subscribers together with any interest
earned in escrow.
THE LIMITED PARTNERSHIP AGREEMENT
This Prospectus contains an explanation of the material terms and
provisions of the Limited Partnership Agreement, a copy of which is attached as
Exhibit A hereto and is incorporated herein by this reference. Each prospective
investor should read this summary and the Limited Partnership Agreement
thoroughly before investing. The following description is a summary only and is
not intended to be complete.
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LIABILITY OF LIMITED PARTNERS
The Partnership was formed on March 21, 1997 under the laws of the State of
New York. Under the New York Revised Limited Partnership Act ("New York Act"),
only a Limited Partner's capital contribution to the Partnership, and its share
of assets and undistributed profits, are subject to the risks of the
Partnership's business. Under the New York Act, a limited partner is otherwise
entitled to limited liability and is not responsible for the Partnership's
obligations if its activities in connection with the business of the Partnership
are limited to the exercise by it, in accordance with the provisions of the
Limited Partnership Agreement, of the rights granted it therein. Certain states
where the Partnership anticipates doing business have statutes providing for the
same limitations on limited partner liability, but in those states that do not
have such statutes and where judicial precedents are unclear, a limited partner
may not have the benefit of such limitations. Under the New York Act, if a
limited partner participates in the control of the Partnership's business, which
it is prohibited from doing by the terms of the Limited Partnership Agreement,
it may lose the limitation of liability afforded by the New York Act and become
liable as a general partner to persons who transact business with the
Partnership reasonably believing, based upon the limited partner's conduct, that
the limited partner is a general partner.
Section 121-607 of the New York Act prohibits a limited partnership from
making a distribution to a partner to the extent that, at the time of the
distribution and after giving effect thereto, all liabilities of the limited
partnership (other than liabilities to partners on account of their partnership
interests and liabilities for which the recourse of creditors is limited to
specified property of the limited partnership) exceed the fair value of the
assets of the limited partnership. For purposes of this limitation, the fair
value of property that is subject to a liability for which recourse of creditors
is limited is included in the assets of a limited partnership only to the extent
that the fair value of the property exceeds that liability. Under the New York
Act, a limited partner who received such a prohibited distribution and who knew
that the distribution violated the New York Act is liable to the limited
partnership for the amount of the distribution for a period of three years from
the date of the distribution. This section of the New York Act does not affect
any obligation or liability of a limited partner under the Limited Partnership
Agreement or other applicable law (including relevant fraudulent conveyance
acts) for the amount of a distribution.
MANAGEMENT OF PARTNERSHIP AFFAIRS
The limited partners will not participate in the management or control of
the Partnership. Under the Limited Partnership Agreement, responsibility for
managing the Partnership is vested solely in the General Partner. The General
Partner may select one or more trading advisors to direct all trading for the
Partnership. Other responsibilities of the General Partner include, but are not
limited to, the following: determining whether the Partnership will make
distributions of profits to partners; administering redemptions of limited
partners' Units; preparing monthly and annual reports to the limited partners;
preparing and filing necessary reports with regulatory authorities; calculating
the Net Asset Value; executing various documents on behalf of the Partnership
and the limited partners pursuant to powers of attorney; and supervising the
liquidation of the Partnership if an event causing dissolution of the
Partnership occurs.
The Limited Partnership Agreement requires the General Partner to cause the
Partnership to dissolve at any time that Net Asset Value per Unit falls below
$400 as of the end of a trading day.
SHARING OF PROFITS AND LOSSES
Partnership Accounting. Each partner will have a capital account, and its
initial balance will be the amount he paid for his Units or, in the case of the
General Partner, its capital contribution (which shall be treated as Units of
General Partnership Interest). Any increase or decrease in the Net Assets of the
Partnership will be allocated among the partners on a monthly basis and will be
added to or subtracted from the accounts of the partners in the ratio that each
account bears to all accounts. The General Partner is not personally liable for
return of capital contributions or profits to the limited partners.
Federal Tax Allocations. At the end of each fiscal year the Partnership's
realized capital gain or loss, aggregate capital gain or loss resulting from the
monthly mark-to-market system, and ordinary income or loss,
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will be allocated among the partners, and each partner will be required to
include in his personal income tax return his share of such items. Allocations
will be pro rata for short-term capital gain or loss, long-term capital gain or
loss, and net ordinary income or loss realized by the Partnership; however, each
Partner's share of the Partnership's capital gain or loss from "Section 1256
Contracts" for tax purposes will be determined by marking to market the
Partnership's investments as of the end of each month of the taxable year and by
allocating the resulting gain or loss to those Partners who were Partners during
the month to which such gain or loss relates.
For any limited partner who redeems or acquires Units during any fiscal
year, his proportionate share of the capital gain or loss and ordinary income
and loss will be that which was realized by the Partnership during the period
that such Units were owned by such limited partner. Transfers or assignments of
Units will be effective as of the first day of the month following the month in
which notice of such transfer or assignment is given to the General Partner. For
purposes of determining the Net Asset Value of Units, gains and losses will be
allocated among those persons who are partners when unrealized gains or losses
occur due to changes in the value of open positions. For federal income tax
purposes, gains and losses are allocated among those who are partners when
positions are closed and the gains or losses are realized. Therefore, if a
partner's proportionate interest in the Partnership should increase, as a result
of redemptions of Units by other partners, between the time an unrealized gain
occurs and the time the gain is realized by the Partnership, the partner's share
of taxable gain for the fiscal year may exceed his economic gain as reflected in
the Net Asset Value of his Units.
Upon dissolution of the Partnership, (and after satisfaction of all
liabilities of the Partnership), the assets of the Partnership will be
distributed to each partner in the ratio that his capital account bears to the
capital accounts of all partners.
ADDITIONAL PARTNERS
The General Partner has the sole discretion to determine whether to offer
for sale additional Units and to admit additional limited partners. There is no
limitation on the number of Units which may be outstanding at any time. All
Units offered by the Partnership after commencement of trading operations must
be sold at the Partnership's then current Net Asset Value per Unit (plus selling
commissions, if any). The General Partner may make arrangements for the sale of
additional Units or partial Units in the future. See "Plan of Distribution". The
General Partner may also consent to the admission of any assignee of Units as a
substituted limited partner.
RESTRICTIONS ON TRANSFER OR ASSIGNMENT
The Limited Partnership Agreement provides that a limited partner may
assign his Units upon notice to the General Partner. No assignment of Units will
be effective against the Partnership or the General Partner until the
commencement of the next month after the General Partner receives such notice.
Without the consent of the General Partner (which consent may be withheld at its
sole and absolute discretion for the purpose of preserving the Partnership's tax
status or to avoid adverse legal consequences to the Partnership), no assignee
may become a substituted limited partner. An assignee who becomes a substituted
limited partner will be subject to all of the rights and liabilities of a
limited partner of the Partnership. An assignee who does not become a
substituted limited partner will be entitled to receive the share of the profits
or the return of capital to which his assignor would otherwise be entitled, but
will not be entitled to vote, to an accounting of Partnership transactions, to
receive tax information, or to inspect the books and records of the Partnership.
Under the New York Act, an assigning limited partner remains liable to the
Partnership for any amounts for which he may be liable under such law regardless
of whether any assignee to whom he has assigned Units becomes a substituted
limited partner.
DISSOLUTION OF THE PARTNERSHIP
The Partnership shall dissolve and its affairs shall be wound up as soon as
practicable upon the first to occur of the following: (i) December 31, 2017;
(ii) the vote to dissolve the Partnership by limited partners owning more than
50% of the Units; (iii) assignment by the General Partner of all of its interest
in the
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Partnership or withdrawal, removal, bankruptcy or any other event that causes
the General Partner to cease to be a general partner under the New York Act
unless the Partnership is continued as described in the Limited Partnership
Agreement; (iv) Net Asset Value per Unit falls to less than $400 as of the end
of any trading day; or (v) the occurrence of any event which shall make it
unlawful for the existence of the Partnership to be continued, such as the entry
of a decree of judicial dissolution.
REMOVAL OR ADMISSION OF GENERAL PARTNER
The General Partner may be removed and successor general partners may be
admitted upon the vote of a majority of the outstanding Units.
AMENDMENTS; MEETINGS
The Limited Partnership Agreement may be amended if approved in writing by
the General Partner and limited partners owning more than 50% of the outstanding
Units. The General Partner may amend this Limited Partnership Agreement without
the consent of the Limited Partners in order to (i) clarify any clerical
inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Limited Partnership Agreement and the Prospectus);
(ii) delete or add any provision of or to the Limited Partnership Agreement
required to be deleted or added by the staff of any federal or state agency; or
(iii) make any amendment to the Limited Partnership Agreement which the General
Partner deems advisable (including but not limited to amendments necessary to
effect the allocations proposed herein or to change the name of the Partnership)
provided that such amendment is not adverse to the Limited Partners, or is
required by law. Any Units purchased by the General Partner, an Advisor or their
affiliates will not be entitled to any of the voting rights to which such Units
would otherwise be entitled under Section 17 of the Limited Partnership
Agreement, except as required by law. Limited partners are entitled to vote by
proxy.
Any limited partner, upon written request addressed to the General Partner,
may obtain from the General Partner a list of the names and addresses of record
of all limited partners and the number of Units held by each limited partner.
Upon receipt of a written request delivered in person or by certified mail,
signed by limited partners owning at least 10% of the outstanding Units, that a
meeting of the Partnership be called to consider any matter upon which limited
partners may vote pursuant to the Limited Partnership Agreement, the General
Partner, by written notice to each limited partner of record mailed within 15
days after such receipt, must call a meeting of the Partnership. Such meeting
must be held at least 30 but not more than 60 days after the mailing of such
notice and the notice must specify the date, a reasonable time and place, and
the purpose of such meeting.
At any such meeting, upon the approval by an affirmative vote of limited
partners owning more than 50% of the Units, the following actions may be taken:
(i) the Limited Partnership Agreement may, with certain exceptions, be amended;
(ii) the Partnership may be dissolved; (iii) the General Partner may be removed
and a new general partner may be admitted immediately prior to the removal of
the General Partner provided that the new general partner shall continue the
business of the Partnership without dissolution; (iv) a new general partner or
general partners may be admitted if the General Partner elects to withdraw from
the Partnership immediately prior to the withdrawal of the General Partner,
provided that the new general partner shall continue the business of the
Partnership without dissolution; (v) any contracts with the General Partner or
any of its affiliates or any trading advisor may be terminated without penalty
on 60 days' notice; and (vi) the sale of all assets of the Partnership may be
approved.
REPORTS TO LIMITED PARTNERS
The books and records of the Partnership will be maintained at its
principal office and the limited partners have the right at all times during
reasonable business hours to have access to and copy the Partnership's books and
records. Within 30 days of the end of each month, the General Partner will
provide the limited partners with a financial report containing information
relating to the Net Assets and Net Asset Value of a Unit as of the end of such
month as well as such other information relating to the operations of the
Partnership which is required to be reported to the limited partners by CFTC
regulations. In addition, if any of the following events
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occur, notice thereof will be mailed to each limited partner within seven
business days of such occurrence: a decrease in the Net Asset Value of a Unit to
50% or less of the Net Asset Value most recently reported; a decrease in assets
maintained in cash to 50% or less of the amount most recently reported; any
change in advisors; any change in commodity brokers or any change to payment of
brokerage commissions on a round turn basis; any change of the General Partner;
any material change in the Partnership's trading policies or any material change
in an advisor's trading strategies. In addition, a certified annual report of
financial condition will be distributed to the limited partners not more than 90
days after the close of the Partnership's fiscal year. Not more than 75 days
after the close of the fiscal year, tax information necessary for the
preparation of the limited partners' annual federal income tax returns will be
distributed to the limited partners.
POWER OF ATTORNEY
To facilitate the execution of various documents by the General Partner on
behalf of the Partnership and the limited partners, the limited partners will
appoint the General Partner, with power of substitution, their attorney-in-fact
by executing a Subscription Agreement (including the Power of Attorney) attached
hereto as Exhibit B. Such documents include, without limitation, the Limited
Partnership Agreement and Certificate of Limited Partnership and amendments
and/or restatements thereto, and customer agreements with SB.
INDEMNIFICATION
The Limited Partnership Agreement provides that with respect to any action
in which the General Partner or any of its affiliates is a party because of its
relationship to the Partnership, the Partnership shall indemnify and hold
harmless such person, subject to receipt of an independent legal opinion
regarding the applicable standard of conduct, against any loss, liability,
expense (including attorneys' and accountants' fees), judgments and amounts paid
in settlement, incurred by it in connection with such action, if the indemnified
person acted in good faith, the course of conduct which caused the loss or
liability was in the best interests of the Partnership, the General Partner (or
its affiliate) was acting on behalf of or providing services for the Partnership
and if such actions did not involve negligence or misconduct. No indemnification
of the General Partner or its affiliates is permitted for losses resulting from
a violation of the Securities Act of 1933 or any State securities law. In
addition, no indemnification of the General Partner or its affiliates may be
made in connection with any action against them if it would be inconsistent with
the New York Act.
REDEMPTION/TRANSFER
A limited partner may cause some or all of his Units to be redeemed by the
Partnership and/or purchased by SB for transfer at the Net Asset Value thereof
as of the last day of a month (the "Redemption Date") on 10 days' notice to the
General Partner. Because Net Asset Value fluctuates daily, Limited Partners will
not know the Net Asset Value applicable to their redemption at the time a notice
of redemption is submitted. Payment for the redeemed Units will be made within
10 business days following the Redemption Date by crediting the investor's SB
account. A redemption/transfer may be effected by redemption of Units by the
General Partner and/or purchase and transfer of Units pursuant to SB's
market-making activities, at the option of SB. In either case, the limited
partner wishing to redeem/transfer will receive Net Asset Value per Unit as of
the month-end that the redemption or transfer is effective. Redemption payments
made by the General Partner will be made from the Partnership's account and
Units that are the subject of redemption will be retired. Payments on Units that
are to be transferred to new investors will be made by SB. The Partnership will
neither pay out cash nor receive any of the subscription amount paid to purchase
transferred Units. The Net Asset Value of a Unit is defined in the Limited
Partnership Agreement to equal the Net Assets of the Partnership divided by the
number of units of limited and general partnership interest outstanding. Net
Assets of the Partnership is defined to mean the total assets of the
Partnership, including all cash, Treasury Bills, accrued interest and the market
value of all open commodity positions, less all liabilities of the Partnership,
determined in accordance with generally accepted accounting principles. The
General Partner reserves the right to permit the redemption of Units more
frequently than monthly (but no more frequently than daily), provided that such
action is in the best interest of the Partnership taking into account potential
tax consequences to Limited Partners.
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Except as set forth below, all requests for redemption/transfer will be
honored, and the Partnership's positions in commodity contracts will be
liquidated to the extent necessary to effect redemptions. The right to redeem is
contingent upon the Partnership having property sufficient to discharge its
liabilities on the Redemption Date and upon receipt by the General Partner of a
written or oral request for redemption/transfer at least 10 days prior to the
Redemption Date. The General Partner may temporarily suspend redemptions if
necessary in order to liquidate positions in an orderly manner. No partial
redemptions are permitted if after giving effect to the redemption a Limited
Partner would own fewer than three Units.
Federal income tax aspects of redemptions are described under "Income Tax
Aspects". Under New York law, a limited partner who has received a distribution
upon redemption of Units may under certain circumstances be liable for any
amount, not exceeding the amount of such distribution. See "The Limited
Partnership Agreement -- Liability of Limited Partners."
ERISA CONSIDERATIONS
The Units in the Partnership which are offered hereby may be purchased by
employee benefit plans subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and/or Section 4975 of the Code. The phrase "employee
benefit plan" refers to plans of various types including corporate pension and
profit-sharing plans (including 401(k) plans), "simplified employee pension
plans," so-called "Keogh" (H.R. 10) plans for self-employed individuals,
including partners, and "individual retirement accounts" or "IRAs"(including
"Roth IRAs") for persons (including employees and self-employed persons) who
receive compensation income.
Notwithstanding the general requirement that investors in the Partnership
must invest a minimum of $5,000, a minimum investment of $2,000 has been set for
qualified employee benefit plans (see "Investment Requirements"). Greater
minimum purchases may be mandated by the securities laws and regulations of
certain states, and investors should consult the Subscription Agreement which is
attached as Exhibit B to this Prospectus and any supplement affixed hereto to
determine the requirements applicable to them.
Units may not be purchased by an employee benefit plan if the selling agent
or its Financial Consultants, the General Partner or their affiliates (a)
exercise any discretionary authority or discretionary control respecting
management of such employee benefit plan, (b) exercise any authority or control
respecting management or disposition of the assets of such employee benefit
plan, (c) render investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of such employee benefit
plan, (d) have any authority or responsibility to render investment advice with
respect to any moneys or other property of such employee benefit plan, or (e)
have any discretionary authority or discretionary responsibility in the
administration of such employee benefit plan. For the purposes of this
paragraph, "investment advice" shall mean rendering investment advice as to the
value of securities or other property, or making recommendations as to the
advisability of investing in, directly or indirectly, and either (i) having
discretionary authority or control, whether or not pursuant to an agreement,
arrangement or understanding, with respect to purchasing or selling securities
or other property for the plan, or (ii) rendering such investment advice on a
regular basis to the employee benefit plan pursuant to a mutual agreement,
arrangement or understanding, written or otherwise, between such person and the
employee benefit plan or a fiduciary with respect to such employee benefit plan,
that such services will serve as a primary basis for investment decisions with
respect to assets of the employee benefit plan, and that such person will render
individualized investment advice to the employee benefit plan based on the
particular needs of the employee benefit plan regarding such matters, as, among
other things, investment policies or strategy, overall portfolio composition, or
diversification of plan investments. This prohibition is designed to prevent
violations of certain provisions of ERISA and Section 4975 of the Code.
Under ERISA, a fiduciary of an employee benefit plan is required, among
other things, to discharge his duties toward such plan with the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims. In considering
an investment in the Partnership of a portion of the assets of an employee
benefit plan, a fiduciary should consider (i) whether the investment is in
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accordance with the documents and instruments governing and plan; (ii) whether
the investment satisfies the diversification rules of Section 404(a)(1)(C) of
ERISA, if applicable; (iii) whether the investment will result in unrelated
business taxable income to the plan; (iv) whether the investment provides
sufficient liquidity; (v) the need to value the assets of the plan annually; and
(vi) whether the investment is prudent. A fiduciary should consult regulations
of the Department of Labor to determine whether he or she has made appropriate
consideration of relevant factors in investing in the Partnership.
Assets of employee benefit plans ("plan assets") are generally subject to
the fiduciary duty provisions of ERISA and the prohibited transaction provisions
of ERISA and Section 4975 of the Code. ERISA does not define "plan assets";
however, the Department of Labor has published a final regulation defining the
term "plan assets" (the "Final Regulation") for purposes of Title I of ERISA and
Section 4975 of the Code. Under the Final Regulation, generally, when a plan
makes an equity investment in another entity, the underlying assets of that
entity will be considered plan assets unless (1) the equity interest is a
"publicly-offered" security or a security issued by an investment company
registered under the Investment Company Act of 1940, (2) the entity is an
"operating company," or (3) equity participation in the entity by benefit plan
investors is not "significant."
Under the Final Regulation, a "publicly-offered" security is a security
that is (i) freely transferable, (ii) part of a class of securities that is
owned by 100 or more investors independent of the issuer and of one another, and
(iii) either (A) a part of a class of securities registered under section 12(b)
or 12(g) of the Securities Exchange Act of 1934, or (B) sold to the plan as part
of an offering of securities to the public pursuant to an effective registration
statement under the Securities Act of 1933 and the class of securities of which
such security is part is registered under the Securities Exchange Act of 1934
within 120 days (or such later time as may be allowed by the Securities and
Exchange Commission) after the end of the fiscal year of the issuer during which
the offering of such securities to the public occurred.
For purposes of this definition, whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. If a security is part of an offering in which
the minimum investment is $10,000 or less, however, certain customary
restrictions (enumerated in the Final Regulation) imposed on the transfer of
partnership interests necessary to permit partnerships to comply with applicable
federal and state laws, to ensure favorable treatment under federal or state tax
laws, and to meet reasonable administrative needs will not, alone or in
combination, affect a finding that such securities are freely transferable.
Although no assignee may become a substituted limited partner without the
consent of the General Partner, a limited partner may assign the economic
benefits of ownership of Units upon notice to the General Partner (see
"Restrictions on Transfer or Assignment" above). Because these restrictions are
among the permissible restrictions enumerated in the Final Regulation, the Units
should be deemed to be freely transferable.
Inasmuch as the Units should be deemed to be freely transferable, the Units
are or will be registered under the federal securities laws as set forth in the
Final Regulations and assuming that the Units will be held by over 100 persons,
the Units should qualify as "publicly-offered" securities within the meaning of
the Final Regulation. As a result, under the Final Regulation the underlying
assets of the Partnership should not be treated as plan assets.
In the unlikely event that the Partnership were deemed to hold plan assets,
prohibited transactions could arise under ERISA and the Code. In addition,
investment by a fiduciary of an employee benefit plan could be deemed an
improper delegation of investment authority, and the fiduciary could be liable
either directly, or under the co-fiduciary rules of ERISA, for the acts of the
General Partner of the Partnership. Additional issues relating to the "plan
assets" and "prohibited transaction" concepts of ERISA and the Code arise by
virtue of the General Partner's ownership of interests in the Partnership and
the possible relationship between an Affiliate of the General Partner and any
employee benefit plan which may purchase Units. Further, certain transactions
between the Partnership and the General Partner and certain Affiliates of the
General Partner could be prohibited transactions.
It should be noted that even if the Partnership's assets are not deemed to
be plan assets, the Department of Labor has stated in Interpretive Bulletin 75-2
(29 C.F.R. sec.2509.75-2, as amended by the Final Regulation)
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that it would consider a fiduciary who makes or retains an investment in a
partnership for the purpose of avoiding the application of the fiduciary
responsibility provisions of ERISA to be in contravention of the fiduciary
provisions of ERISA. The Department of Labor indicated further that if a plan
invests in or retains its investment in a partnership and as part of the
arrangement it is expected that the partnership will enter into a transaction
with a party in interest to the plan (within the meaning of ERISA) which
involves a direct or indirect transfer to or use by the party in interest of any
assets of the plan, the plan's investment in the partnership would be a
prohibited transaction under ERISA.
A prohibited transaction may result in the imposition of potential personal
liability upon fiduciaries of employee-benefit plans subject to ERISA and an
excise tax under Section 4975 of the Code upon the "disqualified person" with
respect to the plan. A fiduciary that has engaged in a prohibited transaction
would be personally liable to (i) restore to the employee benefit plan any
profit realized on the transaction and (ii) make good to the employee benefit
plan any losses suffered by the employee benefit plan as a result of the
transaction. A prohibited transaction may also result in the imposition of an
excise tax under the Code upon "disqualified persons" (as defined in Section
4975 of the Code) with respect to the employee benefit plan. The disqualified
persons involved would be liable to pay an excise tax equal to 15% of the amount
involved in the prohibited transaction for each year during which the investment
is in place, and would be required to eliminate the prohibited transaction by
reversing the transaction and making good to the employee benefit plan any
losses resulting from the prohibited transaction. If the transaction is not
corrected within a certain time period, the disqualified person involved could
also be liable for an additional excise tax in an amount equal to 100% of the
amount involved. In the case of an IRA (including a Roth IRA), certain
prohibited transactions do not result in an imposition of excise tax, but
instead result in a disqualification of the IRA and a taxable distribution of
IRA assets to the beneficiary.
In addition to liability for employee benefit plan losses, ERISA imposes a
civil penalty against fiduciaries of employee benefit plans who breach the
prudence and other fiduciary standards of ERISA, and against non-fiduciaries who
knowingly participate in the transaction giving rise to the breach of the ERISA
fiduciary standards. The civil penalty is equal to 20 percent of the amount
recovered from a fiduciary or non-fiduciary with respect to such breach or
knowing participation pursuant to a settlement agreement with the United States
Secretary of Labor or a court order resulting from a proceeding instituted by
the Secretary. The penalty may be waived and, in any event, would be offset to
the extent of the responsible party's liability for excise tax under the Code.
Each limited partner will be furnished with monthly statements and annual
reports which include the Net Asset Value per Unit. The General Partner believes
that these statements will be sufficient to permit plan fiduciaries to provide
an annual valuation of plan investments as required by ERISA; however,
fiduciaries should note that they have the ultimate responsibility for providing
such valuation. Accordingly, plan fiduciaries should consult with their
attorneys or other advisors regarding their obligations under ERISA with respect
to making such valuations.
Plan fiduciaries should understand the potentially illiquid nature of an
investment in the Partnership and that a secondary market is not expected to
exist for a Unit. Accordingly, plan fiduciaries should review both anticipated
and unanticipated liquidity needs for their respective plans, particularly those
for a participant's termination of employment, retirement, death or disability
or plan termination. Plan fiduciaries should be aware that distributions to
certain participants may be required to commence in the year after the
participant attains age 70 1/2.
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LEGAL MATTERS
Legal matters in connection with the securities being offered hereby have
been passed upon for the Partnership by Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019. Willkie Farr & Gallagher has also acted as
counsel for SB and the General Partner in connection with this offering.
EXPERTS
The statements made and opinions referred to in this Prospectus under the
captions "Risk Factors", "Income Tax Aspects" and "The Limited Partnership
Agreement" which are attributed to Willkie Farr & Gallagher are made on the
authority of such firm as experts in tax and partnership law.
The statement of financial condition of the Partnership at December 31,
1997 and the statement of financial condition of the General Partner at December
31, 1997 included in this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent accountants, as set forth in their reports appearing
elsewhere herein. Such financial statements are included herein in reliance upon
such reports, which reports are given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits relating thereto which the Partnership
has filed with the Securities and Exchange Commission, Washington, D.C. For
further information pertaining to the Partnership and the securities offered
hereby, reference is hereby made to the Registration Statement, including the
exhibits filed as part thereof. Copies of the exhibits are on file at the
offices of the Securities and Exchange Commission in Washington, D.C. and may be
obtained, at the prescribed charge, upon request to the Commission or may be
examined, without charge, at the offices of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. The Commission also
maintains a Web site (http://www.sec.gov) that contains all filings regarding
the Partnership.
A copy of the NASAA Guidelines for the Registration of Commodity Pool
Programs, as amended and adopted as of August 30, 1990, will be provided to any
person, without charge, upon request. Said request may be made in writing to the
Partnership, c/o Smith Barney Futures Management Inc., 390 Greenwich Street, New
York, New York 10013 or by calling (212) 723-5424.
COMMODITY MARKETS
COMMODITY FUTURES
Commodity futures contracts are contracts made on a commodity exchange
which provide for the future delivery of various agricultural commodities,
industrial commodities, foreign currencies or financial instruments at a
specified date, time and place. The contractual obligations may be satisfied
either by taking or making physical delivery of an approved grade of the
commodity (or cash settlement in the case of certain futures contracts) or by
entering into an offsetting contract to purchase or sell the same commodity on
the same exchange prior to the designated date of delivery. As an example of an
offsetting transaction in which the physical commodity is not delivered, the
contractual obligations arising from one contract to sell December 1998 wheat on
a commodity exchange may be fulfilled at any time before delivery of the
commodity is required by entering into one contract to purchase December 1998
wheat on the same exchange. In such instance the difference between the price at
which the futures contract to sell was entered into and the price paid for the
offsetting contract, after allowance for the brokerage commission or fees and
exchange and clearing fees, represents the profit or loss to the trader.
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FORWARD CONTRACTS
Currencies may be purchased or sold for future delivery through banks or
dealers pursuant to what are commonly referred to as "forward contracts." In
such instances, the bank or dealer generally acts as principal in the
transaction and includes its anticipated profit and costs of the transaction in
the prices it quotes. Mark-ups and/or commissions may also be charged on such
transactions. The Partnership will trade foreign currency forward contracts to a
significant extent. The forward markets are substantially unregulated. See
"-- Regulation," below. Unlike futures contracts, forward contracts are not of
any standard size. Rather, they are the subject of individual negotiation
between the parties involved. Moreover, because there is no clearinghouse system
applicable to forward contracts, forward contracts are not fungible, and there
is no direct means of "offsetting" a forward contract by purchase of an
offsetting position on the same (or a linked) exchange as one can a futures
contract. The forward markets provide what has typically been a highly liquid
market for currency trading, and in certain cases the prices quoted for forward
contracts may be more favorable than those quoted for comparable futures
positions on the International Monetary Market of the Chicago Mercantile
Exchange. Unlike futures contracts traded on United States exchanges, no daily
settlements of unrealized profit or loss are made in the case of open forward
contract positions.
Commodity future and forward prices are highly volatile and are influenced
by, among other things, changing supply and demand relationships, government
agricultural, commercial and trade programs and policies, national and
international political and economic events, weather and climate conditions,
insects and plant disease, purchases and sales by foreign countries and changing
interest rates.
USES OF COMMODITY MARKETS
Two broad classifications of persons who trade in commodity futures and
forwards are "hedgers" and "speculators". Commercial interests, including
farmers, which market or process commodities use the commodities markets
primarily for hedging. Hedging is a protective procedure designed to minimize
losses which may occur because of price fluctuations. For example, a
merchandiser or processor may hedge against price fluctuations between the time
he makes a contract to sell a raw or processed commodity and the time he must
perform the contract as follows: at the time he contracts to sell the commodity
at a future date, he simultaneously enters into futures contracts to buy the
necessary equivalent quantity of the commodity and, at the time for performance
of the contract, he either accepts delivery under his futures contracts or buys
the actual commodity and closes out his futures position by entering into an
offsetting contract to sell the commodity. Similarly, a processor may need to
purchase raw materials abroad in foreign currencies in order to fulfill a
contract for forward delivery of a commodity or byproduct in the United States.
Such a processor may hedge against the price fluctuation of foreign currency by
entering into a futures (or forward) contract for the foreign currency. Thus the
commodity markets enable the hedger to shift the risk of price fluctuations to
the speculator. The usual objective of the hedger is to protect the profit which
he expects to earn from his farming, merchandising or processing operations,
rather than to profit from his commodity trading.
The speculator, unlike the hedger, generally expects neither to deliver nor
receive the physical commodity. Instead, the speculator risks his capital with
the hope of profiting from price fluctuations in commodity futures contracts.
The speculator is, in effect, the risk bearer who assumes the risks which the
hedger seeks to avoid. Speculators rarely take delivery of the physical
commodity but usually close out their futures positions by entering into
offsetting contracts. Because the speculator may take either long or short
positions in the commodity market, it is possible for him to make profits or
incur losses regardless of the direction of price trends. Commodities trades
made by the Partnership will be speculative rather than for hedging purposes.
A very large number of firms and individuals trade in the commodities
markets as hedgers or speculators, many of whom have assets greatly in excess of
the Partnership's.
OPTIONS
The CFTC permits domestic exchanges to apply for licensing for the trading
of options on futures contracts and on physical commodities. The Partnership may
trade in such commodity options as are
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<PAGE> 93
established on domestic exchanges. Trading policies of the Partnership place no
limitation on the percentage of Net Assets which may be invested in options, and
the Partnership may write options. The Partnership may trade over-the-counter
currency options to the extent permitted by CFTC regulations.
The risks involved in trading commodity options on exchanges are similar to
those involved in trading futures contracts, in that options are speculative and
highly leveraged. Specific market movements of the commodity or futures contract
underlying an option cannot be predicted. Options are bought and sold on the
trading floor of a commodity exchange. The purchaser of an option pays a premium
and may be charged commissions and other fees. The writer of an option must make
margin deposits and may be charged commissions and other fees. Exchanges provide
trading mechanisms so that an option once purchased can later be sold and an
option once written can later be liquidated by an offsetting purchase. However,
there can be no assurance that a liquid offset market will exist for any
particular option or at any particular time. In such case, it might not be
possible to effect offsetting transactions in particular options. Thus in the
case of an option on a future, to realize any profit, a holder would have to
exercise his option and have to comply with margin requirements for the
underlying futures contract. A writer could not terminate his obligation until
the option expired or he was assigned an exercise notice.
REGULATION
Commodity exchanges provide centralized market facilities for trading in
futures contracts relating to specified commodities. Among the principal
exchanges in the United States are the Chicago Board of Trade, the Chicago
Mercantile Exchange (including the International Monetary Market) and the New
York Mercantile Exchange, Inc.
Commodity exchanges in the United States are subject to regulation under
the CEA by the CFTC.
Under the amendments to the CEA effected by the Commodity Futures Trading
Commission Act of 1974, the CFTC has become the governmental agency having
responsibility for regulation of U.S. commodity exchanges and commodity futures
trading. The function of the CFTC is to implement the objectives of the CEA of
preventing price manipulation and excessive speculation and promoting orderly
and efficient commodity futures markets. Such regulation, among other things,
provides that futures trading in commodities must be upon exchanges designated
as "contract markets", and that all trading on such exchanges must be done by or
through exchange members. Under the 1974 amendments to the CEA, futures trading
in all commodities traded on domestic exchanges is regulated. In addition, on
September 8, 1981, the CFTC adopted rules regulating trading of commodity
options which had previously been banned by the CFTC. However, trading in spot
commodities and forward contracts may not be within the jurisdiction of the CFTC
and may therefore be effectively unregulated. Investors should note that various
government agencies have investigated practices engaged in on the floors of the
Chicago Board of Trade, the Chicago Mercantile Exchange and certain New York
exchanges and in this connection a number of floor brokers on the Chicago
Mercantile Exchange have been indicted and some have been convicted for certain
trading practices.
The CFTC also has exclusive jurisdiction to regulate the activities of
"commodity pool operators" and "commodity trading advisors". The General Partner
is registered as a commodity pool operator and a commodity trading advisor and
the Advisor is registered as a commodity trading advisor. Registration as a
commodity pool operator or as a commodity trading advisor requires annual
filings setting forth the organization and identity of the management and
controlling persons of the commodity pool operator or commodity trading advisor.
In addition, the CFTC has authority under the CEA to require and review books
and records of, and review documents prepared by, a commodity pool operator or a
commodity trading advisor. The CFTC has adopted regulations which impose certain
disclosure, reporting and record-keeping requirements on commodity pool
operators and commodity trading advisors. The CFTC is authorized to suspend a
person's registration as a commodity pool operator or commodity trading advisor
if the CFTC finds that such person's trading practices tend to disrupt orderly
market conditions, that any controlling person thereof is subject to an order of
the CFTC denying such person trading privileges on any exchange, and in certain
other circumstances.
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<PAGE> 94
SB, the commodity broker/dealer for the Partnership, is also subject to
regulation by and registration with the CFTC as a "futures commission merchant".
With respect to domestic futures and options trading, the CEA requires all
futures commission merchants to meet and maintain specified fitness and
financial requirements, account separately for all customers' funds, property
and positions, and maintain specified books and records on customer transactions
open to inspection by the staff of the CFTC. The CEA authorizes the CFTC to
regulate trading by commodity brokerage firms and their employees, permits the
CFTC to require exchange action in the event of market emergencies, and
establishes an administrative procedure under which commodity traders may
institute complaints for damages arising from alleged violations of the CEA.
Under such procedures, limited partners may be afforded certain rights for
reparations under the CEA. For a discussion of such rights, see "Fiduciary
Responsibility".
Many exchanges (but currently not the foreign currency futures markets
other than during the first fifteen minutes of a trading day or the foreign
currency forward market) normally have regulations which limit the amount of
fluctuation in commodity futures contract prices during a single trading day.
These regulations specify what are referred to as "daily price fluctuation
limits" or, more commonly, "daily limits". The daily limits establish the
maximum amount the price of a futures contract may vary from the previous day's
settlement price at the end of the trading session. Once the daily limit has
been reached in a particular commodity, no trades may be made at a price beyond
the limit. Positions in the commodity could then be taken or liquidated only if
traders are willing to effect trades at or within the limit during the period
for trading on such day. The "daily limit" rule does not limit losses which
might be suffered by a trader because it may prevent the liquidation of
unfavorable positions. Also, commodity futures prices have moved the daily limit
for several consecutive trading days in the past, thus preventing prompt
liquidation of futures positions and subjecting the commodity futures trader to
substantial losses. See "Risk Factors -- Commodity Trading May Be Illiquid".
The CFTC and U.S. exchanges have established limits, referred to as
"position limits", on the maximum net long or net short position which any
person, or group of persons acting together, may hold or control in particular
commodities. The position limits established by the CFTC apply to grains,
soybeans, cotton, eggs and potatoes. U.S. exchanges have established speculative
position limits for all commodity contracts for which no such limits have been
established. The CFTC has adopted a statement of policy with respect to the
treatment of positions held by a commodity pool, such as the Partnership, under
its rules relating to the aggregation of futures positions for purposes of
determining compliance with speculative position limits. In connection
therewith, futures positions of the Partnership are allocated only to the person
or entity controlling trading decisions for the Partnership and not to the
limited partners. Currently, all of the positions held by all accounts owned or
controlled directly or indirectly by the Advisor and its principals will be
aggregated with the Partnership's positions. Depending upon the total amount of
funds being managed in both the Partnership's account and other accounts
controlled directly or indirectly by the Advisor, such position limits may
affect the ability of the Advisor to establish particular positions in certain
commodities for the Partnership or may require the liquidation of positions.
In addition, pursuant to authority in the CEA, the NFA has been formed and
registered with the CFTC as a self-regulatory body in order to relieve the CFTC
of the burden of direct regulation of commodity professionals. The NFA is
required to establish and enforce for its members training standards and
proficiency tests, minimum financial requirements and standards of fair
practice. Pursuant to permission granted in the CEA, the CFTC has delegated some
of its registration functions to the NFA. The Advisor, the General Partner and
SB are each members of the NFA.
The above-described regulatory structure may be modified by rules and
regulations promulgated by the CFTC or by legislative changes enacted by the
Congress. Furthermore, the fact of CFTC registration of the General Partner and
SB does not imply that the CFTC has passed upon or approved this offering or
their qualifications to act as described in this Prospectus.
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<PAGE> 95
MARGINS
Commodity futures contracts are customarily bought and sold on margins
which range upward from as little as less than one percent of the purchase price
of the contract being traded. Because of these low margins, price fluctuations
occurring in commodity futures markets may create profits and losses which are
greater than are customary in other forms of investment or speculation. Margin
is the minimum amount of funds which must be deposited by the commodity futures
trader with his commodity broker in order to initiate futures trading or to
maintain his open positions in futures contracts. A margin deposit is not a
partial payment, as it is in connection with the trading of securities, but is
like a cash performance bond; it helps assure the trader's performance of the
commodity futures contract. Since the margin deposit is not a partial payment of
the purchase price, the trader does not pay interest to his broker on a
remaining balance. The minimum amount of margin required in regard to a
particular futures contract is set from time to time by the exchange upon which
such commodity futures contract is traded and may be modified from time to time
by the exchange during the term of the contract. Brokerage firms carrying
accounts for traders in commodity futures contracts may increase the amount of
margin required as a matter of policy in order to afford further protection for
themselves. SB intends to require the Partnership to meet its standard customer
margin requirements, which are generally greater than exchange minimum levels.
When the market value of a particular open commodity futures position
changes to a point where the margin on deposit does not satisfy the maintenance
margin requirements, a margin call will be made by the trader's broker. If the
margin call is not met within a reasonable time, the broker is required to close
out the trader's position. Margin requirements are computed each day by the
trader's commodity broker. With respect to the Partnership's trading, the
Partnership, and not the limited partners personally, will be subject to the
margin calls.
SB will not require the Partnership to meet and maintain margin on its
forward contracts.
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<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Smith Barney Westport Futures Fund L.P.
We have audited the accompanying statement of financial condition of SMITH
BARNEY WESTPORT FUTURES FUND L.P. (a New York Limited Partnership) as of
December 31, 1997, and the related statements of income and expenses for the
period from August 1, 1997 (commencement of trading operations) to December 31,
1997, and of partners' capital for the period from March 21, 1997 (date
Partnership was organized) to December 31, 1997. These financial statements are
the responsibility of the management of the General Partner. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management of the General Partner, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SMITH BARNEY WESTPORT
FUTURES FUND L.P. as of December 31, 1997, and the results of its operations for
the period from March 21, 1997 (date Partnership was organized) to December 31,
1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
March 6, 1998
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<PAGE> 97
SMITH BARNEY WESTPORT FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Equity in commodity futures trading account:
Cash and cash equivalents (Note 3c)........... $112,246,989 $ 94,452,401
Net unrealized appreciation on open futures
contracts.................................. 4,297,646 8,075,897
------------ ------------
116,544,635 102,528,298
Interest receivable............................. 410,048 339,134
Due from SB..................................... -- 161,916
------------ ------------
$116,954,683 $103,029,348
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Commissions................................ $ 633,504 $ 558,075
Management fees............................ 387,436 341,439
Incentive fees............................. -- 834,386
Other...................................... 90,226 39,841
Redemptions payable........................ 1,032,786 --
------------ ------------
2,143,952 1,773,741
------------ ------------
Partners' capital (Notes 1 and 7):
General Partner, 1,212.9836 and 1,002.9801
Unit equivalents outstanding in 1998 and
1997, respectively......................... 1,165,943 1,014,504
Limited Partners, 118,229.9202 and 99,102.5475
Units of Limited Partnership Interest
outstanding in 1998 and 1997,
respectively............................... 113,644,788 100,241,103
------------ ------------
114,810,731 101,255,607
------------ ------------
$116,954,683 $103,029,348
============ ============
</TABLE>
See notes to financial statements.
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<PAGE> 98
SMITH BARNEY WESTPORT FUTURES FUND L.P.
STATEMENT OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM AUGUST 1, 1997
(COMMENCEMENT OF TRADING OPERATIONS) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Income:
Net gains (losses) on trading of commodity
interests:
Realized gains (losses) on closed positions... $ 125,812 $ (897,276)
Change in unrealized gains (losses) on open
positions................................... (3,778,251) 8,075,897
----------- ----------
(3,652,439) 7,178,621
Less, Brokerage commissions and clearing fees
($34,436 and $30,840, respectively) (Note 3c).... 2,012,647 2,127,374
----------- ----------
Net realized and unrealized gains (losses)......... (5,665,086) 5,051,247
Interest income (Notes 3c and 6)................... 1,161,897 1,161,609
----------- ----------
(4,503,189) 6,212,856
----------- ----------
Expenses:
Management fees (Note 3b)........................ 1,146,071 1,229,565
Incentive fees (Note 3b)......................... 0 834,386
Organization expense (Note 6).................... 0 (49,441)
Other expenses................................... 87,509 46,050
----------- ----------
1,233,580 2,060,560
----------- ----------
Net income (loss).................................. (5,736,769) $4,152,296
=========== ==========
Net income (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent
(Notes 1 and 7).................................. $ (50.27) $ 29.05
=========== ==========
</TABLE>
See notes to financial statements.
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<PAGE> 99
SMITH BARNEY WESTPORT FUTURES FUND L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM MARCH 21, 1997
(DATE PARTNERSHIP WAS ORGANIZED) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
------------ ---------- ------------
<S> <C> <C> <C>
Initial capital contributions...................... $ 1,000 $ 1,000 $ 2,000
Proceeds from offering of 40,035 Units of Limited
Partnership Interest and General Partner's
contribution representing 404 Unit equivalents
(Note 1)......................................... 40,035,000 404,000 40,439,000
Offering and organization costs (Note 6)........... (702,890) (7,110) (710,000)
------------ ---------- ------------
Operating Partnership capital for operations....... 39,333,110 397,890 39,731,000
Net income......................................... 4,110,682 41,614 4,152,296
Sale of 59,076.5475 Units of Limited Partnership
Interest and General Partner's contribution
representing 597.9801 Unit equivalents........... 56,807,000 575,000 57,382,000
Redemption of 10 Units of Limited Partnership
Interest......................................... (9,689) -- (9,689)
------------ ---------- ------------
Partners' capital at December 31, 1997............. $100,241,103 $1,014,504 $101,255,607
Net loss........................................... (5,679,208) (57,561) (5,736,769)
Sale of 20,887.2038 Units of Limited Partnership
Interest and General Partner's contribution
representing 210.0035 Unit equivalents........... 20,788,000 209,000 20,997,000
Redemption of 1,759.8311 Units of Limited
Partnership Interest............................. (1,705,107) -- (1,705,107)
------------ ---------- ------------
Partners' capital at March 31, 1998................ $113,644,788 $1,165,943 $114,810,731
============ ========== ============
</TABLE>
See notes to financial statements.
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<PAGE> 100
NOTES TO STATEMENT OF FINANCIAL CONDITION
(1) PARTNERSHIP ORGANIZATION:
Smith Barney Westport Futures Fund L.P. (the "Partnership") is a limited
partnership which was organized on March 21, 1997 under the partnership laws of
the State of New York to engage in the speculative trading of a diversified
portfolio of commodity interests including futures contracts, options and
forward contracts. The commodity interests that are traded by the Partnership
are volatile and involve a high degree of market risk.
Between May 30, 1997 (commencement of the offering period) and July 31,
1997, 40,035 Units of Limited Partnership Interest ("Units") were sold at $1,000
per Unit. The proceeds of the initial offering were held in an escrow account
until August 1, 1997, at which time they were turned over to the Partnership for
trading. The Partnership continues to offer Units during the continuous offering
period. The Partnership is authorized to sell 120,000 Units during the public
offering period of the Partnership.
Smith Barney Futures Management Inc. is the general partner (the "General
Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of the
General Partner, acts as commodity broker for the Partnership (see Note 3c). On
November 28, 1997, Smith Barney Holdings Inc. was merged with Salomon Inc to
form Salomon Smith Barney Holdings Inc. ("SSBH"), a wholly owned subsidiary of
Travelers Group Inc. SB is a wholly owned subsidiary of SSBH.
The General Partner and each limited partner share in the profits and
losses of the Partnership in proportion to the amount of partnership interest
owned by each except that no limited partner shall be liable for obligations of
the Partnership in excess of his initial capital contribution and profits, if
any, net of distributions.
The Partnership will be liquidated upon the first of the following to
occur: December 31, 2017; the net asset value of a Unit decreases to less than
$400 as of the close of any business day; or under certain circumstances as
defined in the Limited Partnership Agreement.
(2) ACCOUNTING POLICIES
(a) All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded in the
statement of financial condition at market value for those commodity interests
for which market quotations are readily available or at fair value on the last
business day of the year. Investments in commodity interests denominated in
foreign currency are translated into U.S. dollars at the exchange rates
prevailing on the last business day of the year. Realized gain (loss) and
changes in unrealized values of commodity interests are recognized in the period
in which the contract is closed or the changes occur and are included in net
gains (losses) on trading of commodity interests.
(b) Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income and
expenses.
(c) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
(3) AGREEMENTS:
A. LIMITED PARTNERSHIP AGREEMENT:
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading
decisions for the Partnership.
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<PAGE> 101
B. MANAGEMENT AGREEMENT:
The General Partner, on behalf of the Partnership, has entered into a
Management Agreement with John W. Henry & Company, Inc. ("JWH") (the
"Advisor"), a registered commodity trading advisor. The Advisor is not
affiliated with the General Partner or SB and is not responsible for the
organization or operation of the Partnership. The Partnership will pay the
Advisor a monthly management fee equal to 1/3 of 1% (4% per year) of
month-end Net Assets allocated to the Advisor. In addition, the Partnership
is obligated to pay the Advisor an incentive fee payable quarterly equal to
15% of the New Trading Profits, as defined, earned by the Advisor for the
Partnership. For purposes of calculating JWH's incentive fee, Net Assets
used in the calculation of New Trading Profits shall equal the assets of
the Partnership reduced only by expenses equal to 5.25% (at an annual rate)
of the Partnership's month-end assets.
C. CUSTOMER AGREEMENT:
The Partnership has entered into a Customer Agreement which provides
that the Partnership will pay SB a monthly brokerage fee equal to 13/24 of
1% (6.5% per year) of month-end Net Assets, as defined, in lieu of
brokerage commissions on a per trade basis. The Partnership will pay for
National Futures Association ("NFA") fees, exchange, clearing, user,
give-up and floor brokerage fees. SB will pay a portion of brokerage fees
to its financial consultants who have sold Units in this Partnership. All
of the Partnership's assets are deposited in the Partnership's account at
SB. The Partnership's cash is deposited by SB in segregated bank accounts
as required by Commodity Futures Trading Commission regulations. At
December 31, 1997, the amount of cash held for margin requirements was
$16,993,115. SB has agreed to pay the Partnership interest on 80% of the
average daily equity maintained in cash in its account during each month at
a 30-day U.S. Treasury bill rate determined weekly by SB based on the
average non-competitive yield on 3-month U.S. Treasury bills maturing in 30
days from the date on which such weekly rate is determined. The Customer
Agreement between the Partnership and SB gives the Partnership the legal
right to net unrealized gains and losses. The Customer Agreement may be
terminated upon notice by either party.
(4) TRADING ACTIVITIES:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity interests. The results of the Partnership's trading
activity are shown in the statement of income and expense.
All of the commodity interests, owned by the Partnership, are held for
trading purposes. The fair value of these commodity interests, including options
thereon, at December 31, 1997, was $8,075,897 and the average fair value during
the period then ended, based on monthly calculation was $5,627,034.
(5) DISTRIBUTIONS AND REDEMPTIONS:
Distributions of profits, if any, will be made at the sole discretion of
the General Partner and at such times as the General Partner may decide.
Beginning at the end of six full months after the commencement of trading, a
limited partner may require the Partnership to redeem his Units at their Net
Asset Value as of the last day of a month on 10 days' notice to the General
Partner. For the purpose of a redemption, any accrued liability for
reimbursement of offering and organization expenses for the Initial Offering
Period will not reduce Net Asset Value per Unit. There is no fee charged to
limited partners in connection with redemptions.
(6) OFFERING AND ORGANIZATION COSTS:
Offering and organization expenses estimated at $710,000 relating to the
issuance and marketing of Units during the initial offering period were
initially paid by SB and were charged against the initial capital of the
Partnership. Actual offering and organization expenses totaled $653,455. The
accrued liability for reimbursement of offering and organization expenses will
not reduce Net Asset Value per Unit for any purpose (other than financial
reporting), including calculation of advisory and brokerage fees and the
redemption value of Units. Interest earned by the Partnership will be used to
reimburse SB for the offering and organization
93
<PAGE> 102
expenses of the Partnership plus interest at the prime rate quoted by the Chase
Manhattan Bank until such time as such expenses are fully reimbursed.
As of December 31, 1997, the Partnership had reimbursed SB for $653,455 of
offering and organization expenses and $7,104 of interest and the difference
between these amounts and the original estimate which was charged to Partners'
capital is reflected in the statement of income and expenses.
(7) NET ASSET VALUE PER UNIT:
Changes in the net asset value per Unit for the period from August 1, 1997
(commencement of trading operations) to December 31, 1997 and for the three
months ended March 31, 1998, were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
(UNAUDITED) DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Net realized and unrealized gains (losses).................. $ (49.68) $ 31.94
Interest income............................................. 9.94 14.20
Expenses.................................................... (10.53) (17.09)
--------- ---------
Increase (decrease) for period.............................. (50.27) 29.05
Net asset value per Unit, beginning of period............... 1,011.49 982.44
--------- ---------
Net asset value per Unit, end of period..................... 961.22 $1,011.49
========= =========
</TABLE>
(8) FINANCIAL INSTRUMENT RISK
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index, or reference rate, and generally represent future commitments to
exchange currencies or cash flows, to purchase or sell other financial
instruments at specific terms at specified future dates, or, in the case of
derivative commodity instruments, to have a reasonable possibility to be settled
in cash or with another financial instrument. These instruments may be traded on
an exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly, believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
94
<PAGE> 103
The notional or contractual amounts of these instruments, while
appropriately not recorded in the financial statements, reflect the extent of
the Partnership's involvement in these instruments. At December 31, 1997, the
Partnership's commitment to purchase and sell these instruments was $513,151,141
and $482,486,909, respectively, as detailed below. All of these instruments
mature within one year of December 31, 1997. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity. At
December 31, 1997, the fair value of the Partnership's derivatives, including
options thereon, was $8,075,897, as detailed below.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
----------------------------
TO PURCHASE TO SELL FAIR VALUE
------------ ------------ ----------
<S> <C> <C> <C>
Currencies:
OTC.............................. $ 79,702,539 $171,012,164 $1,553,893
Energy............................. -- 26,340,080 1,632,990
Grains............................. 1,480,470 7,170,325 89,273
Interest Rate U.S.................. 146,479,725 -- 763,150
Interest Rate Non-U.S.............. 261,861,726 222,578,459 901,690
Metals............................. 10,746,480 29,465,693 2,571,779
Softs.............................. 12,880,201 9,320,777 146,373
Indices............................ -- 16,599,411 416,749
------------ ------------ ----------
Total.............................. $513,151,141 $482,486,909 $8,075,897
============ ============ ==========
</TABLE>
At March 31, 1998, the notional or contractual amounts of the Partnership's
commitment to purchase and sell these instruments was $677,619,315 and
$625,370,373, respectively, as detailed below. All of these instruments mature
within one year of March 31, 1998. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity. At March
31, 1998, the fair value of the Partnership's derivatives, including options
thereon, was $4,297,646, as detailed below.
<TABLE>
<CAPTION>
MARCH 31, 1998
(UNAUDITED)
------------------------------------------
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
----------------------------
TO PURCHASE TO SELL FAIR VALUE
------------ ------------ ----------
<S> <C> <C> <C>
Currencies:
OTC.............................. $ 63,708,861 $156,852,877 $3,904,606
Energy............................. 3,576,600 24,629,290 926,570
Grains............................. 4,537,092 9,799,865 350,503
Interest Rates U.S................. -- 258,812,913 (564,038)
Interest Rates Non-U.S............. 572,430,483 152,785,902 143,844
Metals............................. 11,414,153 6,905,188 (602,011)
Softs.............................. 5,673,711 15,584,338 558,276
Indices............................ 16,278,415 -- (420,104)
------------ ------------ ----------
Total.............................. $677,619,315 $625,370,373 $4,297,646
============ ============ ==========
</TABLE>
95
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Smith Barney Futures Management Inc.:
We have audited the accompanying statement of financial condition of Smith
Barney Futures Management Inc. (the "Company," a wholly-owned subsidiary of
Salomon Smith Barney Holdings Inc.) as of December 31, 1997. This statement of
financial condition is the responsibility of the Company's management. Our
responsibility is to express an opinion on this statement of financial condition
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial condition is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial condition.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of financial condition referred to above
presents fairly, in all material respects, the financial position of Smith
Barney Futures Management Inc. as of December 31, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
March 31, 1998
96
<PAGE> 105
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SALOMON SMITH BARNEY HOLDINGS INC.)
STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1998
(UNAUDITED) DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Receivable from limited partnerships........................ $ 4,669,207 $ 4,525,054
Receivable from affiliate................................... 2,140,550 2,096,888
Investments in limited partnerships, at equity.............. 9,846,844 9,419,858
Other assets................................................ 71,576 32,989
------------ ------------
Total Assets...................................... $ 16,728,127 $ 16,074,789
============ ============
LIABILITIES & STOCKHOLDER'S EQUITY
Dividend payable to SSBHI................................... $ 1,000,000 $ 1,500,000
Accounts payable and accrued liabilities.................... 47,532 160,611
------------ ------------
Total Liabilities................................. 1,047,532 1,660,611
------------ ------------
Common stock, no par value, 3,000 shares authorized, 200
shares issued and outstanding (100 shares, $1 stated
value; 100 shares, no stated value)....................... 100 100
Additional paid-in capital.................................. 67,413,746 67,413,746
Retained earnings........................................... 6,266,749 5,000,332
------------ ------------
73,680,595 72,414,178
Less: Note receivable from SSBHI............................ (58,000,000) (58,000,000)
------------ ------------
15,680,595 14,414,178
------------ ------------
Total Liabilities & Stockholder's Equity.......... $ 16,728,127 $ 16,074,789
============ ============
</TABLE>
The accompanying notes are an integral part of this statement of financial
condition.
97
<PAGE> 106
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SALOMON SMITH BARNEY HOLDINGS INC.)
NOTES TO STATEMENT OF FINANCIAL CONDITION
1. ORGANIZATION
Smith Barney Futures Management Inc. (the "Company") is a wholly-owned
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBHI") which is a
wholly-owned subsidiary of Travelers Group Inc. ("Travelers"). On November 28,
1997 Smith Barney Holdings Inc. was merged with Salomon Inc to form SSBHI. The
Company is registered as a commodity pool operator with the Commodity Futures
Trading Commission. The Company was organized and is authorized to act as a
general partner for the management of investment funds. At December 31, 1997,
the Company is the general partner for 21 limited partnerships (the "limited
partnerships") with total assets of $758,485,796, total liabilities of
$17,676,281 and total partners' capital of $740,809,515. The limited
partnerships are organized to engage in the speculative trading of commodity
futures contracts and other commodity interests. The Company's responsibilities
as the general partner are described in the various limited partnership
agreements. The Company has a general partner's liability which is unlimited
(except to the extent it may be limited by the limited partnership agreement)
with respect to the limited partnerships.
2. SIGNIFICANT ACCOUNTING POLICIES
The statement of financial condition is prepared in accordance with
generally accepted accounting principles which requires the use of management's
best judgment and estimates. Estimates may vary from actual results.
Investments in limited partnerships, at equity, are valued at the Company's
proportionate share of the net asset values as reported by the limited
partnerships and approximate fair value. The limited partnerships value
positions at the closing market quotations on the last business day of the year.
The carrying value of financial instruments in the statement of financial
condition approximates their fair values as they are either short term in nature
or interest-bearing at floating rates.
Under the terms of each of the limited partnership agreements for which it
is a general partner, the Company is solely responsible for managing the
partnership. Other responsibilities are disclosed in each limited partnership
agreement. The Company is required to make a capital contribution to each such
limited partnership. The limited partnership agreements generally require the
general partner to maintain a cash investment in the limited partnerships equal
to the greater of (i) an amount which will entitle the general partner to an
interest of 1% in each material item of partnership income, gain, loss,
deduction or credit or (ii) the greater of (a) 1% of the aggregate capital
contributions of all partners or (b) a minimum of $25,000. While it is the
general partner thereof, it may not reduce its percentage interest in such
limited partnerships to less than such required level, as defined in each
limited partnership agreement.
Consistent with the limited partnership agreements, the Company received an
opinion of counsel that it may maintain its net worth, as defined in the limited
partnership agreements (excluding its investment in each such limited
partnership), at an amount not less than 5% of the total contributions to the
limited partnerships by all partners. SSBHI will contribute such amounts of
additional capital to the Company, all or part of which may be contributed by a
note (see Note 3), so that the Company may maintain its net worth requirement.
This requirement was met at December 31, 1997.
Receivable from limited partnerships includes deferred offering costs which
represent payments made by the Company on behalf of certain limited partnerships
during their original offering, such as legal fees, printing costs, etc. These
costs are deferred until the limited partnerships commence operations and then
are reimbursed over a period varying from eighteen to twenty-four months or as
interest income is earned by the limited partnership in accordance with the
limited partnership's prospectus. The offering costs at December 31, 1997 were
$615,400. Repayment of these costs is not contingent upon the operating results
of the
98
<PAGE> 107
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SALOMON SMITH BARNEY HOLDINGS INC.)
NOTES TO STATEMENT OF FINANCIAL CONDITION -- (CONTINUED)
limited partnerships. In addition, as general partner, the Company earns monthly
management fees and commissions from the limited partnerships as defined by the
limited partnership agreements. Management fees and commission receivables at
December 31, 1997 were $3,909,654.
3. NOTE RECEIVABLE
The note receivable consists of a $58,000,000 demand note dated June 22,
1994 which is non-interest bearing. The demand note was issued to the Company by
SSBHI.
4. RELATED PARTY TRANSACTIONS
Substantially all transactions of the Company, including the allocation of
certain income and expenses, are with SSBHI, limited partnerships of which it is
the general partner, and other affiliates. Receivable from affiliate represents
amounts due from Smith Barney Inc., a wholly-owned subsidiary of SSBHI, for
interest income, advisory fees, and commissions.
5. INCOME TAXES
Under income tax allocation agreements with SSBHI and Travelers, the
Company's Federal, state, and local income taxes are provided on a separate
return basis and are subject to utilization of tax attributes in Travelers
consolidated income tax provision. Under the tax sharing agreement with SSBHI,
the Company remits taxes to SSBHI. As of December 31, 1997, all taxes have been
remitted to SSBHI.
6. EMPLOYEE BENEFIT PLANS
The Company participates in a noncontributory defined benefit pension plan
with Travelers which covers substantially all U.S. employees.
The Company, through Travelers, has a defined contribution employee savings
plan covering substantially all U.S. employees. In addition, the Company has
various incentive plans under which stock of Travelers is purchased for
subsequent distribution to employees, subject to vesting requirements.
7. STOCKHOLDER'S EQUITY
During the year the Company declared dividends of $4,500,000 and
distributed $3,000,000 on its outstanding common stock. Other than net income
there were no other changes to equity.
8. SUBSEQUENT EVENTS
On March 31, 1998, the Company declared a dividend in the amount of
$1,000,000 payable to SSBHI.
99
<PAGE> 108
SALOMON SMITH BARNEY HOLDINGS INC.
Salomon Smith Barney Holdings Inc. ("SSBHI") provides investment banking,
securities and commodities trading, brokerage, asset management and other
financial services through its subsidiaries. As used herein, "Company" refers to
SSBHI and its consolidated subsidiaries. Investment banking and securities
trading activities are principally conducted by Salomon Brothers Holding Company
Inc ("SBHC") and Smith Barney Inc. ("Smith Barney") and their subsidiaries and
affiliated companies. Salomon Smith Barney provides capital raising, advisory,
research and brokerage services to its customers, and executes proprietary
trading strategies on its own behalf. Asset management services are provided
principally through Mutual Management Corp. (formerly Smith Barney Mutual Funds
Management Inc.), Smith Barney and Salomon Brothers Asset Management Inc. The
Company's commodities trading business is conducted principally by Phibro Inc.
and its subsidiaries.
On November 28, 1997, a newly formed wholly owned subsidiary of Travelers
Group Inc. ("Travelers Group") was merged into Salomon Inc ("Salomon"). Pursuant
to the merger agreement, stockholders of Salomon received shares of stock of
Travelers Group and Salomon became a wholly owned subsidiary of Travelers Group.
Also on November 28, Salomon and Smith Barney Holdings Inc. were merged (the
"Merger"), with SSBHI continuing as the surviving corporation of the Merger. The
summary financial information gives retroactive effect to the Merger as a
combination of entities under common control in a transaction accounted for in a
manner similar to a pooling of interests. The pooling of interests method of
accounting requires the restatement of all periods presented as if Salomon and
Smith Barney Holdings Inc. had always been combined.
Travelers Group (formerly The Travelers Inc.), the Company's parent, is a
diversified financial services holding company engaged, through its
subsidiaries, principally in four business segments: (i) Investment Services
(primarily through the Company), including Asset Management; (ii) Consumer
Finance Services; (iii) Property & Casualty Insurance Services; and (iv) Life
Insurance Services.
The principal offices of the Company are located at 388 Greenwich Street,
New York, New York 10013, telephone 212-816-6000. The Company was incorporated
in Delaware in 1960.
The following is audited summary information for the Company for the years
ending December 31, 1995, December 31, 1996 and December 31, 1997.
SUMMARY FINANCIAL INFORMATION
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income Statement Data
Revenues................. $ 6,051 $ 21,477 $ 18,843 $17,487
Income from Continuing
Operations before
Income Taxes.......... $ 810 $ 1,820 $ 3,064 $ 1,820
Net Income............... $ 502 $ 1,145 $ 1,500 $ 1,052
Balance Sheet Data
Total Assets............. $293,823 $276,620 $246,114
Total Liabilities........ $284,204 $267,757 $237,734
Preferred stock.......... -- -- $ 420
Trust Preferred
Securities............ $ 745 $ 345 $ 345
Stockholder's Equity..... $ 8,874 $ 8,518 $ 7,615
</TABLE>
The General Partner will provide a copy of the Company's annual report as
filed with the SEC to any limited partner requesting it.
100
<PAGE> 109
GLOSSARY
The following glossary may assist the prospective investor in understanding
the terms used in this Prospectus. It should be noted preliminarily that
commodity futures contracts are contracts made on or through a commodity
exchange, and generally provide for future delivery of agricultural and
industrial commodities, foreign currencies and financial instruments. Such
contracts are uniform for each commodity and vary only with respect to price and
delivery time. A commodity futures contract to accept delivery (buy) is referred
to as a "long" contract; conversely a contract to make delivery (sell) is
referred to as a "short" contract. Until a commodity futures contract is
satisfied by delivery or offset it is said to be an "open" position. Other terms
used herein include the following:
Advisor. Any person who for any consideration engages in the business
of advising others, either directly or indirectly, as to the value,
purchase, or sale of commodity contracts or commodity options.
Affiliate. An affiliate of a person means (a) any person directly or
indirectly owning, controlling or holding with power to vote 10% or more of
the outstanding voting securities of such person; (b) any person 10% or
more of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote, by such person; (c) any
person, directly or indirectly, controlling, controlled by, or under common
control of such person; (d) any officer, director or partner of such
person; or (e) if such person is an officer, director or partner, any
person for which such person acts in such capacity.
Churning. Engaging in excessive trading with respect to a commodity
account for the purpose of generating brokerage commissions.
Commission. The fee charged by a broker for executing a trade in a
commodity account of a customer. SB charges most customers, but not the
Partnership, commissions per futures contract on a "round-turn" basis,
i.e., only upon the closing of an open position.
Commodity. The term commodity refers to goods, wares, merchandise,
produce and in general everything that is bought and sold in commerce,
including financial instruments. Out of this large class, certain
commodities have been selected as appropriate vehicles for trading on
various national and international exchanges located in principal marketing
and commercial areas. Among the commodities currently traded are wheat,
corn, oats, hogs, poultry, potatoes, sugar, cotton, lumber, copper, silver,
gold, GNMAs, T-Bills, stock indices, British pounds sterling and Japanese
yen.
Commodity Broker. Any person who engages in the business of effecting
transactions in commodity contracts for the account of others or for his
own account.
Commodity Contract. A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of a
traded commodity at a specified price and delivery point.
Daily price fluctuation limit. The maximum permitted fluctuation
(imposed by an exchange and approved by the CFTC) in the price of a futures
contract for a given commodity that can occur on an exchange on a given day
in relation to the previous day's settlement price. Such maximum permitted
fluctuation is subject to change from time to time by the exchange.
Delivery. The process of satisfying a commodity futures contract by
transferring ownership of a specified quantity and grade of a cash
commodity to the purchaser thereof. Certain financial instrument futures
contracts are not settled by delivery of the financial instrument, but
rather are settled in cash.
Forward contract. A contract relating to the purchase and sale of a
physical commodity for delivery at a future date. It is distinguished from
a futures contract in that it is not traded on an exchange and it contains
terms and conditions specifically negotiated by the parties.
Limit order. An order to execute a trade at a specified price or
better. As contrasted with a stop order, a limit order does not become a
market order when the limit price is reached.
Margin. Good faith deposits with a broker to assure fulfillment of a
purchase or sale of a commodity futures contract. Commodity margins do not
involve the payment of interest.
101
<PAGE> 110
Margin call. A demand for additional funds after the initial good
faith deposit required to maintain a customer's account in compliance with
the requirements of a particular commodity exchange or a commodity broker.
Market order. An order to execute a trade at the prevailing price as
soon as possible.
Net Assets. The total assets of the Partnership including all cash,
plus Treasury securities at accrued interest and the market value of all
open commodity positions maintained by the Partnership, less brokerage
charges accrued and less all other liabilities of the Partnership,
determined in accordance with generally accepted accounting principles
under the accrual basis of accounting. Net Assets equal Net Asset Value.
Net Asset Value of a Unit. Net Assets divided by the aggregate number
of Units of limited and general partnership interest outstanding. The
accrued liability for reimbursement of offering and organizational expenses
of the Initial Offering Period will not reduce Net Asset Value of a Unit
for any purpose (other than financial reporting), including calculation of
management and brokerage fees and the purchase and redemption value of
Units.
Net Worth. The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
New Trading Profits. The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period or Net
Assets at the date trading commences, whichever is higher, and as further
adjusted to eliminate the effect on Net Assets resulting from new capital
contributions, redemptions, reallocations or capital distributions, if any,
made during the period decreased by interest or other income, not directly
related to trading activity, earned on Partnership assets during the
period, whether the assets are held separately or in margin accounts.
Notional Funds. Funds not actually held in a client's account but
that have been committed by a client to the trading activity of a commodity
trading advisor.
Option. A contract giving the purchaser the right, as opposed to the
obligation, to acquire or to dispose of the commodity or commodity futures
contract underlying the option.
Organizational and Offering Expenses. All expenses incurred by the
Partnership in connection with and in preparing the Partnership for
registration and subsequently offering and distributing it to the public,
including, but not limited to, total underwriting and brokerage discounts
and commissions (including fees of the underwriter's attorneys), expenses
for printing, engraving, mailing, salaries of employees while engaged in
sales activity, charges of transfer agents, registrars, trustees, escrow
holders, depositories, experts, expenses of qualification of the sale of
its Units under federal and state law, including taxes and fees,
accountants' and attorneys' fees.
Pit brokerage fees. Includes floor brokerage, clearing fees, National
Futures Association fees and exchange fees.
Position limit. The maximum number of futures contracts for a given
commodity that can be held or controlled at one time by one person or a
group of persons acting together. Such limitation is imposed by the CFTC or
an exchange.
Pyramiding. A method of using all or a part of an unrealized profit
in a commodity contract position to provide margin for any additional
commodity contracts of the same or related commodities.
Round-turn Transaction. The process of "opening" an investment in a
commodity interest by taking a position together with the process of
"closing" out that investment by undertaking an offsetting transaction.
SB standard public customer rates. Brokerage commissions which SB
charges to its public customers, including individuals, which rates change
from time to time.
102
<PAGE> 111
Settlement price. The closing price for futures contracts in a
particular commodity established by the clearing house or exchange after
the close of each day's trading.
Sponsor. Any person directly or indirectly instrumental in organizing
the Partnership or any person who will manage or participate in the
management of the Partnership, including a commodity broker who pays any
portion of the organizational expenses of the Partnership, the General
Partner and any other person who regularly performs or selects the persons
who perform services for the Partnership. Sponsor does not include wholly
independent third parties such as attorneys, accountants and underwriters
whose only compensation is for professional services rendered in connection
with the offering of the Units. The term "Sponsor" shall be deemed to
include its Affiliates.
Spot contract. A cash market transaction in which the buyer and
seller agree to the immediate purchase and sale of a specific commodity
lot, usually with a two-day settlement.
Spread or Straddle. A commodity trading strategy involving the
simultaneous buying and selling of contracts on the same commodity but
involving different delivery dates or markets and in which the trader
expects to earn a profit from a widening or narrowing of the difference
between the prices of the two contracts.
Stop order. An order given to a broker to execute a trade in a
commodity futures contract when the market price for the contract reaches
the specified stop order price. Stop orders may be utilized to protect
gains or limit losses on open positions or to enter into new positions.
Stop orders become market orders when the stop price is reached.
Unrealized profit or loss. The profit or loss which would be realized
on an open position if it were closed out at the current settlement price.
Valuation Date. The date as of which the Net Assets of the
Partnership are determined.
Valuation Period. A regular period of time between Valuation Dates.
103
<PAGE> 112
TABLE C
HYPOTHETICAL COMPOSITE ADJUSTED PERFORMANCE RECORD
FOR THE PERIOD JUNE 1994 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
HYPOTHETICAL COMPOSITE
COMPOSITE OF COMPOUND WEIGHTED AVERAGE
ACTUAL MONTHLY HYPOTHETICAL ANNUAL PRO FORMA AND ACTUAL HYPOTHETICAL
PERIOD ENDING RATE OF RETURN $1,000 UNIT RATE OF RETURN RATE OF RETURN(i) $1,000 UNIT
------------- -------------- ------------ -------------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
1994........................... $1,000 $1,000
JUNE........................... 7.53% 1,075 6.97% 1,070
JULY........................... (6.31) 1,007 (6.64) 999
AUGUST......................... (5.89) 948 (6.25) 936
SEPTEMBER...................... (1.36) 935 (1.73) 920
OCTOBER........................ (7.21) 868 (7.29) 853
NOVEMBER....................... (1.20) 857 (1.35) 841
DECEMBER....................... (3.19) 830 (17.00)% (3.44) 812
1995
JANUARY........................ (2.26) 811 (2.39) 793
FEBRUARY....................... 18.06 958 17.41 931
MARCH.......................... 20.63 1,155 19.18 1,110
APRIL.......................... 7.63 1,243 6.76 1,185
MAY............................ (2.47) 1,213 (2.26) 1,158
JUNE........................... (0.27) 1,210 (0.40) 1,153
JULY........................... (1.51) 1,191 (1.78) 1,133
AUGUST......................... (0.58) 1,184 (1.07) 1,121
SEPTEMBER...................... (3.88) 1,138 (3.96) 1,076
OCTOBER........................ 2.02 1,161 1.69 1,094
NOVEMBER....................... 1.90 1,183 1.72 1,113
DECEMBER....................... 5.30 1,246 50.14 5.16 1,171
1996
JANUARY........................ 4.44 1,302 3.88 1,216
FEBRUARY....................... (6.46) 1,217 (6.81) 1,133
MARCH.......................... 1.31 1,233 1.11 1,146
APRIL.......................... 3.21 1,273 3.18 1,182
MAY............................ (4.45) 1,216 (4.89) 1,124
JUNE........................... 4.12 1,266 4.13 1,171
JULY........................... (2.49) 1,235 (3.05) 1,135
AUGUST......................... 0.55 1,242 0.49 1,141
SEPTEMBER...................... 6.89 1,327 7.03 1,221
OCTOBER........................ 11.46 1,479 10.41 1,348
NOVEMBER....................... 7.37 1,588 6.93 1,441
DECEMBER....................... (0.17) 1,586 27.24 (0.07) 1,440
1997
JANUARY........................ 3.22 1,637 2.83 1,481
FEBRUARY....................... (0.67) 1,626 (1.03) 1,466
MARCH.......................... 0.20 1,629 (0.15) 1,464
APRIL.......................... (1.54) 1,604 (2.11) 1,433
MAY............................ (2.59) 1,562 (2.95) 1,390
JUNE........................... (1.65) 1,536 (1.91) 1,364
JULY........................... 7.32 1,649 6.84 1,457
AUGUST......................... (2.58) 1,606 (3.37) 1,408
SEPTEMBER...................... (2.25) 1,570 (2.70) 1,370
OCTOBER........................ 3.45 1,624 3.22 1,414
NOVEMBER....................... 0.20 1,627 (0.20) 1,411
DECEMBER....................... 4.75 1,705 7.53 4.36 1,473
1998
JANUARY........................ (2.16) 1,668 (3.02) 1,428
FEBRUARY....................... 0.26 1,672 0.00 1,428
MARCH.......................... (1.63) 1,645 (3.50) (2.14) 1,398
COMPOUND AVERAGE ANNUAL RATE OF RETURN
(JUNE 1994-MARCH 1998) 13.87
<CAPTION>
HYPOTHETICAL
COMPOUND
ANNUAL
PERIOD ENDING RATE OF RETURN
------------- --------------
<S> <C>
1994...........................
JUNE...........................
JULY...........................
AUGUST.........................
SEPTEMBER......................
OCTOBER........................
NOVEMBER.......................
DECEMBER....................... (18.75)%
1995
JANUARY........................
FEBRUARY.......................
MARCH..........................
APRIL..........................
MAY............................
JUNE...........................
JULY...........................
AUGUST.........................
SEPTEMBER......................
OCTOBER........................
NOVEMBER.......................
DECEMBER....................... 44.10
1996
JANUARY........................
FEBRUARY.......................
MARCH..........................
APRIL..........................
MAY............................
JUNE...........................
JULY...........................
AUGUST.........................
SEPTEMBER......................
OCTOBER........................
NOVEMBER.......................
DECEMBER....................... 23.05
1997
JANUARY........................
FEBRUARY.......................
MARCH..........................
APRIL..........................
MAY............................
JUNE...........................
JULY...........................
AUGUST.........................
SEPTEMBER......................
OCTOBER........................
NOVEMBER.......................
DECEMBER....................... 2.26
1998
JANUARY........................
FEBRUARY.......................
MARCH.......................... (5.10)
COMPOUND AVERAGE ANNUAL RAT
(JUNE 1994-MARCH 1998) 9.14
</TABLE>
- --------------------
See hypothetical composite pro forma description on the following page.
(i) The Hypothetical Composite Weighted Average Pro Forma and Actual Rate of
Return for the period August 1, 1997 (commencement of Partnership trading)
through March 31, 1998 is based upon the weighted averages of the actual
rates of return of the respective portfolios as traded for the partnership
weighted according to the percentages as described in the Notes to Table C.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
104
<PAGE> 113
NOTES TO TABLE C
The compound annual Hypothetical Compound Annual Rate of Return for each
year is calculated by applying on a compound basis each of the Hypothetical
Composite Weighted Average Pro Forma Rates of Return for such month, not by
adding or averaging such monthly rates of return.
The Hypothetical Composite Adjusted Performance Record was prepared by the
General Partner and is a result of (a) making certain pro forma adjustments to
the historical performance records of the four programs to be used for the
Partnership in an attempt to approximate the brokerage fees, management fees,
incentive fees, other expenses, and interest income calculated in accordance
with the fee and income structure of the Partnership as opposed to the
corresponding fees, expenses or income actually charged or earned in the
historical performance records (for purposes of the calculation of Partnership
interest income, historical 30-day Treasury bill rates of the time period
presented on Tables B-1, B-2, B-3 and B-4 were used. Such rates may be higher
than current 30-day Treasury bill rates that will be used to calculate
Partnership interest income. The application of historical rates may compare
more closely to the Advisor's interest income which was most likely earned at
the prevailing interest rates of a particular time period.), (b) assuming an
allocation of Partnership assets is made in accordance with actual portfolio or
program percentages as of March 31, 1998: 36% to the Original Investment
Program; 24% to the Financial and Metals Portfolio; 26% to the Global Financial
Portfolio; and 14% to the Global Diversified Portfolio, (c) calculating a
combined weighted average pro forma rate of return; and (d) applying on a
compound basis each of the monthly Hypothetical Composite Weighted Average Pro
Forma Rates of Return to an assumed hypothetical investment of $1,000 made at
the beginning of the period. For example, JWH's initial allotment of $360 to the
Original Investment Program was multiplied by its Pro Forma Monthly Rate of
Return from Table B-1. In June 1994, JWH's Pro Forma Monthly ROR was 6.85% which
results in a increase of $25 for the first month of trading and a corresponding
increase to its trading allotment to $385. Next, this process was repeated for
each program or portfolio traded by the Advisor for the Partnership, then added
to reach a net asset value as of the end of the month of $1,070, an increase of
6.97% over the initial $1,000. Finally, these computations were repeated each
month, beginning with last month's assets allocated to each program or portfolio
plus trading profits or losses. Performance for the period beginning August 1,
1997 (inception of partnership trading) is based upon the actual trading results
of the respective portfolio as traded for the Partnership.
The Hypothetical Composite Adjusted Performance Record does not reflect how
the Partnership may operate, but is based instead upon estimates and assumptions
considered by the General Partner to be reasonable. Prospective investors must
note, however, that there are other methods by which the Hypothetical Composite
Adjusted Performance Record could have reasonably been calculated. Such
alternative methods may have produced different composite performance results.
Irrespective of the limitations of the pro forma adjustments that have been
made to the Advisor's historical records, any composite of different trading
approaches that have never, in fact, traded an account together is necessarily
artificial and hypothetical in some respects. Such hypothetical presentations
are also subject to the fact that they can be designed with the benefit of
hindsight.
The hypothetical $1,000 unit column represents the net asset value of a
hypothetical unit as of the end of each month.
The Hypothetical Composite Adjusted Performance Record is based on pro
forma adjustments to actual trading results; it contains no simulated
performance. However, the table is nevertheless hypothetical in that no single
account has been managed by the Advisor utilizing all four programs in the same
proportions as the Partnerships' assets will be allocated. CFTC and NFA
regulations require that the following cautionary legend accompany all
hypothetical trading records: THIS COMPOSITE PERFORMANCE RECORD IS HYPOTHETICAL
AND THE ADVISOR'S TRADING PROGRAMS HAVE NOT BEEN TRADED TOGETHER IN THE MANNER
SHOWN IN THE COMPOSITE. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT
LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE
THAT ANY MULTI-PROGRAM MANAGED ACCOUNT OR POOL WILL OR IS LIKELY TO ACHIEVE A
COMPOSITE PERFORMANCE RECORD SIMILAR TO THAT SHOWN. IN FACT, THERE ARE
FREQUENTLY SHARP DIFFER-
105
<PAGE> 114
ENCES BETWEEN A HYPOTHETICAL COMPOSITE PERFORMANCE RECORD AND THE ACTUAL RECORD
SUBSEQUENTLY ACHIEVED.
ONE OF THE LIMITATIONS OF A HYPOTHETICAL COMPOSITE PERFORMANCE RECORD IS
THAT DECISIONS RELATING TO THE SELECTION OF TRADING PROGRAMS AND THE ALLOCATION
OF ASSETS AMONG THOSE TRADING PROGRAMS WERE MADE WITH THE BENEFIT OF HINDSIGHT
BASED UPON THE HISTORICAL RATES OF RETURN OF THE SELECTED TRADING PROGRAMS.
THEREFORE, COMPOSITE PERFORMANCE RECORDS INVARIABLY SHOW POSITIVE RATES OF
RETURN. ANOTHER INHERENT LIMITATION ON THESE RESULTS IS THAT THE ALLOCATION
DECISIONS REFLECTED IN THE PERFORMANCE RECORD WERE NOT MADE UNDER ACTUAL MARKET
CONDITIONS AND, THEREFORE, CANNOT COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL
RISK IN ACTUAL TRADING. FURTHERMORE, THE COMPOSITE PERFORMANCE RECORD MAY BE
DISTORTED BECAUSE THE ALLOCATION OF ASSETS CHANGES FROM TIME TO TIME AND THESE
ADJUSTMENTS ARE NOT REFLECTED IN THE COMPOSITE.
The above table must be read in conjunction with the description of the
manner in which the Pro Forma Rates of Return for each program were calculated
set forth under "The Advisor -- Notes to Tables B-1, B-2, B-3 and B-4." The
Hypothetical Composite Adjusted Performance Record, for the period June 1994
through July 31, 1997, has been calculated on the basis of Pro Forma Monthly ROR
figures only and Rate of Return may not be an accurate indication of actual
performance due to the effect of additions and withdrawals and other factors.
Investors should be careful to consider the monthly rates of return and
volatility before determining whether to invest. In any event, past results are
no guarantee of future performance and no representation is made that the
Partnership is likely to achieve profits similar to those shown in the
Hypothetical Composite Adjusted Performance Record.
Although the General Partner believes that the Hypothetical Composite
Adjusted Performance Record provides information pertinent to evaluating the
desirability of investing in the Partnership, prospective investors must
carefully consider the manner in which (a) the individual program's Pro Forma
Monthly RORs have been calculated and (b) weighted averages of these Pro Forma
Monthly RORs have been derived for purposes of producing the Hypothetical
Composite Adjusted Performance Record in assessing the importance of either of
the above Tables to such investor's decision whether to purchase Units.
106
<PAGE> 115
EXHIBIT A
----------------------
LIMITED PARTNERSHIP AGREEMENT
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph and Subject Page
--------------------- ----
<C> <S> <C>
1. Formation and Name.............. A-1
2. Principal Office................ A-1
3. Business........................ A-1
4. Term, Dissolution and
Fiscal Year................... A-1
Term............................ A-1
Dissolution..................... A-2
Fiscal Year..................... A-2
5. Net Worth of General Partner.... A-2
6. Capital Contributions and Units
of Partnership Interest....... A-2
7. Allocation of Profits and
Losses........................ A-3
Capital Accounts................ A-3
Allocations..................... A-3
Allocation of Profit and Loss
for Federal Income Tax
Purposes...................... A-3
Definitions..................... A-4
Expenses and Limitation
Thereof....................... A-5
Limited Liability of Limited
Partners...................... A-5
Return of Limited Partner's
Capital Contribution.......... A-5
Distributions................... A-5
8. Management of the Partnership... A-5
9. Audits and Reports to Limited
Partners...................... A-7
</TABLE>
<TABLE>
<CAPTION>
Paragraph and Subject Page
--------------------- ----
<C> <S> <C>
10. Transfer and Redemption
of Units...................... A-8
Initial Limited Partner......... A-8
Transfer........................ A-8
Redemption...................... A-9
11. Public Offering of Units of
Limited Partnership
Interest...................... A-9
12. Admission of Additional
Partners...................... A-10
13. Special Power of Attorney....... A-10
14. Withdrawal of a Partner......... A-10
15. No Personal Liability for Return
of Capital.................... A-11
16. Indemnification................. A-11
17. Amendments; Meetings............ A-11
Amendments with Consent of the
General Partner............... A-11
Meetings........................ A-12
Amendments and Actions without
Consent of the General
Partner....................... A-12
Continuation.................... A-12
18. Governing Law................... A-12
19. Miscellaneous................... A-12
Priority among Limited
Partners...................... A-12
Notices......................... A-12
Binding Effect.................. A-12
Captions........................ A-13
</TABLE>
<PAGE> 116
(This page has been left blank intentionally.)
<PAGE> 117
EXHIBIT A
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
This Limited Partnership Agreement dated as of March 21, 1997, by and
between Smith Barney Futures Management Inc., 390 Greenwich Street, New York,
New York 10013 (the "General Partner"), and David J. Vogel (the "Initial Limited
Partner") and amended as of June 15, 1998, and those other parties who shall
execute this Agreement, whether in counterpart or by attorney-in-fact, as
limited partners (the Initial Limited Partner and such other parties are
collectively, the "Limited Partners") (the General Partner and Limited Partners
may be collectively referred to herein as "Partners"),
W I T N E S S E T H :
WHEREAS, the parties hereto desire to form and continue a limited
partnership for the purpose of trading in commodity interests including futures
contracts, options and forward contracts;
NOW, THEREFORE, the parties hereto agree as follows:
1. FORMATION AND NAME.
The parties hereto hereby form a limited partnership under the New York
Uniform Limited Partnership Act. The name of the limited partnership is Smith
Barney Westport Futures Fund L.P. (the "Partnership"). The General Partner shall
execute and file a Certificate of Limited Partnership in accordance with the
provisions of the New York Revised Uniform Limited Partnership Act and execute,
file, record and publish, as appropriate, such amendments, restatements and
other documents as are or become necessary or advisable, as determined by the
General Partner.
2. PRINCIPAL OFFICE.
The principal office of the Partnership shall be 390 Greenwich Street, New
York, New York 10013 or such other place as shall be designated by the General
Partner.
3. BUSINESS.
(a) The Partnership business and purpose is to trade, buy, sell or
otherwise acquire, hold or dispose of interests in commodities of all
descriptions, including futures contracts, commodity options, forward contracts
and any other rights or interests pertaining thereto including interests in
commodity pools.
(b) The objective of the Partnership business is appreciation of its assets
through speculative diversified trading. The Partnership shall not:
(1) engage in the pyramiding of its positions by using unrealized
profit on existing positions as margin for the purchase or sale of
additional positions in the same or related commodities;
(2) utilize borrowings except short-term borrowings if the Partnership
takes delivery of cash commodities, provided that neither the deposit of
margin with a commodity broker nor obtaining and drawing on a line of
credit with respect to forward contracts shall constitute borrowing; or
(3) permit the churning of its account.
4. TERM, DISSOLUTION AND FISCAL YEAR.
(a) Term. The term of the Partnership shall commence on the date the
Certificate of Limited Partnership is filed in the office of the Secretary of
State of the State of New York, and shall end upon the first to occur of the
following: (1) December 31, 2017; (2) receipt by the General Partner of an
election to dissolve the Partnership at a specified time by Limited Partners
owning more than 50% of the Units of Limited Partnership Interest then
outstanding, notice of which is sent by registered mail to the General Partner
not less
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<PAGE> 118
than 90 days prior to the effective date of such dissolution; (3) assignment by
the General Partner of all of its interest in the Partnership, withdrawal,
removal, bankruptcy, or any other event that causes the General Partner to cease
to be a general partner under the Partnership Act (unless the Partnership is
continued pursuant to Paragraph 17); (4) any event which shall make it unlawful
for the existence of the Partnership to be continued; or (5) if Net Asset Value
falls below $400 as of the end of any business day after trading.
(b) Dissolution. Upon the dissolution of the Partnership, the assets of
the Partnership shall be distributed to creditors, including any Partners who
may be creditors, to the extent otherwise permitted by law, in satisfaction of
liabilities of the Partnership (whether by payment or the making of reasonable
provision for payment thereof) other than liabilities for which reasonable
provision for payment has been made and liabilities for distributions to
Partners; to Partners and former Partners in satisfaction of liabilities for
distributions; and to Partners first for the return of their contributions and
second respecting their partnership interests, in the proportions in which the
Partners share in distributions. Following distribution of the assets of the
Partnership, a Certificate of Cancellation for the Partnership shall be filed as
required by the Partnership Act.
(c) Fiscal Year. The fiscal year of the Partnership will commence on
January 1 and end on December 31 each year ("fiscal year"). Each fiscal year of
the Partnership is divided into four fiscal quarters commencing on the first day
of January, April, July and October ("fiscal quarter").
5. NET WORTH OF GENERAL PARTNER.
The General Partner agrees that at all times after the termination of the
initial offering period of the Partnership's Units of Limited Partnership
Interest described in Paragraph 11 hereof (the "Public Offering"), so long as it
remains the General Partner of the Partnership, it will maintain a Net Worth (as
defined below) equal to the greater of (a) 5% of the total contributions
(including contributions by the General Partner) to all limited partnerships to
which it is a general partner (including the Partnership) plus (prior to the
termination of the Public Offering) 5% of the Units being offered for sale in
the Partnership or (b) $50,000. In no event will the General Partner be required
to maintain a net worth in excess of the greater of (i) $1,000,000 or (ii) the
amount which the General Partner is advised by counsel as necessary or advisable
to ensure that the Partnership is taxed as a partnership for federal income tax
purposes.
For the purposes of this Paragraph 5, Net Worth shall be based upon current
fair market value of the assets of the General Partner. The requirements of this
Paragraph 5 may be modified if the General Partner obtains an opinion of counsel
for the Partnership that a proposed modification will not adversely affect the
classification of the Partnership as a partnership for federal income tax
purposes and will not violate any state securities or blue sky laws to which the
Partnership may be subject from time to time.
6. CAPITAL CONTRIBUTIONS AND UNITS OF PARTNERSHIP INTEREST.
The General Partner shall contribute to the Partnership, immediately prior
to the time the Partnership commences trading activities and as necessary
thereafter, an amount which shall at least equal the greater of (a) 1% of
capital contributions or (b) $25,000. The General Partner's contribution shall
be evidenced by "Units of General Partnership Interest." The General Partner may
not make any transfer or withdrawal of its contribution to the Partnership while
it is General Partner which would reduce its percentage interest in the
Partnership to less than such required interest in the Partnership. Any
withdrawal of any such excess interest by the General Partner may be made only
upon not less than 30 days' notice to the Limited Partners prior to the end of a
fiscal quarter.
Interests in the Partnership, other than those of the General Partner,
shall be evidenced by "Units of Limited Partnership Interest" which the General
Partner on behalf of the Partnership shall, in accordance with the Prospectus
included in the Registration Statement referred to in Paragraph 11, sell to
persons desiring to become Limited Partners. For each Unit of Limited
Partnership Interest purchased prior to the commencement of trading operations,
a Limited Partner shall contribute $1,000 to the capital of the Partnership. For
any Unit (or partial unit rounded to four decimal places) of Limited Partnership
Interest purchased thereafter, a Limited Partner shall contribute to the capital
of the Partnership an amount equal to
A-2
<PAGE> 119
the Net Asset Value of a Unit (or partial unit, as the case may be) of Limited
Partnership Interest as of the close of business on the day preceding the
effective date of such purchase, and shall pay in addition any selling
commission which must be paid with respect to such purchase. For purposes of
such purchases, any accrued liability for reimbursement of offering and
organizational expenses will not reduce Net Asset Value per Unit. The aggregate
of all contributions shall be available to the Partnership to carry on its
business, and no interest shall be paid on any such contribution. The General
Partner may, in its discretion, split the Units at any time, provided that any
such action will not adversely affect the capital account of any limited
partner. All subscriptions for Units of Limited Partnership Interest made
pursuant to the Public Offering of the Units of Limited Partnership Interest
must be on the form provided in the Prospectus.
The proceeds from the sale of the Units of Limited Partnership Interest
pursuant to the Public Offering shall be placed in an escrow account and shall
not be contributed to the capital of the Partnership prior to the termination of
the Initial Offering Period (as defined in the Prospectus). If subscriptions for
at least 20,000 Units of Limited Partnership Interest shall not have been
received and accepted by the General Partner when the Initial Offering Period is
terminated, this Agreement shall terminate, the full amount of all subscriptions
shall be promptly returned to the subscribers, and the Certificate of Limited
Partnership shall be cancelled. If subscriptions for at least 20,000 Units of
Limited Partnership Interest shall have been received and accepted by the
General Partner prior to the termination of the Initial Offering Period, the
proceeds thereof shall be contributed to the capital of the Partnership and the
Partnership shall thereafter commence trading operations. All subscribers shall
receive the interest earned on their subscriptions while held in escrow. All
subscribers who have been accepted by the General Partner shall be deemed
admitted as Limited Partners at the time they are reflected as such on the books
and records of the Partnership.
7. ALLOCATION OF PROFITS AND LOSSES.
(a) Capital Accounts. A capital account shall be established for each
Partner. The initial balance of each Partner's capital account shall be the
amount of his initial capital contribution to the Partnership.
(b) Allocations. As of the close of business on the last day of each month
during each fiscal year of the Partnership, the following determinations and
allocations shall be made:
(1) The Net Assets of the Partnership (as defined in Paragraph
7(d)(1)) before any management and incentive fees payable by the
Partnership as of such date shall be determined.
(2) Monthly management fees, if any, payable by the Partnership as of
such date shall then be charged against Net Assets. Brokerage fees payable
to SB pursuant to Paragraph 7(i) shall be charged pro rata to the capital
accounts of the Units.
(3) Incentive fees, if any, shall then be charged against Net Assets.
(4) Any increase or decrease in Net Assets as of the end of the month
(after the adjustments in subparagraphs (2) and (3) above) shall then be
credited or charged to the capital accounts of each Partner in the ratio
that the balance of each account bears to the balance of all accounts.
(5) The amount of any distribution to a Partner, any amount paid to a
Limited Partner on redemption of Units of Limited Partnership Interest, and
any amount paid to the General Partner on redemption of Units of General
Partnership Interest, shall be charged to that Partner's capital account.
(c) Allocation of Profit and Loss for Federal Income Tax Purposes. The
Partnership's realized capital gain or loss and ordinary income or loss shall be
allocated among the Partners in the ratio that each Partner's capital account
bears to all Partners' capital accounts. Any Partner who redeems Units of
Limited or General Partnership Interest during any fiscal year will be allocated
his proportionate share of the capital gain or loss and ordinary income or loss
realized by the Partnership during the period that such Units of Limited or
General Partnership Interest were owned by such Partner, based on the ratio that
the capital accounts allocable to such acquired or redeemed Units of Limited or
General Partnership Interest bear to the capital accounts allocable to all
Partners' Units of Limited or General Partnership Interest for such period. Any
Partner who transfers or assigns Units of Limited or General Partnership
Interest during any fiscal year shall be allocated his proportionate share of
the capital gain or loss and ordinary income or loss realized by the
A-3
<PAGE> 120
Partnership through the end of the fiscal quarter in which notice of such
transfer or assignment is given to the General Partner in accordance with
Paragraph 10(b) hereof, and the transferee or assignee of such Units shall be
allocated his proportionate share of the capital gain or loss and ordinary
income or loss realized by the Partnership commencing with the fiscal quarter
next succeeding the quarter in which notice of transfer or assignment is given.
The method of allocating gains and losses for tax purposes may be changed by the
General Partner upon receipt of advice from counsel to the Partnership that such
change is required by applicable law or regulations.
(d) Definitions:
(1) Net Assets. Net Assets of the Partnership shall mean the total
assets of the Partnership including all cash, plus Treasury Bills at
market, accrued interest, and the market value of all open commodity
positions maintained by the Partnership, less brokerage charges accrued and
less all other liabilities of the Partnership, determined in accordance
with generally accepted accounting principles under the accrual basis of
accounting.
(2) Net Asset Value per Unit. The Net Asset Value of each Unit of
Limited Partnership Interest and each Unit of General Partnership Interest
shall be determined by dividing the Net Assets of the Partnership by the
aggregate number of Units of Limited and General Partnership Interest
outstanding.
(3) Capital Contributions. Capital contributions shall mean the total
investment in the Partnership by a Partner or by all Partners, as the case
may be.
(4) New Trading Profits. The excess, if any, of Net Assets managed by
the Advisor at the end of the fiscal period over Net Assets managed by the
Advisor at the end of the highest previous fiscal period or Net Assets
allocated to the Advisor at the date trading commences, whichever is
higher, and as further adjusted to eliminate the effect on Net Assets
resulting from new capital contributions, redemptions, reallocations or
capital distributions, if made during the fiscal period decreased by
interest or other income, not directly related to trading activity, earned
on the Partnership's assets during the fiscal period, whether the assets
are held separately or in margin accounts.
(5) Organizational and Offering Expenses. Organizational and offering
expenses shall mean all expenses incurred by the Partnership in connection
with and in preparing for registration and subsequent offering and
distributing it to the public, including but not limited to, total
underwriting and brokerage discounts and commissions (including fees of the
underwriter's attorneys), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activities, charges of
transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Units of Limited
Partnership Interest under federal and state law, including taxes and fees,
accountants' and attorneys' fees.
(6) Valuation Date. The date as of which the Net Assets of the
Partnership are determined.
(7) Valuation Period. A regular period of time between Valuation
Dates.
(8) Advisor. Any person who for any consideration engages in the
business of advising others, either directly or indirectly, as to the
value, purchase, or sale of commodity contracts or commodity options.
(9) Commodity Contract. A contract or option thereon providing for
the delivery or receipt at a future date of a specified amount and grade of
a traded commodity at a specified price and delivery point.
(10) Pyramiding. A method of using all or a part of an unrealized
profit in a commodity contract position to provide margin for any
additional commodity contracts of the same or related commodities.
(11) Sponsor. Any person directly or indirectly instrumental in
organizing the Partnership or any person who will manage or participate in
the management of the Partnership, including a commodity broker who pays
any portion of the organizational expenses of the Partnership, the General
Partner and any other person who regularly performs or selects the persons
who perform services for the Partnership. Sponsor does not include wholly
independent third parties such as attorneys, accountants and underwrit-
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<PAGE> 121
ers whose only compensation is for professional services rendered in
connection with the offering of the Units. The term "Sponsor" shall be
deemed to include its Affiliates.
(e) Expenses and Limitation Thereof. Subject to the limitations set forth
below in this Paragraph 7(e), the Partnership shall bear all commodity brokerage
fees and shall be obligated to pay all liabilities incurred by it, including,
without limitation, all expenses incurred in connection with its trading
activities, and any management and incentive fees. The General Partner shall
bear all other operating expenses except legal, accounting, filing, data
processing and reporting fees and extraordinary expenses. Appropriate reserves
may be created, accrued and charged against Net Assets for contingent
liabilities, if any, as of the date any such contingent liability becomes known
to the General Partner. The aggregate annual expenses of every character paid or
incurred by the Partnership, including management fees, advisory fees and all
other fees, except for incentive fees, commodity brokerage commissions, the
actual cost of legal and audit services and extraordinary expenses, when added
to the customary and routine administrative expenses of the Partnership, shall
in no event exceed, on an annual basis, 1/2 of 1% of Net Assets per month. For
the purpose of this limitation, customary and routine administrative expenses
shall include all expenses of the Partnership other than commodity brokerage
commissions, incentive fees, the actual cost of legal and audit services and
extraordinary expenses. All expenses of the Partnership shall be billed directly
to and paid by the Partnership. If necessary, the General Partner will reimburse
the Partnership, no less frequently than quarterly, for the amount by which
aggregate fees and expenses exceed, on an annual basis, 1/2 of 1% of Net Assets
per month. Reimbursements to the General Partner or its affiliates shall not be
allowed, except for reimbursement of actual cost of legal and audit services
used for or by the Partnership and charges incidental to trading. Expenses
incurred by the General Partner in connection with administration of the
Partnership including but not limited to salaries, rent, travel expenses and
such other items generally falling under the category of overhead, shall not be
charged to the Partnership. In no event will organizational and offering
expenses exceed 15% of the Partners' initial capital contributions. For this
purpose, organizational and offering expenses include interest on loans from SB
to the Partnership for payment of organizational and offering expenses, if any.
(f) Limited Liability of Limited Partners:
(1) Each Unit of Limited Partnership Interest, when purchased by a
Limited Partner, subject to the qualifications set forth below, shall be
fully paid and non-assessable.
(2) A Limited Partner will have no liability in excess of his
obligation to make contributions to the capital of the Partnership and his
share of the Partnership's assets and undistributed profits, subject to the
qualifications provided in New York law.
(g) Return of Limited Partner's Capital Contribution. Except to the extent
that a Limited Partner shall have the right to withdraw capital through
redemption of Units of Limited Partnership Interest or shall be entitled to
distributions in accordance with the terms of this Agreement, no Limited Partner
shall have any right to demand the return of his capital contribution or any
profits added thereto, except upon dissolution of the Partnership. In no event
shall a Limited Partner be entitled to demand and receive property other than
cash.
(h) Distributions. The General Partner shall have sole discretion in
determining what distributions (other than on redemption of Units of Limited
Partnership Interest), if any, the Partnership will make to its Partners.
Distributions shall be pro rata in accordance with the respective capital
accounts of the Partners.
8. MANAGEMENT OF THE PARTNERSHIP.
Except as hereinafter provided, the General Partner, to the exclusion of
all Limited Partners, shall conduct, manage and control the business of the
Partnership including, without limitation, the investment of the funds of the
Partnership. The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership. The Partnership
shall not permit the limited partners to contract away the fiduciary obligation
owed to the limited partners by the General Partner under common law. Except as
provided herein, no Partner shall be entitled to any salary, draw or other
compensation from the Partnership. Each Limited Partner hereby undertakes to
advise the General Partner of such additional
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<PAGE> 122
information as may be deemed by the General Partner to be required or
appropriate to open and maintain an account or accounts with commodity brokerage
firms for the purpose of trading in commodity contracts.
The General Partner may delegate its responsibility, in whole or in part,
for the investment of the Partnership's assets to one or more qualified trading
advisors and may delegate trading discretion to such persons. If the General
Partner decides to direct trading for the Partnership itself, the General
Partner may nonetheless render advisory services to other clients or accounts
and may use the same trading strategies which are utilized in managing the
Partnership's investments. However, the General Partner agrees and represents
that any such other services will not affect its capacity to continue to render
services to the Partnership of the quality and nature contemplated by this
Agreement. If the General Partner determines to delegate its responsibility for
trading decisions to one or more trading advisors, it may negotiate and enter
into one or more management agreements with the advisor(s) on behalf of the
Partnership, including a management agreement under which the General Partner is
one of the advisors. Any such agreement could obligate the Partnership to pay
management and incentive fees to the advisors in amounts determined by the
General Partner acting in the best interests of the Partnership; provided,
however, that such fees will in no event exceed those permitted under NASAA
Guidelines for the Registration of Commodity Pools (the "Guidelines") and that
neither the General Partner nor any affiliate of the General Partner shall
receive an incentive fee in excess of 15% of New Trading Profits or a management
fee if it or any of its affiliates receives any portion of the brokerage
commissions paid by the Partnership. Specifically, except to the extent
permitted by future changes to the Guidelines, incentive fees paid by the
Partnership to an Advisor shall never exceed 15%, increased by an additional 2%
for each 1% by which the Partnership's aggregate annual expenses are reduced
below 6% annually, of New Trading Profits, calculated not more often than
quarterly on the Valuation Date, over the highest previous Valuation Date.
The General Partner shall monitor the trading and performance of any
trading advisor for the Partnership and shall not permit the "churning" of the
Partnership's account. The General Partner shall calculate the Net Assets of the
Partnership daily and shall make available, upon the request of a Limited
Partner, the Net Asset Value of a Unit of Limited Partnership Interest. The
Partnership shall seek the best price and services available in its commodity
futures brokerage transactions. The Partnership may not enter into an exclusive
brokerage contract. The General Partner is authorized to enter into the Customer
Agreement with Smith Barney Inc. ("SB") described in the Prospectus and to cause
the Partnership to pay SB a monthly brokerage fee equal to 13/24 of 1% of
month-end Net Assets (6.5% per year) (exclusive of fees incurred in connection
with trading including exchange, clearing, floor brokerage, give-up and NFA
fees) and to negotiate Customer Agreements in the future on these or other
terms. Any interest or other income derived from any portion of the
Partnership's assets whether held in the Partnership's margin account or
otherwise shall accrue solely to the benefit of the Partnership except as
otherwise provided in the Guidelines. Neither the General Partner nor any
affiliate of the General Partner shall directly or indirectly pay or award any
commissions or other compensation to any person engaged to sell Units of Limited
Partnership Interests or to give investment advice to a potential Limited
Partner, provided, however, that neither the General Partner nor any affiliate
of the General Partner is prohibited from paying to a registered broker-dealer
or other properly licensed person a normal sales commission, including trail
commissions, for selling Units of Limited Partnership Interests. The General
Partner may take such other actions as it deems necessary or desirable to manage
the business of the Partnership including, but not limited to, the following:
opening bank accounts with state or national banks; paying, or authorizing the
payment of, distributions to the Partners and expenses of the Partnership, such
as management fees, brokerage commissions or fees, legal and accounting fees,
printing and reporting fees, and registration and other fees of governmental
agencies; and investing or directing the investment of funds of the Partnership
not being utilized as margin deposits. Only those goods and services enumerated
in the Limited Partnership Agreement will be those provided by the General
Partner to the Partnership. Except as provided in the Prospectus, the General
Partner shall not take any action with respect to the assets or property of the
Partnership which does not benefit the Partnership.
The General Partner shall review, not less often than annually and to the
extent practicable, the brokerage rates charged to public commodity pools which
are comparable to the Partnership to determine that the brokerage fees being
paid by the Partnership are competitive with such other rates. The General
Partner
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may in its discretion, acting in the best interests of the Partnership,
negotiate with SB to amend the Customer Agreement so that the Partnership is
charged brokerage commissions on a round-turn basis instead of the monthly fee
initially contemplated; provided that the commission rate agreed to is
comparable to rates charged to comparable public commodity pools and further
provided that such commissions, including pit brokerage fees will not exceed the
limitation set forth in the Guidelines.
The General Partner shall maintain a list of the names and addresses of,
and interests owned by, all Partners, a copy of which shall be furnished to
Limited Partners upon request either in person or by mail and upon payment of
the cost of reproduction and mailing, and such other books and records relating
to the business of the Partnership at the principal office of the Partnership.
The General Partner shall retain such records for a period of not less than six
years. The Limited Partners shall be given reasonable access to the books and
records of the Partnership.
The Partnership shall not enter into any contract with the General Partner
or any of its affiliates or with any trading advisor which has a term of more
than one year. The Partnership shall make no loans. Assets of the Partnership
will not be commingled with assets of any other entity. Deposit of assets with a
commodity broker or dealer shall not constitute commingling. Except as provided
herein, no person may receive, directly or indirectly, any Net Asset fee for
investment advice or management who shares or participates in any commodity
brokerage commissions or fees from transactions for the Partnership; no broker
(including the General Partner and its affiliates) may pay, directly or
indirectly, rebates or give ups to any trading advisor; and such prohibitions
shall not be circumvented by any reciprocal business arrangements. On loans made
available to the Partnership by the General Partner or any of its affiliates,
the lender may not receive interest in excess of its interest costs, nor may the
lender receive interest in excess of the amounts which would be charged the
Partnership (without reference to the lender's financial abilities or
guarantees) by unrelated banks on comparable loans for the same purpose and the
lender shall not receive points or other financing charges or fees regardless of
the amounts.
Subject to Paragraph 5 hereof, the General Partner may engage in other
business activities and shall not be required to refrain from any other activity
nor disgorge any profits from any such activity, whether as general partner of
additional partnerships for investment in commodity futures contracts or
otherwise. The General Partner may engage and compensate (consistent with the
Guidelines) on behalf of the Partnership from funds of the Partnership, such
persons, firms or corporations, including any affiliated person or entity, as
the General Partner in its sole judgment shall deem advisable for the conduct
and operation of the business of the Partnership.
No person dealing with the General Partner shall be required to determine
its authority to make any undertaking on behalf of the Partnership, nor to
determine any fact or circumstance bearing upon the existence of its authority.
9. AUDITS AND REPORTS TO LIMITED PARTNERS.
The Partnership books and records shall be audited annually by independent
accountants. The Partnership will cause each Partner to receive (i) within 90
days after the close of each fiscal year, audited financial statements including
a balance sheet and statements of income and partners' equity for the fiscal
year then ended, and (ii) within 75 days after the close of each fiscal year,
such tax information as is necessary for him to complete his federal income tax
return. In addition, within 30 days of the end of each month the Partnership
will provide each Limited Partner with reports showing Net Assets and Net Asset
Value per Unit of Limited and General Partnership Interest as of the end of such
month, as well as information relating to the advisory and brokerage fees and
other expenses incurred by the Partnership during such month. Both annual and
monthly reports shall include such additional information as the Commodity
Futures Trading Commission may require under the Commodity Exchange Act to be
given to participants in commodity pools such as the Partnership. The General
Partner shall calculate the Net Asset Value per Unit of Limited and General
Partnership Interest daily and shall make such information available upon the
request of a Limited Partner for a purpose reasonably related to such Limited
Partner's interest as a limited partner in the Partnership. The General Partner
will submit to state securities law administrators any information which such
administrators
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require to be filed, including, but not limited to, copies of the annual and
monthly reports to be provided to Limited Partners.
In addition, if any of the following events occur, notice of such event
shall be mailed to each Limited Partner within seven business days of the
occurrence of the event: (i) a decrease in the Net Asset Value of a Unit of
Limited Partnership Interest to 50% or less of the Net Asset Value most recently
reported; (ii) a decrease in assets maintained in cash to 50% or less of the
amount most recently reported; (iii) any material change in contracts with
advisors including any change in advisors or any modification in connection with
the method of calculating the incentive fee; (iv) any change in commodity
brokers or any change to payment or brokerage commissions on a round turn basis;
(v) any change in the General Partner; or (vi) any material change in the
Partnership's trading policies or in any advisor's trading strategies; and (vii)
any other material change affecting the compensation of any party. Any notice
sent pursuant to this paragraph will include a description of the Limited
Partners' voting rights and/or redemption rights under this Agreement. In the
event of a change to payment of brokerage commissions on a round-turn basis,
each Limited Partner will be notified and permitted to redeem his Units prior to
the effective date of such change.
10. TRANSFER AND REDEMPTION OF UNITS.
(a) Initial Limited Partner. As of the day after trading commences, the
Initial Limited Partner may redeem his Unit for $1,000 and withdraw from the
Partnership.
(b) Transfer. Each Limited Partner expressly agrees that he will not
assign, transfer or dispose of, by gift or otherwise, any of his Units of
Limited Partnership interest or any part or all of his right, title and interest
in the capital or profits of the Partnership without giving written notice of
the assignment, transfer or disposition to the General Partner and that no
assignment, transfer or disposition shall be effective against the Partnership
or the General Partner until the first day of the month next succeeding the
month in which the General Partner receives the written notice described below.
Any assignment, transfer or disposition by an assignee of Units of Limited
Partnership Interest of his interest in the capital or profits of the
Partnership shall not be effective against the Partnership or the General
Partner until the first day of the month next succeeding the month in which the
General Partner receives the written notice described below.
If the General Partner receives an opinion of counsel to the effect that a
transfer should be prohibited in order to protect against treatment as a
publicly traded partnership, such transfer shall be prohibited. Upon advice of
counsel, the General Partner shall eliminate or modify any restrictions on
substitutions or assignment at such time as the restriction is no longer
necessary. If an assignment, transfer or disposition occurs by reason of the
death of a Limited Partner or assignee, such written notice may be given by the
duly authorized representative of the estate of the Limited Partner or assignee
and shall be supported by such proof of legal authority and valid assignment as
may reasonably be requested by the General Partner. The written notice required
by this paragraph shall specify the name and residence address of the assignee,
the date of assignment, shall include a statement by the assignee that he agrees
to give the above-described written notice to the General Partner upon any
subsequent assignment, and shall be signed by the assignor and assignee. The
General Partner may, in its sole discretion, waive receipt of the
above-described notice or waive any defect therein. Any such assignee shall
become a substituted Limited Partner only upon the consent of the General
Partner (which consent may only be withheld for the purpose of preserving the
Partnership's tax status or to avoid adverse legal consequences to the
Partnership), upon the execution of a Power of Attorney by such assignee
appointing the General Partner as his attorney-in-fact in the form contained in
paragraph 13 hereof. The estate or any beneficiary of a deceased Limited Partner
or assignee shall have no right to withdraw any capital or profits from the
Partnership except by redemption of Units of Limited Partnership Interest. Upon
the death of a Limited Partner, his estate shall have any rights of inventory,
accounting, appraisal or examination of Partnership records as are granted by
law. A substituted Limited Partner shall have all the rights and powers and
shall be subject to all the restrictions and liabilities of a Limited Partner of
the Partnership. A substituted Limited Partner is also liable for the
obligations of his assignor to make contributions to the Partnership, but shall
not be liable for the obligations of his assignor under the Partnership Act to
return distributions received by the assignor, provided, however, that a
substituted Limited Partner shall not be obligated for liabilities unknown to
him at the time he became a substituted Limited Partner and
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which could not be ascertained from this Agreement. Each Limited Partner agrees
that with the consent of the General Partner any assignee may become a
substituted Limited Partner without the further act or approval of any Limited
Partner. If the General Partner withholds consent, an assignee shall not become
a substituted Limited Partner and shall not have any of the rights of a Limited
Partner except that the assignee shall be entitled to receive that share of
capital or profits and shall have that right of redemption to which his assignor
would otherwise have been entitled. An assigning Limited Partner shall remain
liable to the Partnership as provided in the Partnership Act, regardless of
whether his assignee becomes a substituted Limited Partner. The transfer of
Units of Limited Partnership Interest shall be subject to all applicable
securities laws. The transferor or assignor shall bear the cost related to such
transfer or assignment. Certificates representing Units of Limited Partnership
Interest may bear appropriate legends to the foregoing effect. Except for
transfers by gift, inheritance, intrafamily transfers, family dissolutions and
transfers to affiliates, no transfer may be made that results in either the
transferor or the transferee holding fewer than three Units.
(c) Redemption. After the end of six full months after the commencement of
trading operations, a Limited Partner (or any assignee thereof) may withdraw
some or all of his capital contribution and undistributed profits, if any, from
the Partnership in multiples of the Net Asset Value of a Unit of Limited
Partnership Interest (such withdrawal being herein referred to as "redemption")
as of the last day of a calendar month (the "Redemption Date") after a request
for redemption has been made to the General Partner; provided, that all
liabilities, contingent or otherwise, of the Partnership, except any liability
to Partners on account of their capital contributions, have been paid or there
remains property of the Partnership sufficient to pay them. For the purpose of a
redemption, any accrued liability for reimbursement of offering and
organizational expenses will not reduce Net Asset Value per Unit. Interest
earned by the Partnership will be used to reimburse SB for its initial payment
of such expenses. As used herein, "request for redemption" shall mean a letter
or oral request in a form specified by the General Partner received by the
General Partner at least 10 days in advance of the Redemption Date. No partial
redemptions are permitted if after giving effect to the redemption a Limited
Partner would own fewer than three Units. Upon redemption a Limited Partner (or
any assignee thereof) shall receive, per Unit of Limited Partnership Interest
redeemed, an amount equal to the Net Asset Value of a Unit of Limited
Partnership Interest as of the Redemption Date, less any amount owing by such
Partner (and his assignee, if any) to the Partnership. If redemption is
requested by an assignee, all amounts owed by the Partner to whom such Unit of
Limited Partnership Interest was sold by the Partnership as well as all amounts
owed by all assignees of such Unit of Limited Partnership Interest shall be
deducted from the Net Asset Value of such Unit of Limited Partnership Interest
upon redemption by an assignee. Payment will be made within 10 business days
after the Redemption Date. The General Partner may temporarily suspend
redemptions if necessary in order to liquidate commodity positions in an orderly
manner, and may, in its discretion, in a particular case, permit redemptions
before the end of any applicable holding period, partial redemptions, or at
times other than month-end.
The General Partner may, in its sole discretion and upon notice to the
Limited Partners, declare a special redemption date on which Limited Partners
may redeem their Units at Net Asset Value, provided that the Limited Partner
submits a request for redemption in a form acceptable to the General Partner.
The General Partner shall declare such a special redemption date whenever the
Partnership experiences a decline in net asset value per unit as of the close of
business on any business day to less than 50% of the net asset value per unit on
the last valuation date. The Partnership shall suspend trading during such
special redemption period.
11. PUBLIC OFFERING OF UNITS OF LIMITED PARTNERSHIP INTEREST.
The General Partner on behalf of the Partnership shall (i) cause to be
filed a Registration Statement, and such amendments thereto as the General
Partner deems advisable, with the United States Securities and Exchange
Commission for the registration and public offering of the Units of Limited
Partnership Interest, and (ii) qualify the Units of Limited Partnership Interest
for sale under the securities laws of such States of the United States or
foreign countries as the General Partner shall deem advisable.
The General Partner may make such arrangements for the sale of the Units of
Limited Partnership Interest as it deems appropriate, including, without
limitation, the execution on behalf of the Partnership of a
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selling agreement with SB as an agent of the Partnership for the offer and sale
of the Units of Limited Partnership Interest as contemplated in the Prospectus,
the Partnership's offering document prepared from the Registration Statement.
12. ADMISSION OF ADDITIONAL PARTNERS.
After the Public Offering of the Units of Limited Partnership Interest has
been terminated by the General Partner, no additional General Partners will be
admitted to the Partnership except as described in Paragraph 17(c). The General
Partner may take such actions as may be necessary or appropriate at any time to
offer new Units or partial Units and to admit new Limited Partners to the
Partnership. Any new Limited Partners accepted by the General Partner shall be
deemed admitted as Limited Partners at the time they are reflected as such on
the books and records of the Partnership.
13. SPECIAL POWER OF ATTORNEY.
Each Limited Partner does irrevocably constitute and appoint the General
Partner and each other person or entity that shall after the date of this
Agreement become a general partner of the Partnership with the power of
substitution, as his true and lawful attorney-in-fact, in his name, place and
stead, to execute, acknowledge, swear to, file and record in his behalf in the
appropriate public offices and publish (i) this Agreement and Certificate of
Limited Partnership including amendments and/or restatements thereto; (ii) all
instruments which the General Partner deems necessary or appropriate to reflect
any amendment, change or modification of the Partnership in accordance with the
terms of this Agreement; (iii) Certificates of Assumed Name; and (iv) Customer
Agreements with SB or other commodity brokerage firms. The Power of Attorney
granted herein shall be irrevocable and deemed to be a power coupled with an
interest and shall survive and not be affected by the subsequent incapacity,
disability or death of a Limited Partner. Each Limited Partner hereby agrees to
be bound by any representation made by the General Partner and by any successor
thereto, acting in good faith pursuant to such Power of Attorney; provided,
however, that the action taken was determined to be in the best interest of the
Partnership and did not constitute negligence or misconduct of the General
Partner or any successor thereto. In the event of any conflict between this
Agreement and any instruments filed by such attorney pursuant to the Power of
Attorney granted in this Paragraph, this Agreement shall control.
14. WITHDRAWAL OF A PARTNER.
The Partnership shall be dissolved and its affairs wound up upon the
assignment by the General Partner of all of its interest in the Partnership,
withdrawal, removal, bankruptcy or any other event that causes the General
Partner to cease to be a general partner under the Partnership Act (unless the
Partnership is continued pursuant to Paragraph 17). The General Partner shall
not withdraw from the Partnership without giving the Limited Partners one
hundred twenty (120) days' prior written notice. The death, incompetency,
withdrawal, insolvency or dissolution of a Limited Partner shall not (in and of
itself) dissolve the Partnership, and such Limited Partner, his estate,
custodian or personal representative shall have no right to withdraw or value
such Limited Partner's interest in the Partnership except as provided in
Paragraph 10 hereof. Each Limited Partner (and any assignee of such Partner's
interest) expressly agrees that in the event of his death, he waives on behalf
of himself and his estate, and he directs the legal representative of his estate
and any person interested therein to waive, the furnishing of any inventory,
accounting, or appraisal of the assets of the Partnership and any right to an
audit; provided, however, that this waiver in no way limits the rights of the
Limited Partners or their representatives to have access to the Partnership's
books and records as described in Paragraph 8 hereof.
If a General Partner withdraws as general partner and the Limited Partners
elect to continue the Partnership, the withdrawing General Partner shall pay all
expenses incurred as a result of its withdrawal. If the Partnership is continued
pursuant to Paragraph 17, the General Partner will be responsible for all
expenses resulting from its withdrawal or removal as a general partner. In the
event of removal or withdrawal of the General Partner, the General Partner is
entitled to a redemption of its interest in the Partnership at its Net Asset
Value on the next Redemption Date following the date of General Partner removal
or withdrawal.
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15. NO PERSONAL LIABILITY FOR RETURN OF CAPITAL.
The General Partner, subject to paragraph 16 hereof, shall not be
personally liable for the return or repayment of all or any portion of the
capital or profits of any Partner (or assignee), it being expressly agreed that
any such return of capital or profits made pursuant to this Agreement shall be
made solely from the assets (which shall not include any right of contribution
from the General Partner) of the Partnership.
16. INDEMNIFICATION.
(a) The General Partner and its Affiliates shall have no liability to the
Partnership or to any Partner for any loss suffered by the Partnership which
arises out of any action or inaction of the General Partner or its Affiliates if
the General Partner determined in good faith that the course of conduct which
caused the loss or liability was in the best interest of the Partnership, the
General Partner (or its affiliate) was acting on behalf of or performing
services for the Partnership and such loss or liability was not the result of
negligence or misconduct of the General Partner or its Affiliates. The General
Partner and its Affiliates shall be indemnified by the Partnership against any
losses, judgment, liabilities, expenses and amounts paid in settlement of any
claims sustained by them in connection with the Partnership, provided that the
General Partner shall have determined in good faith that such course of conduct
was in the best interests of the Partnership and such loss or liability was not
the result of negligence or misconduct on the part of the General Partner or its
Affiliates.
(b) Notwithstanding (a) above, the General Partner and its Affiliates and
any person acting as a Broker-Dealer shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws.
(c) The Partnership shall not incur the cost of that portion of any
insurance which insures any party against any liability the indemnification of
which is herein prohibited.
(d) For purposes of this Paragraph 16, the term "Affiliates" shall mean (a)
any person directly or indirectly owning, controlling or holding with power to
vote 10% or more of the outstanding voting securities of such person; (b) any
person 10% or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote, by such person; (c) any
person, directly or indirectly, controlling, controlled by, or under common
control of such person; (d) any officer, director or partner of such person; or
(e) if such person is an officer, director or partner, any person for which such
person acts in such capacity.
(e) The provision of advances from Partnership funds to the General Partner
and its Affiliates for legal expenses and other costs incurred as a result of
any legal action initiated against the General Partner or its Affiliates is
prohibited.
(f) Indemnification under this Agreement is recoverable from the assets of
the Partnership and not from the Limited Partners.
17. AMENDMENTS; MEETINGS.
(a) Amendments with Consent of the General Partner. If at any time during
the term of the Partnership the General Partner shall deem it necessary or
desirable to amend this Agreement (including the Partnership's basic investment
policies set forth in paragraph 3(b) hereof) such amendment shall be effective
only if approved in writing by the General Partner and by Limited Partners
owning more than 50% of the Units of Limited Partnership Interest then
outstanding and if made in accordance with the Partnership Act. Any such
supplemental or amendatory agreement shall be adhered to and have the same
effect from and after its effective date as if the same had originally been
embodied in and formed a part of this Agreement. The General Partner may amend
this Limited Partnership Agreement without the consent of the Limited Partners
in order to (i) clarify any clerical inaccuracy or ambiguity or reconcile any
inconsistency (including any inconsistency between this Limited Partnership
Agreement and the Prospectus); (ii) delete or add any provision of or to the
Limited Partnership Agreement required to be deleted or added by the staff of
any federal or state agency; or (iii) make any amendment to the Limited
Partnership Agreement which the General Partner deems advisable (including but
not limited to amendments necessary to effect the allocations
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proposed herein or to change the name of the Partnership) provided that such
amendment is not adverse to the Limited Partners, or is required by law.
(b) Meetings. Upon receipt of a written request, signed by Limited
Partners owning at least 10% of the Units of Limited Partnership Interest then
outstanding, delivered in person or by certified mail that a meeting of the
Partnership be called to vote upon any matter which the Limited Partners may
vote upon pursuant to this Agreement, the General Partner shall, by written
notice, either in person or by certified mail, to each Limited Partner of record
mailed within fifteen days after receipt of such request, call a meeting of the
Partnership. Such meeting shall be held at least thirty but not more than sixty
days after the mailing of such notice, and such notice shall specify the date, a
reasonable place and time, and the purpose of such meeting.
(c) Amendments and Actions without Consent of the General Partner. At any
meeting called pursuant to Paragraph 17(b), upon the approval by an affirmative
vote (which may be in person or by proxy) of Limited Partners owning more than
50% of the outstanding Units of Limited Partnership Interest, the following
actions may be taken: (i) this Agreement may be amended in accordance with the
Partnership Act; (ii) the Partnership may be dissolved; (iii) the General
Partner may be removed and a new general partner may be admitted immediately
prior to the removal of the General Partner provided that the new general
partner of the Partnership shall continue the business of the Partnership
without dissolution; (iv) if the General Partner elects to withdraw from the
Partnership a new general partner or general partners may be admitted
immediately prior to withdrawal of the General Partner provided that the new
general partner of the Partnership shall continue the business of the
Partnership without dissolution; (v) any contracts with the General Partner, any
of its affiliates or any commodity trading advisor to the Partnership may be
terminated on sixty days' notice without penalty; and (vi) the sale of all the
assets of the Partnership may be approved.
(d) Continuation. Upon the assignment by the General Partner of all of its
interest in the Partnership, the withdrawal, removal, bankruptcy or any other
event that causes the General Partner to cease to be a general partner under the
Partnership Act, the Partnership is not dissolved and is not required to be
wound up by reason of such event if, within 90 days after such event, all
remaining Partners agree in writing to continue the business of the Partnership
and to the appointment, effective as of the date of such event, of a successor
General Partner. In the event of the withdrawal by the General Partner and the
continuation of the Partnership pursuant to this paragraph, the General Partner
shall pay all expenses incurred as a result of its withdrawal.
18. GOVERNING LAW.
The validity and construction of this Agreement shall be governed by and
construed in accordance with the laws of the State of New York including,
specifically, the New York Revised Uniform Partnership Act, as amended (without
regard to its choice of law principles); provided, however, that causes of
action for violations of federal or state securities laws shall not be governed
by this Section 18.
19. MISCELLANEOUS.
(a) Priority among Limited Partners. No Limited Partner shall be entitled
to any priority or preference over any other Limited Partner with regard to the
return of contributions of capital or to the distribution of any profits or
otherwise in the affairs of the Partnership.
(b) Notices. All notices under this Agreement, other than reports by the
General Partner to the Limited Partners, shall be in writing and shall be
effective upon personal delivery, or, if sent by registered or certified mail,
postage prepaid, addressed to the last known address of the party to whom such
notice is to be given, upon the deposit of such notice in the United States
mail. Reports by the General Partner to the Limited Partners shall be in writing
and shall be sent by first class mail to the last known address of each Limited
Partner.
(c) Binding Effect. This Agreement shall inure to and be binding upon all
the parties, their successors, permitted assigns, custodians, estates, heirs and
personal representatives. For purposes of determining the rights of any Partner
or assignee hereunder, the Partnership and the General Partner may rely upon the
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Partnership records as to who are Partners and assignees and all Partners and
assignees agree that their rights shall be determined and that they shall be
bound thereby, including all rights which they may have under Paragraph 17
hereof.
(d) Captions. Captions in no way define, limit, extend or describe the
scope of this Agreement nor the effect of any of its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first written above.
General Partner: Initial Limited Partner:
SMITH BARNEY
FUTURES MANAGEMENT INC.
/s/ DAVID J. VOGEL
---------------------------------
David J. Vogel
By: /s/ DAVID J. VOGEL
---------------------------
David J. Vogel, President
Limited Partners
All Limited Partners now and hereafter
admitted as limited partners of the
Partnership pursuant to powers of
attorney now and hereafter executed in
favor of and delivered to the General
Partner
By: SMITH BARNEY
FUTURES MANAGEMENT INC.
Attorney-in-Fact
By: /s/ DAVID J. VOGEL
------------------------------
David J. Vogel, President
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EXHIBIT B
SMITH BARNEY WESTPORT
FUTURES FUND L.P.
SUBSCRIPTION AGREEMENT
Dear Sirs:
A. SUBSCRIBER PROVISIONS.
1. Subscription for Units. I hereby subscribe to purchase from Smith Barney
Inc. the amount indicated below of units of limited partnership interest
("Units") of SMITH BARNEY WESTPORT FUTURES FUND L.P. (the "Partnership") at the
Net Asset Value per Unit as of the date of my admission to the Partnership (as
those terms are defined under "Plan of Distribution") (with a minimum investment
of $5,000, except $2,000 for employee-benefit plans, subject to higher minimum
in certain states). I UNDERSTAND THAT MY SUBSCRIPTION MAY BE REVOKED IF SB
DETERMINES NOT TO CONDUCT MARKET-MAKING ACTIVITIES AS OF THE END OF A MONTH,
THAT MY SUBSCRIPTION AMOUNT MAY BE ADJUSTED PENDING DETERMINATION OF MONTH-END
NET ASSET VALUE PER UNIT AND THAT AMOUNTS NOT USED TO PURCHASE UNITS WILL BE
RETURNED TO ME.
2. Representations and Warranties. BY EXECUTING THIS SUBSCRIPTION
AGREEMENT, I AM NOT WAIVING ANY RIGHTS UNDER THE FEDERAL OR STATE SECURITIES
LAWS. As an inducement to the General Partner on behalf of the Partnership to
accept my subscription for the Units for which I have subscribed, I (either in
my individual capacity or as an authorized representative of an entity, if
applicable) hereby represent and warrant to the General Partner and the
Partnership as follows:
(A) I HAVE RECEIVED A COPY OF THE PROSPECTUS AND DISCLOSURE DOCUMENT OF
THE PARTNERSHIP, INCLUDING THE LIMITED PARTNERSHIP AGREEMENT (AS
SUPPLEMENTED BY STICKER SUPPLEMENTS, IF ANY) AND A COPY OF THE MOST RECENT
MONTHLY STATEMENT AND ANNUAL REPORT, IF ANY, RELATING TO AND DESCRIBING THE
TERMS AND CONDITIONS OF THIS OFFERING OF UNITS ("PROSPECTUS").
(B) I MEET THE APPLICABLE INVESTOR SUITABILITY REQUIREMENTS SET FORTH IN
EXHIBIT C TO THE PROSPECTUS AND REPRESENT THAT ALL THE INFORMATION SET FORTH
WITH RESPECT TO MY FINANCIAL POSITION IS CORRECT AND COMPLETE AS OF THE DATE
OF THIS SUBSCRIPTION AGREEMENT, AND IF THERE SHOULD BE ANY MATERIAL CHANGE
IN SUCH INFORMATION PRIOR TO MY ADMISSION AS A LIMITED PARTNER, I WILL
IMMEDIATELY FURNISH SUCH REVISED OR CORRECTED INFORMATION TO THE GENERAL
PARTNER.
(c) I hereby consent to the execution and delivery of the Customer
Agreement between the Partnership and SB and to the payment to SB of fees as
described in the Prospectus.
(d) If I am not a citizen or resident of the United States for federal
income tax purposes, I represent that I am not a dealer in commodities and I
agree to pay the General Partner or SB for any taxes, including but not
limited to withholding tax, imposed as a result of my status as a limited
partner.
3. Employee-Benefit Plans. The undersigned individual, employer or trustee
who has investment discretion over the assets of the subscribing
employee-benefit plan ("Director") represents and agrees as follows:
(a) Either (A) or (B): (A) neither SB nor any of its employees or
affiliates (i) manages any part of the investment portfolio of the
subscribing employee-benefit plan (the "Plan"), or (ii) has an agreement or
understanding, written or unwritten, with the Fiduciary under which the
Fiduciary regularly receives information, recommendations or advice
concerning investments which are used as a primary basis for the Plan's
investment decisions and which are individualized to the particular needs of
the Plan.
or (B) The relationship between the Plan and SB or any of its employees
or affiliates comes within (i) or (ii) above with respect to only a portion
of the Plan's assets and the investment in the Partnership is being made by
the Fiduciary from a portion of Plan assets with respect to which such
relationship does not exist.
(b) Although an SB Financial Consultant may have suggested that the
Director consider the investment in the Partnership, the Director has
studied the Prospectus and has made the investment decision solely on the
basis of the Prospectus and without reliance on such suggestion.
(c) The Plan is in compliance with all applicable Federal regulatory
requirements.
4. Acceptance of Limited Partnership Agreement and Power of Attorney. I
hereby apply to become a limited partner as of the date the sale of my Units
becomes effective, and I hereby agree to each and every term of the Limited
Partnership Agreement as if my signature were subscribed therein.
I hereby irrevocably constitute and appoint Smith Barney Futures Management
Inc., the General Partner of the Partnership, as my true and lawful
Attorney-in-Fact, with full power of substitution, in my name, place and stead,
to execute, acknowledge, swear to, file and record on my behalf in the
appropriate public offices (i) the Limited Partnership Agreement of the
Partnership and a Certificate of Limited Partnership, including amendments and
restatements thereto; (ii) all instruments which the General Partner deems
necessary or appropriate to reflect any amendment, change, modification or
restatement of the Limited Partnership Agreement in accordance with the terms of
the Limited Partnership Agreement, as amended, including any instruments
necessary to dissolve the Partnership; (iii) certificates of assumed name; and
(iv) customer agreements with any commodity brokerage firm. The power of
attorney granted hereby shall be deemed to be coupled with an interest and shall
be irrevocable and survive the death, disability or incapacity of the
undersigned.
------------------
B. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, except for matters arising
under federal and state securities laws.
------------------
C. RISK DISCLOSURE.
1. Investment in the Partnership is speculative and includes the risks
summarized under "Risk Factors" in the Prospectus. Each investor must be
able to afford the risks of an investment in the Partnership.
2. Smith Barney Futures Management Inc., the General Partner, is an
affiliate of Smith Barney Inc. ("SB"). SB is the Market-Maker and the
Commodity Broker/Dealer and recipient of brokerage fees. Therefore,
conflicts of interest exist (see "Conflicts of Interest" and "The Commodity
Broker/Dealer" in the Prospectus). SB will receive substantial brokerage
fees from the Partnership regardless of the Partnership's trading
performance (see "Fees and Expenses to the Partnership" in the Prospectus).
3. An Investor may transfer or redeem his Units only as of the last day
of a calendar month, all as set forth in the Prospectus and the Limited
Partnership Agreement.
4. The offering of Units is made solely on the information in the
Prospectus and Exhibits thereto. No person is authorized to make any
representations not contained in the Prospectus.
B-1
<PAGE> 132
SMITH BARNEY WESTPORT FUTURES FUND L.P. EXHIBIT B
SECONDARY OFFERING
UNITS SUBJECT TO AVAILABILITY
PLEASE COMPLETE
SUBSCRIPTION AMOUNT (MINIMUM $5,000,
EXCEPT $2,000 FOR EMPLOYEE-BENEFIT PLANS
INCLUDING IRAS. SUBJECT TO HIGHER
MINIMUMS IN
CERTAIN STATES. SEE EXHIBIT
C -- SUITABILITY REQUIREMENTS.)
__________________ _______________________________
| $ | | / / / /-/ / / / / /-/ / / / |
|________________| |_____________________________|
SMITH BARNEY ACCOUNT NUMBER
ACCOUNT NAME ____________________________________________
____________________________________________
STATE OR COUNTRY
OF RESIDENCE ____________________________________________
CIRCLE APPLICABLE ACCOUNT TYPE BELOW
<TABLE>
<S> <C> <C>
1 INDIVIDUAL ACCOUNT 3 CORPORATION 6 IRA, KEOGH, SEP
2 JOINT ACCOUNT 4 PARTNERSHIP 7 EMPLOYEE BENEFIT PLAN
5 TRUST 8 OTHER________________
</TABLE>
PAYMENT
PAYMENT FOR SUBSCRIPTIONS MAY BE MADE BY AUTHORIZING YOUR FINANCIAL CONSULTANT
TO DEBIT YOUR SMITH BARNEY INC. SECURITIES ACCOUNT IN THE AMOUNT OF YOUR
SUBSCRIPTION. SUBSCRIBERS WHO AUTHORIZE SMITH BARNEY INC. TO DEBIT THEIR
SECURITIES ACCOUNT MUST HAVE THEIR SUBSCRIPTION PAYMENT IN THEIR ACCOUNT ON THE
SPECIFIED SETTLEMENT DATE. THE ACCOUNT WILL BE DEBITED ON OR BEFORE THE
EFFECTIVE DATE OF PURCHASE FOLLOWING NOTIFICATION TO THE INVESTOR OF THE
ACCEPTANCE OF THE SUBSCRIPTION.
SIGNATURE
IF JOINT OWNERSHIP, ALL PARTIES MUST SIGN. IF FIDUCIARY, PARTNERSHIP OR
CORPORATION, INDICATE TITLE OF SIGNATORY UNDER SIGNATURE LINES.
<TABLE>
<S> <C>
____________________________________________________________ ____________________________________________________________
SUBSCRIBER'S SIGNATURE SUBSCRIBER'S SIGNATURE
____________________________________________________________ ____________________________________________________________
TITLE TITLE
____________________________________________________________ ____________________________________________________________
DATE DATE
</TABLE>
BRANCH MANAGER ATTESTATION
I have received all documents required to open this account and acknowledge the
suitability of this investment for the client pursuant to Paragraphs (b)(2)(B)
and (b)(3)(D) of Rule 2810 of the NASD's Conduct Rules, which sections require
that (i) in recommending the purchase of Units, the selling agent determine the
suitability of the Subscriber and maintain records containing the basis of the
suitability determination; and (ii) prior to executing a purchase of Units, the
selling agent inform the subscriber of facts relating to the liquidity and
marketability of the Units. If the account is a partnership or trust, I
acknowledge that my review of the partnership or trust allows investments in
limited partnerships whose principal business is in futures trading.
Branch Manager's Signature _________________________________
Print Name: ________________________________________________
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FOR BRANCH USE ENTER IOI FOR SECURITY NO.
FC PLEASE COMPLETE INDICATED BELOW (CHECK ONE):
FINANCIAL CONSULTANT NAME 8955450 ________
_____________________________________________________
PRINT NAME __________________________________________
FC TELEPHONE NO. ____________________________________
FC WIRE CODE ________________________________________
</TABLE>
SEND COMPLETED SUBSCRIPTION AGREEMENT TO:
SMITH BARNEY FUTURES MANAGEMENT INC.
390 GREENWICH STREET - 1ST FLOOR
NEW YORK, NEW YORK 10013
ATTN.: KRISTIN MCAREE TEL (212) 723-4976
NOT ACCEPTABLE FOR CLIENT SUBSCRIPTION
B-2
<PAGE> 133
EXHIBIT C
SUITABILITY REQUIREMENTS
(a) I understand that a subscriber must have (i) net worth of at least
$150,000 (exclusive of home, furnishings and automobiles), or (ii) net worth of
at least $45,000 (exclusive of home, furnishings and automobiles) and an annual
income of $45,000. I understand that certain states impose more restrictive
investment requirements than the foregoing.
(b) I understand that the investment requirements as to net worth ("NW")
(exclusive of home, furnishings and automobiles) and past and anticipated annual
income ("AI") or taxable income ("TI") set forth below opposite the state in
which I am a resident apply to my subscription:
<TABLE>
<S> <C>
Alaska.................... $225,000 NW or $75,000 NW and $75,000 AI
Arizona................... $225,000 NW and (1) or $75,000 NW and $75,000 AI and (1)
California................ $250,000 NW or $100,000 NW and $65,000 AI
Iowa...................... $225,000 NW and (1) or $75,000 NW and $75,000 AI and (1)
Maine..................... $200,000 NW or $50,000 NW and $50,000 AI
Massachusetts............. $225,000 NW or $60,000 NW and $60,000 AI
Michigan.................. $225,000 NW and (1) or $60,000 NW and $60,000 AI and (1)
Minnesota................. $225,000 NW or $60,000 NW and $60,000 AI
Mississippi............... $225,000 NW and $60,000 AI
Missouri.................. $225,000 NW or $75,000 NW and $75,000 AI
North Carolina............ $225,000 NW or $60,000 NW and $60,000 TI
Pennsylvania.............. $175,000 NW and (2) or $100,000 NW and $50,000 AI and (2)
South Dakota.............. $225,000 NW or $60,000 NW and $60,000 Annual Gross Income
Tennessee................. $225,000 NW or $60,000 NW and $60,000 AI
Texas..................... $225,000 NW or $60,000 NW and $60,000 TI
</TABLE>
--------------------
(1) In addition, my investment will represent no more than 10% of my
net worth less the value of any other investments in limited
partnership interests.
(2) In addition, if my net worth is less than $1,000,000, my
investment will represent no more than 10% of my net worth less
the value of any other investments in limited partnership
interests.
(c) [Iowa Individual Retirement Accounts only]. I understand that my
investment in the Partnership must be for a minimum of $3,000.
(d) [For all Maine Residents including employee-benefit plans]. Your
investment in the Partnership, whether in the initial or continuous offering,
must be for a minimum of $5,000.
(e) [Ohio Residents only]. I understand that my investment will represent
no more than 10% of my net worth less the value of any other investment in
limited partnership interests.
(f) [For South Dakota investors]. IN THE CASE OF SALES TO FIDUCIARY
ACCOUNTS, THE FOLLOWING MINIMUM INCOME AND NET WORTH STANDARDS SHALL BE MET BY
THE BENEFICIARY, THE FIDUCIARY ACCOUNT, OR BY THE DONOR OR GRANTOR WHO DIRECTLY
OR INDIRECTLY SUPPLIES THE FUNDS TO PURCHASE THE UNITS IF THE DONOR OR GRANTOR
IS THE FIDUCIARY: (A) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A MINIMUM NET
WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS, AND AUTOMOBILES) OF $60,000; OR (B)
A MINIMUM NET WORTH OF $225,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS, AND
AUTOMOBILES).
C-1
<PAGE> 134
(This page has been left blank intentionally.)
<PAGE> 135
EXECUTION COPY
SMITH BARNEY WESTPORT
FUTURES FUND L.P.
SUBSCRIPTION AGREEMENT
Dear Sirs:
A. SUBSCRIBER PROVISIONS.
1. Subscription for Units. I hereby subscribe to purchase from Smith Barney
Inc. the amount indicated below of units of limited partnership interest
("Units") of SMITH BARNEY WESTPORT FUTURES FUND L.P. (the "Partnership") at Net
Asset Value per Unit as of the date of my admission to the Partnership (as those
terms are defined under "Plan of Distribution") (with a minimum investment of
$5,000, except $2,000 for employee-benefit plans, subject to higher minimum in
certain states). I UNDERSTAND THAT MY SUBSCRIPTION MAY BE REVOKED IF SB
DETERMINES NOT TO CONDUCT MARKET-MAKING ACTIVITIES AS OF THE END OF A MONTH,
THAT MY SUBSCRIPTION AMOUNT MAY BE ADJUSTED PENDING DETERMINATION OF MONTH-END
NET ASSET VALUE PER UNIT AND THAT AMOUNTS NOT USED TO PURCHASE UNITS WILL BE
RETURNED TO ME.
2. Representations and Warranties. BY EXECUTING THIS SUBSCRIPTION
AGREEMENT, I AM NOT WAIVING ANY RIGHTS UNDER THE FEDERAL OR STATE SECURITIES
LAWS. As an inducement to the General Partner on behalf of the Partnership to
accept my subscription for the Units for which I have subscribed, I (either in
my individual capacity or as an authorized representative of an entity, if
applicable) hereby represent and warrant to the General Partner and the
Partnership as follows:
(A) I HAVE RECEIVED A COPY OF THE PROSPECTUS AND DISCLOSURE DOCUMENT OF
THE PARTNERSHIP, INCLUDING THE LIMITED PARTNERSHIP AGREEMENT (AS
SUPPLEMENTED BY STICKER SUPPLEMENTS, IF ANY) AND A COPY OF THE MOST RECENT
MONTHLY STATEMENT AND ANNUAL REPORT, IF ANY, RELATING TO AND DESCRIBING THE
TERMS AND CONDITIONS OF THIS OFFERING OF UNITS ("PROSPECTUS").
(B) I MEET THE APPLICABLE INVESTOR SUITABILITY REQUIREMENTS SET FORTH IN
EXHIBIT C TO THE PROSPECTUS AND REPRESENT THAT ALL THE INFORMATION SET FORTH
WITH RESPECT TO MY FINANCIAL POSITION IS CORRECT AND COMPLETE AS OF THE DATE
OF THIS SUBSCRIPTION AGREEMENT, AND IF THERE SHOULD BE ANY MATERIAL CHANGE
IN SUCH INFORMATION PRIOR TO MY ADMISSION AS A LIMITED PARTNER, I WILL
IMMEDIATELY FURNISH SUCH REVISED OR CORRECTED INFORMATION TO THE GENERAL
PARTNER.
(c) I hereby consent to the execution and delivery of the Customer
Agreement between the Partnership and SB and to the payment to SB of fees as
described in the Prospectus.
(d) If I am not a citizen or resident of the United States for federal
income tax purposes, I represent that I am not a dealer in commodities and I
agree to pay the General Partner or SB for any taxes, including but not
limited to withholding tax, imposed as a result of my status as a limited
partner.
3. Employee-Benefit Plans. The undersigned individual, employer or trustee
who has investment discretion over the assets of the subscribing
employee-benefit plan ("Director") represents and agrees as follows:
(a) Either (A) or (B): (A) neither SB nor any of its employees or
affiliates (i) manages any part of the investment portfolio of the
subscribing employee-benefit plan (the "Plan"), or (ii) has an agreement or
understanding, written or unwritten, with the Fiduciary under which the
Fiduciary regularly receives information, recommendations or advice
concerning investments which are used as a primary basis for the Plan's
investment decisions and which are individualized to the particular needs of
the Plan.
or (B) The relationship between the Plan and SB or any of its employees
or affiliates comes within (i) or (ii) above with respect to only a portion
of the Plan's assets and the investment in the Partnership is being made by
the Fiduciary from a portion of Plan assets with respect to which such
relationship does not exist.
(b) Although an SB Financial Consultant may have suggested that the
Director consider the investment in the Partnership, the Director has
studied the Prospectus and has made the investment decision solely on the
basis of the Prospectus and without reliance on such suggestion.
(c) The Plan is in compliance with all applicable Federal regulatory
requirements.
4. Acceptance of Limited Partnership Agreement and Power of Attorney. I
hereby apply to become a limited partner as of the date the sale of my Units
becomes effective, and I hereby agree to each and every term of the Limited
Partnership Agreement as if my signature were subscribed therein.
I hereby irrevocably constitute and appoint Smith Barney Futures Management
Inc., the General Partner of the Partnership, as my true and lawful
Attorney-in-Fact, with full power of substitution, in my name, place and stead,
to execute, acknowledge, swear to, file and record on my behalf in the
appropriate public offices (i) the Limited Partnership Agreement of the
Partnership and a Certificate of Limited Partnership, including amendments and
restatements thereto; (ii) all instruments which the General Partner deems
necessary or appropriate to reflect any amendment, change, modification or
restatement of the Limited Partnership Agreement in accordance with the terms of
the Limited Partnership Agreement, as amended, including any instruments
necessary to dissolve the Partnership; (iii) certificates of assumed name; and
(iv) customer agreements with any commodity brokerage firm. The power of
attorney granted hereby shall be deemed to be coupled with an interest and shall
be irrevocable and survive the death, disability or incapacity of the
undersigned.
------------------
B. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, except for matters arising
under federal and state securities laws.
------------------
C. RISK DISCLOSURE.
1. Investment in the Partnership is speculative and includes the risks
summarized under "Risk Factors" in the Prospectus. Each investor must be
able to afford the risks of an investment in the Partnership.
2. Smith Barney Futures Management Inc., the General Partner, is an
affiliate of Smith Barney Inc. ("SB"). SB is the Market-Maker and the
Commodity Broker/Dealer and recipient of brokerage fees. Therefore,
conflicts of interest exist (see "Conflicts of Interest" and "The Commodity
Broker/Dealer" in the Prospectus). SB will receive substantial brokerage
fees from the Partnership regardless of the Partnership's trading
performance (see "Fees and Expenses to the Partnership" in the Prospectus).
3. An Investor may transfer or redeem his Units only as of the last day
of a calendar month, all as set forth in the Prospectus and the Limited
Partnership Agreement.
4. The offering of Units is made solely on the information in the
Prospectus and Exhibits thereto. No person is authorized to make any
representations not contained in the Prospectus.
<PAGE> 136
SMITH BARNEY WESTPORT FUTURES FUND L.P. EXECUTION COPY
SECONDARY OFFERING
UNITS SUBJECT TO AVAILABILITY
PLEASE COMPLETE
SUBSCRIPTION AMOUNT (MINIMUM $5,000,
EXCEPT $2,000 FOR EMPLOYEE-BENEFIT PLANS
INCLUDING IRAS. SUBJECT TO HIGHER
MINIMUMS IN
CERTAIN STATES. SEE EXHIBIT
C -- SUITABILITY REQUIREMENTS.)
__________________ _______________________________
| $ | | / / / /-/ / / / / /-/ / / / |
|________________| |_____________________________|
SMITH BARNEY ACCOUNT NUMBER
ACCOUNT NAME ____________________________________________
____________________________________________
STATE OR COUNTRY
OF RESIDENCE ____________________________________________
CIRCLE APPLICABLE ACCOUNT TYPE BELOW
<TABLE>
<S> <C> <C>
1 INDIVIDUAL ACCOUNT 3 CORPORATION 6 IRA, KEOGH, SEP
2 JOINT ACCOUNT 4 PARTNERSHIP 7 EMPLOYEE BENEFIT PLAN
5 TRUST 8 OTHER _______________
</TABLE>
PAYMENT
PAYMENT FOR SUBSCRIPTIONS MAY BE MADE BY AUTHORIZING YOUR FINANCIAL CONSULTANT
TO DEBIT YOUR SMITH BARNEY INC. SECURITIES ACCOUNT IN THE AMOUNT OF YOUR
SUBSCRIPTION. SUBSCRIBERS WHO AUTHORIZE SMITH BARNEY INC. TO DEBIT THEIR
SECURITIES ACCOUNT MUST HAVE THEIR SUBSCRIPTION PAYMENT IN THEIR ACCOUNT ON THE
SPECIFIED SETTLEMENT DATE. THE ACCOUNT WILL BE DEBITED ON OR BEFORE THE
EFFECTIVE DATE OF PURCHASE FOLLOWING NOTIFICATION TO THE INVESTOR OF THE
ACCEPTANCE OF THE SUBSCRIPTION.
SIGNATURE
IF JOINT OWNERSHIP, ALL PARTIES MUST SIGN. IF FIDUCIARY, PARTNERSHIP OR
CORPORATION, INDICATE TITLE OF SIGNATORY UNDER SIGNATURE LINES.
<TABLE>
<S> <C>
____________________________________________________________ ____________________________________________________________
SUBSCRIBER'S SIGNATURE SUBSCRIBER'S SIGNATURE
____________________________________________________________ ____________________________________________________________
TITLE TITLE
____________________________________________________________ ____________________________________________________________
DATE DATE
</TABLE>
BRANCH MANAGER ATTESTATION
I have received all documents required to open this account and acknowledge the
suitability of this investment for the client pursuant to Paragraphs (b)(2)(B)
and (b)(3)(D) of Rule 2810 of the NASD's Conduct Rules, which sections require
that (i) in recommending the purchase of Units, the selling agent determine the
suitability of the Subscriber and maintain records containing the basis of the
suitability determination; and (ii) prior to executing a purchase of Units, the
selling agent inform the subscriber of facts relating to the liquidity and
marketability of the Units. If the account is a partnership or trust, I
acknowledge that my review of the partnership or trust allows investments in
limited partnerships whose principal business is in futures trading.
Branch Manager's Signature ________________________________
Print Name: ______________________________________________
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FOR BRANCH USE ENTER IOI FOR SECURITY NO.
FC PLEASE COMPLETE INDICATED BELOW (CHECK ONE):
FINANCIAL CONSULTANT NAME 8955450 __________
_________________________________________________
PRINT NAME ______________________________________
FC TELEPHONE NO. ________________________________
FC WIRE CODE ____________________________________
</TABLE>
SEND COMPLETED SUBSCRIPTION AGREEMENT TO:
SMITH BARNEY FUTURES MANAGEMENT INC.
390 GREENWICH STREET - 1ST FLOOR
NEW YORK, NEW YORK 10013
ATTN.: KRISTIN MCAREE TEL (212) 723-4976
PHOTOCOPIES OR FAXES NOT ACCEPTABLE
<PAGE> 137
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Filing Fee -- Securities and Exchange Commission (1933
Act)...................................................... $ 0
Filing Fee -- National Association of Securities Dealers,
Inc. ..................................................... $ 0
Printing Expenses........................................... $ 50,000*
Legal Fees.................................................. $100,000*
Blue Sky Fees and Expenses (excluding legal fees)........... $ 40,000*
Accounting Fees............................................. $ 10,000*
Marketing................................................... $ 20,000*
Miscellaneous............................................... $ 5,000
--------
Total.................................................. $225,000*
========
</TABLE>
-------------------------
*Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 16 of the Limited Partnership Agreement (attached as Exhibit A to
the Prospectus which forms a part of this Registration Statement) provides for
indemnification of the General Partner, its officers, directors, stockholders,
employees and controlling persons. The General Partner and its Affiliates shall
be indemnified by the Partnership against any losses, judgment, liabilities,
expenses and amounts paid in settlement of any claims sustained by them in
connection with the Partnership, provided that the General Partner shall have
determined in good faith that such course of conduct was in the best interest of
the Partnership and such loss or liability was not the result of negligence or
misconduct on the part of the General Partner or its Affiliates. Notwithstanding
the foregoing, the Registrant is not permitted to indemnify the General Partner
or its affiliates for liabilities resulting from a violation of the Securities
Act of 1933 or any State securities law in connection with the offer or sale of
the Units of limited partnership interest.
[Section 5] of the Market Making Agreement provides for indemnification of
the Registrant by SB against any and all loss, liability, claim, damage and
expense arising out of or based upon any untrue or alleged untrue statement of
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus, or any related sales material used by SB in
connection with this offering of Units, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that such statement or omission
was made in reliance upon and in conformity with information furnished to the
Registrant by SB, expressly for use in any preliminary prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereto.
Section 7 of the Customer Agreement provides for indemnification of SB by
the Registrant against any loss, liability, damage, cost, expense (including
attorneys' fees and accountants' fees), judgments and amounts paid in settlement
actually and reasonably incurred by it in connection with such action, suit or
proceeding if SB acted in good faith and in a manner it reasonably believed to
be in the best interest of the Registrant, except that no indemnification shall
be made in respect of any claim, issue or matter which as to SB constituted
negligence, misconduct or breach of its fiduciary obligations to the Registrant,
unless, and only to the extent that, the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, SB is fairly and
reasonably entitled to indemnification for such expenses which such court shall
deem proper, and further provided that no indemnification shall be available
from the Registrant if such indemnification is prohibited by Section 16 of the
Limited Partnership Agreement.
Section 6 of the Management Agreement provides for indemnification by the
General Partner of the Advisor for any loss, liability, damage, cost, expense
(including without limitation, attorneys' and accountants' fees), judgments and
amounts paid in settlement actually and reasonably incurred by it in connection
with such action, suit or proceeding if the Advisor acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Registrant, and provided that its conduct did not constitute negligence,
intentional misconduct, or a breach of its fiduciary obligations to the
Registrant's commodity trading advisor, unless and only to the extent that the
court or administrative forum in which such action or
II-1
<PAGE> 138
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, the Advisor is fairly
and reasonably entitled to indemnity for such expenses which such court or
administrative forum shall deem proper, and further provided that no
indemnification shall be available from the Registrant if such indemnification
is prohibited by Section 16 of the Limited Partnership Agreement.
The agreements filed as Exhibits 1.1, 10.1 and 10.4 contain certain
indemnity provisions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 31, 1997 Registrant sold one Unit of Limited Partnership Interest
to David J. Vogel for $1,000. No underwriting or sales commissions were paid in
connection with this sale. The Registrant claims an exemption from registration
based on Section 4(2) of the Securities Act of 1933 as a sale not involving a
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<C> <S>
1.1 -- Form of Market-Making Agreement among Registrant, Smith
Barney Futures Management Inc. and Smith Barney Inc.
3.1 -- Limited Partnership Agreement (included as Exhibit A to the
Prospectus)
*3.2 -- Certificate of Limited Partnership of Registrant
*4.1 -- Specimen of Unit Certificate
5.1 -- Opinion of Willkie Farr & Gallagher relating to the legality
of the Units
8.1 -- Tax Opinion of Willkie Farr & Gallagher
*10.1 -- Form of Customer Agreement between Registrant and Smith
Barney Inc.
10.2 -- Form of Subscription Agreement (included as Exhibit B to the
Prospectus)
10.3 -- Form of Escrow Agreement among the Registrant, Smith Barney
Futures Management Inc., Smith Barney Inc. and the Escrow
Agent relating to escrow of subscription funds.
*10.4 -- Form of Management Agreement among Registrant, Smith Barney
Futures Management Inc. and John W. Henry & Company, Inc.
10.5 -- Form of Amended Management Agreement among Registrant, Smith
Barney Futures Management Inc. and John W. Henry & Company,
Inc.
24.1 -- Consent of Independent Accountants (included in Part II of
this Registration Statement)
24.2 -- Consent of Counsel (included in Part II of this Registration
Statement)
</TABLE>
- ---------------
* Previously filed as like-numbered Exhibits to Registration Statement
No. 333-24923, and incorporated by reference herein.
(b) FINANCIAL STATEMENT SCHEDULES:
Not Applicable.
II-2
<PAGE> 139
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 140
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK AND STATE OF NEW
YORK ON THE 18TH DAY OF JUNE, 1998.
SMITH BARNEY WESTPORT
FUTURES FUND L.P.
By SMITH BARNEY FUTURES
MANAGEMENT INC.
(General Partner)
By /s/ DAVID J. VOGEL
----------------------------------
David J. Vogel, President and
Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
SMITH BARNEY FUTURES General Partner June 18, 1998
MANAGEMENT INC.
/s/ DAVID J. VOGEL Director, Principal Executive June 18, 1998
- --------------------------------------------------- Officer and President
DAVID J. VOGEL
/s/ MICHAEL R. SCHAEFER Director June 18, 1998
- ---------------------------------------------------
MICHAEL R. SCHAEFER
/s/ STEVEN J. KELTZ Secretary and Director June 18, 1998
- ---------------------------------------------------
STEVEN J. KELTZ
/s/ JACK H. LEHMAN III Chairman and Director June 18, 1998
- ---------------------------------------------------
JACK H. LEHMAN III
/s/ DANIEL A. DANTUONO Treasurer, Chief Financial June 18, 1998
- --------------------------------------------------- Officer and Director
DANIEL A. DANTUONO
/s/ DANIEL R. MCAULIFFE, JR. Director June 18, 1998
- ---------------------------------------------------
DANIEL R. MCAULIFFE, JR.
/s/ SHELLEY ULLMAN Director June 18, 1998
- ---------------------------------------------------
SHELLEY ULLMAN
</TABLE>
II-4
<PAGE> 141
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of
Smith Barney Westport Futures Fund L.P. to be used in registering, under the
Securities Act of 1933, 120,000 Outstanding Units of Limited Partnership
Interest for a secondary offering of (i) our report dated March 31, 1998 on our
audit of the statement of financial condition of Smith Barney Futures Management
Inc. and (ii) our report dated March 6, 1998 on our audit of the financial
statements of Smith Barney Westport Futures Fund L.P.
We also consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
June 18, 1998
<PAGE> 142
CONSENT OF COUNSEL
As counsel for the Registrant, we hereby consent to the references made to
our firm in this Registration Statement.
/s/ WILLKIE FARR & GALLAGHER
New York, New York
June 19, 1998
<PAGE> 143
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
1.1 -- Form of Market-Making Agreement among Registrant, Smith
Barney Futures Management Inc. and Smith Barney Inc.
3.1 -- Limited Partnership Agreement (included as Exhibit A to the
Prospectus)
*3.2 -- Certificate of Limited Partnership of Registrant
*4.1 -- Specimen of Unit Certificate
5.1 -- Opinion of Willkie Farr & Gallagher relating to the legality
of the Units
8.1 -- Tax Opinion of Willkie Farr & Gallagher
*10.1 -- Form of Customer Agreement between Registrant and Smith
Barney Inc.
10.2 -- Form of Subscription Agreement (included as Exhibit B to the
Prospectus)
10.3 -- Form of Escrow Agreement among the Registrant, Smith Barney
Futures Management Inc., Smith Barney Inc. and the Escrow
Agent relating to escrow of subscription funds
*10.4 -- Form of Management Agreement among Registrant, Smith Barney
Futures Management Inc. and John W. Henry & Company, Inc.
10.5 -- Form of Amended Management Agreement among Registrant, Smith
Barney Futures Management Inc. and John W. Henry & Company,
Inc.
24.1 -- Consent of Independent Accountants (included in Part II of
this Registration Statement)
24.2 -- Consent of Counsel (included in Part II of this Registration
Statement)
</TABLE>
- ---------------
* Previously filed as like-numbered Exhibits to Registration Statement
No. 333-24923, and incorporated by reference herein.
<PAGE> 1
EXHIBIT 1.1
MARKET-MAKING AGREEMENT
SMITH BARNEY WESTPORT FUTURES FUND L. P.
120,000 Outstanding Units of Limited Partnership Interest
AGREEMENT made as of the 30th day of June, 1998, by and among
SMITH BARNEY WESTPORT FUTURES FUND L. P., a New York limited partnership (the
"Partnership"), SMITH BARNEY FUTURES MANAGEMENT INC., a Delaware corporation
("SBFM") and SMITH BARNEY INC., a Delaware corporation ("SB").
W I T N E S S E T H :
WHEREAS, the Partnership has sold 120,000 Units of Limited
Partnership Interest in the Partnership (the "Units") pursuant to a registration
statement on Form S-1 (File No. 333-24923) filed with the Securities and
Exchange Commission (the "SEC") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "Act"); and
WHEREAS, the Partnership has filed a registration statement on
Form S-1 (File No. 333-_______) with the SEC in accordance with the Act and as a
part thereof a form of preliminary prospectus relating to a secondary offering
in the Units whereby SB will make offers and sales of Units (to the extent
available due to existing holders of Units wishing to transfer or redeem these
Units) upon the terms and in reliance upon the representations, warranties and
agreements set forth herein (the registration statement in the form in which it
becomes effective under the Act being hereinafter referred to as the
"Registration Statement" and the prospectus in the form included therein being
hereinafter referred to as the "Prospectus"; provided that (1) if the
Partnership files a post-effective amendment to such registration statement,
then the term "Registration Statement" shall refer to the registration statement
as amended by such post-effective amendment, and the term "Prospectus" shall
refer to the amended prospectus then on file with the SEC and (2) if a
prospectus filed by the Partnership pursuant to either Rule 424(b) or (c)
promulgated under the Act shall differ from the prospectus on file at the time
the Registration Statement or any post-effective amendment thereof shall have
become effective, the term "Prospectus" shall refer to the prospectus filed
pursuant to Rule 424(b) or (c), from and after the date on which it shall have
been filed); and
<PAGE> 2
WHEREAS, the Partnership has entered into a management
agreement with John W. Henry & Company, Inc. (the "Advisor") and SBFM, (the
"Management Agreement"), pursuant to which commodity trading decisions are made
by the Advisor as described in the Prospectus.
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment of Market Making Agent
(a) The Partnership hereby appoints SB as its exclusive agent to
offer and sell the Units on the terms and conditions set forth herein and in the
Registration Statement and the Prospectus.
(b) SB hereby accepts appointment as market making agent for the
Partnership to effect purchases and sales of Units as provided herein, in the
Registration Statement and in the Prospectus. SB represents and hereby confirms
that in selling to subscribers and otherwise carrying out its obligations under
this agreement it will comply with Paragraphs (b)(2) and (b)(3) of Rule 2810 of
the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD"), as set forth in Schedule I hereto. SB agrees that SBFM has the right
to reject any transfer of Units for any reason and to suspend sales of Units at
any time.
(c) SB agrees that all funds received by SB from purchasers shall
be promptly delivered to European American Bank as escrow agent for the benefit
of subscribers by noon of the second business day after receipt. SB agrees that
funds delivered by the escrow agent to SB will be used by SB to pay limited
partners who desire to transfer their Units. SB agrees to notify SBFM in a
reasonable period of time so that SBFM may cause the Partnership's records to
reflect the change in ownership of the Units from the transferring limited
partners to the purchasing investors.
(d) SB represents and confirms that it is registered with the
Commodity Futures Trading Commission ("CFTC") as a futures commission merchant
and is a member of the National Futures Association ("NFA") in that capacity.
Further, any associated person of SB who receives continuing compensation in the
form of a portion of the commodity brokerage fees paid by the Partnership shall
be registered with the CFTC as an associated person of a futures commission
merchant or an introducing broker (qualified
-2-
<PAGE> 3
as an associated person by having taken the Series 3 or Series 31 Commodities
Exam or having been "grandfathered" as an associated person qualified to do
commodity brokerage) and shall also be a member of the NFA.
2. Agreements of the Partnership. The Partnership agrees with SB
as follows:
(a) The Partnership will advise SB, promptly after it receives
notice thereof, (i) of the time when the Registration Statement has become
effective and when any amendment thereto becomes effective, (ii) of the issuance
by the SEC of any stop order or of any order preventing or suspending the use of
any Prospectus, or the initiation or threat of any proceeding for any such
purpose and (iii) of any request by the SEC for amendments or supplements to the
Registration Statement or Prospectus or for additional information. In the event
of the issuance of any stop order or of any order preventing or suspending the
use of any Prospectus, the Partnership will promptly use its best efforts to
obtain its withdrawal.
(b) The Partnership will furnish to SB, without charge, two signed
copies of the Registration Statement as originally filed and each amendment
thereto, including all exhibits.
(c) The Partnership will not file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which SB shall not previously have been advised or to which SB shall reasonably
object in writing.
(d) The Partnership will furnish SB with copies of any preliminary
prospectus and of the Prospectus in such quantities as they may from time to
time reasonably request. If at any time when the Prospectus is required to be
delivered under the Act any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it shall be necessary to amend
or supplement the Prospectus in order to comply with the Act, the Partnership
will notify SB and upon its request prepare and furnish without charge to it as
many copies as it may from time to time reasonably request of an amended
Prospectus or a supplement to
-3-
<PAGE> 4
the Prospectus which will correct such statement or omission or effect such
compliance.
(e) The Partnership will take such action as SB may reasonably
request to qualify the Units for offering and sale under the securities or blue
sky laws of such jurisdictions as it may request and will comply with such laws
so as to permit the continuance of sales in such jurisdictions for as long as
Units are available for secondary distribution.
3. Partnership Representations and Warranties.
The Partnership represents and warrants to SB that:
(a) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto complied or
when so filed will comply in all material respects with the requirements of the
Act and the Commodity Exchange Act ("CEA").
(b) At the time the Registration Statement becomes effective and
at all times subsequent thereto during the term of this Agreement, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, will comply in all material respects with the provisions of the Act and
the CEA and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided, however, that the
representations and warranties contained in subparagraphs (a) and (b) above do
not apply to any statements or omissions in the Registration Statement or
Prospectus, or any amendment or supplement thereto, made in reliance upon
information furnished to the Partnership by SB or on its behalf expressly for
use therein.
(c) The Partnership is duly formed and validly existing as a
limited partnership under the New York Revised Uniform Limited Partnership Act
(the "Partnership Law"), with full partnership power and authority to carry out
its obligations under this Agreement, its Certificate of Limited Partnership, as
amended from time to time (the "Partnership Certificate"), and its Limited
Partnership Agreement, as amended from time to time (the "Partnership
Agreement"), and to conduct its business as described in the Prospectus. The
Partnership conducts no business and owns or leases no properties which would
require it
-4-
<PAGE> 5
to qualify to do business as a foreign organization in any jurisdiction.
(d) This Market-Making Agreement has been duly authorized by the
Partnership and the Units constitute valid limited partnership interests in the
Partnership which conform to the description thereof contained in the
Prospectus; and the liability of each limited partner will be limited as set
forth in the Prospectus, and no limited partner will be subject to personal
liability for the debts, obligations, or liabilities of the Partnership by
reason of his being a limited partner other than as described in the Prospectus.
(e) The compliance by the Partnership with all of the provisions
of this Agreement will not conflict with or result in a breach of any of the
terms or provisions of any agreement to which the Partnership is a party or by
which it is bound, nor will such action result in a violation of the provisions
of the Partnership Agreement or Partnership Certificate or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Partnership or any of its properties.
(f) A separate escrow account (the "Escrow Account") has been
opened at European American Bank and will be maintained for all funds received
from purchasers of Units. All payments received from purchasers of Units will be
deposited in such account and held in accordance with the terms of such Escrow
Agreement, as amended, until such funds are transferred to SB for further
payment to transferors of Units.
(g) Coopers & Lybrand L.L.P., who have certified certain financial
statements contained in the Registration Statement, are independent public
accountants as required by the Act.
-5-
<PAGE> 6
4. SB Representations and Warranties.
SB represents and warrants to the Partnership that:
(a) All funds received from purchasers shall be promptly deposited
in the Escrow Account.
(b) Subscription documents received by SB will be promptly
forwarded to SBFM for review and approval or rejection.
5. Indemnification.
SB agrees to indemnify and hold harmless the Partnership against any
and all loss, liability, claim, damage and expense whatsoever (including but not
limited to any and all expense whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever) arising out of or based upon any untrue or alleged untrue
statement of material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus (as from time to time amended and
supplemented), or any related sales material used by SB in connection with this
offering of Units, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, provided that such statement or omission was made in reliance
upon and in conformity with information furnished to the Partnership by SB,
expressly for use in any preliminary prospectus, the Registration Statement or
Prospectus or any amendment or supplement thereto.
6. Term.
(a) This Agreement may be terminated by SB, at its option, by
giving notice to the Partnership, if:
(i) there shall have been, since the respective dates as
of which information is given in the Registration Statement, any material
adverse change in the condition, financial or otherwise, of the Partnership or
SBFM, which change in its judgment shall render it inadvisable to proceed with
the offer and sale of the Units; or
(ii) any of the conditions specified in this Agreement
shall not have been fulfilled when and as required by this Agreement to be
fulfilled.
-6-
<PAGE> 7
(b) The termination of this Agreement for any reason set forth in
this Section 6 shall not affect the obligations of the Partnership contained in
Section 2 hereof.
7. Miscellaneous.
(a) All representations, warranties and agreements contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any investigation made by or on behalf of any party, (ii) delivery of and
payment for the Units, or (iii) termination of this Agreement.
(b) Except as otherwise expressly provided, this Agreement is made
solely for the benefit of, and shall be binding upon, the parties hereto and
their respective successors and assigns, and no other person shall have any
right or obligation under it. The terms "successors" and "assigns" shall not
include any purchasers, as such, of Units in the Partnership.
(c) Whenever notice is required to be given by the provisions of
this Agreement, such notice shall be in writing and delivered personally or by
registered or certified mail, return receipt requested, postage prepaid, and
properly addressed as follows:
If to the Partnership to:
Smith Barney Westport Futures Fund L. P.
c/o Smith Barney Futures Management Inc.
390 Greenwich Street
New York, New York 10013
If to SB to:
Smith Barney Inc.
390 Greenwich Street
New York, New York 10013
If to SBFM to:
Smith Barney Futures Management Inc.
390 Greenwich Street
New York, New York 10013
(d) No party is authorized by the Partnership to give any
information or make any representation in connection with the
-7-
<PAGE> 8
offering of Units other than those contained in the Prospectus and such sales
literature the use of which has been authorized in writing by the Partnership.
(e) This Agreement may be signed in counterpart.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of
the parties as of the day and year first above mentioned.
SMITH BARNEY WESTPORT
FUTURES FUND L. P.
By: Smith Barney
Futures Management Inc.,
(General Partner)
By:_______________________________________
SMITH BARNEY
FUTURES MANAGEMENT INC.
By:_______________________________________
SMITH BARNEY INC.
By:_______________________________________
-8-
<PAGE> 9
SCHEDULE I
SUITABILITY
(b)(2) (A) A member or person associated with a member shall not
underwrite or participate in a public offering of a direct participation program
unless standards of suitability have been established by the program for
participants therein and such standards are fully disclosed in the prospectus
and are consistent with the provisions of subparagraph (B) below.
(B) In recommending to a participant the purchase, sale
or exchange of an interest in a direct participation program, a member or person
associated with a member shall:
(i) have reasonable grounds to believe, on the
basis of information obtained from the participant concerning his
investment objectives, other investments, financial situation and
needs, and any other information known by the member or associated
person, that:
a. the participant is or will be in a
financial position appropriate to enable him to realize to a
significant extent the benefits described in the prospectus,
including the tax benefits where they are a significant aspect
of the program:
b. the participant has a fair market
net worth sufficient to sustain the risks inherent in the
program, including loss of investment and lack of liquidity;
and
c. the program is otherwise suitable
for the participant; and
(ii) maintain in the files of the member
documents disclosing the basis upon which the determination of
suitability was reached as to each participant.
(C) Notwithstanding the provisions of subparagraphs (A)
and (B) hereof, no member shall execute any transaction in a direct
participation program in a discretionary account without prior written approval
of the transaction by the customer.
-9-
<PAGE> 10
(D) Subparagraphs (A) and (B), and, only in situations
where the member is not affiliated with the direct participation program,
Subparagraph (C), shall not apply to:
(i) a secondary public offering of or a
secondary market transaction in a unit, depositary receipt, or other
interest in a direct participation program for which quotations are
displayed on Nasdaq or which is listed on a registered national
securities exchange; or
(ii) an initial public offering of a unit,
depositary receipt or other interest in a direct participation program
for which an application for inclusion on Nasdaq or listing on a
registered national securities exchange has been approved by Nasdaq or
such exchange and the applicant makes a good faith representation that
it believes such inclusion on Nasdaq or listing on an exchange will
occur within a reasonable period of time following the formation of the
program.
DISCLOSURE
(b)(3) (A) Prior to participating in a public offering of a
direct participation program, a member or person associated with a member shall
have reasonable grounds to believe, based on information made available to him
by the sponsor through a prospectus or other materials, that all material facts
are adequately and accurately disclosed and provide a basis for evaluating the
program.
(B) In determining the adequacy of disclosed facts
pursuant to subparagraph (A) hereof, a member or person associated with a member
shall obtain information on material facts relating at a minimum to the
following, if relevant in view of the nature of the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the sponsor;
(v) the program's conflict and risk factors; and
(vi) appraisals and other pertinent reports.
(C) For purposes of subparagraphs (A) or (B) hereof, a
member or person associated with a member may rely upon the
-10-
<PAGE> 11
results of an inquiry conducted by another member or members, provided that:
(i) the member or person associated with a
member has reasonable grounds to believe that such inquiry was
conducted with due care;
(ii) the results of the inquiry were provided to
the member or person associated with a member with the consent of the
member or members conducting or directing the inquiry; and
(iii) no member that participated in the inquiry
is a sponsor of the program or an affiliate of such sponsor.
(D) Prior to executing a purchase transaction in a direct
participation program, a member or person associated with a member shall inform
the prospective participant of all pertinent facts relating to the liquidity and
marketability of the program during the term of the investment; provided,
however, that this paragraph (b) shall not apply to an initial or secondary
public offering of or a secondary market transaction in a unit, depositary
receipt or other interest in a direct participation program which complies with
subparagraph (2)(D).
-11-
<PAGE> 1
EXHIBIT 5.1
June 19, 1998
Smith Barney Westport Futures Fund L.P.
c/o Smith Barney Futures Management Inc.
390 Greenwich Street - 1st Floor
New York, New York 10013
Re: Smith Barney Westport Futures Fund L.P.
Ladies and Gentlemen:
We have acted as counsel for Smith Barney Westport Futures Fund L.P. (the
"Partnership"), a limited partnership organized under the New York Revised
Limited Partnership Act (the "Act") in connection with the issuance and sale
(the "Offering") of up to 120,000 units of limited partnership interest in the
Partnership (the "Units").
In this connection, we have examined originals or photostatic or certified
copies of all such documents, records, certificates and agreements as we have
deemed relevant and necessary as a basis for the opinions hereinafter set forth.
On the basis of the foregoing, we are of the opinion that:
1. The Partnership is duly formed and validly existing as a limited
partnership under the Act.
2. Assuming (i) the due authorization, execution and delivery to the
General Partner of a Subscription Agreement by those persons and entities who
subscribed for Units in the offering described in the Prospectus (the "Limited
Partners"), (ii) the due acceptance by the General Partner of a Subscription
Agreement for each Limited Partner and the due acceptance by the General Partner
of the Limited Partners to the Partnership as substituted limited partners of
the Partnership, (iii) the payment by each Limited Partner of the full
consideration due from him or
<PAGE> 2
Smith Barney Westport
Futures Fund L.P.
June 19, 1998
Page 2
it for the Units subscribed to by him or it, (iv) that the books and records of
the Partnership set forth all information required by the Limited Partnership
Agreement (the "Agreement") and the Act, including all information with respect
to all persons and entities to be admitted as Partners and their contributions
to the Partnership, (v) that the Limited Partners, as limited partners, do not
participate in the control of the business of the Partnership, and (vi) that the
Units are offered and sold as described in the Registration Statement and the
Agreement, (a) the Units to be transferred to the Limited Partners will
represent valid limited partnership interests in the Partnership, as to which
the Limited Partners, as limited partners, will have no liability in excess of
their obligations to make contributions to the Partnership and their share of
the Partnership's assets and undistributed profits (subject to the obligation
of a Limited Partner to repay any funds wrongfully distributed to it), and (b)
the Limited Partners will be entitled to all of the benefits of limited
partners as permitted under the Act.
3. There are no provisions in the Agreement the inclusion of which would
cause the Limited Partners to be deemed to be participating in the control of
the business of the Partnership.
We hereby consent to the inclusion of our opinion as an exhibit to the
Partnership's Registration Statement.
Very truly yours,
<PAGE> 1
EXHIBIT 8.1
June 19, 1998
Smith Barney Westport Futures Fund L. P.
c/o Smith Barney Futures Management Inc.
390 Greenwich Street - 1st floor
New York, New York 10013
Re: Smith Barney Westport Futures Fund L. P.
Ladies and Gentlemen:
We have acted as counsel for Smith Barney Westport Futures Fund L. P., a limited
partnership organized under the New York Revised Limited Partnership Act (the
"Partnership"), in connection with the preparation and filing with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
of a Registration Statement on Form S-1 (the "Registration Statement"), relating
to the registration of 120,000 Units of Limited Partnership Interest in the
Partnership.
In so acting, we have reviewed such data, documents, statutes and regulations
and have considered such questions of law and fact as we have deemed pertinent
for purposes of this opinion. Based upon the foregoing, we are of the opinion
that the Partnership should be classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation. In addition, we
hereby confirm to you our opinion under the caption "Income Tax Aspects" in the
Prospectus constituting part of the Registration Statement including, in
particular, the description of the consequences to an investor of the classified
form of the Partnership as a partnership for federal income tax purposes. This
opinion is based upon the facts as stated in the Registration Statement and the
current federal income tax law and regulations.
Very truly yours,
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. 1 TO THE ESCROW AGREEMENT AND INSTRUCTIONS AMONG SMITH BARNEY
WESTPORT FUTURES FUND L. P., SMITH BARNEY FUTURES MANAGEMENT INC., SMITH BARNEY
INC. AND EUROPEAN AMERICAN BANK DATED AS OF APRIL 8, 1997
Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to them in the Escrow Agreement and Instructions (the "Escrow
Agreement") dated as of April 8, 1997.
Certain provisions of the Escrow Agreement are modified pursuant to
this Amendment No. 1. SB intends to enter into a Market-Making Agreement with
the General Partner and the Partnership whereby SB will purchase the Units of
redeeming/transferring limited partners in the Partnership for immediate resale
to new investors. Upon the commencement of SB's market-making offering,
subscribers' subscription amounts received by SB shall be deposited in the
Escrow Accounts as Escrow Property.
The Escrow Agent shall hold, deal with and dispose of the Escrow
Property and any other property at any time held hereunder subject to the terms
and conditions hereinafter set forth:
1. As long as SB is acting as market-maker for the Partnership,
all Escrow Property deposited with the Escrow Agent shall be paid over and
delivered to SB on the first day of the month succeeding receipt of a request
from the General Partner and SB.
2. Prior to delivery of the Escrow Property to SB as described in
Paragraph 1 above, SB shall have no title to or interest in the funds on
deposit, and such funds shall under no circumstances be subject to the payment
or satisfaction of the liabilities or indebtedness of SB.
3. The Escrow Agent shall cause all funds deposited with it
pursuant to this Escrow Agreement to be maintained and invested as SB shall from
time to time direct by written instructions delivered to the Escrow Agent.
4. Notices to the Escrow Agent under the Escrow Agreement may be
given by either the General Partner or SB.
<PAGE> 2
5. Any of the persons whose names and signatures appear on
Schedule 1 annexed hereto are authorized by the General Partner and SB to
deliver any instruction or notice to the Escrow Agent required or permitted by
this Escrow Agreement.
6. The Escrow Agreement shall remain in full force and effect in
accordance with its terms except as modified by this Amendment No. 1.
-2-
<PAGE> 3
Dated as of _________, 1998
Parties to the Escrow
SMITH BARNEY WESTPORT
FUTURES FUND L.P.
By: Smith Barney
Futures Management Inc.,
General Partner
By_________________________________
SMITH BARNEY FUTURES
MANAGEMENT INC.
By_________________________________
SMITH BARNEY INC.
By_________________________________
ACCEPTED:
EUROPEAN AMERICAN BANK
By_________________________________
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<PAGE> 4
SCHEDULE 1
Name Title Signature
David J. Vogel President and
Director ________________________
Daniel R. McAuliffe, Jr. Director ________________________
Daniel A. Dantuono Treasurer, Director
and Chief Financial
Officer ________________________
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<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. I
DATED AS OF JUNE 30, 1998
TO THE MANAGEMENT AGREEMENT
DATED AS OF APRIL 10, 1997 AMONG
SMITH BARNEY FUTURES MANAGEMENT INC., SMITH BARNEY WESTPORT
FUTURES FUND L. P., AND JOHN W. HENRY & COMPANY., INC.
Sections 3(a) and (c) of the Management Agreement are hereby deleted in their
entirety and replaced with the following with such changes to be effective July
1, 1998:
(a) In consideration of and as compensation for all of
the services to be rendered by the Advisor to the Partnership under this
Agreement, the Partnership shall pay the Advisor (i) an incentive fee payable
quarterly equal to 19% of New Trading Profits (as such term is defined below)
earned by the Advisor for the Partnership and (ii) a monthly fee for
professional management services equal to 1/3 of 1% (4% per year) of the month
end Net Assets of the Partnership allocated to the Advisor.
(c) "New Trading Profits" shall mean the excess, if any,
of Net Assets managed by the Advisor at the end of the fiscal period over Net
Assets managed by the Advisor at the end of the highest previous fiscal period
or Net Assets allocated to the Advisor at the date trading commences, whichever
is higher, and as further adjusted to eliminate the effect on Net Assets
resulting from new capital contributions, redemptions, reallocations or capital
distributions, if any, made during the fiscal period decreased by interest or
other income, not directly related to trading activity, earned on the
Partnership's assets during the fiscal period, whether the assets are held
separately or in margin accounts. No incentive fee shall be paid until the end
of the first full calendar quarter of trading, which fee shall be based on New
Trading Profits earned from the commencement of trading operations by the
Partnership through the end of the first full calendar quarter. Interest income
earned, if any, will not be taken into account in computing New Trading Profits
earned by the Advisor. If Net Assets allocated to the Advisor are reduced due to
redemptions, reallocations or distributions (net of additions), there will be a
corresponding proportional reduction in the related loss carryforward amount
that must be recouped before the Advisor is eligible to receive another
incentive fee.
<PAGE> 2
Except as specifically provided in this Amendment No. I, all
terms of the Management Agreement shall remain in full force and effect after
the adoption hereof.
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year written below.
SMITH BARNEY JOHN W. HENRY & COMPANY., INC.
FUTURES MANAGEMENT INC.
By:__________________________________ By:________________________________
David J. Vogel Name:
President and Director Title:
SMITH BARNEY
WESTPORT FUTURES FUND L. P. II
By: Smith Barney
Futures Management Inc.
(General Partner)
Dated as of
June 30, 1998
By:__________________________________
David J. Vogel
President and Director
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