<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1999
REGISTRATION NO. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN LIMITED PARTNERSHIP AGREEMENT)
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NEW YORK 6793 13-4077759
(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, NEW YORK 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
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<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
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Units of Limited
Partnership Interest....... 150,000 Units $1,000 per Unit $150,000,000 $41,700(1)
</TABLE>
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(1) The Fund's escrow account is maintained at European American Bank, New York,
New York, account number 002-069011. During the initial offering period, all
subscriptions will be held in escrow until the initial offering period ends.
The general partner must receive and accept subscriptions for at least
15,000 units by the end of the initial offering period to break escrow and
commence trading. Otherwise, the full amount of all subscriptions will be
promptly returned to subscribers within four business days. After trading
commences, subscription funds will be held in escrow until the first day of
the quarter beginning at least 6 days after receipt of the subscription.
------------------------
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.
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<PAGE> 2
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
CROSS REFERENCE SHEET
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<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
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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; The Risks You Face
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Investing in the Fund
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Investing in the Fund
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; The Risks You Face;
Commodity Futures Markets; Trading Policies;
Financial Statements; The General Partner; The
Advisors; Conflicts of Interest; Fees and
Expenses to the Partnership; The Limited
Partnership Agreement
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liability *
</TABLE>
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* Not applicable.
<PAGE> 3
Subject to Completion dated September 23, 1999
PART ONE
DISCLOSURE DOCUMENT
15,000 UNITS OF LIMITED PARTNERSHIP INTEREST
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P.
---------------
THE FUND
Salomon Smith Barney Diversified 2000 Futures Fund L.P. is a limited partnership
that will attempt to achieve substantial capital appreciation through the
speculative trading of futures, options and forward contracts. If successful,
the Fund may help diversify a traditional portfolio with performance results
that are independent of stocks and bonds.
The Fund's general partner, Smith Barney Futures Management Inc., allocates the
Fund's assets to professional commodity trading advisors and has selected Beacon
Management Corporation, Bridgewater Associates, Inc., Campbell & Co., Inc. and
Rabar Market Research Inc. as the Fund's initial advisors.
THE OFFERING
This is a best efforts offering. The selling agent is not required to sell any
specific number of units. The minimum number of units required to be sold in
order for the Fund to begin trading is 15,000 ($15,000,000). No underwriting
commissions are charged. As a result, the entire subscription amount will be
available for the Fund's trading.
THE RISKS
These are speculative securities. BEFORE YOU DECIDE TO INVEST, READ THIS ENTIRE
PROSPECTUS CAREFULLY AND CONSIDER "THE RISKS YOU FACE" ON PAGE 11.
- The Fund is speculative and its performance may be volatile.
- You could lose a substantial portion of your investment in the Fund.
- Substantial expenses may not be offset by trading profits and interest
income. Depending on its size, the Fund must generate trading profits
of between 9.95% and 5.79% per year to break even.
- No secondary market exists for the units and redemptions are monthly
after a three-month holding period.
MINIMUM INVESTMENT
EMPLOYEE BENEFIT PLANS INCLUDING
FIRST TIME INVESTORS: INDIVIDUAL RETIREMENT ACCOUNTS:
$5,000 for initial investments $2,000 for initial investments
$1,000 or more for additional $1,000 or more for additional
investments investments
---------------
Investors are required to make representations and warranties in connection with
their investment. Each investor is encouraged to discuss the investment with
his/her individual financial, legal and tax adviser.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF
ADDITIONAL INFORMATION. THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION.
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THE
PROSPECTUS IS TRUTHFUL OR COMPLETE. 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.
---------------
SALOMON SMITH BARNEY INC.
SELLING AGENT
SMITH BARNEY FUTURES MANAGEMENT INC.
GENERAL PARTNER
The date of this Prospectus and Disclosure Document is [ ], 1999
The information in this prospectus and disclosure document is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. The
prospectus and disclosure document is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
<PAGE> 4
COMMODITIES FUTURES TRADING COMMISSION
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 PAGE 18 AND A
STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER
THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 21.
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 11 - 14.
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.
---------------
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE
FUND'S REGISTRATION STATEMENT. YOU CAN READ AND COPY THE ENTIRE REGISTRATION
STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SECURITIES AND
EXCHANGE COMMISSION IN WASHINGTON, D.C.
THE FUND WILL FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ
AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN CHICAGO, NEW
YORK OR WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0300 FOR FURTHER
INFORMATION.
THE FUND'S FILINGS ARE POSTED AT THE SEC WEBSITE AT HTTP://WWW.SEC.GOV.
UNTIL [____________, 1999] (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 REQUIREMENT 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.
---------------
SMITH BARNEY FUTURES MANAGEMENT INC.
GENERAL PARTNER
390 GREENWICH STREET
NEW YORK, NEW YORK 10013
(212) 723-5424
4
<PAGE> 5
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
STRUCTURE AND PRINCIPAL PARTICIPANTS
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<CAPTION>
CITIGROUP INC.
SALOMON SMITH BARNEY
HOLDINGS INC.
<S> <C> <C> <C>
GENERAL PARTNER
SELLING AGENT
COMMODITY BROKER Smith Barney
Salomon Smith Barney Inc. Futures Management Inc.
Selling Agreement General Partnership
Brokerage Agreement FUND Interest
Salomon Smith Barney
Diversified 2000 Other commodity pools
Futures Fund L.P. operated by Smith Barney
Limited Partnership Futures Management Inc.(1)
Interest
Management Agreements
LIMITED PARTNERS
COMMODITY TRADING ADVISORS
1) Beacon Management Corporation
2) Bridgewater Associates, Inc.
3) Campbell & Company Inc.
4) Rabar Market Research Inc.
</TABLE>
(1) A list of the commodity pools currently operated or managed by the general
partner appears on page 29. The general partner performs the same
administrative functions for all the pools it operates or manages.
5
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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PART ONE - DISCLOSURE DOCUMENT
Summary of the Prospectus.................................................................................7
The Risks You Face.......................................................................................11
Potential Benefits of Investing in Salomon Smith Barney Diversified 2000 Futures Fund....................15
Conflicts of Interest....................................................................................16
Fees and Expenses of the Fund............................................................................18
Trading Policies.........................................................................................23
The General Partner......................................................................................24
The Advisors.............................................................................................33
The Commodity Broker.....................................................................................69
Use of Proceeds..........................................................................................71
Investing in the Fund....................................................................................72
ERISA Considerations.....................................................................................73
How to Redeem Units......................................................................................74
Federal Income Tax Aspects...............................................................................75
The Limited Partnership Agreement........................................................................77
Legal Matters............................................................................................79
Experts..................................................................................................79
Financial Statements.....................................................................................80
PART TWO - STATEMENT OF ADDITIONAL INFORMATION
Diversifying Your Portfolio With Managed Futures..........................................................1
Commodity Markets.........................................................................................5
Glossary..................................................................................................9
Limited Partnership Agreement -- Exhibit A..............................................................A-1
Subscription Agreement -- Exhibit B....................................................................B-1
Suitability Requirements -- Exhibit C..................................................................C-1
</TABLE>
6
<PAGE> 7
SUMMARY OF THE PROSPECTUS
Salomon Smith Barney Diversified 2000 Futures Fund L.P. aims to achieve
substantial capital appreciation and permit you to diversify a traditionally
structured stock and bond portfolio. The Fund will attempt to accomplish its
objectives through speculative trading in U.S. and international futures,
options and forward markets for currencies, interest rates, stock indices,
agriculture, energy and metal products. The Fund may also use spot and swaps
markets. The markets and products traded by the Fund are referred to
collectively as "commodity interests" in this document.
Smith Barney Futures Management Inc. is the Fund's general partner. Beacon
Management Corporation, Bridgewater Associates, Inc., Campbell & Company Inc.
and Rabar Market Research are its initial trading advisors. All of the Fund's
assets will be deposited with Salomon Smith Barney, the Fund's commodity broker.
The Fund's address is: c/o Smith Barney Futures Management Inc., 390 Greenwich
Street, New York, New York 10013.
INVESTING IN THE FUND
INVESTMENT MINIMUMS
The minimum initial investment is $5,000, unless you are investing for an IRA or
other employee benefit plan account, in which case the minimum is $2,000.
Investments above the minimum and subsequent investments must be in $1,000
increments.
WHO MAY INVEST IN THE FUND?
An investment in the Fund is speculative and involves a high degree of risk. The
Fund is not suitable for all investors nor is it a complete investment program.
The Fund is designed as a diversification opportunity for your entire investment
portfolio. You should invest only a limited portion of your portfolio in the
Fund. At a minimum you must have:
1) a net worth of at least $150,000, exclusive of home, furnishings and
automobiles; or
2) a net worth, similarly calculated, of at least $45,000 and an annual
gross income of at least $45,000.
A number of states in which the units are offered impose higher minimum
financial standards on prospective investors. These standards are, in each case,
only regulatory minimums. Merely because you meet the standards does not mean
the investment is suitable for you.
HOW TO INVEST
- Read this prospectus carefully and discuss how the Fund could fit into
your portfolio and overall investment plan with your financial
consultant.
- If you decide to invest, please complete and sign the subscription
agreement on the last page.
- The Fund will accept subscriptions throughout the initial and
continuous offering periods. The offering can be terminated by Smith
Barney Futures Management at any time. The initial offering period
begins on the date of this prospectus and ends 90 days later, unless
the general partner ends the period earlier or extends it for up to an
additional 60 days. You may buy units for $1,000 each during the
initial offering period.
- During the continuous offering, you may buy units and partial units at
the beginning of any quarter in which units are offered. The number of
units you receive will be based on the net asset value of the units on
the purchase date. You must submit your signed subscription agreement
at least five days prior to the end of the prior quarter.
- You must have a Salomon Smith Barney customer securities account to
buy units.
- Interest earned while subscriptions are in escrow will be credited to
your Salomon Smith Barney securities account.
7
<PAGE> 8
RISKS YOU SHOULD CONSIDER BEFORE INVESTING IN THE FUND
Investment in the Fund is speculative and involves a high degree of risk. You
should be aware of the following risks:
- Futures, forwards, and options contract trading is speculative,
volatile and involves a high degree of leverage. You could lose a
substantial portion of your investment.
- The Fund will not provide any benefit of diversification of your
overall portfolio unless it is profitable and produces returns that
are independent from stock and bond market returns.
- The advisors' trading strategies may not perform as they have
performed in the past. The advisors have from time to time incurred
substantial losses in trading on behalf of clients.
- Regardless of trading performance, the Fund will incur fees and
expenses, including brokerage and management fees. Substantial
incentive fees may be paid to one or more trading advisors even if the
Fund experiences a net loss for the full year.
- Although the Fund is liquid compared to other "alternative"
investments such as real estate or venture capital, liquidity is
restricted and no secondary market exists. You may only redeem your
units after a three-month holding period and then on a monthly basis.
- The Fund is subject to numerous conflicts of interest including those
that arise from the facts that
1) the general partner and commodity broker are affiliates;
2) each of the trading advisors, the commodity broker and their
principals and affiliates (except the general partner and its
principals) may trade in commodity interests for their own
accounts; and
3) your Salomon Smith Barney financial consultant will receive
ongoing compensation for servicing your account.
INVESTMENT FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN THE FUND
- The Fund will trade a diversified portfolio of futures, options, spot
and forward contracts in currencies, interest rates, stock indices,
agriculture, energy and metals products, among others.
- The general partner has selected multiple advisors who will use
proprietary trading systems for the Fund in an attempt to make profits
and protect against losses.
- The Fund may help to diversify traditional stock and bond portfolios.
- Investors in the Fund get the advantage of highly leveraged trading in
a limited liability structure.
- Salomon Smith Barney will pay the Fund interest on 80% of the average
daily equity maintained in cash in the Fund's commodity trading
accounts. You would generally not receive interest on the funds in a
commodity trading account unless you committed substantially more than
the $5,000 minimum investment required by the Fund.
- The Fund provides you with services designed to simplify the
administrative details involved in engaging directly in commodities
transactions.
GENERAL PARTNER
Smith Barney Futures Management, Inc. manages the Fund, including selecting,
monitoring and terminating advisors and allocating assets among them. In making
allocations, the general partner considers past performance, trading style,
volatility of markets traded and fee requirements. The general partner and its
predecessor firms were incorporated in 1979 and have sponsored or supervised
cumulative assets of over $2 billion in the past 20 years. As of June 30, 1999,
the general partner managed approximately $908 million as trading manager or
sponsor to accounts and investment funds.
8
<PAGE> 9
TRADING ADVISORS FOR THE FUND
BEACON MANAGEMENT CORPORATION
Beacon Management Corporation has been operating its trading systems since July
1980. Its trading systems incorporate a computerized, technical trend-following
approach applied to a broadly diversified portfolio. Beacon will trade its Meka
Program on behalf of the Fund. The Meka Program began trading client assets in
1995. As of June 30, 1999, Beacon managed approximately $78 million in its Meka
program and $100 million in total assets. Beacon's initial allocation will be
20% of the Fund's assets.
BRIDGEWATER ASSOCIATES, INC.
Bridgewater Associates, Inc. has been operating its trading systems since 1985.
Its trading systems use both technical and fundamental analysis, weighing
fundamental factors more heavily. Bridgewater will trade its Aggressive Pure
Alpha Futures Only Program on behalf of the Fund. The Aggressive Pure Alpha
Futures Only Program focuses on futures and forward markets on financial
instruments, including foreign currencies, interest rates, stock indices and
metals, although other markets may be traded.
The Pure Alpha Program began trading in 1991 and the Aggressive Pure Alpha
Futures Only Program began trading separately in August 1998. As of June 30,
1999, Bridgewater managed approximately $17 million in its Aggressive Pure Alpha
Futures Only Program and $20 billion in total assets. Of the $20 billion total,
$7.7 billion is attributed to accounts that trade futures and $12.3 billion is
attributed to accounts that trade non-futures only. Bridgewater's initial
allocation will be 20% of the Fund's assets.
CAMPBELL & COMPANY, INC.
Campbell & Company, Inc. has been operating its trading systems since 1972.
Campbell uses a computerized, technical, trend-following approach combined with
proven risk management and portfolio management principles. Campbell will
initially use its Financial, Metals and Energy Small Portfolio in trading the
Fund's assets. When its allocation exceeds $10 million, it will trade its
Financial, Metals and Energy Large Portfolio. This program trades the same
contracts as the Small Portfolio, however, it adds certain contracts in forward
foreign currency markets that do not have futures equivalents. The FME
Portfolios concentrate trading in interest rate, foreign currency and stock
market indices with a secondary emphasis on metals and energy products.
As of June 30, 1999, Campbell managed approximately $141 million in the FME
Small Portfolio, $1.3 billion in the FME Large Portfolio and $1.6 billion in
total assets. Campbell's initial allocation will be 30% of the Fund's assets..
RABAR MARKET RESEARCH, INC.
Rabar Market Research, Inc. began client trading in 1989. Rabar trades its
portfolio according to a technical trend-following method that emphasizes
diversification and risk management. Rabar will use its sole trading program in
managing the Fund's assets. The Rabar program trades a diversified portfolio of
up to 70 or more different contracts. Trading is concentrated in the financial
markets, including U.S. and international interest rate contracts, foreign
currencies and stock indices and in traditional commodities, including contracts
in energy products and agricultural products, and precious and base metals.
As of June 30, 1999, Rabar managed approximately $217 million in assets in its
single program. Rabar's initial allocation will be 30% of the Fund's assets.
FEES AND EXPENSES OF THE FUND
The Fund will pay substantial charges that must be offset by trading gains and
interest income in order to avoid depletion of the Fund's assets.
TYPE OF FEE OR EXPENSE AMOUNT
- --------------------------------- --------------------------------------------
Advisory Fees
Management fees 1.25% per year of allocated net assets
payable monthly to Bridgewater
2% per year of allocated net assets payable
monthly to Beacon, Campbell and Rabar
Annual incentive fees 20% of new trading profits earned by each
advisor for the Fund in each year
9
<PAGE> 10
TYPE OF FEE OR EXPENSE AMOUNT
- --------------------------------- --------------------------------------------
Trading Fees
Brokerage fee 5.4% per year of net assets (.45% per
month) to Salomon Smith Barney
Transaction fees Actual transaction fees estimated at 1.2%
of net assets per year (includes floor
brokerage, NFA, exchange clearing and
give-up fees)
Other Operating Expenses
Reimbursement of offering and Actual expenses estimated at $750,000 plus
organizational expenses of the interest in 24 equal monthly installments to
initial offering period Salomon Smith Barney
Expenses of the continuous Actual expenses estimated at $150,000
offering (between 1% and .1% of assets per year
depending on the size of the Fund)
Periodic legal, accounting, Actual expenses estimated at $150,000
filing and reporting fees (between 1% and .1% of net assets per year
depending on the size of the Fund)
BREAKEVEN THRESHOLD
In order to "break even" at the end of one year of trading, each $1,000 invested
must earn profits of between $99.55 and $57.86, depending on the size of the
Fund.
REDEMPTIONS AND DISTRIBUTIONS
You should view your investment as at least a two year commitment. You may
redeem your units as of the end of any month after a three-month initial holding
period, subject to certain conditions. The general partner does not currently
intend to make any distributions.
FEDERAL INCOME TAX ASPECTS
If you are a U.S. taxpayer, you will be taxed each year on interest income
earned and any gains recognized by the Fund whether or not you redeem any units
or receive any distributions.
10
<PAGE> 11
THE RISKS YOU FACE
INVESTMENT IN THE FUND IS SPECULATIVE. THE FUND'S PERFORMANCE MAY BE VOLATILE.
YOU SHOULD NOT INVEST IN UNITS UNLESS YOU CAN AFFORD TO LOSE A SUBSTANTIAL
PORTION OF YOUR INVESTMENT.
COMMODITY TRADING RISKS
POSSIBLE LOSS OF INVESTMENT.
Commodity markets are highly volatile and can be without sustained price trends
for extended periods. Profitability of the Fund's commodity trading will depend
on the ability of its advisors to analyze the commodity markets and capitalize
on price trends. Participation in a volatile market without significant trends
and/or failure to identify trends could produce substantial losses for the Fund.
This could result in the possible loss of your investment in the Fund. If the
Fund is not profitable, it cannot provide a diversification benefit to your
overall portfolio.
THE FUND'S INVESTMENTS ARE HIGHLY LEVERAGED.
Because of the low margin deposits normally required in commodity futures or
forward trading, a high degree of leverage is typical of commodity trading.
Leverage means the value of the Fund's investments may be substantially greater
than the underlying net assets of the Fund. Thus, a relatively small change in
the market price of an open position can produce a disproportionately large
profit or loss in the Fund.
INVESTING IN UNITS MIGHT NOT DIVERSIFY AN OVERALL PORTFOLIO.
One of the objectives of the Fund is to add an element of diversification to a
traditional stock and bond portfolio. While the Fund's performance may be
largely independent of the general stock and bond markets, there is no
assurance that it will be independent. An investment in the Fund could increase
rather than reduce overall portfolio losses during periods when the Fund as well
as stocks and bonds decline in value. There is no way of predicting whether the
Fund will lose more or less than stocks and bonds in declining markets. You must
not consider the Fund to be a hedge against losses in your core stock and bond
portfolios. You should consider whether diversification in itself is worthwhile
even if the Fund is profitable.
ILLIQUIDITY OF THE FUND'S INVESTMENTS.
Futures and options positions cannot always be liquidated at the desired price.
When the volume of buy and sell orders in a market is relatively small, it is
difficult to execute a trade at a specific price. Market disruptions can also
make it difficult to liquidate a position. The large size of the positions that
the advisors could acquire for the Fund increases the risk of illiquidity by
making the Fund's positions more difficult to liquidate at an advantageous
price.
FOREIGN EXCHANGES ARE LESS REGULATED THAN U.S. MARKETS AND SUBJECT TO EXCHANGE
RATE, MARKET PRACTICE AND POLITICAL RISKS.
The Fund may trade in commodity contracts on exchanges located outside the U.S.
Trading on these exchanges is not regulated by the CFTC and may involve
risks--including exchange-rate exposure, possible governmental intervention and
lack of regulation--which trading on U.S. exchanges does not. Some foreign
exchanges may also be in developmental stages so that prior price histories may
not be indicative of current price patterns. The rights of the Fund in the event
of the insolvency or bankruptcy of a non-U.S. market or broker are also likely
to be more limited than in the case of U.S. markets or brokers.
FORWARD FOREIGN CURRENCIES AND PHYSICAL COMMODITIES ARE NOT REGULATED AND ARE
SUBJECT TO CREDIT RISK.
The Fund will trade forward contracts in foreign currencies, interest rates,
stock indices, agriculture, energy and metal products and may engage in spot
commodity transactions (transactions in physical commodities). The Fund will not
receive the protection of CFTC regulation for these trading activities. The Fund
may also trade in over-the-counter currency options. In these transactions, the
Fund faces the risk that its counterparties may not perform their obligations.
This non-performance may cause some or all of the Fund's gain to be unrealized.
11
<PAGE> 12
PURCHASING AND WRITING OPTIONS COULD RESULT IN TRADING LOSSES.
The Fund may trade in exchange-traded commodity options. Specific market
movements of the commodities or futures contracts underlying an option cannot
accurately be predicted. The purchaser of an option may lose the entire purchase
price of the option. The writer of an option risks losing the difference between
the premium received for the option and the price of the commodity or futures
contract underlying the option. The advisors currently do not trade options
extensively, but may do so in the future.
FUNDS HELD IN FOREIGN DEPOSITORIES OR IN FOREIGN CURRENCIES MAY NOT BE AVAILABLE
FOR DISTRIBUTION OR TRADING.
Funds may be held in foreign depositories in accounts denominated in a foreign
currency. Events could occur which would hinder or prevent the availability of
these funds for distribution. These accounts may also be subject to foreign
currency exchange rate risks.
SWAPS ARE SUBJECT TO CREDIT RISKS.
The Fund may engage in swap transactions in energy, agricultural and base and
precious metal products, currencies and interest rates. Swap contracts are not
guaranteed by an exchange or clearing house. If the counterparty to a swap
defaults, the Fund will lose money. Since swaps do not generally involve the
delivery of underlying assets or principal, any loss would be limited to the net
amount of payments required by contract. In some of the Fund's swap transactions
the counterparty may require the Fund to deposit collateral to support the
Fund's obligation under the swap agreement. If the counterparty to such a swap
defaults, the Fund would lose the net amount of payments that the Fund is
contractually entitled to receive and could lose, in addition, any collateral
deposits made with the counterparty.
TRADING ADVISOR RISKS
RISKS ARE INHERENT IN THE ADVISORS' TRADING STRATEGIES.
The advisors base their trading decisions on either technical analysis of market
prices or fundamental analysis of a variety of economic, political and financial
factors. Neither technical nor fundamental analysis takes into account
unanticipated world events that may cause losses to the Fund. In addition, the
Fund's trading advisors may alter their strategies from time to time. Therefore,
their performance results may materially differ from their prior trading
records. The addition of the Fund's account may also substantially increase the
total amount of assets each advisor manages. Somewhat different trading
strategies may be required for accounts of differing sizes or trading
objectives. You will be notified of material changes in the advisors' trading
strategies.
SPECULATIVE POSITION AND TRADING LIMITS MAY REDUCE PROFITABILITY.
The CFTC and U.S. exchanges have established "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. Most exchanges also limit the
amount of fluctuation in commodity futures contract prices on a single trading
day. Each advisor believes that established speculative position and trading
limits will not adversely affect its trading for the Fund. The trading
instructions of an advisor, however, may have to be modified, and positions held
by the Fund may have to be liquidated in order to avoid exceeding these limits.
Such modification or liquidation could adversely affect the operations and
profitability of the Fund.
THE FUND WILL COMPETE WITH OTHER TREND-FOLLOWING TRADING SYSTEMS AND OTHER
ACCOUNTS OF THE ADVISORS.
The Fund may experience increased competition for the best prices on the same
commodity contracts because of the dramatic increase over the past 20 years in
assets managed by trend following trading systems. Trading orders for accounts
similar to those of the Fund are likely to occur contemporaneously. Each advisor
may manage an unlimited number of accounts, so that competition could be further
increased if the advisor chooses to manage additional accounts in the future.
FUND POSITIONS ARE NOT AVAILABLE TO INVESTORS.
The Fund's advisors make all trading decisions on behalf of the Fund. Salomon
Smith Barney clears and may execute all trades for the Fund. The general partner
monitors the Fund's positions and
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<PAGE> 13
performance daily to ensure compliance with the Fund's trading policies. The
Fund's performance results will be reported to you monthly along with a
discussion of the Fund's trading activities. You as an investor, however, will
not have access to the Fund's positions.
FUND STRUCTURE AND ORGANIZATION RISKS
SUBSTANTIAL FEES AND EXPENSES ARE CHARGED REGARDLESS OF PROFITABILITY.
The Fund must pay brokerage fees, management fees, legal, accounting and
reporting expenses and filing fees regardless of whether it realizes profits. In
addition, it is possible that the Fund could pay substantial incentive fees to
one or more advisors 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 between 9.95%
(assuming 15,000 units are sold) and 5.79% (assuming 150,000 units are sold) in
one year of trading operations, that is, between $99.55 and $57.86, to equal
$1,000 upon redemption at the end of that year. The Fund's trading profits and
interest income must equal or exceed its trading losses and expenses to avoid
depletion or exhaustion of its assets.
CONFLICTS OF INTEREST EXIST.
Conflicts of interest exist in the structure and operation of the Fund's
business. These conflicts include:
(1) the general partner and Salomon Smith Barney are affiliates and
brokerage fees have not been set at arm's length (but they are similar
to those charged to comparable funds);
(2) each of the Fund's advisors, the Fund's commodity broker and their
principals, affiliates or customers (except the general partner and
its principals) may trade for their own accounts or for clients and
may take competing positions or positions opposite or ahead of those
taken for the Fund; and
(3) your financial consultant will receive ongoing compensation for
servicing your account and therefore has a conflict of interest in
advising you when and whether to purchase or redeem units.
LIMITED ABILITY TO REDEEM OR TRANSFER UNITS.
You may only redeem your units as of the end of each month after an initial
holding period of three months. You will not know the value of your redemption
prior to the time you submit your request to redeem your units. No public market
for the Fund's units exists. You may transfer your units with notice to the
general partner. A transferee cannot, however, become a limited partner without
the general partner's approval.
LIMITED PARTNERS WILL NOT PARTICIPATE IN MANAGEMENT OF THE FUND'S BUSINESS.
You may not participate in the management or control of the Fund or the conduct
of its business. You will have limited voting rights with respect to the Fund's
affairs. You must rely upon the fiduciary responsibility and judgment of the
general partner to manage the Fund's affairs in the best interests of the
limited partners.
EXPIRATION OR TERMINATION OF MANAGEMENT AGREEMENTS WITH THE ADVISORS COULD
INCREASE MANAGEMENT FEES.
The management agreement with each advisor expires each year on June 30. An
advisor may not agree to renew its agreement on the same terms, and new advisors
may not agree to similar terms. 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 incurred by the previous advisor. The fees payable to an
advisor could increase according to the terms of a new management agreement or
if a new advisor were selected.
POSSIBLE EARLY TERMINATION OF THE FUND.
Unforeseen circumstances, including substantial losses or withdrawal of the
Fund's general partner, could cause the Fund to terminate prior to its stated
termination date of December 31, 2019. Early termination of the Fund could
disrupt your overall investment portfolio plan.
THE OFFERING OF UNITS HAS NOT BEEN SUBJECT TO INDEPENDENT REVIEW.
One law firm represents the Fund, the general partner and the commodity broker.
The Fund's advisors are each represented by themselves or their
13
<PAGE> 14
own legal counsel. You do not have legal counsel representing you as a limited
partner in connection with the Fund. Accordingly, you should consult your legal,
tax, and financial advisors regarding the desirability of investing in the Fund.
OPERATING HISTORY OF PARTNERSHIP AND GENERAL PARTNER ARE NOT INDICATIVE OF THE
FUND'S PERFORMANCE.
The Fund has not yet begun trading. The general partner, however, currently
operates over 21 other active commodity pools. Advisors to other pools operated
or managed by the general partner may vary from the advisors for the Fund, and
trading strategies may also vary.
RISKS ASSOCIATED WITH YEAR 2000 COMPUTER ISSUES.
The Fund could be adversely affected if the computer systems of the general
partner, the commodity broker or any Fund service provider are unable to
distinguish the year 1900 from the year 2000. A further discussion appears under
"The General Partner -- Risk of Computer System Failures (Year 2000 Issue)."
TAX AND OTHER REGULATORY RISKS
TAX LIABILITY MAY EXCEED CASH DISTRIBUTIONS.
The general partner does not currently intend to distribute cash to limited
partners. Cash will be distributed to you at the sole discretion of the general
partner. You will be taxed, however, each year whether or not any cash has been
distributed. Subject to certain conditions, after the end of a three-month
holding period, you may redeem your units monthly in order to provide funds for
the payment of taxes or for any other purpose.
YOU COULD OWE TAX ON YOUR SHARE OF THE FUND'S ORDINARY INCOME DESPITE OVERALL
LOSSES.
You may be required to pay tax on your allocable share of the Fund's ordinary
income, which is its interest income, periodic income on swaps and gain on some
foreign futures contracts, even though the Fund incurs overall losses.
NON-U.S. INVESTORS MAY FACE EXCHANGE RISK AND LOCAL TAX COMPLICATIONS.
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 decrease or to increase. Non-U.S. investors should consult their
own tax advisors concerning local tax implications of this investment.
THE FUND IS NOT A REGULATED INVESTMENT COMPANY.
The Fund is not a registered securities investment company, or "mutual fund,"
subject to the Investment Company Act of 1940. Therefore, you do not have the
protections provided by that statute.
DEREGISTRATION OF THE COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
COULD DISRUPT OPERATIONS.
The general partner is a registered commodity pool operator and each of the
advisors is a registered commodity trading advisor. If the CFTC decides to
terminate, suspend, revoke or not renew the registration of the general partner,
the general partner would withdraw as general partner of the Fund. The limited
partners would then determine whether to select a replacement general partner or
to dissolve the Fund. If the CFTC decides to terminate, suspend, revoke or not
renew the registrations of any of the advisors, the general partner would
terminate the management agreement with that advisor. The general partner could
reallocate the Fund's assets managed by that advisor to the other advisors or
appoint a new advisor. No action is currently pending or threatened against
general partner.
REGULATORY CHANGES COULD RESTRICT THE FUND'S OPERATIONS.
Federal agencies including the SEC, the CFTC and the Federal Reserve Bank
regulate certain activities of the Fund, the general partner and the advisors.
Regulatory changes could adversely affect the Fund by restricting its markets or
activities, limiting its trading and/or increasing the taxes to which investors
are subject. The Fund is not aware of any pending or threatened regulatory
developments that might adversely affect the Fund, however, adverse regulatory
initiatives could develop suddenly and without notice.
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<PAGE> 15
POTENTIAL BENEFITS OF INVESTING IN SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES
FUND
MULTI-ADVISOR TRADING
The general partner has selected multiple advisors who utilize different
proprietary trading systems for the Fund. As a result, profits earned by one
advisor may offset losses incurred by other advisors during the same time
period. However, losses may entirely offset profits in the same manner.
ABILITY TO ESTABLISH LONG OR SHORT POSITIONS
The Fund can produce results independent of traditional markets because its
advisors have the ability to take both long and short positions with equal ease.
Unlike many stock and bond investments, profits and losses generated by the Fund
are not dependent upon economic prosperity or stability.
PROFESSIONAL MANAGEMENT
Smith Barney Futures Management Inc. has used a rigorous due diligence process
to select the four initial advisors to trade on behalf of the Fund. The general
partner believes that the initial advisors' trading styles, markets traded and
risk control techniques complement one another. Each initial advisor has a
minimum of five years' experience managing client money. As of June 30, 1999,
the aggregate funds under management by the advisors were $8.5 billion
(excluding notional funds) and $9.7 billion (including notional funds).
GLOBAL MARKET INVESTING WITH LIMITED EXCHANGE RATE RISK
While the Fund will trade a portion of its assets on offshore exchanges, the
majority of the Fund's assets are maintained in U.S. dollars and conversion from
foreign currencies back to U.S. dollars is handled readily. Thus, the Fund's
overall risk associated with the conversion to foreign currency is limited.
DIVERSIFICATION WITHIN A SINGLE INVESTMENT
The advisors in the Fund will trade a broad range of global markets, including
currencies, US and international interest rates and stock indices, precious and
base metals, and agricultural and energy products.
TRADING ON REGULATED EXCHANGES
Because the Fund's advisors trade primarily on regulated, organized exchanges,
counterparty risk is limited.
TRANSPARENCY AND MONITORING
The Fund's commodity broker, Salomon Smith Barney Inc., is an affiliate of the
general partner, Smith Barney Futures Management Inc. This allows the general
partner to view all of the Fund's trades and positions and maintain an ongoing
monitoring process.
LIMITED LIABILITY
Unlike an individual who invests directly in commodity futures or forward
contracts, an investor in the Fund can not be individually subject to margin
calls and can not lose more than the amount of his initial investment. However,
it is possible for an investor to lose the entire amount of his investment.
POTENTIALLY LOWER BROKERAGE FEES
Fees associated with the Fund are lower than the fees that might be charged for
an investor to open an individually managed account with one of the initial
advisors in the Fund. The Fund pays Salomon Smith Barney a monthly brokerage fee
at an annual rate of 5.4% of month end net assets. In addition to execution and
clearing, the Fund will receive several administrative services, such as account
reconciliation, payment of fees and expenses, crediting of interest income and
assistance with regulatory filings and monthly reports.
80% INTEREST INCOME
Salomon Smith Barney will pay the Fund interest on 80% of the average daily
equity maintained in cash in the Fund's trading accounts with Salomon Smith
Barney. An individual trader would generally not receive interest on the funds
in his commodity account unless he committed substantially more than
15
<PAGE> 16
the $5,000 minimum investment required by the Fund.
ADMINISTRATIVE CONVENIENCE
The general partner issues monthly and annual reports to investors as well as
information necessary for individual federal tax returns. A daily estimate of
the Fund's Net Asset Value per Unit and the value of your investment is
available on the Internet if you are a Salomon Smith Barney Access (SM)
subscriber.
CONFLICTS OF INTEREST
The general partner, the commodity broker, the trading advisors and their
affiliates will seek to avoid conflicts of interest if feasible and to resolve
all conflicts that may arise equitably and in a manner consistent with their
responsibilities to the Fund. No specific policies regarding conflicts of
interest, however, will be adopted by the Fund. The general partner is bound by
its fiduciary duties as a general partner to resolve all conflicts in the best
interest of the limited partners.
RELATIONSHIP BETWEEN THE GENERAL PARTNER AND THE COMMODITY BROKER
The general partner is an affiliate of Salomon Smith Barney, the commodity
broker for the Fund. As a result of this affiliation, the following conflicts
arise:
- The affiliation between the general partner and Salomon Smith Barney
creates a potential conflict in that fees paid to Salomon Smith Barney
have not been set by "arm's-length" negotiation and the general
partner has no incentive to replace Salomon Smith Barney. You should
note, however, that the brokerage fees to be paid by the Fund are
similar to those paid by other publicly offered funds.
- To the extent that profits are retained by the Fund rather than
distributed, net assets and therefore the amount of fees paid to
Salomon Smith Barney will increase. In addition, the amount of funds
in segregated accounts at banks that extend overdraft privileges to
Salomon Smith Barney will be greater to the extent that profits are
retained. Of course, you may redeem units on a monthly basis after a
three-month holding period.
- Because your financial consultant will receive ongoing compensation
for servicing your account, he or she may have a conflict of interest
in advising you as to when or whether you should purchase or redeem
units.
ACCOUNTS OF SALOMON SMITH BARNEY, THE GENERAL PARTNER AND THEIR AFFILIATES
Salomon Smith Barney and its officers, directors and employees (except the
principals of the general partner) may trade in commodity contracts for their
own accounts. Salomon Smith Barney is a futures commission merchant and effects
transactions in commodity contracts for its customers. The general partner over
the last five years has sponsored and established over 45 commodity pools and
may sponsor or establish other commodity pools and manage individual accounts.
Conflicts that arise from trading these accounts include:
- Salomon Smith Barney, as the Fund's broker, could effect transactions
for the Fund in which the other parties to the transactions are its
officers, directors or employees or its customers, including other
funds sponsored by the general partner.
- These persons might unknowingly compete with the Fund in entering into
contracts.
The records of any such trading will not be available for inspection. CFTC
regulations require that Salomon Smith Barney transmit to the floor each order
received from the Fund executable at or near the market price before any
competing order for any of its own proprietary accounts.
CONTROL OF OTHER ACCOUNTS BY THE ADVISORS
The advisors manage and operate the accounts of clients other than the Fund,
including other commodity pools, and intend to manage and operate other accounts
in the future. Beacon, Campbell and Rabar act as advisors to other pools
operated by the general partner. In addition, the advisors and their principals
and affiliates may trade for their own accounts. Conflicts that arise from this
trading include:
- The advisors or their principals or affiliates may sometimes take
positions in their proprietary accounts that are opposite or ahead of
the Fund.
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<PAGE> 17
- The advisors may have incentives to favor other accounts over the
Fund. For example, other accounts may pay higher fees than the Fund.
- Other accounts may compete with the Fund in entering into contracts.
- An advisor for the Fund may be required to revise trading orders as a
result of the aggregation of all its accounts for speculative position
limit purposes. In this case, the advisor will modify these orders in
a manner that will not disproportionately affect the Fund.
The records of any such trading will not be available for inspection.
OTHER ACTIVITIES OF SALOMON SMITH BARNEY
Salomon Smith Barney maintains a commodity research department that makes
trading recommendations on a daily basis. These trading recommendations may
include transactions that are similar or opposed to transactions of the Fund.
The trading records of such recommendations will not be made available to you.
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<PAGE> 18
FEES AND EXPENSES OF THE FUND
TYPE OF FEE OR EXPENSE AMOUNT
- ---------------------------------------- -------------------------------------
Advisory Fees
Management fees 1.25% per year of allocated assets
payable monthly to Bridgewater
2% per year of allocated net assets
payable monthly to Beacon, Campbell
and Rabar
Annual Incentive fee 20% of new trading profits earned by
each advisor for the Fund in each
year
Trading Fees
Brokerage fee 5.4% per year of net assets (.45% per
month) to Salomon Smith Barney (a
portion of which will be paid to
financial consultants who have sold
units in this offering)
Transaction fees Actual transaction fees estimated at
1.2% of net assets per year (includes
floor brokerage, NFA, exchange,
clearing and give-up fees)
Other Operating Expenses
Offering and organizational expenses Actual expenses estimated at $750,000
of the initial offering period together with interest reimbursed to
Salomon Smith Barney in 24 equal
monthly installments
Expenses of the continuous offering Actual expenses estimated at $150,000
(between 1% and .1% of net assets per
year depending on the size of the
Fund))
Ongoing Expenses: periodic legal, Actual expenses estimated at $150,000
accounting, filing and reporting fees (between 1% and .1% of net assets per
year, exclusive of extraordinary
expenses, depending on the size of
the Fund))
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<PAGE> 19
DISCUSSION OF FEES
ADVISORS
MANAGEMENT FEES
Management fees are based on net assets allocated to the advisors. Net asset
value, or net assets of the Fund, is the total assets of the Fund, including all
cash, Treasury Bills, accrued interest and the market value of all open
commodity positions, less all liabilities of the Fund, determined in accordance
with generally accepted accounting principles.
[In calculating the management fees, ongoing expenses will be attributed to each
advisor based on the advisor's proportionate share of the Fund's net assets
(except that Bridgewater's proportionate share of initial and continuous
offering expenses will not be attributed to any advisor).] These expenses will
not include management fees of the Fund's other advisors or expenses of
litigation not involving the activities of the advisor on behalf of the Fund.
INCENTIVE FEES
The annual incentive fees payable to the advisors will be accrued on a monthly
basis. The first incentive fee will be based on new trading profits earned from
the commencement of trading through the end of [1999]. From that point on,
incentive fees will be paid as of the end of each calendar year.
New trading profits are the excess, if any, of net assets managed by the advisor
at the end of the fiscal period over the higher of:
1) Net assets allocated to the advisor at the date trading commences, or
2) Net assets managed by the advisor at the end of the highest previous
fiscal period
New trading profits are further adjusted to eliminate the effect of various
non-trade-related activities on net assets. These activities may include new
capital contributions, redemptions, reallocations or capital distributions,
organizational and offering expenses and interest or other income earned on the
Fund's assets.
If any incentive fee is paid to an advisor, and that advisor incurs a net loss
for any subsequent period, the advisor will retain the amount previously paid.
The advisor, however, will not be paid additional incentive fees until the
advisor earns additional new trading profits for the Fund. If net assets
allocated to the advisor are reduced due to net redemptions, distributions or
reallocations, related loss carryforward amounts, if any, will be
proportionately reduced.
COMMODITY BROKER
Salomon Smith Barney will act as commodity broker for the Fund. The Fund has
agreed to pay Salomon Smith Barney a monthly brokerage fee equal to 5.4% per
year (.45% per month) of net assets allocated to the advisors. 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.
Based on the recent trading history of the advisors, the fee that the Fund will
pay is estimated to equal $44 per round-turn transaction. The brokerage rate may
be substantially higher than the rate that Salomon Smith Barney charges certain
other institutional customers. Brokerage fees will be paid for the life of the
Fund although the rate may change.
The Fund will enter into spot, forward and swap transactions with Salomon Smith
Barney or an affiliate as principal at prices quoted by Salomon Smith Barney
which reflect a price differential between the bid and the ask prices. The
differential includes anticipated profits and costs to Salomon Smith Barney as
dealer, but does not include a mark-up. The spread charged on related party
trades will be at competitive market prices. Thus, the price quoted to the Fund
will be less than or equal to the price quoted to any other Salomon Smith Barney
account for the same forward or spot transaction. The Fund may enter into spot,
forward and swap transactions with unaffiliated dealers who may charge a mark-up
and/or commissions.
Salomon Smith Barney will pay a portion of its brokerage fees (up to 83.33%) to
its financial consultants who sell units in the offering if they are registered
with the CFTC as associated persons and if they provide continuing services to
unit purchasers.
Salomon Smith Barney will deposit the Fund's cash in segregated bank accounts.
These accounts do not
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<PAGE> 20
earn interest, however, Salomon Smith Barney has obtained overdraft privileges
with the banks that hold the Fund's cash deposits. As a result of these
overdraft privileges, Salomon Smith Barney may be able to reduce its other
short-term borrowings, which generally carry a higher interest rate than the
30-day U.S. Treasury bill yield.
REIMBURSEMENTS
The Fund will pay or reimburse Salomon Smith Barney for any NFA, exchange, floor
brokerage, give-up, user or clearing fees applicable to the Fund's trading.
These fees and charges are 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 exact amount of such fees, based on the recent trading history of
the advisors, the Fund estimates these fees at 1.2% of net assets per year.
Salomon Smith Barney will initially pay the organizational and offering expenses
of the initial offering period. These expenses include legal and accounting
fees, marketing and printing expenses, escrow charges and filing, registration
and recording fees and are estimated at $750,000. These expenses (plus interest
at the prime rate quoted by the Chase Manhattan Bank) will be reimbursed by the
Fund in 24 equal monthly installments beginning with the month in which trading
begins.
OTHER
The Fund will pay ongoing legal, accounting, filing, reporting and data
processing fees and the expenses of the continuous offering to unaffiliated
vendors. These expenses were negotiated at arm's length and are estimated to be
$300,000 per year (between 2% and .2% depending on the size of the Fund) as
follows.
- ----------------------------------------------------------
Legal Expenses $40,000
- ----------------------------------------------------------
Accounting Expenses $60,000
- ----------------------------------------------------------
Other Expenses (such $50,000
as filing and
reporting fees)
- ----------------------------------------------------------
Continuous Offering $150,000
Expenses
- ----------------------------------------------------------
Total $300,000
- ----------------------------------------------------------
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<PAGE> 21
The Fund also will pay any extraordinary expenses. The general partner will bear
any and all other general and administrative expenses of the Fund.
CAPS ON FEES
The Fund expects to pay the fees outlined above. The limited partnership
agreement and/or guidelines of state securities regulators, however, limit the
fees that may be paid by the Fund.
Aggregate annual fees and expenses may not exceed 6% of net assets per year (1/2
of 1% per month). This cap does not cover incentive fees, commodity brokerage
fees, legal and accounting services or extraordinary expenses, but does include
customary and routine administrative expenses of the Fund. Periodic filing and
reporting fees are also subject to this cap. Aggregate incentive fees may not
exceed 15% of new trading profits. An additional 2% incentive fee, however, may
be paid for each 1% by which the Fund's aggregate expenses are reduced below 6%
annually.
The Fund's brokerage fees may not exceed 14% of annual net assets or 80% of
published retail rates. This cap includes brokerage fees and NFA, exchange,
floor brokerage, give-up, user and clearing fees. Net assets for purposes of
this limitation excludes Fund assets not directly related to trading activity.
Offering and organizational expenses may not exceed 15% of aggregate
subscriptions.
In addition, the limited partnership agreement prohibits the payment of
management fees to any person who receives brokerage commissions or fees on
transactions for the Fund, as well as the payment by any broker of rebates or
give-ups to any advisor.
BREAK-EVEN ANALYSIS
In order to "break even" at the end of one year of trading, each $1,000 you
invest must earn profits of between $99.55 and $57.86, depending on the
size of the Fund The estimated fees and expenses that determine these
amounts are shown below.
<TABLE>
<CAPTION>
ESTIMATED FUND SIZE
-------------------
<S> <C> <C>
$15,000,000 $150,000,000
----------- ------------
Selling Price per Unit......................... $1,000.00 $1,000.00
--------- ---------
<CAPTION>
Dollar Amount Percentage Dollar Amount Percentage
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Advisors' Management Fee (1)................... $ 18.24 1.82% $ 18.95 1.90%
Advisors' Incentive Fee (2).................... $ -- $ --
Brokerage Fees................................. $ 55.81 5.58% $ 55.81 5.58%
Transaction Fees............................... $ 12.00 1.20% $ 12.00 1.20%
Initial Offering and Organizational Expenses.. $ 27.10 2.71% $ 2.70 0.27%
Operating Expenses............................. $ 20.00 2.00% $ 2.00 0.20%
-----------------------------------------------------------
Total Fees .............................. $ 133.15 13.31% $ 91.46 9.15%
Interest Income Credit (3)..................... $ (33.60) (3.36)% $ (33.60) (3.36)%
-----------------------------------------------------------
Amount of Trading Income Required for the
Fund's Net Asset Value per Unit at
the End of One Year to Equal the
Selling Price per Unit .................. $ 99.55 $ 57.86
======== ========
Percentage of Selling Price per Unit........... 9.95% 5.79%
===== =====
</TABLE>
- ----------
(1) The Fund will pay its advisors monthly management fees at an annual rate of
2% of net assets (1.25% per year for Bridgewater).
21
<PAGE> 22
(2) The Fund will pay each advisor an incentive fee of 20% of new trading
profits earned each year. Incentive fees are calculated based on new
trading profits after deducting all of the Fund's expenses allocated to the
advisor except the offering and organizational expenses.
(3) Interest income was estimated at an annual rate of 4.2% on 80% of the
Fund's net asset value.
SEE "FEES AND EXPENSES OF THE FUND" AT PAGE 18.
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<PAGE> 23
TRADING POLICIES
The Fund will attempt to achieve its objectives through speculative trading in a
diverse portfolio of commodity interests. The Fund does not intend to act as a
dealer. The Fund will follow the trading policies set forth below:
1. The Fund will invest its assets only in commodity interests that the advisors
believe are traded in sufficient volume to permit ease of taking and liquidating
positions.
2. No advisor will initiate additional positions in any commodity if these
positions result in aggregate positions requiring a margin of more than 66 2/3%
of assets allocated to that advisor. 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 Fund 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 Fund will not utilize borrowings, except short-term borrowings, if the
Fund takes delivery of any cash commodities. Neither the deposit of margin with
the commodity broker or swap dealer nor obtaining and drawing on a line of
credit with respect to forward contracts or swaps shall constitute borrowing.
5. From time to time, trading strategies such as spreads or straddles may be
employed on behalf of the Fund. "Spreads" or "straddles" involve the
simultaneous buying and selling of contracts on the same commodity but with
different delivery dates or markets. The trader of these contracts expects to
earn a profit from a widening or narrowing of the difference between the prices
of the two contracts.
6. The Fund will not permit the churning of its commodity trading accounts.
The general partner may alter trading policies Nos. 1, 2 and 5, without approval
by the limited partners if the general partner determines that the change is in
the Fund's best interest. These determinations will be based upon factors,
including the performance of various futures markets, advisors and the risks
associated with modified trading policies, among other things. You will be
notified by mail within seven business days of any material changes in trading
policies. The limited partners may also change the trading policies of the Fund
in accordance with the Fund's partnership agreement.
23
<PAGE> 24
THE GENERAL PARTNER
BACKGROUND
Smith Barney Futures Management Inc. is the general partner of the Fund. It is a
Delaware corporation that is, like Salomon Smith Barney, wholly owned by Salomon
Smith Barney Holdings Inc. The general partner intends to change its form of
organization from a corporation to a Delaware limited liability company in the
near future. Salomon Smith Barney Holdings, Inc. is a wholly owned subsidiary of
Citigroup Inc., a publicly-held company whose shares are listed on the New York
Stock Exchange and that is engaged in various financial service and other
businesses. The general partner is the surviving corporation 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 (President and Director), Michael R.
Schaefer (Director), Steven J. Keltz (Secretary and Director), Daniel A.
Dantuono (Treasurer, Director and Chief Financial Officer), 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
reappointment annually.
Mr. Lehman, age 54, has been a Senior Executive Vice President and Director of
Salomon Smith Barney's commodity division since May 1992. In addition, he has
been a Director of the general partner since July 1993 and was Co-Chairman of
Salomon Smith Barney's commodity division from July 1992 through May 1996.
Before joining Salomon Smith Barney, he was employed for twenty years at the
brokerage firm of Shearson Lehman Brothers Inc. ("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 55, became an Executive Vice President of Salomon Smith Barney
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 a director of the Futures Industry Institute
and the Managed Funds Association. Mr. Vogel is also a past chairman of the
Futures Industry Association, a past Director of Comex Clearing Association 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 thirty years and has been an Executive Vice
President of Salomon Smith Barney 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 49, is an Associate General Counsel in the Law Department of
Salomon Smith Barney. He became Secretary of the general partner on August 2,
1993. He has been a Director of SBFM since October 1995. From 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
24
<PAGE> 25
Counsel for Paine Webber Incorporated from 1985 through September 1988.
Mr. Dantuono, age 41, is a Senior Vice President of Salomon Smith Barney (since
March 1994), prior to which he was a First Vice President (since August 1993).
Mr. Dantuono was a 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 49, is a Senior Vice President of Salomon Smith Barney (since
August 1990) and became a Director of the general partner in April 1994. Mr.
McAuliffe is Director of Administration for Salomon 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 Funds Association.
Ms. Ullman, age 41, is a Senior Vice President of Salomon Smith Barney (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. Ms. Ullman is responsible for execution,
administration, operations and performance analysis for managed futures funds
and accounts.
Ms. O'Toole, age 42 is a Senior Vice President of Salomon Smith Barney (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 Salomon Smith
Barney. Prior to joining Salomon Smith Barney 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.
LEGAL ACTIONS
There have been no material 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.
INVESTMENT BY GENERAL PARTNER
The limited partnership agreement requires the general partner to maintain a
cash investment in the Fund at least equal to the greater of (1) an amount that
will entitle the general partner to an interest of at least 1% in each material
item of Fund income, gain, loss, deduction or credit and (2) the greater of (a)
1% of capital contributions or (b) $25,000. The general partner shares in
profits and losses of the Fund in proportion to its share of Fund capital.
In order to form the partnership, the general partner and Mr. David Vogel each
contributed $1,000 for one unit of partnership interest. Neither the general
partner nor the advisors nor any of their principals owns any other beneficial
interest in the Fund although they are not precluded from purchasing units in
the future. The general partner, Salomon Smith Barney and their principals and
employees may purchase units equal in price to less than 10% of the total
contributions to the Fund.
BUSINESS AND PRACTICES OF GENERAL PARTNER
The general partner employs a team of approximately 40 professionals whose
primary emphasis is on attempting to maintain quality control among the advisors
to the funds operated or managed by the general partner. 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. The general partner also includes
staff involved in marketing and sales support.
In selecting advisors for the Fund, the general partner will consider past
performance, trading style, volatility of markets traded and fee requirements.
Each initial advisor has (1) a minimum of five years of performance and (2) a
trading style that blends well with the other advisors. Each of the advisors
will be responsible only for trading the assets of the
25
<PAGE> 26
Fund allocated to it. Each advisor will trade independently of the others.
The general partner over the last five years and the year-to-date period has
sponsored and established over 45 other commodity pools and manages individual
accounts. The performance of these other pools through June 30, 1999 appears
below.
DUTIES OF THE GENERAL PARTNER
The general partner manages all business of the Fund. The general partner will
delegate its responsibility for the investment of the Fund's assets to one or
more qualified trading advisors. Responsibilities of the general partner
include:
- opening bank accounts
- paying, or authorizing the payment of redemptions or distributions to
the partners
- paying or authorizing payment of expenses of the Fund, including
incentive fees, brokerage fees, legal and accounting fees, printing
and reporting fees, and registration and other fees of governmental
agencies
The general partner shall seek the best prices and services available in its
commodity futures brokerage transactions. The general partner will review at
least annually, the brokerage rates charged to public commodity pools similar to
the Fund to determine that the brokerage fee the Fund pays is competitive with
other rates.
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 Fund.
The general partner has fiduciary responsibility for the safekeeping and use of
all funds and assets of the Fund. The limited partners may not contract away
this fiduciary obligation.
ENFORCING YOUR RIGHTS AS A LIMITED PARTNER
You should consult your counsel with questions concerning the responsibilities
of the general partner. In the event that you believe the general partner has
violated its fiduciary responsibility, you may seek legal relief for yourself or
on behalf of the Fund (or in a class action on behalf of all limited partners),
if:
(1) the general partner has refused to bring the action, or
(2) an effort to cause the general partner to bring the action is not
likely to succeed.
There can be no assurance, however, that adequate remedies will be available.
In addition, you may institute legal proceedings against the general partner if
it or an advisor engages in excessive trading. You 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 and the advisors, the
limited number of cases defining excessive trading, and the provisions in the
Limited Partnership Agreement discussed under "The Limited Partnership Agreement
- -- Indemnification."
You may be afforded rights to reparations under the Commodity Exchange Act. In
addition, the NFA has adopted arbitration rules which, in appropriate
circumstances, might provide additional rights.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Fund was formed on August 25, 1999 under the laws of the State of New York.
To date, its only transactions have been the preparation of this offering and
capital contributions of $1,000 by the general partner and $1,000 by one limited
partner. The Fund has not begun trading. Therefore, the financial statement of
the Fund included in the prospectus is not indicative of future operating
results. These results will depend in large part upon the commodity markets in
general, the advisors' performance, changes in interest rates and the amount of
redemptions. Because of the nature of these factors and their interaction, it is
impossible to predict future operating results, financial position and cash
flow.
Due to the highly leveraged nature of commodity interest trading, small price
movements may result in substantial losses. In order to provide some protection
against a material decline in liquidity caused by trading losses, the Fund
adheres to its trading policies.
26
<PAGE> 27
RISK OF COMPUTER SYSTEM FAILURES (YEAR 2000 ISSUE)
The Year 2000 issue is the result of existing computers in many businesses using
only two digits to identify a year in the date field. These computers and
programs, often referred to as "information technology," were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer applications could fail or create erroneous
results at the Year 2000. Such systems and processes are dependent on correctly
identifying dates in the next century.
The general partner administers the business of the Fund through various systems
and processes maintained by Salomon Smith Barney Holdings Inc. ("SSBHI") and
Salomon Smith Barney. In addition, the operation of the Fund is dependent on the
capability of the Fund's advisors, the brokers and exchanges through which the
Fund trades, and other third parties to prepare adequately for the Year 2000
impact on their systems and processes. The Fund has no systems or information
technology applications relevant to its operations.
The general partner, Salomon Smith Barney, SSBHI and their parent organization
Citigroup Inc. have undertaken a comprehensive, firm-wide evaluation of both
internal and external systems (systems related to third parties) to determine
the specific modifications needed to prepare for the year 2000. Salomon Smith
Barney has spent approximately $140 million over the four years from 1996
through 1999 on its Year 2000 preparation which has involved over 450 people. As
of June 30, 1999, SSB completed all compliance and certification work.
The systems and components supporting the general partner's business that
require remediation have been brought into Year 2000 compliance. Final testing
and certification were completed as of June 30, 1999.
This expenditure and the general partner's resources dedicated to the
preparation for Year 2000 have not and will not have a material impact on the
operation or results of the Fund.
The general partner has received statements from the advisors that they have
completed their Year 2000 remediation program.
The most likely and most significant risk to the Fund associated with the lack
of Year 2000 readiness is the failure of outside organizations, including the
commodities exchanges, clearing organizations, or regulators with which the Fund
interacts to resolve their Year 2000 issues in a timely manner. This risk could
involve the inability to determine the value of the Fund at some point in time
and would make effecting purchases or redemptions of units in the Fund
unfeasible until such valuation was determinable.
Salomon Smith Barney has successfully participated in industry-wide testing
including: The Street-wide Beta Testing organized by the Securities Industry
Association (SIA), a government securities clearing test with the Federal
Reserve Bank of New York, The Depository Trust Company, and The Bank of New
York, and Futures Industry Association participants test. The firm also
participated in the street-wide testing that was conducted from March through
May 1999.
It is possible that problems may occur that would require some time to repair.
Moreover, it is possible that problems will occur outside SSBHI for which SSBHI
could experience a secondary effect. Consequently, SSBHI has prepared
comprehensive, written contingency plans so that alternative procedures and a
framework for critical decisions are defined before any potential crisis occurs.
The goal of Year 2000 contingency planning is a set of alternate procedures to
be used in the event of a critical system failure or a failure by a supplier or
counter-party. Planning work was completed in January 1999, and testing of
alternative procedures will be completed in the third and fourth quarters of
1999.
PERFORMANCE HISTORY OF THE FUND
THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
OTHER POOLS OPERATED BY THE GENERAL PARTNER
Smith Barney Futures Management Inc. offers other pools that have more than one
trading advisor but whose performance may differ from the Fund's. Differences
are due to combinations of different trading advisors and programs traded as
well as different partnership or organizational structures. Tables 1, 2 and 3
below set forth the performance of the other pools that the general partner has
operated during the past five years. Table 1 sets forth the performance of
commodity pools that the general partner currently operates for the period
January
27
<PAGE> 28
1994 through June 30, 1999. Table 2 sets forth the performance of commodity
pools that the general partner previously operated for the period January 1994
through June 30, 1999, which have ceased trading operations as of June 30, 1999.
Table 3 sets forth the performance of commodity pools that the general partner
previously operated for the period January 1994 through June 30, 1999 for which
the general partner no longer acts as the pool operator as of June 30, 1999.
The general partner performs the same administrative duties for each of the
pools that it operates or manages. Each of the funds attempts to profit by
speculation in commodity interests. As of June 30, 1999, each fund operated or
managed by the general partner had a net asset value in excess of its initial
offering amount except Smith Barney Telesis Futures Fund, Salomon Smith Barney
Orion Futures Fund and Salomon Smith Barney Global Diversified Futures Fund.
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 these funds has traded for two years or less and their
trading programs, which should be considered long-term, may not have had
sufficient time in which to take full effect.
28
<PAGE> 29
TABLE 1
CAPSULE PERFORMANCE OF OTHER POOLS CURRENTLY OPERATED OR MANAGED BY SMITH
BARNEY FUTURES MANAGEMENT INC.
FOR THE PERIOD JANUARY 1994 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
LARGEST MONTHLY
PERCENTAGE
DRAW-DOWN
------------------------
CURRENT
TYPE INCEPTION AGGREGATE TOTAL
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 5,339 9.72 (May-97)
Hutton Investors Futures Fund II A Jul-87 30,304 23,408 8.17 (Nov-98)
Shearson Mid-West Futures Fund 1 Dec-91 60,804 59,905 9.18 (May-97)
Smith Barney International Advisors A Mar-92 32,312 3,165 5.72 (May-97)
Currency Fund
Smith Barney Global Markets Futures 1,A Aug-93 20,226 9,025 9.19 (Aug-97)
Fund
- ------------------------------------------------------------------------------------------------------------------------------
Smith Barney Diversified Futures Fund A Jan-94 256,901 135,828 8.12 (Feb-96)
F-1000 Futures Fund Michigan Series I 1,2,A May-94 10,697 13,518 5.86 (Feb-96)
Smith Barney Mid-West Futures Fund II 1 Sep-94 90,217 86,877 9.23 (May-97)
F-1000 Futures Fund Michigan Series II 1,2,A Jun-95 20,490 27,075 5.08 (Feb-96)
Smith Barney Tidewater Futures Fund (i) 1 Jul-95 26,763 22,554 18.24 (Aug-97)
- ------------------------------------------------------------------------------------------------------------------------------
Smith Barney Principal Plus Futures Fund 2,A Nov-95 37,507 31,333 5.94 (Feb-96)
Smith Barney Diversified Futures Fund II A Jan-96 161,874 142,138 8.57 (Feb-96)
SB/Michigan Futures Fund 1,A Jul-96 11,591 14,407 8.67 (Apr-98)
Smith Barney Principal Plus Futures 2,A Aug-96 22,581 21,651 5.98 (Aug-97)
Fund II
Smith Barney Great Lakes Futures Fund 1 Jan-97 10,102 10,711 7.62 (Aug-97)
- ------------------------------------------------------------------------------------------------------------------------------
Smith Barney Westport Futures Fund Aug-97 118,820 125,784 9.79 (Nov-98)
Smith Barney Potomac Futures Fund (i) 1 Oct-97 7,149 7,545 6.35 (Apr-98)
Smith Barney Telesis Futures Fund (i) 1 Feb-98 14,506 8,236 7.01 (Oct-98)
Smith Barney AAA Futures Fund 1 Mar-98 68,874 92,569 4.15 (Jun-98)
Salomon Smith Barney Global Diversified A Feb-99 57,363 56,537 4.24 (May-99)
Futures Fund
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney Orion Futures
Fund (ii) 1,A Jun-99 10,610 10,585 0.24 (Jun-99)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE ANNUAL RATE OF RETURN
LARGEST PEAK-TO-VALLEY DRAW-DOWN (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
--------------------------------
PERCENT
NAME OF POOL (%) TIME PERIOD 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shearson Select Advisors Futures Fund 22.59 (Aug-93 to Jan-95) (13.96) 26.91 21.57 13.06 4.10 4.12
Hutton Investors Futures Fund II 13.66 (Jul-94 to Jan-95) (4.66) 41.78 29.11 17.82 11.52 5.29
Shearson Mid-West Futures Fund 20.40 (Jan-98 to Jul-98) (8.64) 36.24 26.76 12.95 3.55 4.06
Smith Barney International Advisors 24.08 (Oct-93 to Feb-96) (10.40) (5.04) 22.68 18.51 0.25 1.68
Currency Fund
Smith Barney Global Markets Futures 12.08 (Dec-96 to May-97) (7.19) 20.91 17.70 4.13 21.58 (2.07)
Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Smith Barney Diversified Futures Fund 14.50 (Jun-95 to Oct-95) (3.29) 12.86 14.54 3.83 7.65 1.10
F-1000 Futures Fund Michigan Series I 8.80 (Jun-95 to Oct-95) 1.38 14.25 2.79 10.47 10.13 (5.64)
Smith Barney Mid-West Futures Fund II 20.66 (Jan-98 to Jul-98) (7.54) 31.74 26.26 12.72 3.13 4.03
F-1000 Futures Fund Michigan Series II 7.27 (Feb-96 to May-96) -- 2.25 9.49 11.61 9.65 (0.17)
Smith Barney Tidewater Futures Fund (i) 20.81 (Sep-98 to May-99*) -- (1.25) 7.83 6.12 19.92 (5.34)
- ---------------------------------------------------------------------------------------------------------------------------------
Smith Barney Principal Plus Futures Fund 8.85 (Feb-96 to Aug-96) -- 5.75 4.37 10.45 8.97 (3.68)
Smith Barney Diversified Futures Fund II 11.92 (Mar-97 to Jul-98) -- -- 12.51 (0.10) 8.48 0.76
SB/Michigan Futures Fund 11.77 (Aug-97 to Jul-98) -- -- 18.58 5.90 12.06 1.50
Smith Barney Principal Plus Futures 7.67 (Aug-97 to Jul-98) -- -- 12.97 4.45 15.42 (3.12)
Fund II
Smith Barney Great Lakes Futures Fund 11.82 (Mar-97 to Apr-98) -- -- -- 2.67 1.81 4.39
- ---------------------------------------------------------------------------------------------------------------------------------
Smith Barney Westport Futures Fund 10.24 (Oct-98 to Nov-98) -- -- -- 1.15 8.22 4.71
Smith Barney Potomac Futures Fund (i) 7.58 (Apr-98 to Jul-98) -- -- -- 2.95 8.36 2.50
Smith Barney Telesis Futures Fund (i) 19.89 (Oct. 98 to May-99*) -- -- -- -- (3.24) (9.93)
Smith Barney AAA Futures Fund 4.50 (Mar-98 to Apr-98) -- -- -- -- 18.44 19.96
Salomon Smith Barney Global Diversified 4.24 (May-99 to May-99*) -- -- -- -- -- (0.35)
Futures Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney Orion Futures
Fund (ii) 0.24 (Jun-99 to Jun-99*) -- -- -- -- -- (0.24)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
Notes follow Table 3
(i) As of March 1, 1999, SFG Global Investments, Inc. became general
partner and commodity pool operator and Smith Barney Futures
Management Inc. became trading manager for these pools.
(ii) SFG Global Investments, Inc. is the general partner and commodity pool
operator and Smith Barney Futures Management Inc. is the trading
manager for this pool.
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> 30
TABLE 2
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY OPERATED BY SMITH BARNEY
FUTURES MANAGEMENT INC. FOR THE PERIOD JANUARY 1994 THROUGH JUNE 30, 1999 AND
WHICH HAVE CEASED TRADING OPERATIONS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
LARGEST MONTHLY
NAV PERCENT DRAW-DOWN
INCEPTION AGGREGATION BEFORE -------------------
TYPE OF OF TERMINATION SUBSCRIPTIONS 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)
Ayco Futures Fund 1 May-88 Jul-94 5,114 161 29.35 (Apr-94)
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 5.39 (Jan-95)
Signet Partners 1,A Jan-93 Feb-95 522 191 4.32 (Feb-94)
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)
Smith Barney Newport Futures Fund 1 Dec-96 Oct-98 26,110 7,897 17.43 (Mar-98)
F-1000 Futures Fund Series VIII 2,A Aug-92 Nov-98 36,000 7,679 3.84 (Feb-96)
F-1000 Futures Fund Series IX 2,A Mar-93 May-99 24,005 4,857 4.26 (Feb-96)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LARGEST PEAK-TO-VALLEY PERCENTAGE ANNUAL RATE OF RETURN
DRAW-DOWN (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
----------------------------
PERCENT
NAME OF POOL (%) TIME PERIOD 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commodity Venture Fund 39.53 (Jan-92 to Feb-95*) (26.37) (8.44) -- -- -- --
Ayco Futures Fund 78.99 (Jul-89 to Apr-94*) (45.77) -- -- -- -- --
Parnel Futures Fund 38.09 (Jan-94 to Apr-94*) (28.79) -- -- -- -- --
F-1000 Guarantee Futures Fund IV 7.22 (Jan-94 to Feb-94*) (7.22) -- -- -- -- --
F-1000 Futures Fund VI 8.58 (Jul-94 to Jan-95) (2.43) 18.61 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Peregrine Futures Fund 32.04 (Jul-93 to Apr-94*) 5.91 (3.05) -- -- -- --
Signet Partners 4.32 (Feb-94 to Feb-94) 53.32 (0.36) -- -- -- --
Smith Barney Offshore Futures Fund 6.50 (Jan-94 to Jan-94) 2.68 -- -- -- -- --
Monetary Venture Fund 37.41 (Jan-92 to Jan-95*) (27.47) 32.05 5.76 -- -- --
Shearson Lehman Futures 1000 Plus 11.16 (Aug-93 to Jan-95) (6.41) 12.79 1.59 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Shearson Hutton Performance
Partners 24.12 (Aug-93 to Jan-95) (10.59) 18.04 2.42 (10.12) -- --
Smith Barney Newport Futures Fund 65.58 (Mar-97 to Oct-98*) -- -- 7.34 (21.84) (54.09)
F-1000 Futures Fund Series VIII 12.22 (Sep-93 to Oct-94) (10.41) 12.69 3.96 3.15 6.28 --
F-1000 Futures Fund Series IX 8.41 (Jun-95 to Oct-95) (4.13) 12.89 3.51 8.87 7.12 (0.96)
- ------------------------------------------------------------------------------------------------------------------------------
</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
30
<PAGE> 31
TABLE 3
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT INC. FOR THE PERIOD JANUARY 1994 THROUGH JUNE 30, 1999 AND FOR WHICH
SMITH BARNEY FUTURES MANAGEMENT INC. NO LONGER ACTS AS COMMODITY POOL OPERATOR
AS OF JUNE 30, 1999
<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)
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)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LARGEST
PEAK-TO-VALLEY PERCENTAGE ANNUAL RATE OF RETURN
DRAW-DOWN (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
--------------------
PERCENT
NAME OF POOL (%) TIME PERIOD 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commodity Trend Timing Fund 54.35 (Aug-93 to (50.55) (5.08) -- -- -- --
Feb-95*)
Commodity Trend Timing Fund II 54.67 (Aug-93 to (50.43) (6.86) -- -- -- --
Feb-95*)
Harbourer Futures Fund 5.10 (Feb-94 to 39.20 -- -- -- -- --
Feb-94)
Greenbrier Futures Fund 15.48 (Aug-94 to 16.74 (1.09) 17.60 -- -- --
Jun--95) --
- ------------------------------------------------------------------------------------------------------------
</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
31
<PAGE> 32
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 a period in which the initial
month-end net asset value of such draw-down is not equaled or exceeded by any
subsequent month's 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. 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 marked with 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 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, that is, 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.
32
<PAGE> 33
THE ADVISORS
The general partner has selected Beacon, Bridgewater, Campbell and Rabar as the
Fund's initial trading advisors. Each advisor will manage the Fund's assets in
accordance with its trading policies. The Fund's assets will be initially
allocated in the following approximate percentages: Beacon -- 20%; Bridgewater
- -- 20%; Campbell -- 30%; and Rabar -- 30%. The general partner may modify these
allocations at any time in its sole discretion. Future allocations to the
advisors or additional advisors will be made at the discretion of the general
partner.
Based on historical trading patterns, approximately 73% of the Fund's initial
portfolio will be concentrated in the global financial futures markets,
including contracts on U.S. and international interest rates and global stock
market indices and foreign currency contracts. Approximately 27% of the Fund's
initial portfolio will be in other futures markets, including energy, metals and
agricultural products. This portfolio concentration may change in the future as
allocations to the existing advisors change, advisors are removed or change
strategies and new advisors are added to the Fund.
SECTORS AND CONTRACTS TRADED BY ADVISORS
APPROXIMATE MARKET SECTOR DISTRIBUTION WEIGHTED
BY INITIAL ADVISOR ALLOCATION
<TABLE>
<S> <C>
Currencies 29.9%
- -------------------------------------------
Interest Rates 31.8%
- -------------------------------------------
Stock Indices 12.0%
- -------------------------------------------
Agriculture 11.8%
- -------------------------------------------
Energy 7.0%
- -------------------------------------------
Metals 7.5%
- -------------------------------------------
Total 100%
- -------------------------------------------
</TABLE>
The estimated market sector distribution is based on the advisors' allocation of
risk exposure as of June 30, 1999 weighted by the initial allocation of the
Fund's assets to each advisor. The Fund's portfolio may not be traded according
to this distribution. The advisors may override computer-generated trading
signals or may adjust their trading programs in the future.
33
<PAGE> 34
The contracts traded in the advisors' programs as of June 30, 1999 are:
<TABLE>
<CAPTION>
LONG-TERM INTEREST RATES CURRENCY CROSS RATES ENERGY
<S> <C> <C>
US
Treasury Notes (5-Year) British Pound/Japanese Yen Crude Oil (West Texas)
Treasury Notes (10-Year) British Pound/Swiss Franc Crude Oil Brent
Treasury Bonds (30-Year) Euro/Japanese Yen Gas Oil
Muni Bonds Euro/Swiss Franc Natural Gas
Euro/British Pound Heating Oil
Canada Swiss Franc/Japanese Yen Unleaded Gas
Canadian 10-Year Bonds Swedish Krona/Danish Krone
Japanese Yen/Italian Lira CURRENCIES
Europe Canadian Dollar/Japanese Yen
Eurex 5-Year BOBL Australian Dollar/Japanese Yen US/Americas
Eurex 2-Year Bond Dollar Index
Eurex 10-Year Bund Canadian Dollar
UK Long Gilt Mexican Peso
Italian Government Bond (BTP)
Matif Notional Bond
Spanish 10-Year Bond SHORT-TERM INTEREST RATES Europe
British Pound
US Euro
Asia/Pacific Eurodollar Norwegian Krone
Australian Bond (3-Year) Swedish Krona
Australian Bond (10-Year) Europe Swiss Franc
Japanese Government Bond Short Sterling
Euroswiss Asia/Pacific
STOCK INDICES Euribor (Europe) Australian Dollar
Hong Kong Dollar
S&P 500 Mini Index Canada Japanese Yen
S&P 500 Index Canadian Banker's Acceptance Notes New Zealand Dollar
S&P Mid Cap 400 Canadian 90-Day Singapore Dollar
Russell 2000
Dow Jones Index Asia/Pacific Africa
NASDAQ 100 Euroyen South African Rand
FIB 30 Australian Banks Bills
London FT-SE Australian 90-Day
DAX (Germany)
CAC-40 (France)
OM Index (Sweden)
MSCI (Taiwan)
Ibex (Spain)
MIB 30 (Spain)
All Ordinaries Index (Australia)
Hang Seng Index (Hong Kong)
Nikkei Index (Japan)
</TABLE>
34
<PAGE> 35
<TABLE>
AGRICULTURE METALS
<S> <C> <C>
Grains/Oilseed Precious
Soybeans Gold
Soybean Oil Silver
Soybean Meal
Corn Base
Chicago Wheat Aluminum
KC Wheat Copper
Minneapolis Wheat Lead
Tin
Softs Nickel
Coffee Zinc
Cocoa Platinum
Sugar
Orange Juice
Cotton
Livestock
Lean Hogs
</TABLE>
ADVISOR DESCRIPTIONS
The following descriptions include background information, information
concerning each advisor's trading strategy and the performance record for each
advisor. You should note that the summaries of trading strategies were prepared
by each advisor and may emphasize different aspects of each advisor's trading.
Consequently, comparison of the strategies may prove difficult or impossible.
In any event, each advisor's trading strategies are proprietary and
confidential, and the summaries are therefore general in nature.
There has been no administrative, civil or criminal action during the preceding
five years against any Advisor or its principals that would be material to an
investor's decision whether or not to purchase Units.
Actual performance records for each advisor are presented as one or more Table
As in each advisor's section.
Table Bs show the results of each program to be traded for the Fund for the
period January 1994 (August 1995 for Beacon and August 1998 for Bridgewater)
through June 30, 1999, adjusted to take into account the brokerage, management
and incentive fees and other expenses (including expenses of the initial
offering) to be paid by the Fund and interest to be earned by the Fund (i.e.,
Table B shows pro forma results).
Table C appears in the statement of additional information at page 13 and was
prepared by the general partner. It presents a hypothetical composite of the
advisors' actual monthly rates of return for the programs to be traded for the
Fund. Table C also presents a hypothetical composite of the pro forma rates of
return for those programs. Table C is presented for the period August 1998
through June 30, 1999, the common period of time during which all programs have
traded.
As of June 30, 1999, the aggregate funds under management by the advisors were
$8.5 billion (excluding notional funds) and $9.7 billion (including notional
funds).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
35
<PAGE> 36
BEACON MANAGEMENT CORPORATION
BACKGROUND
Beacon Management Corporation continues the futures trading advisory business
formerly conducted by Beacon Management Corporation N.V., a Netherlands
Antilles corporation formed by Commodities Corporation in September 1982, and
by Comtrade Associates, a partnership founded in 1977. Beacon is registered as
a commodity trading advisor and commodity pool operator and is a member of the
National Futures Association. Comtrade Associates registered as a commodity
trading advisor in June 1978, and Beacon registered in September 1982.
PRINCIPALS
Grant W. Schaumburg Jr. is the chairman of Beacon, and has worked for Beacon
and affiliated firms since 1978. Mr. Schaumburg was a founder and the president
of Mount Lucas Management Corporation from 1986 through June 1999 and Mount
Lucas Index Management Corporation from 1991 through June 1999. Mr. Schaumburg
was formerly a partner of Comtrade Associates, a commodity trading advisor
which managed futures accounts from 1980 to 1982. Mr. Schaumburg served as
trading systems manager for Commodities Corporation from 1982 to 1987, and was
an associated person with that firm from 1984 to 1993. From 1970 to 1982, Mr.
Schaumburg also participated in management consulting work for large
corporations and contract research for government agencies. Mr. Schaumburg
received an A.B. magna cum laude from Harvard College with highest honors in
applied mathematics and a Ph.D. in economics from Harvard University. Mr.
Schaumburg is registered as a commodity trading advisor and a commodity pool
operator and is a member of the National Futures Association.
Mark S. Stratton is the president of Beacon, and has worked for Beacon and its
affiliates since 1984. Mr. Stratton worked as a senior research associate for
Commodities Corporation from 1972 to 1984. He joined Beacon in 1984 and became
a principal of the firm in 1991. Mr. Stratton was also a founder and senior
vice president of Mount Lucas Management and Mount Lucas Index Management from
their inception through June 1999. Mr. Stratton attended the University of
Chicago.
TRADING APPROACH
Beacon currently offers and will trade its Meka program on behalf of the Fund.
Meka aggressively invests in a broadly diversified set of assets using
proprietary trend-following systems and portfolio allocation software. The
program's objective is to use diversification and leverage to earn long-run
returns from a variety of markets. Meka is executed in futures markets which
facilitate asset allocation shifts and offer flexible leverage.
The implementation of Meka is quantitative and computer-based. Meka allocates
exposure to each market based on the relationships among the different markets
and among the trend-following systems. Exposure can be short as well as long,
depending on the recent trend of prices. Several different trend-following
approaches are employed in the portfolio, including approaches based on moving
averages, breakouts, option replication, and volatility. They vary from
short-term methods that trade almost every day to long-term methods that
sometimes hold positions for over a year.
36
<PAGE> 37
TRADING PROGRAMS
Based on the Meka portfolio as of June 30, 1999, the distribution of risk
exposure by market sector for the Meka program is:
<TABLE>
<S> <C> <C>
global equity including U.S. large and small 7%
indices cap, Japanese, Australian, and
European markets
global bonds including U.S. long and 15%
intermediate treasuries,
Japanese government bonds, and
European bonds
foreign currencies including the U.S. dollar vs. 19%
and currency cross the Japanese Yen, the Euro,
rates and the British Pound
energy markets including crude oil, gasoline, 7%
and natural gas
metals including gold, silver, and 15%
copper
world commodity including grains, meats, 37%
markets coffee, and sugar
</TABLE>
PAST PERFORMANCE OF BEACON
Table A-1 reflects the composite capsule performance results of all accounts
traded according to Beacon's Meka Program for the period August 1995 (inception
of client trading for the Meka Program) through June 30, 1999.
Table A-2 reflects the composite capsule performance results of all other
trading programs directed by Beacon for the time periods indicated on the
table.
Table A-3 reflects the composite capsule performance results of other trading
programs directed by affiliates of Beacon for the time periods indicated on the
table.
Table B-1, the Pro Forma Table, presents the composite performance of the Meka
Program adjusted for fees and expenses applicable to the Fund.
37
<PAGE> 38
TABLE A-1
BEACON MANAGEMENT CORPORATION
MEKA TRADING SYSTEM
AUGUST 1995 (INCEPTION OF CLIENT TRADING) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Percentage monthly rate of return
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January............................................. (1.81) 2.07 13.24 6.63 -
February............................................ 10.18 13.08 7.99 (16.51) -
March............................................... (3.77) 13.65 (4.56) 4.87 -
April............................................... 18.17 4.25 6.88 16.95 -
May................................................. (12.31) 0.49 1.40 (7.02) -
June................................................ (1.46) (2.26) (2.08) 9.18 -
July................................................ - 11.60 16.52 (14.14) -
August.............................................. - 3.46 (13.39) (2.43) 9.98
September........................................... - 4.11 6.48 8.42 (6.06)
October............................................. - 3.98 (6.53) 18.41 (6.43)
November............................................ - 7.89 6.30 19.45 8.12
December............................................ - (6.01) 15.33 (1.82) 14.29
Annual (or Period) Rate of Return................... 6.30% 70.24% 52.51% 39.80% 19.46%
- -------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (8/95-6/30/99) 47.72%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Inception of Trading by CTA: July 1980
Inception of Trading in Program: August 1995
Number of Open Accounts as of June 30, 1999: 11
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $99,650,338 (6/99)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $99,650,338 (6/99)
Aggregate Assets (Excluding "Notional" Equity) in
Program: $77,717,997 (6/99)
Aggregate Assets (Including "Notional" Equity) in
Program: $77,717,997 (6/99)
Largest Monthly Draw-Down: 16.51% (2/96)
Largest Peak-to-Valley Draw-Down: 16.51% (2/96-2/96)
</TABLE>
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
38
<PAGE> 39
TABLE A-2
OTHER TRADING PROGRAMS DIRECTED BY BEACON MANAGEMENT CORPORATION
FOR THE PERIOD JANUARY 1994 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
INCEPTION NUMBER AGGREGATE ASSETS AGGREGATE ASSETS LARGEST
OF OF IN PROGRAM IN PROGRAM LARGEST PEAK-TO-
TRADING OPEN JUNE 30, 1999 JUNE 30, 1999 MONTHLY VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS (EXCLUDING NOTIONAL) (INCLUDING NOTIONAL) DRAW-DOWN DRAW-DOWN
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beacon Jul-80 1 $3,112,341 $3,112,341 9.10% (8/96) 22.34% (4/95-11/95)
Eurodollar Mar-96 1 $18,820,000 $18,820,000 1.00% (8/97) 3.88% (5/96-7/98)
STS Aug-90 N/A-Closed N/A-Closed N/A-Closed 11.30% (8/95) 33.98% (12/94-11/95)
Currency Overlay Feb-94 N/A-Closed N/A-Closed N/A-Closed 54.20% (3/94) 72.84% (2/94-3/94)
Energy Yield Capture Sep-91 N/A-Closed N/A-Closed N/A-Closed 15.00% (1/96) 20.76% (12/96-7/97)
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beacon 14.62 10.61 29.39 (1.29) (7.23) 9.17
(6 Months)
Eurodollar 0.19 1.98 (1.51) (0.52) -- --
(6 Months) (10 Months)
STS -- -- -- -- (31.54) 48.19
(11 Months)
Currency Overlay -- -- 0.48 14.41 126.33 (42.53)
(2 Months)
Energy Yield Capture -- -- (11.11) 1.79 27.32 (8.18)
(10 Months)
</TABLE>
Aggregate assets in all Beacon programs was approximately $100 million as of
June 30, 1999.
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
39
<PAGE> 40
TABLE A-3
OTHER TRADING PROGRAMS DIRECTED BY AFFILIATES OF BEACON MANAGEMENT CORPORATION
FOR THE PERIOD JANUARY 1994 THROUGH JUNE 30, 1999
MOUNT LUCAS INDEX MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
INCEPTION NUMBER AGGREGATE ASSETS AGGREGATE ASSETS LARGEST
OF OF IN PROGRAM IN PROGRAM LARGEST PEAK-TO-
TRADING OPEN JUNE 30, 1999 JUNE 30, 1999 MONTHLY VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS (EXCLUDING NOTIONAL) (INCLUDING NOTIONAL) DRAW-DOWN DRAW-DOWN
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MLM Index Oct-93 N/A(1) N/A(1) N/A(1) 3.20% (9/98) 3.59% (9/98-10/98)
Leveraged MLM Index May-96 N/A(1) N/A(1) N/A(1) 14.80% (6/97) 19.48% (6/97-11/97)
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1999 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MLM Index 1.35 13.79 5.13 2.67 3.80 11.23
(6 Months)
Leveraged MLM Index 3.54 29.49 3.83 12.47 -- --
(6 Months) (8 Months)
</TABLE>
MOUNT LUCAS MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
INCEPTION NUMBER AGGREGATE ASSETS AGGREGATE ASSETS LARGEST
OF OF IN PROGRAM IN PROGRAM LARGEST PEAK-TO-
TRADING OPEN JUNE 30, 1999 JUNE 30, 1999 MONTHLY VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS (EXCLUDING NOTIONAL) (INCLUDING NOTIONAL) DRAW-DOWN DRAW-DOWN
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mount Lucas
Diversified Dec-87 N/A(1) N/A(1) N/A(1) 10.94% (5/95) 11.78% (4/95-7/95)
MoneyLogic Protected
Capital Fund Oct-89 N/A-Closed N/A-Closed N/A-Closed 3.06% (8/94) 3.10% (7/94-8/94)
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1999 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mount Lucas
Diversified (0.56) 14.86 31.16 10.40 22.90 4.95
(6 Months)
MoneyLogic Protected
Capital Fund -- -- -- -- 15.70 7.36
(12 Months)
</TABLE>
- --------------------
Notes follow Table
(1) As of July 15, 1999, Beacon Management Corporation is no longer affiliated
with Mount Lucas Index Management Corporation or Mount Lucas Management
Corporation.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
40
<PAGE> 41
BEACON MANAGEMENT CORPORATION
NOTES TO TABLES A-1, A-2 AND A-3
In the preceding performance summary, Beacon has adopted a method of computing
rate of return and performance disclosure, referred to as the "Fully-Funded
Subset" method, pursuant to an Advisory (the "Fully Funded Subset Advisory")
published by the Commodity Futures Trading Commission. The Fully Funded Subset
refers to that subset of accounts included in the applicable composite which is
funded entirely by actual funds (as defined in the Advisory).
To qualify for use of the Fully-Funded Subset method, the Fully Funded Subset
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 that are designed to provide assurance that the Fully-Funded
Subset and the resultant rates of return are representative of the trading
program. Beacon has performed these tests.
(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
account in the program 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.
(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 a 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.
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 (or Period) Rate of Return" is calculated by compounding the
Monthly ROR (as described below) over the months in a given year, that is, 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). 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.
Monthly rate of return ("Monthly ROR") is calculated by dividing net
performance by the beginning equity. An adjustment to the Monthly ROR
calculation, pursuant to time weighting method, is made if or when material
additions or withdrawals are made other than the beginning or end of the month.
41
<PAGE> 42
TABLE B-1
BEACON MANAGEMENT CORPORATION
PRO FORMA PERFORMANCE
MEKA TRADING PROGRAM
AUGUST 1995 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January............................................. (2.98) 1.66 13.56 3.12 -
February............................................ 9.93 13.60 7.94 (17.97) -
March............................................... (3.69) 13.73 (5.31) 4.76 -
April............................................... 17.61 3.90 6.44 17.59 -
May................................................. (12.16) 0.17 1.08 (7.85) -
June................................................ (1.41) (2.29) (7.61) 9.36 -
July................................................ - 10.98 16.87 (15.49) -
August.............................................. - 3.05 (14.39) (3.63) 10.29
September........................................... - 4.32 6.39 8.90 (6.85)
October............................................. - 3.67 (7.76) 19.08 (7.11)
November............................................ - 7.54 6.69 20.01 8.03
December............................................ - (6.02) 14.32 (2.39) 14.85
Annual (or Period) Rate of Return................... 4.62% 66.96% 38.17% 29.92% 18.40%
- -------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (8/95-6/30/99) 39.78%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Largest Monthly Draw-Down: 17.97% (2/96)
Largest Peak-to-Valley Draw-Down: 18.56% (7/96-8/96)
</TABLE>
- --------------------
Notes appear at pages 69-70
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
42
<PAGE> 43
BRIDGEWATER ASSOCIATES, INC.
Bridgewater Associates, Inc. ("Bridgewater") is a Connecticut (formerly New
York) corporation formed in April 1973.
Other entities in the Bridgewater Group include (1) Bridgewater S.A., a
Connecticut corporation formed in March 1987, which is a Commodity Trading
Advisor and Commodity Pool Operator registered with the Commodity Futures
Trading Commission (2) S.G. Bridgewater Ltd., registered with the Hong Kong
Securities and Futures Commission, which provides client liaison services in
Asia; (3) and BWF, Inc., an Introducing Broker registered in January 1991.
Bridgewater manages institutional and pooled funds on a discretionary basis
pursuant to its trading systems and methodologies as described. The Bridgewater
Group employs 75 people and manages approximately $20 billion in investment
assets ($7 billion of which is in accounts that trade in the futures markets).
Bridgewater has been registered as a Registered Investment Advisor with the
Securities Exchange Commission since November 1989 and a Commodity Trading
Advisor registered with the Commodity Futures Trading Commission since May
1992, and is a member of National Futures Association. Executive offices are
located at 1 Glendinning Place, Westport, Connecticut 06880. Phone: (203)
226-3030 Fax: (203) 291-7300. All books and records are kept at this address.
PRINCIPALS
Below is biographical information on the principals of Bridgewater in
alphabetical order.
Raymond T. Dalio, born in 1949, has been the president of Bridgewater since its
founding in 1973 and is a principal of the firm. Since receiving his M.B.A. in
finance from Harvard Business School in 1973, Mr. Dalio has been involved in
analyzing the world's major markets by identifying the economic conditions that
affect the directions of markets. From May 1973 until January 1974 he was
Director of Commodities at Dominick and Dominick, a Wall Street-based brokerage
house. Mr. Dalio then joined Shearson-Hayden Stone (now Salomon Smith Barney
Inc.) where he was in charge of institutional futures business. In 1975 he left
Shearson-Hayden Stone to devote his full time and efforts to trading his own
account and operating Bridgewater Group entities.
Robert P. Prince, born in 1958, is a Vice President and a principal of the
firm. Mr Prince supervises all the trading activities and analyzes the systems'
performances on a daily basis. Mr. Prince became a CPA in 1984 and received his
M.B.A. from the University of Tulsa in 1985. Prior to joining Bridgewater in
August of 1986, he spent three years as the Vice President and Manager of the
Treasury Division of the First National Bank of Tulsa. He gained experience
using interest rate futures, swaps, and options in hedging and risk management.
Giselle F. Wagner, born in 1955, is a Vice President, Chief Operating Officer
and principal of the firm. Ms. Wagner joined Bridgewater in 1988. Ms. Wagner
received her B.A. in Economics from Smith College in 1976, her M.B.A. in
Finance from Columbia University in 1978, and her CFA in 1992. From 1978 to
1984, she worked for Chemical Bank (now Chase Manhattan Bank) as Vice President
in the Treasury Division. From 1984 to 1988, she worked for Morgan Stanley
(now Morgan Stanley Dean Witter) as a fixed income salesperson.
Peter R. La Tronica, born in 1957, is a Vice President, Controller of
Bridgewater and principal of the firm. Mr. La Tronica joined Bridgewater in
April of 1989. After graduating from Northeastern University in 1979, Mr. La
Tronica joined Merrill Lynch & Co. During his tenure at Merrill Lynch & Co.
and certain of its affiliates, he served in various capacities including
Assistant Director Commodity Compliance and Operations Manager. From May of
1984 to August 1985 Mr. La Tronica was Assistant Vice President and Assistant
Manager of the New York Institutional Futures Office for Dean Witter Reynolds,
Inc. From August 1985 to June 1987 he served as Assistant Vice President of
Rudolf Wolff Futures Inc. (acquired 1986 by Elders Finance Inc.) in charge of
Operations and Compliance. In June of 1987 Mr. La Tronica joined Donaldson,
Lufken and Jenrette as Vice President of Option and Arbitrage Operations in the
Equities Division. In March of
43
<PAGE> 44
1988, Mr. La Tronica joined Benefit Concepts N.Y. Inc., an insurance marketing
firm, as Associate in charge of product development.
All of the companies mentioned in this section not otherwise identified were or
are futures commission merchants registered under the Commodity Exchange Act
and members of the National Futures Association.
Bridgewater and its principals and employees may trade securities, futures and
related contracts for proprietary accounts. The records of trading in such
accounts will not be made available to clients for inspection.
TRADING PHILOSOPHY
The following description of Bridgewater, its trading systems, methods, models,
and strategies are general and not intended to be exhaustive. Bridgewater's
investment philosophy is based on the following tenets:
The price structure of all investment assets and the economic outlook are
inextricably linked; as economic expectations change, so does the price
structure.
For example, knowing that bond yields have normally run about 3% over the
inflation rate, one could say that 20-year Treasury Bond yields of 8% are
discounting roughly a 5% average inflation rate over the next twenty years. One
could also look at the relationship between bond yields and stock yields to see
the rate of economic growth that is implied. Since earnings and dividends grow
at a rate that is equal to the rate of nominal economic growth over the long
run, one could calculate that rate of growth that would have to occur in order
for the risk-adjusted returns of stocks and bonds to be the same. By looking at
the price structure of stocks, bonds and currencies globally, one can see a
very vivid picture of the economic environment as it is being discounted in the
marketplace. For example, suppose it began to appear that inflation will be
lower than 5%, let's say 2%. Then interest rates would fall and bond prices
would rise. The extent of their rise would primarily depend on their duration
(e.g., a 10-year duration bond would rise by roughly 30% while a 20-year
duration bond would rise by twice as much, without considering convexity).
Similarly, this lower inflation rate would cause earnings and dividends growth
projections to be revised downward which would have a negative effect on stocks
that would be roughly offset by the lower interest rates that would be used to
capitalize these returns. Therefore, this shift downward in inflation
expectations would impact bond and stock prices differently and in logical and
readily measurable ways.
While it is difficult, if not impossible, to make reliable economic forecasts,
it is possible to use economic statistics as leading indicators of market
movements.
Markets respond to economic shifts; this implies that economic shifts precede
market movements. For example, the chart below shows the relationship between
manufacturing employees and Treasury Bond yields. As shown, changes in the
numbers of manufacturing employees tend to precede changes in Treasury Bond
yields. As a result, changes in the number of manufacturing employees can be
used as a leading indicator of changes in Treasury Bond yields.
44
<PAGE> 45
Comparison of U.S. Manufacturing Employees
and 3-Month U.S. Treasury Bill Yields
[GRAPHIC]
Market reactions to economic statistics are generally imprecise and
inefficient.
As a result, Bridgewater feels there is an opportunity to exploit these
inefficiencies by having a deeper understanding of the relationships between
economic statistics and market movements than the competition.
The investment decision making process should be systematic.
Large numbers of influences interact in very complex ways to cause price
changes. It is difficult to spontaneously weigh the large number of economic
influences on price changes. For example, changes in bond prices are caused by
changes in 1) money and credit growth, 2) economic growth, 3) inflation and 4)
central bank policy. Each one of these four influences can be measured via
numerous economic statistics. Unless one has a very systematic method of
gauging the relative importance and interrelationships existing between these
statistics, it is virtually impossible to respond optimally to changing
economic conditions.
TRADING STRATEGY
The Fund will be traded pursuant to the Aggressive Pure Alpha Futures Only
System, a systematic trading program, that is traded in accordance with the
policies described below.
Bridgewater's trading strategy is both fundamental and technical.
The Fundamental Systems: Fundamental analysis uses the theory that prices are
primarily determined by macro-economic, supply/demand influences. Bridgewater
has developed precise rules for identifying shifts in the economic/market
environment as they effect the price structure of investment assets. They
express quantitatively the net strength of the pressures of fundamental
influences on prices based on the leading relationships between economic
statistics and market movements. They are programmed into computerized trading
systems that are used interactively to identify the relative attractiveness of
alternative markets.
The Technical Systems: Technical analysis uses the theory that a study of the
markets themselves will provide a means of anticipating future price trends.
Such analysis includes, among other things, study of the actual daily, weekly,
and monthly price fluctuations, volume variations, and changes in open
interest. Bridgewater has developed technical systems to be used in conjunction
with its fundamental systems. The signals generated by the technical system are
used to confirm or rebut the buy and sell signals generated by the fundamental
system and to determine market timing.
The Interaction Between the Fundamental and Technical Systems: Both the
fundamental and technical systems quantitatively express the
45
<PAGE> 46
pressures on prices. Bridgewater weighs the fundamental readings more heavily
than the technical readings in determining the sizes of its positions.
THE AGGRESSIVE PURE ALPHA FUTURES ONLY SYSTEM
The Aggressive Pure Alpha Futures Only System is substantially similar to
Bridgewater Associates Pure Alpha System. The principal differences are:
(1) certain of the products traded, and
(2) the amount of leverage used.
The Pure Alpha System trades cash bonds, which largely have been replaced in
the Aggressive Pure Alpha System by futures or forward contracts that
Bridgewater believes mirror the performance of the cash bonds used in the Pure
Alpha System.
In addition, the Aggressive Pure Alpha System is traded at 1.5 times the actual
funds allocated to trading, while the Pure Alpha System uses different
leverage. The Aggressive Pure Alpha System focuses on futures and forward
contracts on financial instruments, interest rates, stock indices, and metals,
although other markets may be traded.
Bridgewater follows more than 25 markets worldwide and may take a position for
the Fund in all, some or none of these markets at any point in time. As
applicable regulatory authorities approve instruments or additional items, such
as other stock market indices and sovereign debt instruments, Bridgewater
expects to trade such instruments for the Fund.
The Fund's assets will be traded pursuant to the Aggressive Pure Alpha Futures
Only System, and will be invested in futures markets utilizing leverage. The
margin-to-equity ratio tends to fluctuate between 5% and 30%, typically being
in the range of 7.5% and 15%.
The current allocation of risk exposure for the Aggressive Pure Alpha Futures
Only Program is:
Global interest rates: 50%
Foreign currencies and
Cross rates: 40%
Equity indices: 9%
Metals: 1%
PAST PERFORMANCE OF BRIDGEWATER
Table A-1 reflects the composite capsule performance results of the account
traded according to Bridgewater's Aggressive Pure Alpha Futures Only program
for the period August 1998 (inception of client trading) through June 30, 1999.
Table A-2 reflects the composite capsule performance results for all other
trading programs directed by Bridgewater for the time period indicated on the
table.
Table A-3 reflects the composite capsule performance results for all other
trading programs directed by an affiliate of Bridgewater for the time period
indicated on the table.
46
<PAGE> 47
TABLE A-1
BRIDGEWATER ASSOCIATES, INC.
AGGRESSIVE PURE ALPHA FUTURES ONLY
AUGUST 1998 (INCEPTION OF CLIENT TRADING) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Percentage monthly rate of return
1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
January..................................................... 0.69 -
February.................................................... 3.79 -
March....................................................... (1.91) -
April....................................................... (0.66) -
May......................................................... 2.13 -
June........................................................ 0.57 -
July........................................................ - -
August...................................................... - (.56)
September................................................... - 2.78
October..................................................... - 10.18
November.................................................... - 2.19
December.................................................... - 5.83
Annual (or Period) Rate of Return........................... 4.60% 21.78%
-------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return(1)
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Inception of Trading by CTA: July 1985
Inception of Trading in Program: August 1998
Number of Open Accounts as of June 30, 1999: 1
Aggregate Assets (Excluding "Notional" Equity) in all CTA
Programs: $6,600,000,000 (6/99)
Aggregate Assets (Including "Notional" Equity) in all CTA
Programs: $7,700,000,000 (6/99)
Aggregate Assets (Excluding "Notional" Equity) in Program: $ 16,600,000 (6/99)
Aggregate Assets (Including "Notional" Equity) in Program: $ 16,600,000 (6/99)
Largest Monthly Draw-Down: 1.91% (3/99)
Largest Peak-to-Valley Draw-Down: 2.59% (3/99-4/99)
</TABLE>
- --------------------
Notes follow Table A-3
(1) A compound average annual rate of return is not included due to the short
trading history of this program.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
47
<PAGE> 48
TABLE A-2
OTHER TRADING PROGRAMS DIRECTED BY BRIDGEWATER ASSOCIATES, INC.
FOR THE PERIOD JANUARY 1994 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
AGGREGATE ASSETS AGGREGATE ASSETS
INCEPTION NUMBER IN PROGRAM IN PROGRAM
OF OF JUNE 1999 JUNE 1999 LARGEST
TRADING OPEN (EXCLUDING (INCLUDING MONTHLY
NAME OF PROGRAM PROGRAM ACCOUNTS NOTIONAL) NOTIONAL) DRAW-DOWN
<S> <C> <C> <C> <C> <C>
Pure Alpha(1)............................. Dec-91 4 $216,000,000 $302,000,000 4.49% (2/94)
Pure Alpha Futures Only-A(1).............. Jan-98 9 $95,400,000 $121,400,000 2.01% (7/98)
Pure Alpha Futures Only-B(1).............. May-99 2 $15,600,000 $44,200,000 N/A
Pure Alpha Bond & Currency Only(1)........ Jul-97 2 $31,000,000 $201,000,000 0.68% (7/98)
Constrained Pure Alpha(1)................. Jan-89 3 $161,000,000 $189,000,000 17.51% (2/94)
Institutional Account with Global Bond and
Equity Benchmark(1)...................... Mar-94 1 $591,000,000 $591,000,000 6.36% (3/97)
Global Bond and Currency(1)............... Feb-90 16 $4,100,000,000 $4,700,000,000 13.26% (2/94)
Diversified Global Bond(1)................ Mar-96 2 $585,000,000 $585,000,000 4.03% (3/97)
Long Duration Global Bond(1).............. Aug-95 2 $267,000,000 $267,000,000 16.11% (2/96)
Long Term Emerging Markets(1)............. May-96 1 $52,000,000 $52,000,000 25.55% (8/98)
Inflation Linked Bonds and Nominal
Bonds-Unleveraged(1)..................... Aug-97 9 $464,000,000 $464,000,000 2.75% (4/99)
Index Overlay............................. Jul-98 1 $11,100,000 $107,000,000 15.03% (8/98)
Global Tactical Asset Allocation.......... May-99 1 $6,000,000 $106,000,000 N/A
Global Bond Overlay(1).................... May-95 N/A-Closed N/A-Closed N/A-Closed 1.68% (3/97)
Short Term Emerging Markets(1)............ Apr-97 N/A-Closed N/A-Closed N/A-Closed 4.30% (8/97)
Inflation Indexed Linked Bond
Accounts-Leveraged(1).................... Apr-94 N/A-Closed N/A-Closed N/A-Closed 7.15% (2/96)
Inflation Linked Bonds(1)................. Jan-97 N/A-Closed N/A-Closed N/A-Closed 2.54% (8/97)
U.S. Bond Group........................... Aug-90 N/A-Closed N/A-Closed N/A-Closed 8.06% (2/95)
<CAPTION>
RATE
LARGEST OF
PEAK-TO- RETURN
VALLEY CALCULATION
NAME OF PROGRAM DRAW-DOWN METHOD
<S> <C> <C>
Pure Alpha(1)............................. 16.31% (1/94-6/95) FFS (A)
Pure Alpha Futures Only-A(1).............. 5.13% (4/98-7/98) FFS (B)
Pure Alpha Futures Only-B(1).............. N/A BE (C)
Pure Alpha Bond & Currency Only(1)........ 1.87% (4/98-7/98) FFS (D)
Constrained Pure Alpha(1)................. 43.89% (2/94-10/94) FFS
Institutional Account with Global Bond and
Equity Benchmark(1)...................... 7.09% (5/98-8/98) TW
Global Bond and Currency(1)............... 41.99% (1/94-9/94) FFS
Diversified Global Bond(1)................ 4.03% (3/97-3/97) OAT
Long Duration Global Bond(1).............. 24.47% (2/96-5/96) BE
Long Term Emerging Markets(1)............. 28.48% (5/98-8/98) BE
Inflation Linked Bonds and Nominal
Bonds-Unleveraged(1)..................... 8.44% (1/99-6/99) OAT
Index Overlay............................. 20.97% (7/98-9/98) BE (C)
Global Tactical Asset Allocation.......... N/A BE (C)
Global Bond Overlay(1).................... 2.44% (12/96-3/97) FFS (E)
Short Term Emerging Markets(1)............ 17.58% (7/97-1/98) FFS (F)
Inflation Indexed Linked Bond
Accounts-Leveraged(1).................... 13.21% (4/94-9/94) FFS
Inflation Linked Bonds(1)................. 4.56% (2/97-4/97) OAT
U.S. Bond Group........................... 8.06% (2/95-2/95) TW
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Pure Alpha(1)............................. 7.19 25.88 15.07 24.37 (4.55) (3.43)
(6 Months)
Pure Alpha Futures Only-A(1).............. 2.44 19.71 -- -- -- --
(6 Months)
Pure Alpha Futures Only-B(1).............. 1.42 -- -- -- -- --
(2 Months)
Pure Alpha Bond & Currency Only(1)........ 1.82 9.04 1.94 -- -- --
(6 Months) (6 Months)
Constrained Pure Alpha(1)................. 3.66 8.80 5.41 4.21 5.05 (5.88)
(6 Months)
Institutional Account with Global Bond and
Equity Benchmark(1)...................... 3.30 54.74 32.43 35.98 12.36 5.82
(6 Months) (10 Months)
Global Bond and Currency(1)............... (2.79) 17.35 8.94 12.02 19.23 (17.83)
(6 Months)
Diversified Global Bond(1)................ (2.78) 10.68 14.77 18.52 -- --
(10 Months)
(6 Months)
Long Duration Global Bond(1).............. (13.12) 50.31 34.74 11.85 34.03 --
(6 Months) (5 Months)
Long Term Emerging Markets(1)............. 5.53 (0.13) 17.41 21.77 -- --
(6 Months) (8 Months)
Inflation Linked Bonds and Nominal
Bonds-Unleveraged(1)..................... (2.69) 14.36 9.23 -- -- --
(6 Months) (5 Months)
Index Overlay............................. (6.38) (5.96) -- -- -- --
(6 Months) (6 Months)
Global Tactical Asset Allocation.......... 0.10 -- -- -- -- --
(2 Months)
Global Bond Overlay(1).................... -- 0.50 0.40 4.87 1.07 --
(1 Month) (8 Months)
Short Term Emerging Markets(1)............ -- 4.61 (11.55) -- -- --
(7 Months) (9 Months)
Inflation Indexed Linked Bond
Accounts-Leveraged(1).................... -- 4.00 11.84 15.21 23.09 (8.73)
(3 Months) (9 Months)
Inflation Linked Bonds(1)................. -- 8.80 8.25 -- -- --
(11 Months)
U.S. Bond Group........................... -- -- -- -- (7.68) 4.37
(2 Months)
</TABLE>
Aggregate assets in all Bridgewater programs was approximately $6.6 billion
(excluding notional equity) and $7.7 billion (including notional equity) as of
June 30, 1999.
- --------------------
Additional notes referenced to this page
(1) Each of these programs represent a variation of Bridgewater Associates'
Pure Alpha Strategy. There are three principal differences among these
accounts: (a) the amount of leverage used to trade the account, (b) the
nature of the products traded, e.g. emerging market bonds, 10 year bonds,
currency only, etc. and (c) the manner in which cash in the account is
invested, T-bills or stock indices.
(A) For the period January 1994 through April 1998, there were no fully funded
accounts. Rates of Return are based upon the subset at nominal account size.
(B) Fully-Funded Subset method adopted in April 1999. Prior to April 1999, rate
of return are calculated by dividing net performance by beginning equity.
(C) Rate of return is calculated by dividing net performance by nominal account
size.
(D) For the period January 1994 through April 1998, there were no fully funded
accounts. Rates of Return are based upon the subset at nominal account size.
(E) For the period May 1995 through January 1996, there were no fully funded
accounts. Rates of Return are based upon the subset at nominal account size.
(F) For the period April 1997 through May 1997, there were no fully funded
accounts. Rates of Return are based upon the subset at nominal account size.
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
48
<PAGE> 49
TABLE A-3
TRADING PROGRAMS DIRECTED BY BRIDGEWATER S.A., INC.
FOR THE PERIOD JANUARY 1994 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
AGGREGATE ASSETS AGGREGATE ASSETS
INCEPTION NUMBER IN PROGRAM IN PROGRAM LARGEST RATE
OF OF JUNE 1999 JUNE 1999 LARGEST PEAK-TO- OF
TRADING OPEN (EXCLUDING (INCLUDING MONTHLY VALLEY RETURN
NAME OF PROGRAM PROGRAM ACCOUNTS NOTIONAL) NOTIONAL) DRAW-DOWN DRAW-DOWN METHOD
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggressive Pure
Alpha(1)........... Jul-97 1 $7,000,000 $7,000,000 15.02% (8/98) 21.52% (5/98-8/98) OAT
Global Asset
Allocation
Speculative(1)..... Jan-89 1 $2,000,000 $2,000,000 21.64% (3/95) 50.82% (1/95-4/95) OAT
Global Bond and
Currency(1)........ Jul-97 N/A-Closed N/A-Closed N/A-Closed 0.76% (2/99) 0.76% (2/99-2/99) TW
Hedge Account 1..... Jun-91 N/A-Closed N/A-Closed N/A-Closed N/A N/A N/A
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Pure
Alpha(1)........... 7.63 66.67 14.58 -- -- --
(6 Months) (6 Months)
Global Asset
Allocation
Speculative(1)..... 5.27 19.04 10.99 17.64 7.00 (7.73)
(6 Months)
Global Bond and
Currency(1)........ 1.51 18.84 7.11 -- -- --
(4 Months) (6 Months)
Hedge Account 1..... -- No Rates of Return are Available --
</TABLE>
Aggregate assets in all Bridgewater programs was approximately $6.6 billion
(excluding notional equity) and $7.7 billion (including notional equity) as of
June 30, 1999.
- --------------------
Additional notes referenced to this page
(1) Each of these programs represents a variation of Bridgewater Associates'
Pure Alpha Strategy. There are three principal differences among these
accounts: (a) the amount of leverage used to trade the account, (b) the
nature of the products traded, e.g. emerging market bonds, 10 year bonds,
currency only, etc. and (c) the manner in which cash in the account is
invested, T-bills or stock indices.
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
49
<PAGE> 50
BRIDGEWATER
NOTES TO TABLES A-1, A-2, AND A-3
(a) "Draw-Down" is defined as losses experienced by a program over a specified
period of time.
(b) "Largest Monthly Draw-Down" is the largest monthly loss experienced by any
account in the program 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.
(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 a 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.
For purposes of the Largest Peak-to-Valley draw-down calculation, any draw-down
that 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 (or Period) Rate of Return" table 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") for the Aggressive Pure Alpha Futures
Only trading group (Table A-1) is calculated by dividing net performance by the
beginning equity. Monthly ROR methods for other trading programs appear on
Tables A-2 and A-3 and are as follows:
Fully-Funded Subset Method ("FFS") is permitted pursuant to an Advisory
published by the Commodity Futures Trading Commission. The Fully Funded Subset
refers to that subset of accounts included in the applicable composite which is
funded entirely by Actual Funds (as defined in the Advisory).
Rate of return under this method is calculated by dividing net performance of
the Fully-Funded Subset by the beginning equity of the Fully Funded Subset,
except in periods of significant additions or withdrawals to the accounts in
the Fully-Funded Subset. In such instances, the Fully-Funded Subset is adjusted
to exclude accounts with significant additions or withdrawals which would
materially distort the rate of return pursuant to the Fully-Funded Subset
method.
To qualify for use of the Fully-Funded Subset method, the Fully Funded Subset
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 that are designed to provide assurance that the Fully-Funded
Subset and the resultant rates of return are representative of the trading
program. Bridgewater has performed these tests for all periods presented.
Net Performance over Beginning Equity ("BE") is net performance divided by
beginning equity.
Only Accounts Traded Method ("OAT") is net performance divided by the equity
available for trading at the beginning of the month or period. Accounts are
excluded from both net performance and equity in OAT Rate of Return calculation
when they would materially distort the Rate of Return. Excluded accounts are
accounts that (1) incurred material additions or withdrawals during the month;
(2) were open for only part of the month; or (3) traded for liquidation only
during the month (i.e., an account in the process of closing).
Time Weighting ("TW") which is Net Performance divided by beginning equity plus
time-weighted additions minus time-weighted withdrawals. Additions and
withdrawals are multiplied by a fraction, the numerator of which is the number
of days in the month during which such sums were included in or excluded from
the amount available for trading, and the denominator of which is the number of
calendar days in such month.
50
<PAGE> 51
TABLE B-1
BRIDGEWATER ASSOCIATES, INC.
PRO FORMA PERFORMANCE
AGGRESSIVE PURE ALPHA FUTURES ONLY PROGRAM
AUGUST 1998 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January.................................................... 0.52 -
February................................................... 3.65 -
March...................................................... (1.94) -
April...................................................... (0.59) -
May........................................................ 1.80 -
June....................................................... 0.39 -
July....................................................... - -
August..................................................... - (1.14)
September.................................................. - 2.69
October.................................................... - 9.69
November................................................... - 1.99
December................................................... - 5.61
Annual (or Period) Rate of Return.......................... 3.80% 19.94%
- ------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1)
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Largest Monthly Draw-Down: 1.14% (8/98)
Largest Peak-to-Valley Draw-Down: 2.52% (3/99-4/99*)
</TABLE>
- --------------------
Notes appear at pages 69-70
(1) A Compound Average Annual Rate of Return is not included due to the short
trading history of this program.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
51
<PAGE> 52
CAMPBELL & COMPANY, INC.
BACKGROUND
Campbell & Company, Inc. ("Campbell") is a Maryland corporation organized in
April 1978 as a successor to a partnership originally formed in January 1974.
Its offices are located at 210 West Pennsylvania Avenue, Suite 770, Towson,
Maryland 21204, and its main telephone number is 410-296-3301. Campbell has
been registered with the Commodity Futures Trading Commission ("CFTC") as a
Commodity Trading Advisor since May 1978 and a Commodity Pool Operator since
September 1982, and is a member of the National Futures Association ("NFA") in
such capacities.
PRINCIPALS
Below is biographical information on the principals of Campbell in alphabetical
order.
Richard M. Bell, 46, began his employment with Campbell in May 1990 and serves
as a Senior Vice President -- Trading. His duties include managing daily trade
execution for the assets under Campbell's management. From September 1986
through May 1990, Mr. Bell was the managing general partner of several
partnerships registered as broker-dealers involved in market making on the
floor of the Philadelphia Stock Exchange ("PHLX") and Philadelphia Board of
Trade ("PBOT"). From July 1975 through September 1986 Mr. Bell was a
stockholder and executive vice-president of Tague Securities, Inc., a
registered broker-dealer. Mr. Bell owns a PHLX seat and a Philadelphia Currency
Participation, which are leased out. Mr. Bell graduated from Lehigh University
with a B.S. in Finance.
D. Keith Campbell, 57, has served as the Chairman of the Board of Directors of
Campbell since it began operations, was President until January 1, 1994 and
Chief Executive Officer until January 1, 1998. Mr. Campbell is the majority
voting stockholder. From 1971 through June 1978 he was a registered
representative of a futures commission merchant. Mr. Campbell has acted as a
commodity trading advisor since January 1972 when, as general partner of the
Campbell Fund, a limited partnership engaged in commodity futures trading, he
assumed sole responsibility for trading decisions made on behalf of the Fund.
Since then he has applied various technical trading models to numerous
discretionary commodity trading accounts. Mr. Campbell is registered with the
CFTC and NFA as a commodity pool operator and is registered as an Associated
Person of Campbell.
William C. Clarke, III, 48, joined Campbell in June 1977. He is Executive Vice
President -- Research and a Director of Campbell. Mr. Clarke holds a B.S. in
Finance from Lehigh University where he graduated in 1973. Mr. Clarke currently
oversees all aspects of research which involves the development of proprietary
trading models and portfolio management methods. Mr. Clarke is registered as an
Associated Person of Campbell.
Bruce L. Cleland, 52, joined Campbell in January 1993. Mr. Cleland serves as
President, Chief Executive Officer and a Director of Campbell. Prior to 1994,
he was Executive Vice President. From May 1986 through December 1992, Mr.
Cleland had served in various principal roles with the following firms:
president, Institutional Brokerage Corp., a floor broker; president,
Institutional Advisory Corp., a commodity trading advisor and commodity pool
operator; president, F&G Management, Inc., a commodity trading advisor; and
president, Hewlett Trading Corporation, a commodity pool operator. Prior to
this, Mr. Cleland was employed by Rudolf Wolff Futures Inc., a futures
commission merchant, where he served as president until 1986. Mr. Cleland
graduated in 1969 from Victoria University in Wellington, New Zealand where he
received a Bachelor of Commerce and Administration degree. Mr. Cleland is
registered as an Associated Person of Campbell.
Xiaohua Hu, 35, serves as a Vice President -- Research. He has been employed by
Campbell since 1994 in the Research Department, where he has a major role in
the ongoing research and development of Campbell's trading systems. From 1992
to 1994 he was employed in Japan by Line System as a software engineer, where
he participated in the research and development of computer software, including
programs for production systems control and software development. Mr. Hu
received his B.A. in Manufacturing Engineering from Changsha University of
Technology in China in 1982. He went on to receive an M.A. and Ph.D. in Systems
and Information Engineering from the Toyohashi University of Technology, in
Japan, in 1987 and 1992, respectively. During his studies at Toyohashi,
52
<PAGE> 53
Xiaohua was also a Visiting Researcher in Computer Science and Operations
Research and published several research papers.
Phil Lindner, 45, serves as Vice President -- Information Technology. He has
been employed by Campbell since October 1994, became the IT Director in March
1996, and Vice President in January 1998. He oversees Campbell's computer and
telecommunications systems. Prior to joining Campbell, Mr. Lindner worked as a
programmer and manager for Amtote, a provider of race-track computer systems.
James M. Little, 53, joined Campbell in April 1990 and serves as Executive Vice
President -- Marketing and as a Director of Campbell. Mr. Little holds a B.S.
in Economics and Psychology from Purdue University. From March 1989 through
April 1990 Mr. Little was a registered representative of A.G. Edwards & Sons,
Inc. From January 1984 through March 1989 he was the chief executive officer of
James Little & Associates, Inc., a registered introducing broker, commodity
pool operator and registered broker-dealer. Mr. Little has extensive experience
in the futures industry having worked in the areas of hedging, floor trading
and managed futures. He is the co-author of The Handbook of Financial Futures,
and is a frequent contributor to investment industry publications. Mr. Little
is registered as an Associated Person of Campbell.
Theresa D. Livesey, 36, joined Campbell in 1991 and serves as the Chief
Financial Officer, Secretary, Treasurer, and a Director of Campbell. In
addition to her role as CFO, Ms. Livesey also oversees administration and
compliance at Campbell. From December 1987 to June 1991 she was employed by
Bank Maryland Corp, a publicly held company. When she left she was vice
president and chief financial officer. Prior to that time, she worked with
Ernst & Young. Ms. Livesey is a C.P.A. and has a B.S. in Accounting from the
University of Delaware. Ms. Livesey is registered as an Associated Person of
Campbell.
V. Todd Miller, 37, serves as a Vice President -- Research. He has been
employed by Campbell since 1994 in the Research Department, where he has a
major role in the ongoing research and development of Campbell's trading
systems. From 1993 to 1994, Mr. Miller was an assistant professor in the
department of Computer Information Science at the University of Florida, where
he taught classes in object-oriented programming, numerical analysis and
programming in C, C++ and LISP. Mr. Miller holds a variety of degrees from the
University of Florida, beginning with an Associates degree in architecture. He
followed that in 1986 with a B.A. in Business with a concentration in computer
science. In 1988 he received his M.A. in Engineering with a concentration in
artificial intelligence. He completed his education in 1993 with a Ph.D. in
Engineering with a concentration in computer simulation.
Albert Nigrin, 38, serves as a Vice President -- Research. He has been employed
by Campbell since 1995 in the Research Department, where he has a major role in
the ongoing research and development of Campbell's trading systems. From
1991-1995 Mr. Nigrin was an assistant professor in the department of Computer
Science and Information Systems at American University in Washington D.C.,
where he taught classes in artificial intelligence, computer programming and
algorithms to both graduate and undergraduate students. While teaching, he also
wrote and published a book with MIT Press, Neural Networks for Pattern
Recognition. Mr. Nigrin received a B.A. in Electrical Engineering in 1984 from
Drexel University. He then proceeded directly to a Ph.D. program and received
his degree in Computer Science in 1990 from Duke University, where his doctoral
studies concentrated in the areas of artificial intelligence and neural
networks.
Markus Rutishauser, 38, serves as Vice President -- Trading, and has been
employed by Campbell & Company since October 1993, with responsibility for
day-to-day foreign exchange trading. Prior to joining Campbell, Mr. Rutishauser
worked two years at Maryland National Bank in Baltimore as an Assistant Vice
President in Foreign Exchange trading. Prior to that he was employed by Union
Bank of Switzerland, spending four years in their Zurich office and another
four years in their New York office, in the Foreign Exchange Department. Mr.
Rutishauser graduated from the University of Fairfield with a degree in
Finance. He subsequently completed his MBA at the University of Baltimore in
January 1996.
C. Douglas York, 41, has been employed by Campbell since November 1992. He is a
Senior Vice President -- Trading for Campbell. His duties include managing
daily trade execution for foreign exchange markets and forward contracts on
precious metals and energy markets. Prior to joining Campbell, Mr. York was the
Global Foreign
53
<PAGE> 54
Exchange Manager for Black & Decker. He holds a B.A. in Government from
Franklin and Marshall College. Mr. York is registered as an Associated Person
of Campbell.
Principals of Campbell may trade futures interests for their own accounts. In
addition, Campbell manages proprietary accounts for its deferred compensation
plan and some principals. The Advisor and its principals reserve the right to
trade for their own accounts. There are written procedures that govern
proprietary trading by principals. Trading records for all proprietary trading
are available for review by clients upon reasonable notice.
TRADING STRATEGY
Trading Systems
Campbell makes trading decisions for all accounts using proprietary technical
trading models, which analyze market statistics. Since the trading models are
proprietary, it is not possible to determine whether Campbell is following the
models or not. Trading models currently being used may not produce results
similar to those produced in the past.
Campbell offers seven trading portfolios:
(1) The Financial, Metal & Energy Large Portfolio,
(2) The Financial, Metal & Energy Small Portfolio,
(3) The Foreign Exchange Portfolio,
(4) The Global Diversified Large Portfolio,
(5) The Global Diversified Small Portfolio,
(6) The Interest Rates, Stock Indices and Commodities Portfolio, and
(7) The Ark Portfolio.
Campbell's trading models are designed to detect and exploit medium-term to
long-term price changes, while also applying proven risk management and
portfolio management principles.
Campbell believes that utilizing multiple trading models provides an important
level of diversification, and is most beneficial when multiple contracts of
each market are traded. More or fewer trading models than are currently used
may be used in the future. Every trading model may not trade every market. It
is possible that one trading model may establish a long position while another
trading model establishes a short position in the same market. Since it is
unlikely that both positions would prove profitable, in retrospect one or both
trades will appear to have been unnecessary. It is Campbell's policy to follow
trades signaled by each trading model independent of what the other models may
be recommending.
Over the course of a long-term trend, there are times when the risk of the
market may not appear to be justified by the potential reward. In such
circumstances some of Campbell's trading models may exit a winning position
prior to the end of a price trend. While there is some risk to this method (for
example, being out of the market during a significant portion of a price
trend), Campbell believes that this is well compensated for by the decreased
volatility of performance which may result.
Campbell's trading models may include trend-following trading models,
counter-trend trading models, and trading models that do not seek to identify
or follow price trends at all. Campbell expects to develop additional trading
models and to modify models currently in use and may or may not employ all such
models for all of the Fund's accounts. The trading models currently used by
Campbell may be eliminated from use if Campbell ever believes such action is
warranted.
While Campbell normally follows a disciplined systematic approach to trading,
on occasion it may override the signals generated by the trading models. Such
action may not be beneficial to the results achieved.
Campbell applies risk management and portfolio management strategies to measure
and manage overall portfolio risk. These strategies include portfolio
structure, risk balance, capital allocation, and risk limitation. One objective
of risk and portfolio management is to determine periods of relatively high and
low portfolio risk, and when such points are reached, Campbell may reduce or
increase position size accordingly. It is possible, however, that during
periods of reduction in position size the return that would have been realized
had the account been fully invested would be reduced.
Campbell may, from time to time, increase or decrease the total number of
contracts held based on increases or decreases in an account's assets, changes
in market conditions, perceived changes in portfolio-
54
<PAGE> 55
wide risk factors, or other factors which may be deemed relevant.
Campbell estimates that, based on the amount of margin required to maintain
positions in the markets currently traded, aggregate margin for all positions
held in the Fund's account will range between 20% and 40% of the account's net
assets. From time to time, margin commitments may be above or below these
ranges.
The number of contracts that Campbell believes can be bought or sold in a
particular market without undue adverse price movement may at times be limited
because of illiquidity. In such cases a portfolio would be influenced by
liquidity factors because its positions in such markets might be substantially
smaller than its positions in other markets which offer greater liquidity.
Market Sectors
Distribution of markets traded by volatility weighting (i.e. risk exposure) as
of June 30, 1999:
<TABLE>
<CAPTION>
FME-SMALL FME-LARGE
--------- ---------
<S> <C> <C>
Currencies........ 34% 35%
Interest rates.... 32% 32%
Stock indices..... 19% 19%
Precious and
base metals.... 5% 4%
Energy............ 11% 10%
Total..... 100.0% 100.0%
</TABLE>
PAST PERFORMANCE OF CAMPBELL & COMPANY, INC.
Table A-1 reflects the composite capsule performance results of all accounts
traded according to the Financial, Metal & Energy Small Portfolio of Campbell
for the period April 1983 (inception of trading) through June 30, 1999.
Table A-2 reflects the composite capsule performance results of all accounts
traded according to the Financial, Metal & Energy Large Portfolio of Campbell
for the period April 1983 (inception of trading) through June 30, 1999.
Table A-3 reflects the composite capsule performance results of all other
trading programs directed by Campbell for the time periods indicated on the
table.
55
<PAGE> 56
TABLE A-1
CAMPBELL & COMPANY, INC.
FINANCIAL, METAL & ENERGY SMALL PORTFOLIO(1)
APRIL 1983 (INCEPTION OF TRADING PROGRAM) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January...................................... (4.63) 2.80 3.85 8.80 (4.53) (4.67)
February..................................... 1.34 (2.34) 1.63 (5.20) (1) 4.92 (6.81)
March........................................ 1.61 5.81 (1.75) 4.33 9.75 7.00
April........................................ 5.20 (5.99) (3.03) 2.57 1.01 (1.77)
May.......................................... (3.16) 4.21 (3.01) (2.11) (1.42) (2.78)
June......................................... 4.95 1.51 3.62 1.41 (2.46) 5.24
July......................................... (4.02) 8.81 (1.71) (2.76) (4.36)
August....................................... 9.93 (5.94) 3.52 7.12 (3.79)
September.................................... 3.68 4.53 1.92 (5.78) 6.91
October...................................... 5.53 2.32 12.85 1.54 0.36
November..................................... (0.91) 0.59 12.11 0.15 (7.02)
December..................................... 1.12 5.41 (4.12) 7.81 (5.08)
Annual (or Period) Rate of Return............ 5.00% 22.20% 17.30% 37.83% 14.89% (16.76)%
- ------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/94-6/30/99) 13.26%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION-ANNUAL RATES OF RETURN FOR PRIOR YEARS
-----------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.68% 13.47% 31.12% 35.24% 42.23% 7.96% 64.38% (30.45)%.. 33.05% 26.96% (10.34)%
9 Months
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return (4/83-6/30/99) 15.97%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Inception of Trading by CTA: January 1972
Inception of Trading in Program: April 1983(1)
Number of Open Accounts as of June 30, 1999: 41
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $1,558,552,870 (6/99)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $1,594,251,614 (6/99)
Aggregate Assets (Excluding "Notional" Equity) in
Program: $ 129,333,518 (6/99)
Aggregate Assets (Including "Notional" Equity) in
Program: $ 140,755,938 (6/99)
Largest Monthly Draw-Down:
Past Five-Year and Year-to-Date Period 7.02% (11/94)
Inception of Trading Program to Date 17.68% (6/86)
Largest Peak-to-Valley Draw-Down:
Past Five-Year and Year-to-Date Period 31.76% (8/93-1/95)
Inception of Trading Program to Date 41.92% (4/86-11/86)
</TABLE>
- --------------------
(1) The Financial, Metal & Energy Small Portfolio ("FME Small") began in
February 1995 when accounts smaller than $10 million in size were
transferred from the Financial, Metal & Energy Large Portfolio ("FME Large")
to the FME Small. Prior to February 1995, all Financial, Metal & Energy
accounts were traded together in the FME Large Portfolio. See Table A-2 and
footnotes to Tables A-1 and A-2.
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
56
<PAGE> 57
TABLE A-2
CAMPBELL & COMPANY, INC.
FINANCIAL, METAL & ENERGY LARGE PORTFOLIO
APRIL 1983 (INCEPTION OF TRADING PROGRAM) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January....................................... (4.83) 3.25 5.26 5.46 (4.53) (4.67)
February...................................... 1.45 (2.38) 2.26 (5.63) 5.85 (6.81)
March......................................... 0.87 4.95 (2.08) 5.62 9.58 7.00
April......................................... 5.60 (5.88) (3.84) 3.49 2.08 (1.77)
May........................................... (3.25) 4.34 (1.84) (1.71) 0.88 (2.78)
June.......................................... 4.63 2.04 2.23 1.29 (0.90) 5.24
July.......................................... (3.68) 9.27 0.01 (4.05) (4.36)
August........................................ 9.23 (5.14) 1.78 5.83 (3.79)
September..................................... 2.97 4.23 2.47 (3.47) 6.91
October....................................... 4.41 2.39 12.06 1.20 0.36
November...................................... (0.50) 0.57 12.22 (0.24) (7.02)
December...................................... 0.64 4.95 (4.29) 6.82 (5.08)
Annual (or Period) Rate of Return............. 4.11% 20.07% 18.75% 35.96% 19.46% (16.76)%
- -------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/94-6/30/99) 13.50%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION-ANNUAL RATES OF RETURN FOR PRIOR YEARS
-----------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.68% 13.47% 31.12% 35.24% 42.23% 7.96% 64.38% (30.45)% 33.05% 26.96% (10.34)%
9 Months
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return (4/83-6/30/99) 16.05%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Inception of Trading by CTA: January 1972
Inception of Trading in Program: April 1983
Number of Open Accounts as of June 30, 1999: 7
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $1,558,552,870 (6/99)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $1,594,251,614 (6/99)
Aggregate Assets (Excluding "Notional" Equity) in
Program: $1,286,812,295 (6/99)
Aggregate Assets (Including "Notional" Equity) in
Program: $1,301,665,874 (6/99)
Largest Monthly Draw-Down:
Past Five-Year and Year-to-Date Period 7.02% (11/94)
Inception of Trading Program to Date 17.68% (6/86)
Largest Peak-to-Valley Draw-Down:
Past Five-Year and Year-to-Date Period 31.76% (8/93-1/95)
Inception of Trading Program to Date 41.92% (4/86-11/86)
</TABLE>
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
57
<PAGE> 58
TABLE A-3
OTHER TRADING PROGRAMS DIRECTED BY CAMPBELL & COMPANY, INC.
FOR THE PERIOD JANUARY 1993 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
INCEPTION NUMBER AGGREGATE ASSETS AGGREGATE ASSETS LARGEST
OF OF IN PROGRAM IN PROGRAM LARGEST PEAK-TO-
TRADING OPEN JUNE 1999 JUNE 1999 MONTHLY VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS (EXCLUDING NOTIONAL) (INCLUDING NOTIONAL) DRAW-DOWN DRAW-DOWN
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Diversified
Large Portfolio Jan-72 1 $103,392,163 $103,392,163 8.45% (2/94 26.05% (7/93-2/94)
Global Diversified
Small Portfolio Jun-97 8 $15,359,025 $16,434,025 5.92% (4/98 5.92% (4/98-4/98
Foreign Exchange
Portfolio Nov-90 4 $8,600,229 $16,600,229 11.66% (11/94) 44.73% (7/93-1/95)
Interest Rates,
Stock Indices and
Commodities ("ISC")
Portfolio Feb-96 1 $12,383,002 $12,383,002 6.73% (12/96 9.94% (12/96-4/97
The Ark Portfolio Sep-96 14 $2,676,638 $3,020,383 11.86% (7/98) 11.86% (7/98-7/98
Diversified
Portfolio Jan-72 N/A-Closed N/A-Closed N/A-Closed 10.44% (2/94) 32.10% (7/93-2/94*)
Global Financial
Portfolio Dec-93 N/A-Closed N/A-Closed N/A-Closed 5.24% (2/94 19.20% (12/93-1/95*)
<CAPTION>
PERCENTAGE RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Global Diversified
Large Portfolio 2.67 12.47 14.95 26.78 6.52 9.61
(6 Months)
Global Diversified
Small Portfolio 1.18 17.50 13.85 -- -- --
(6 Months) (7 Months)
Foreign Exchange
Portfolio 2.46 4.25 18.19 43.04 26.36 (21.19)
(6 Months)
Interest Rates,
Stock Indices and
Commodities ("ISC")
Portfolio 3.95 27.08 20.52 25.73 -- --
(6 Months) (11 Months)
The Ark Portfolio 23.76 2.48 20.49 19.94 -- --
(6 Months) (4 Months)
Diversified
Portfolio -- -- -- -- (4.21) 8.52
(1 Month)
Global Financial
Portfolio -- -- -- -- 9.30 (13.16)
(3 Months)
</TABLE>
Aggregate assets in all Campbell programs was approximately $1.6 billion as of
June 30, 1999.
- --------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
58
<PAGE> 59
CAMPBELL
NOTES TO TABLES A-1, A-2 AND A-3
For the Global Diversified Small Portfolio, the Diversified Portfolio, the
Financial, Metal and Energy Small Portfolio, the Ark Portfolio and the Foreign
Exchange Portfolio, Campbell has adopted the "Fully Funded Subset" method of
computing rate of return and performance disclosure, referred to as the "Fully
Funded Subset" method, pursuant to an Advisory (the "Fully Funded Subset
Advisory") published by the CFTC. The Fully Funded Subset refers to that subset
of accounts included in the applicable composite which is funded entirely by
actual funds (as defined in the Advisory).
To qualify for the use of the Fully Funded Subset method, the Fully Funded
Subset 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 rates of return are representative of the
trading program. Campbell has performed these tests for periods presented.
(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 the
portfolio on a composite basis in any calendar month expressed as a percentage
of the total equity in the portfolio and includes the month and year of such
draw-down. A small number of accounts in the portfolio composites have
experienced monthly drawdowns which are materially larger than the largest
composite monthly drawdown. These variances result from such factors as small
account size (i.e., accounts with net assets of less than the $500,000
prescribed portfolio minimum, which therefore trade fewer contracts than the
standard portfolio), intra-month account opening or closing, significant
intra-month additions or withdrawals, trading commissions in excess of the
stated average and investment restrictions imposed by the client.
(c) "Largest Peak-to-Valley Draw-Down" is the largest cumulative loss
experienced by the portfolio on a composite basis in any consecutive monthly
period on a compounded basis and includes the time frame of such drawdown. A
small number of accounts in the portfolio composites have experienced
peak-to-valley drawdowns which are materially larger than the largest composite
peak-to-valley drawdown. These variances result from such factors as small
account size (i.e., accounts with net assets of less than the $500,000
prescribed portfolio minimum, which therefore trade fewer contracts than the
standard portfolio), intra-month account opening or closing, significant
intra-month additions or withdrawals, trading commissions in excess of the
stated average and investment restrictions imposed by the client. In the case
where a trading program is in a current draw-down or was in a draw-down when it
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 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 (or Period) Rate of Return" is calculated by compounding the
Monthly ROR (as described below) over the months in a given year, that is, 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). 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 in Table
A-1 and Table A-2.
Monthly Rate of Return (Monthly ROR) for the Global Diversified Large
Portfolio, the Financial, Metal & Energy Large Portfolio, the Interest Rate,
Stock Indices and Commodities Portfolio and the Global Financial Portfolio is
calculated by dividing the net profit or loss by the assets at the beginning of
such period. Additions and withdrawals occurring during the period are included
as an addition to or deduction from beginning net assets in the calculations of
Monthly ROR, except for accounts which close on the last day of a period in
which case the withdrawal is not subtracted from beginning net assets for
purposes of this calculation. Beginning in January 1987, Monthly ROR is
calculated using the OAT method of computation. This computation
59
<PAGE> 60
method is one of the methods approved by the CFTC to reduce the distortion
caused by significant additions or withdrawals of capital during a month. The
records of many of the accounts in the tables prior to 1987 do not document the
exact day within a month that accounts were opened or closed. Accordingly,
there is insufficient data to calculate Monthly ROR during such periods using
the OAT method. Campbell & Company has no reason to believe that the pre-1987
annual rates of return would be materially different if the OAT method were
used to calculate such returns. The OAT method excludes from the calculation of
rate of return those accounts which had material intra-month additions or
withdrawals and accounts which were open for only part of the month. In this
way, the composite rate of return is based on only those accounts whose Monthly
ROR is not distorted by intra-month changes.
In this Monthly ROR calculation, accounts are excluded from both net
performance and beginning equity if their inclusion would materially distort
the Monthly ROR. Excluded accounts are accounts that (1) incurred material
additions or withdrawals during the month; (2) were open for only part of the
month; or (3) traded for liquidation only during the month (i.e., an account in
the process of closing). Such accounts were not charged with material
nonrecurring costs during the month.
Monthly ROR for the Global Diversified Small Portfolio, Diversified Portfolio,
Ark Portfolio, Foreign Exchange Portfolio and Financial, Metal and Energy Small
Portfolio is calculated by dividing net performance of the Fully Funded Subset
by the beginning equity of the Fully Funded Subset, except in periods of
significant additions to or withdrawals from the accounts that are in the Fully
Funded Subset. In such instances, the Fully Funded Subset is adjusted to
exclude accounts with significant additions or withdrawals that would
materially distort the rate of return calculated pursuant to the Fully Funded
Subset method.
ADDITIONAL FOOTNOTE FOR THE FINANCIAL, METALS & ENERGY LARGE PORTFOLIO AND THE
FINANCIAL, METALS & ENERGY SMALL PORTFOLIO
Currently, two versions of the Financial, Metals & Energy Portfolio are
offered: the Financial, Metals & Energy Large Portfolio ("FME Large"), and the
Financial, Metals & Energy Small Portfolio ("FME Small"). The FME Large
Portfolio is appropriate for accounts greater than $10 million in size.
Accounts in this portfolio trade certain contracts in the cash markets that do
not have futures equivalents. Prior to February 1995, all Financial, Metals &
Energy accounts were traded together in the FME Large Portfolio. The FME Small
Portfolio began in February 1995, when accounts smaller than $10 million were
transferred from the FME Large to the FME Small Portfolio.
ADDITIONAL FOOTNOTE FOR THE GLOBAL DIVERSIFIED PORTFOLIO AND DIVERSIFIED
PORTFOLIO
As of February 1, 1995, all accounts in the Diversified Portfolio transferred
to the Global Diversified Portfolio. The Diversified Portfolio is no longer
offered as a trading program.
Currently, two versions of the Global Diversified Portfolio are offered: the
Global Diversified Large Portfolio ("GD Large") and the Global Diversified
Small Portfolio ("GD Small"). The GD Large Portfolio is appropriate for
accounts greater than $10 million in size. Accounts in this portfolio trade
certain contracts in the cash markets that do not have futures equivalents.
Prior to June 1997, all Global Diversified accounts were traded in the GD Large
Portfolio. The GD Small Portfolio began in June 1997, when accounts smaller
than $10 million were transferred from the GD Large Portfolio to the GD Small
Portfolio.
60
<PAGE> 61
TABLE B-1
CAMPBELL & COMPANY INC.
PRO FORMA PERFORMANCE
FINANCIAL, METAL & ENERGY SMALL PORTFOLIO
JANUARY 1, 1994 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January.............................. (4.84) 2.46 3.58 9.24 (1)(4.66) (5.17)
February............................. 1.24 (2.99) 1.09 (5.61) 4.54 (7.19)
March................................ 1.40 5.78 (1.72) 4.32 9.35 6.53
April................................ 5.05 (5.46) (2.88) 2.39 0.73 (2.43)
May.................................. (3.80) 3.96 (3.20) (2.72) (1.67) (3.23)
June................................. 5.47 1.31 3.25 1.14 (2.51) 4.79
July................................. - (3.99) 8.12 (1.94) (3.15) (4.86)
August............................... - 9.10 (6.06) 3.04 6.96 (3.92)
September............................ - 3.26 4.05 1.97 (6.03) 6.36
October.............................. - 4.82 1.69 12.57 1.12 (0.16)
November............................. - (1.15) 0.21 11.10 (0.34) (7.40)
December............................. - 1.04 4.81 (3.86) 7.23 (5.63)
Annual (or Period) Rate of Return.... 4.12% 18.55% 12.75% 34.24% 10.70% (21.31)%
- -------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/94-6/30/99) 9.26%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Largest Monthly Draw-Down: 7.40% (11/94)
Largest Peak-to-Valley Draw-Down: 24.98% (1/94-1/95)
</TABLE>
(1) The FME Small Portfolio began in February 1995 when accounts smaller than
$10 million in size were transferred from the FME Large Portfolio to the FME
Small Portfolio. Prior to February 1995, all Financial, Metal & Energy
accounts were traded together in the FME Large Portfolio. See Table A-2 and
footnotes to Tables A-1 and A-2.
- --------------------
Notes appear at pages 69-70
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
61
<PAGE> 62
RABAR MARKET RESEARCH, INC.
BACKGROUND
Rabar Market Research, Inc. ("Rabar") is an Illinois corporation and is a
registered commodity trading advisor and commodity pool operator. It is a
member of the National Futures Association. Rabar's address and telephone
number are 10 Bank Street, Suite 830, White Plains, NY 10606-1933 and (914)
682-8363.
Rabar, originally named Rainbow Market Research, Inc. when it was incorporated
in November 1986, adopted its present name in January 1989. It was registered
as a commodity trading advisor and a commodity pool operator in June 1988, and
it has managed accounts continuously since July 1988.
Rabar is the commodity pool operator and the trading advisor to Rabar Futures
Fund, L.P., a private commodity pool. Rabar also is the trading advisor to
Rabar International Futures Fund, Ltd., a Cayman Islands corporation open to
non-U.S. investors.
Neither Rabar nor Mr. Jeffrey Izenman, one of Rabar's principals, trades for
their own accounts, although they may do so in the future. Records of such
trading will not be open to client inspection.
Rabar and/or Mr. Rabar currently invest, and they, along with Mr. Izenman may
in the future invest, in commodity pools that are advised by Rabar. Records of
the trading of such pools will not be open to client inspection.
PRINCIPALS
Paul Rabar, the president of Rabar, first traded commodity futures in 1980. He
worked as an account executive at E.F. Hutton from 1981 to 1983 and then at
Clayton Brokerage until 1984. In 1985 he was selected by Richard J. Dennis,
Jr., a speculative trader of futures and options, to participate in Mr. Dennis'
commodity futures trading program. Mr. Rabar participated in that program in
1985 and 1986 managing an account for Mr. Dennis, and in 1987 and 1988 managing
an account for another speculative trader of futures and options. Mr. Rabar
managed his own account from May 1988 until January 1989, when he invested in a
futures fund to which Rabar is one of the advisors. Mr. Rabar is a graduate of
the New England Conservatory of Music. He did additional work -- primarily in
science and mathematics -- at Harvard University, and in 1979 and 1980 was an
assistant instructor of physics there.
Mr. Rabar currently trades a personal account. Such trading occurs only in
markets that are considered too illiquid to trade on behalf of clients,
although Mr. Rabar may trade in other markets in the future. Records of Mr.
Rabar's personal trading will not be open to client inspection.
Jeffrey Izenman is the Executive Vice President of Rabar, having joined the
firm in that capacity in November 1998. Prior to that, from September 1994
through October 1998, he was the President of EMC Capital Management, Inc., a
commodity trading advisor, where he was responsible for business development,
client relations, and various administrative and operational aspects of the
firm. From January 1995 through December 1998, Mr. Izenman also was a member of
the Board of Directors of the Managed Funds Association and was a member of the
Association's executive committee for three years from 1996 through 1998. Mr.
Izenman is also a member of the Business Conduct Committee of the National
Futures Association. Prior to joining EMC, Mr. Izenman was a partner in the law
firm of Katten Muchin & Zavis from October 1988 through August 1994, and an
associate with the firm from September 1982 through September 1988. There he
specialized in the representation of commodity trading advisors (including
Rabar) and commodity pool operators, as well as securities investment advisers
and hedge fund operators. Mr. Izenman received his JD degree from the
University of Michigan Law School in May 1982 and a B.S. in Accountancy from
the University of Illinois in May 1979.
Mr. Izenman is not responsible for the management of client accounts on behalf
of Rabar and has not previously had the authority to direct client accounts.
Accordingly, no performance record is shown for Mr. Izenman. Mr. Izenman does
not currently trade a personal account.
62
<PAGE> 63
THE TRADING PROGRAMS
Markets Traded
Rabar's objective is to achieve appreciation of its clients' assets through
speculative trading of "commodity interests," including but not limited to
domestic and foreign futures contracts and options on futures contracts,
forward and spot contracts, and cash commodities. Currently, Rabar primarily
trades futures contracts for its clients. The specific commodity interests to
be traded will be selected from time to time by Rabar on the bases discussed
below. Examples of futures contracts now traded by Rabar include, but are not
necessarily limited to, futures contracts on currencies, U.S. and non-U.S.
financial instruments, precious and base metals, U.S. and non-U.S. stock
indices, energy products, grains, and soft commodities. Rabar may also engage
in transactions in physical commodities, including exchange for physical
transactions. Finally, Rabar may engage in the trading of forward or spot
contracts in foreign currencies for certain selected accounts.
Based on Rabar's current portfolio, the proportion of the total risk exposure
represented by each market and sector is approximately:
<TABLE>
<S> <C> <C>
INTEREST RATES........... 33.2%
US....................... 7.4%
Non-US................... 25.8%
CURRENCIES............... 20.2%
Major currencies......... 11.1%
Minor currencies......... 5.3%
Cross rates.............. 3.8%
STOCK MARKET INDICES..... 13.1%
US....................... 6.5%
Non-US................... 6.6%
AGRICULTURAL PRODUCTS.... 12.5%
Grains/oilseeds.......... 8.4%
Softs.................... 3.2%
Livestock................ .9%
ENERGY COMPLEX........... 11.9%
Crude oil................ 4.2%
Energy products.......... 7.7%
METALS................... 9.1%
Base metals.............. 4.7%
Precious metals.......... 4.4%
</TABLE>
63
<PAGE> 64
Rabar's trading approach does not differ by market sector or commodity contract
within the Program. Rabar attempts to spread risk across contracts and market
sectors. Changes in the weighting of a contract or market sector are made
infrequently, perhaps less than once per year per market. The weighting may
change typically under one of the following circumstances:
I. There is a change in the correlations between long-term price
movements of various markets.
II. A market is added or deleted from the portfolio.
III. A market presents, in Rabar's opinion, an exceptionally favorable or
unfavorable opportunity at a given time.
Description of the Trading Program
Rabar's trading strategies have been internally researched and developed. They
are technical rather than fundamental in nature. They are developed from the
research and analysis of patterns of monthly, weekly, and daily price movements,
and of indicators such as volume and open interest. Rabar does, however,
consider the effects of some key fundamental factors in certain situations,
especially for the purpose of controlling risk.
Rabar's risk management techniques include diversification. For example, Rabar
commits equity to many markets and to a number of trading strategies. Also, the
trading program adheres to systematic requirements that determine and limit the
equity committed to each trade, each market, each complex, and each account.
Furthermore, the risk assumed and, consequently, the potential for profit
experienced by a particular account at different times, and by different
accounts at the same time, vary significantly according to market conditions,
the size of a given account, the percentage gained or lost in that account, and
the perceived risk aversion of that account's owner. For these and other reasons
described below, no investor should expect the same performance as that of any
other account traded by Rabar or its principals.
The trading program emphasizes ongoing research and analysis of market behavior.
Rabar believes that the development of a commodity trading strategy is a
continual process. As a result of further analysis and research into the
performance of Rabar's methods, changes have been made from time to time in the
specific manner in which these trading methods evaluate price movements in
commodities. It is likely that similar revisions will be made in the future. As
a result of such modifications, the future trading methods that may be used by
Rabar might differ from those presently being used.
Rabar's methods are proprietary and confidential. The foregoing description is
general and is not intended to be exhaustive. As stated, trading decisions
require the exercise of judgment by Rabar. The decision not to trade certain
commodity interests or not to make certain trades may result at times in missing
price moves and profits of great magnitude, which other trading managers who are
willing to trade these commodity interests may be able to capture. There is no
assurance that the performance of Rabar will result in profitable trading.
PAST PERFORMANCE OF RABAR MARKET RESEARCH, INC.
Table A-1 reflects the composite capsule performance results of all accounts
traded according to the Diversified Program for the period January 1989
(inception of client trading) through June 30, 1999.
64
<PAGE> 65
TABLE A-1
RABAR MARKET RESEARCH, INC.
DIVERSIFIED PROGRAM
JANUARY 1989 (INCEPTION OF CLIENT TRADING) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January........................................... (2.03) 2.23 5.48 (0.07) (9.67) (10.78)
February.......................................... 3.75 1.51 5.13 (9.55) 14.28 (6.21)
March............................................. (4.40) 0.00 (0.66) (1.51) 15.61 19.66
April............................................. 3.24 (6.49) (6.38) 3.27 6.04 2.43
May............................................... (7.03) 4.29 (2.07) (3.50) 9.04 11.72
June.............................................. 0.00 2.17 (0.08) 1.56 (2.55) 18.36
July.............................................. 1.17 14.83 (2.11) (9.37) (4.65)
August............................................ 20.95 (7.78) (1.33) (8.57) (4.55)
September......................................... 6.25 3.01 3.78 (9.24) 3.33
October........................................... (4.14) (3.34) 10.90 (4.47) (4.42)
November.......................................... (3.85) 0.51 5.95 2.53 11.13
December.......................................... 1.59 4.28 (5.30) 14.35 (1.36)
Annual (or Period) Rate of Return................. (6.73)% 25.87% 11.53% 0.49% 13.27% 33.63%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return (1/94-6/30/99) 13.34%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION-ANNUAL RATES OF RETURN FOR PRIOR YEARS
- ------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
49.55% (4.43)% (5.72)% 122.50% 10.01%
- ------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return
(1/89-6/30/99) 19.63%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Inception of Client Trading by CTA: January 1989
Inception of Client Trading in Program: January 1989
Number of Open Accounts as of June 30, 1999: 21
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $194,294,748 (6/99)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $216,561,412 (6/99)
Aggregate Assets (Excluding "Notional" Equity) in
Program: $194,294,748 (6/99)
Aggregate Assets (Including "Notional" Equity) in
Program: $216,561,412 (6/99)
Largest Monthly Draw-Down:
Past Five-Year and Year-to-Date Period 10.78% (1/94)
Inception of Trading Program to Date 13.81% (10/89)
Largest Peak-to-Valley Draw-Down:
Past Five-Year and Year-to-Date Period 29.99% (6/95-10/95)
Inception of Trading Program to Date 29.99% (6/95-10/95)
</TABLE>
- --------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
65
<PAGE> 66
RABAR MARKET RESEARCH, INC.
NOTES TO TABLE A-1
In the preceding performance summary, Rabar has adopted a method of computing
rate of return and performance disclosure, referred to as the "Fully-Funded
Subset" method, pursuant to an Advisory (the "Fully-Funded Subset Advisory")
published by the Commodity Futures Trading Commission. The Fully-Funded Subset
refers to that subset of accounts included in the applicable composite which is
funded entirely by actual funds (as defined in the Advisory).
To qualify for use of the Fully-Funded Subset method, the Fully Funded Subset
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 that are designed to provide assurance that the Fully-Funded
Subset and the resultant rates of return are representative of the trading
program. Rabar has performed these computations for periods subsequent to
December 31, 1993. However, for periods prior to January 1, 1994, due to cost
considerations, the Fully-Funded Subset Method has not been used. Instead, the
rates of return are reported using the compounded rate of return method as
described in note (d). Rabar believes that this method yields substantially the
same rates of return as would the Fully-Funded Subset Method and that the rates
of return presented in the performance records are representative of the trading
program for the periods presented.
(a) "Draw-Down" is defined as losses experienced by a program over a specified
period of time.
(b) "Largest Monthly Draw-Down" is the largest 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.
(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 trading program during a period in which the
initial composite month-end net asset value of such 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.
For purposes of the Largest Peak-to-Valley draw-down calculation, any draw-down
that 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 (or Period) Rate of Return" is calculated by compounding the Monthly
ROR (as described below) over the months in a given year, that is, 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). 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.
Monthly rate of return ("Monthly ROR") for each month subsequent to December 31,
1993 is calculated by dividing net performance of the Fully-Funded Subset by the
beginning equity of the Fully-Funded Subset, except in periods of significant
additions or withdrawals to the accounts in the Fully-Funded Subset. In such
instances, the Fully-Funded Subset is adjusted to exclude accounts with
significant additions or withdrawals that would materially distort the rate of
return pursuant to the Fully-Funded Subset method.
Monthly ROR for the period prior to January 1, 1994 is calculated using the
compounded rate of return method. The compounded rate of return method is
computed by dividing net performance for an "accounting period" by beginning
equity for the same "accounting period". An "accounting period" represents a
full month if there has not been any additions or withdrawals within the month
or a portion of a month for each day an addition or withdrawal has occurred
within the month. Monthly ROR is then calculated by applying successively, that
is, compounding the rate of return for each accounting period with a month.
66
<PAGE> 67
ADDITIONAL FOOTNOTES FOR SUPPLEMENTAL PERFORMANCE INFORMATION
From January 1, 1985 through May 20, 1988, Mr. Rabar managed accounts for two
investors who were themselves professionally involved in futures trading and
were affiliated with the futures commission merchant that carried the commodity
trading accounts. In addition, from May 20, 1988 until January 1, 1989, Mr.
Rabar traded his personal account. These accounts were deemed "proprietary" by
the CFTC and have not been included in the Supplemental Performance Information.
67
<PAGE> 68
TABLE B-1
RABAR MARKET RESEARCH, INC.
PRO FORMA PERFORMANCE
DIVERSIFIED TRADING PROGRAM
JANUARY 1, 1994 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January.................................. (1.97) 1.92 5.06 (0.15) (10.12) (10.43)
February................................. 3.70 1.31 4.35 (9.65) 14.34 (5.78)
March.................................... (4.19) 0.07 (0.57) (1.61) 15.74 19.75
April.................................... 3.25 (5.95) (5.71) 3.30 6.12 2.52
May...................................... (7.26) 4.14 (2.25) (3.57) 9.03 11.51
June..................................... 0.01 1.87 (0.10) 1.43 (2.52) 18.13
July..................................... - 1.00 13.25 (2.22) (7.67) (3.88)
August................................... - 18.83 (6.92) (1.36) (6.92) (3.58)
September................................ - 6.00 2.60 3.62 (7.42) 2.91
October.................................. - (3.70) (2.95) 10.80 (4.69) (3.30)
November................................. - (3.24) 0.41 5.56 2.52 9.02
December................................. - 1.39 3.77 (4.87) 12.00 (0.97)
Annual (or Period) Rate of Return........ (6.73)% 23.91% 9.77% (0.27)% 16.81% 35.89%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of
Return (1/1/94-6/30/99) 13.52%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Largest Monthly Draw-Down: 10.43% (1/94)
Largest Peak-to-Valley Draw-Down: 26.58% (6/95-8/96)
</TABLE>
- --------------------
Notes appear at pages 69-70
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
68
<PAGE> 69
NOTES TO TABLES B-1 FOR ALL ADVISORS
Each Table B-1 was prepared by the general partner and presents the results of
applying certain arithmetical calculations to various figures in each advisor's
composite performance record for the program or portfolio that 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 that will be paid
by the Fund, as opposed to the brokerage commissions and management, incentive
fees and other expenses that they did in fact pay, and received interest income
on 80% of account equity. Adjustments for pro forma other expenses and initial
and continuous offering expenses were made to each of the Tables B based upon an
assumed average partnership size of $50 million. The pro forma calculations are
made on a month-to-month basis, that is, the pro forma adjustment to brokerage
commissions, management and incentive fees, other expenses and interest income
in one month does not affect the actual figures that 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 to be charged to and interest earned by the Fund 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 .45% (an annual rate of
5.4%), 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 and pro
forma other expenses and multiplying the result by 1/6 of 1% for all
advisors, except for Bridgewater, whose monthly management fee is 1/12
of 1.25%.
3. Pro forma other expenses have 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 ("average equity"), and multiplying the result by 1/12
of .60%. In addition, an adjustment was made for the expenses of the
initial offering period in accordance with the terms set forth in this
prospectus.
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 (excluding expenses of the initial
and continuous offering), and (c) multiplying the resulting figure by
20%. Pro forma incentive fees were calculated on a monthly basis (in
accordance with generally accepted accounting principles) so as to
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 year but lost in a subsequent month in such
year. In the case where there is cumulative negative net performance
that must be reversed before an incentive fee becomes payable, and
there are net withdrawals, the cumulative negative net performance
amount has been proportionately reduced. For purposes of calculating
the pro forma incentive fees, an assumption was made that the payments
of such fees, if any, were made at the end of each calendar year.
5. Pro forma interest income has been calculated by: (a) taking the
Average Equity Amount, (b) multiplying by 80% and (c) then multiplying
the result by the monthly historical 30-day Treasury bill rate. For
purposes of the calculation of pro forma interest income, Fund
interest was estimated using historical 30-day Treasury bill rates of
the time period presented on Tables B. Such rates may be higher than
current 30-day Treasury bill rates that will be used to calculate Fund
interest income. The application of historical rates may compare more
closely to the interest
69
<PAGE> 70
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, that is each
Pro Forma Monthly ROR in hundredths is added to one (1) and the result
is multiplied by the previous period's Pro Forma Monthly ROR similarly
expressed. One is then subtracted from the product. The Compound
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 average annual rate of return for the
entire period appears as the last entry in the column for programs
selected to trade on behalf of the Fund.
8. "Draw-Down" is defined as losses experienced by a program over a
specified period of time.
9. "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.
10. "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 a 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 of such decline
are indicated.
MANAGEMENT AGREEMENTS
General
The management agreement with each advisor provides that the advisor has sole
discretion in determining the investment of the assets allocated to it subject
to the Fund's trading policies. Each agreement continues in effect until June 30
and is renewable by the general partner for additional one-year periods upon 30
days' prior notice to the advisor.
Termination
Each agreement can be terminated by the general partner on 30 days' written
notice to the advisor if:
(1) the net asset value per unit declines to $400 or less as of the
close of business on any day,
(2) the net assets allocated to an advisor (adjusted for redemptions,
reallocations and withdrawals) decline by 50% or more as of the
end of a trading day from its previous highest value,
(3) a majority of the outstanding units vote to terminate the
agreement,
(4) the advisor fails to comply with the terms of the agreement,
(5) the general partner, acting in good faith, reasonably determines
that the performance of the advisor requires termination of the
agreement, or
(6) the general partner reasonably believes that the aggregation of
the Fund's positions with those of the advisor's other accounts
for speculative position limits will substantially adversely
affect the Fund's commodity trading.
The advisor may terminate the agreement upon 30 days' notice to the general
partner if:
(1) the Fund's trading policies are changed in a way that the advisor
reasonably believes will adversely affect the performance of its
trading strategies,
(2) any time after June 30, 2000, or
(3) the general partner or Fund fails to comply with the terms of the
agreement.
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The advisor may immediately terminate the agreement 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 an advisor if:
(1) its controlling principal (or principals) dies, becomes
incapacitated, or is otherwise not managing the trading programs
of the advisor,
(2) the advisor merges, consolidates with another entity, sells a
substantial portion of its assets or becomes insolvent or
bankrupt, or
(3) the advisor's registration with the CFTC or membership in NFA is
suspended or terminated.
Other Clients and Accounts of the Advisor
Under each management agreement, the advisor and its principals may advise other
clients and accounts and may use the same trading strategies utilized for the
Fund. The advisor, however, agrees that these services will not affect its
capacity to render services to the Fund contemplated by the management
agreement. Further, if the advisor is required to modify orders to comply with
speculative position limits, the advisor will not modify orders in a manner that
will substantially disproportionately affect the Fund as compared to its other
accounts. In addition, the advisor will not knowingly or deliberately use
trading strategies for the Fund that are inferior to those used for any other
client or account. The advisor will not favor any other account over the Fund in
any way, although the performance of the advisor's other accounts may differ
from the Fund's performance due to differences, including program selected, the
proportion of funds used as margin in the markets, brokerage commissions,
management and incentive fees, and changes in the advisor's trading methodology.
Indemnification
The Fund and the general partner will indemnify each advisor for any loss
suffered by the advisor in connection with the management of the Fund's assets,
if the advisor, in good faith, determined that such course of conduct was in the
best interests of the Fund and the advisor's conduct did not involve negligence,
intentional misconduct, or a breach of fiduciary duty. Indemnification will
generally require an independent legal opinion regarding the advisor's standard
of conduct.
THE COMMODITY BROKER
Salomon Smith Barney Inc., a New York corporation, acts as the Fund's selling
agent and commodity broker. Its principal office is located at 390 Greenwich
Street, New York, New York 10013, telephone (212) 816-6000. Salomon Smith Barney
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. Salomon Smith Barney has approximately
500 domestic and international offices and over 11,000 financial consultants.
All of the Fund's trades will be cleared through Salomon Smith Barney. Salomon
Smith Barney 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 AGREEMENT
The Fund will enter into a commodity brokerage agreement with Salomon Smith
Barney providing that:
- Salomon Smith Barney is authorized to purchase and sell futures and
other contracts for the Fund's account in accordance with the
instructions of the advisors;
- Salomon Smith Barney will provide bookkeeping and clerical assistance
to the Fund and the general partner;
- Salomon Smith Barney will pay monthly interest on 80% of the average
daily equity maintained in cash in the Fund's trading accounts during
each month at a 30-day
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Treasury bill rate determined weekly by Salomon Smith Barney;
- the Fund will promptly pay all margin requirements and trading losses;
- either party may terminate the agreement upon notice; and
- the Fund will indemnify Salomon Smith Barney for losses incurred in
connection with the Fund's account provided that Salomon Smith Barney
acted in good faith and in the best interests of the Fund and unless
Salomon Smith Barney's actions constituted negligence, misconduct or
breach of fiduciary duty.
Other brokers selected by the advisors may be used to execute some orders and
then "give-up" the trades to the commodity broker for clearing. In addition,
Salomon Smith Barney may select other brokers, dealers or banks to execute
forward contracts, swap contracts and foreign futures contracts.
Salomon Smith Barney pays a portion of its brokerage fee to its financial
consultants, who provide ongoing services to investors including:
- answering questions regarding daily net asset value, monthly
statements, annual reports and tax information;
- advising investors as to whether and when to redeem units or purchase
additional units; and
- providing general servicing of accounts.
LITIGATION
There have been no administrative, civil or criminal actions pending, on appeal
or concluded against Salomon Smith Barney or any of its individual principals
within the past five years that are material to a decision whether to invest in
the Fund, except as follows.
In September 1992, Harris Trust and Savings Bank (as trustee for Ameritech
Pension Trust ("APT")), Ameritech Corporation, and an officer of Ameritech filed
suit against Salomon Brothers Inc. ("SBI") and Salomon Brothers Realty
Corporation ("SBRC") in the U.S. District Court for the Northern District of
Illinois (Harris Trust Savings Bank, not individually but solely as trustee for
the Ameritech Pension Trust, Ameritech Corporation and John A. Edwardson v.
Salomon Brothers Inc. and Salomon Brothers Realty Corp.). The second amended
complaint alleges that three purchases by APT from defendants of participation
interests in net cash flow or resale proceeds of three portfolios of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation interest with respect to a portfolio of motels owned by
Best Inns, Inc. ("Best"), violated the Employee Retirement Income Security Act
("ERISA"), and that the purchase of the participation interests for the third
MOA portfolio and for the Best portfolio violated the Racketeer Influenced and
Corrupt Organization Act ("RICO") and state law. SBI had acquired the
participation interests in transactions in which it purchased as principal
mortgage notes issued by MOA and Best to finance purchases of motel portfolios;
95% of three such interests and 100% of one such interest were sold to APT for
purchase prices aggregating approximately $20.9 million. Plaintiffs' second
amended complaint seeks (1) a judgment on the ERISA claims for the purchase
prices of the four participation interests (approximately $20.9 million), for
rescission and for disgorgement of profits, as well as other relief, and (2) a
judgment on the claims brought under RICO and state law in the amount of $12.3
million, with damages trebled to $37 million on the RICO claims and punitive
damages in excess of $37 million on certain of the state law claims as well as
other relief. SBI and SBRC answered the second amended complaint in part, moved
to dismiss in part and asserted counterclaims against plaintiff Ameritech Corp.
In August 1993 the Court (1) dismissed the RICO claims as well as plaintiffs'
claims for breach of contract and unjust enrichment; (2) denied SBI's motion to
dismiss one of the ERISA claims (which alleges that SBI participated in a
fiduciary's breach); and (3) denied Ameritech's motion to dismiss SBI's
counterclaims.
In June 1996, the Court (1) granted in part defendants' motion for summary
judgment on the ERISA claims, dismissing Counts I and III of the second amended
complaint and any claims contained in Count II that are premised on an alleged
breach of fiduciary duty; (2) otherwise denied defendants' motion for summary
judgment as it related to the remaining portions of the claims in Count II; (3)
denied plaintiffs' motion for partial summary judgment with respect to Count II;
and (4) granted plaintiffs' motion for summary judgment dismissing defendants'
counterclaims against Ameritech for contribution. In September 1997, the Court
granted
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defendants' alternative motion for summary judgment on plaintiffs' remaining
state law claims, dismissing Counts VIII-X of the second amended complaint. In
January 1998, the Court certified for interlocutory appeal that portion of its
June 1996 order denying defendants' motion for summary judgment on Count III.
Also in January 1998, defendants filed, in the U.S. Court of Appeals for the
Seventh Circuit, a petition for permission to appeal, and that petition remains
pending. The petition was granted and oral argument of the appeal was held on
November 30, 1998, and a decision was rendered in July 1999 reversing the denial
of the summary judgment.
Both the Department of Labor and the Internal Revenue Service have advised SBI
that they were or are reviewing the transactions in which APT acquired such
participation interests. With respect to the Internal Revenue Service review,
Salomon Smith Barney Holdings Inc. ("SSBHI"), SBI and SBRC have consented to
extensions of time for the assessment of excise taxes that may be claimed to be
due with respect to the transactions for the years 1987, 1988 and 1989. In
August 1996, the IRS sent SSBHI, SBI and SBRC what appeared to be draft "30-day
letters" with respect to the transactions and SSBHI, SBI and SBRC were given an
opportunity to comment on whether the IRS should issue 30-day letters, which
would actually commence the assessment process. In October 1996, SSBHI, SBI and
SBRC submitted a memorandum setting forth reasons why the IRS should not issue
30-day letters with respect to the transactions.
In December 1996, a complaint seeking unspecified monetary damages was filed by
Orange County, California against numerous brokerage firms, including Salomon
Smith Barney, 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 subject to a stay by
agreement of the parties. In August 1998, the stay was lifted.
In the course of its business, Salomon Smith Barney, as a major futures
commission merchant and broker-dealer is a party to various claims and routine
regulatory investigations and proceedings that the general partner believes do
not have a material effect on the business of Salomon Smith Barney.
USE OF PROCEEDS
COMMODITY TRADING ACCOUNTS
The proceeds of the offering will be deposited in the Fund's commodity trading
accounts at Salomon Smith Barney and will be used for trading in commodity
interests consistent with the advisors' strategies and the Fund's trading
policies. Consistent with the Commodity Exchange Act, all of the assets of the
Fund will be maintained in cash and segregated as customer funds, except assets
committed as margin on some non-U.S. futures and options transactions. These
assets will be maintained in separate secured amount accounts at U.S. banks not
affiliated with the general partner. Approximately 80-95% of the Fund's assets
will be segregated as customer funds. The Fund's assets held in connection with
contracts priced and settled in a foreign currency may be held in a foreign
depository in accounts denominated in a foreign currency.
The Fund will make no loans nor will it borrow money. The assets of the Fund
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 or swap dealer
as margin shall not constitute borrowing or commingling. The Fund estimates that
its margin requirements will generally equal between 20% and 40% of net assets.
INTEREST INCOME
Salomon Smith Barney will pay monthly interest to the Fund on 80% of the average
daily equity maintained in cash in its account during each month, that is, 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
Salomon Smith Barney. This rate will be based on the average non-competitive
yield on 3-month U.S. Treasury bills maturing in 30 days (or on the closest
maturity date) from the date on which such weekly rate is determined. Such
interest will be paid from Salomon Smith Barney's own funds. The interest paid
by Salomon Smith Barney to the Fund will be credited to the Fund's accounts at
Salomon Smith Barney monthly and will be available for trading purposes.
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INVESTING IN THE FUND
THE OFFERING
The Fund offers the units to the public through its selling agent, Salomon Smith
Barney. This is a best efforts offering. The selling agent is not required to
sell any specific number of units. No selling commissions are charged.
Salomon Smith Barney will pay a portion of its brokerage fees to its financial
consultants who sell units if they are registered with the CFTC and have passed
either the Series 3 or 31 Commodities Examination or have been "grandfathered"
as an associated person. The total compensation paid to Salomon Smith Barney and
its employees in connection with the distribution of units will not exceed 10%
of the proceeds of the offering.
The Fund will accept subscriptions throughout the initial and continuous
offering period, which can be terminated by Smith Barney Futures Management at
any time. The initial offering period begins on the date of this prospectus and
ends 90 days later, unless the general partner ends the period earlier or
extends it on up to an additional 60 days. Units will be sold for $1,000 each
during the initial offering period. During the continuous offering, you must
submit your subscription at least five days prior to the end of a quarter. You
will become a limited partner on the first day of the quarter after your
subscription is processed and accepted and payments are received and cleared.
During the continuous offering, you will receive units and partial units based
on the net asset value on the purchase date. Because net asset value fluctuates
daily, you will not know the purchase price of your units at the time you
subscribe during the continuous offering. Final quarter-end net asset value per
unit will be determined approximately 10 business days after the quarter-end.
WHO MAY INVEST
You must represent and warrant in the Subscription Agreement that appears on the
last page of this document that you have:
(1) a net worth of at least $150,000, exclusive of home, furnishings and
automobiles; or
(2) a net worth, similarly calculated, of at least $45,000 and an annual
income of $45,000. Certain states have higher financial requirements
which are listed in Exhibit C.
By executing and returning the Subscription Agreement, you represent and warrant
that you:
(1) have received a copy of the prospectus as supplemented;
(2) meet all applicable financial standards as listed in the prospectus as
supplemented;
(3) consent to the execution and delivery of a brokerage agreement between
Salomon Smith Barney and the Fund and to the payment of fees to
Salomon Smith Barney as described in the prospectus; and
(4) if you are not a citizen or resident of the United States for federal
income tax purposes, are not a dealer in commodities and you agree to
pay or reimburse the general partner or Salomon Smith Barney for any
taxes imposed as a result of your status as a limited partner.
All of the representations and warranties are primarily intended to assure and
confirm that you understand the Fund's structure and operation prior to making
your investment. In addition, they enable the Fund, the general partner and
Salomon Smith Barney to comply with certain requirements under the Commodity
Exchange Act and various state securities laws.
BY EXECUTING THE SUBSCRIPTION AGREEMENT, YOU DO NOT WAIVE ANY RIGHTS YOU HAVE
UNDER THE SECURITIES ACT OF 1933.
HOW TO INVEST
In order to purchase units, you must complete and sign a copy of the
Subscription Agreement on the last page of this document and deliver and/or mail
the Subscription Agreement to any branch office of Salomon Smith Barney. You
must have a Salomon Smith Barney customer securities account to subscribe for
units.
You may pay for subscriptions by authorizing your financial consultant to debit
your Salomon Smith Barney account for a minimum of $5,000 (or for a minimum of
$2,000 for subscriptions made by employee-benefit plans). You must have your
subscription payment in your account on the
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specified settlement date. Your account will be debited on the settlement date
which will occur not later than five business days following notification of
subscription acceptance. This notification will occur within a reasonable time.
ESCROW ARRANGEMENTS
The Fund's escrow account is maintained at European American Bank, New York, New
York, account number 002-069011. Subscriptions will be held in escrow until the
initial offering period ends. The general partner must receive and accept
subscriptions for at least 15,000 units by the end of the initial offering
period to break escrow and begin trading. Otherwise, the full amount of all
subscriptions will be promptly returned to subscribers within four business
days. After trading commences, subscription funds will be held in escrow until
the first day of the quarter beginning at least 6 days after receipt of the
subscription.
If the general partner determines not to offer units during a particular quarter
in the continuous offering, subscriptions will remain in escrow until the
beginning of the next quarter. Subscribers will be paid a pro rata share of the
interest earned on the subscriptions during the escrow period. The general
partner may permit purchases more frequently than quarterly on the advice of
counsel that applicable regulations would permit more frequent sales.
The general partner may at any time select a different escrow agent, who will
not be affiliated with the general partner or Salomon Smith Barney. Any escrow
agent for the Fund will invest subscriptions in legally permissible interest
bearing investments, including direct United States government obligations,
certificates of deposit or bank money market accounts as directed by the general
partner. Since such investments carry different minimum dollar amounts and
varying interest rates, however, the amount of interest, if any, that will be
earned on a subscription cannot be calculated.
REJECTION OR REVOCATION OF SUBSCRIPTIONS
The general partner may reject any subscription for any reason within four days
of receipt. During the initial offering period, you may revoke your subscription
for five business days after the date of the subscription. During the continuous
offering, you may revoke your subscription if the general partner determines not
to offer units at the end of a quarter.
ERISA CONSIDERATIONS
GENERAL
This section highlights certain considerations that arise under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal
Revenue Code of 1986, as amended (the "Code"), which a fiduciary of an "employee
benefit plan" as defined in and subject to ERISA or of a "plan" as defined in
Section 4975 of the Code who has investment discretion should consider before
deciding to invest the plan's assets in the Fund. "Employee benefit plans" and
"plans" are referred to below as "Plans," and fiduciaries with investment
discretion are referred to below as "Plan Fiduciaries". Plans include, for
example, corporate pension and profit sharing plans, 401(k) plans, "simplified
employee pension plans," Keogh plans for self-employed persons and IRAs.
SPECIAL INVESTMENT CONSIDERATION
Each Plan Fiduciary must consider the facts and circumstances that are relevant
to an investment in the Fund, including the role that an investment in the Fund
would play in the Plan's overall investment portfolio. Each Plan Fiduciary,
before deciding to invest in the Fund, must be satisfied that the investment is
prudent for the Plan, that the investments of the Plan are diversified so as to
minimize the risk of large losses and that an investment in the Fund complies
with the terms of the Plan.
THE FUND SHOULD NOT BE DEEMED TO HOLD "PLAN ASSETS"
A regulation issued under ERISA (the "ERISA Regulation") contains rules for
determining when an investment by a Plan in an equity interest of a limited
partnership will result in the underlying assets of the partnership being assets
of the Plan for purposes of ERISA and Section 4975 of the Code (i.e., "plan
assets"). Those rules provide that assets of a limited partnership will not be
plan assets of a Plan that purchases an equity interest in the partnership if
the equity interest purchased is a "publicly-offered security" (the
"Publicly-Offered Security Exception"). If the underlying assets of a
partnership are considered to be assets of any Plan
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for purposes of ERISA or Section 4975 of the Code, the operations of such
partnership would be subject to and, in some cases, limited by, the provisions
of ERISA and Section 4975 of the Code.
The Publicly-Offered Security Exception applies if the equity interest is a
security that is:
1) "freely transferable" (determined based on the applicable facts and
circumstances);
2) part of a class of securities that is "widely held" (meaning that the
class of securities is owned by 100 or more investors independent of
the issuer and of each other); and
3) either (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 a public offering pursuant to an effective
registration statement under the Securities Act of 1933 and the class
of which such security is a part is registered under the Securities
Exchange Act of 1934 within 120 days (or such later time as may be
allowed by the SEC) after the end of the fiscal year of the issuer in
which the offering of such security occurred.
The general partner believes that the conditions described above will be
satisfied with respect to the units. Therefore, the units should constitute
"publicly-offered securities" and the underlying assets of the Fund should not
be considered to constitute plan assets of any Plan which purchases units.
INELIGIBLE PURCHASERS
In general, units may not be purchased with the assets of a Plan if the general
partner, the commodity broker, the advisors or any of their affiliates or
employees either:
1) exercise any discretionary authority or discretionary control
respecting management of the Plan;
2) exercise any authority or control respecting management or disposition
of the assets of the Plan;
3) render investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of the Plan;
4) have any authority or responsibility to render investment advice with
respect to any moneys or other property of the Plan; or
5) have any discretionary authority or discretionary responsibility in
the administration of the Plan.
In order to comply with these prohibitions, a Plan Fiduciary must represent that
one of the following is true:
(1) Neither Salomon Smith Barney nor any of its employees or affiliates
(a) manages any part of the Plan's investment portfolio or (b) has an
agreement or understanding with the Plan Fiduciary where Salomon Smith
Barney or any of its employees or affiliates regularly provides the
Plan Fiduciary with individualized information, recommendations or
advice used as a primary basis for the Plan's investment decisions.
(2) A relationship described in (1) above applies to only a portion of the
Plan's assets, and the Plan Fiduciary will invest in the Fund only
from the portion of the Plan's as to which no such relationship
exists.
VIOLATIONS OF THE RULES UNDER ERISA AND/OR SECTION 4975 OF THE CODE BY
FIDUCIARIES CAN RESULT IN VARIOUS TYPES OF LIABILITIES, INCLUDING CIVIL
PENALTIES AND EXCISE TAXES. BECAUSE OF THE COMPLEXITY OF THESE RULES, PLAN
FIDUCIARIES ARE STRONGLY ENCOURAGED TO CONSULT WITH THEIR LEGAL ADVISORS PRIOR
TO CAUSING A PLAN TO INVEST IN THE FUND.
HOW TO REDEEM UNITS
Beginning three months after you purchase your units, you may request any or all
of your units be redeemed by the Fund at the net asset value of a unit as of the
end of any month. You must give the general partner ten (10) business days' oral
or written notice of your request to redeem. Contact your Salomon Smith Barney
financial consultant to transmit your request to the general partner.
No fee is charged for redemptions.
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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 Fund taking into account potential tax
consequences to limited partners.
All timely requests for redemption will be honored except:
(1) The Fund will not redeem units if it has insufficient assets.
(2) The general partner may temporarily suspend redemptions if necessary
in order to liquidate positions in an orderly manner.
(3) No partial redemptions are permitted if a limited partner would own
fewer than three units after redemption.
Because net asset value fluctuates daily, you will not know the net asset value
of the units to be redeemed at the time you submit a notice of redemption.
Payment for redeemed units will be made within 10 business days following the
redemption date by crediting your Salomon Smith Barney account. For the purpose
of a redemption, any accrued liability for reimbursement of offering and
organizational expenses for the initial offering period will not reduce net
asset value per unit.
FEDERAL INCOME TAX ASPECTS
The following constitutes the opinion of Willkie Farr & Gallagher and summarizes
the material federal income tax consequences to United States taxpayers who
invest in the Fund.
THE FUND'S PARTNERSHIP TAX STATUS
Because the Fund is a partnership, the Fund does not pay any federal income tax.
Based on the expected income of the Fund, the Fund will not be taxed as a
"publicly traded partnership."
TAXATION OF LIMITED PARTNERS ON PROFITS AND LOSSES OF THE FUND
Each limited partner must pay tax on his share of the Fund's annual income and
gains, if any, even if the Fund does not make any cash distributions.
The Fund generally allocates the Fund's gains and losses equally to each unit.
However, the Fund allocates gains and losses to a limited partner who redeems
his units so the limited partner's tax account for the redeemed units will equal
the amount received for the units.
FUND LOSSES BY LIMITED PARTNERS
A limited partner may deduct Fund losses only to the extent of his tax basis in
his units. Generally, a limited partner's tax basis is the amount paid for the
units reduced (but not below zero) by his share of any Fund distributions,
losses and expenses and increased by his share of the Fund's income and gains. A
limited partner subject to "at-risk" limitations (generally, non-corporate
taxpayers and closely-held corporations), however, can only deduct losses to the
extent he is "at-risk." The "at-risk" amount is similar to tax basis, except
that it does not include any amount borrowed on a non-recourse basis or from
someone with an interest in the Fund.
"PASSIVE-ACTIVITY LOSS RULES" AND THEIR EFFECT ON THE TREATMENT OF INCOME AND
LOSS
The trading activities of the Fund are not a "passive activity." Accordingly, a
limited partner can deduct Fund losses from taxable income. A limited partner,
however, cannot offset losses from "passive activities" against Fund gains.
CASH DISTRIBUTIONS AND UNIT REDEMPTIONS
A limited partner who receives cash from the Fund, either through a distribution
or a partial redemption, will not pay tax on that cash until his tax basis in
the units is zero. A limited partner cannot recognize a loss until his entire
interest in the Fund is redeemed.
GAIN OR LOSS ON SECTION 1256 CONTRACTS AND NON-SECTION 1256 CONTRACTS
Section 1256 Contracts are futures and most options traded on U.S. exchanges and
certain foreign currency contracts. For tax purposes, Section 1256 Contracts
that remain open at year-end are treated as if the position were closed at
year-end. The gain or loss on Section 1256 Contracts is characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or loss
regardless of how long the position was open.
Non-Section 1256 Contracts are, among other things, certain foreign currency
transactions, including Section 988 transactions -- transactions when the amount
paid or received is in a foreign
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currency. The Fund expects to make a tax election that will cause gain and loss
from these Non-Section 1256 Contracts generally to be short-term gain or loss.
TAX ON CAPITAL GAINS AND LOSSES
Long-term capital gains -- net gain on capital assets held more than one year
and 60% of the gain on Section 1256 Contracts -- are taxed at a maximum rate of
20%. Short-term capital gains -- net gain on capital assets held less than one
year and 40% of the gain on Section 1256 Contracts -- are subject to tax at the
same rates as ordinary income, with a maximum rate of 39.6% for individuals.
Individual taxpayers can deduct capital losses only to the extent of their
capital gains plus $3,000. Accordingly, the Fund could suffer significant losses
and a limited partner could still be required to pay taxes on his share of the
Fund's interest income and other ordinary income.
An individual taxpayer can carry back net capital losses on Section 1256
Contracts three years to offset earlier gains on Section 1256 Contracts. To the
extent the taxpayer cannot offset past Section 1256 Contract gains, he can carry
forward such losses indefinitely as losses on Section 1256 Contracts.
LIMITED DEDUCTIONS FOR CERTAIN EXPENSES
The general partner does not consider the brokerage fee and the performance
fees, as well as other ordinary expenses of the Fund, investment advisory
expenses or other expenses of producing income. Accordingly, the general partner
treats these expenses as ordinary business deductions not subject to the
material deductibility limitations that apply to investment advisory expenses.
The IRS could contend otherwise and to the extent the IRS recharacterizes these
expenses a limited partner would have the amount of the ordinary expenses
allocated to him reduced accordingly.
INTEREST INCOME
Interest received by the Fund is taxed as ordinary income. Net capital losses
can offset ordinary income only to the extent of $3,000 per year.
SYNDICATION FEES
Neither the Fund nor any limited partner is entitled to any deduction for
syndication expenses, nor can these expenses be amortized by the Fund or any
limited partner even though the payment of such expenses reduces net asset
value.
The IRS could take the position that a portion of the brokerage fee paid by the
Fund to Salomon Smith Barney or part or all of any redemption fees paid by a
limited partner constitutes non-deductible syndication expenses.
INVESTMENT INTEREST DEDUCTIBILITY LIMITATIONS
Individual taxpayers can deduct "investment interest" -- interest on
indebtedness allocable to property held for investment -- only to the extent
that it does not exceed net investment income. Net investment income does not
include adjusted net capital gain taxed at the lower 20% rate.
IRS AUDITS OF THE FUND AND ITS LIMITED PARTNERS
The IRS audits Fund-related items at the Fund level rather than at the limited
partner level. The general partner acts as "tax matters partner" with the
authority to determine the Fund's responses to an audit. If an audit results in
an adjustment, all limited partners may be required to pay additional taxes,
interest and penalties.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described above, the Fund and
the limited partners may be subject to various state and other taxes.
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 penalties imposed by
the IRS and payments to the investor in redemption of units (and, possibly,
other Fund distributions) may become subject to 31% backup withholding.
EXEMPT ORGANIZATIONS
Tax-exempt limited partners will not be required to pay tax on their share of
income or gains of the Fund, provided that such limited partners do not purchase
units with borrowed funds.
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PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS BEFORE DECIDING
WHETHER TO INVEST.
THE LIMITED PARTNERSHIP AGREEMENT
The Fund's Limited Partnership Agreement appears as Exhibit A. The key features
of the agreement that are not described elsewhere are outlined below.
ORGANIZATION AND LIMITED LIABILITY
The Fund was formed on August 25, 1999 under the New York Revised Limited
Partnership Act ("New York Act"). In general, a limited partner's liability
under the New York Act is limited to the amount of his capital contribution and
his share of any assets and undistributed profits. Under the New York Act, a
limited partner who knowingly received a prohibited distribution is liable to
the limited partnership for the amount of the distribution for a period of three
years from the date of the distribution.
MANAGEMENT OF PARTNERSHIP AFFAIRS
The limited partnership agreement gives Smith Barney Futures Management, as
general partner, complete responsibility for management of the Fund and gives no
management role to the limited partners.
SHARING OF PROFITS AND LOSSES
Partnership Accounting
Each limited partner and the general partner will have a capital account.
Initially, each partner's balance will be the amount of his capital
contribution. Any partner's balance will be proportionately adjusted monthly to
reflect his portion of the Fund's gain or loss.
Federal Tax Allocations
At year-end, the Fund will determine the total taxable income or loss for the
year. Subject to the special allocation of net capital gain or loss to redeeming
limited partners, the taxable gain or loss will be allocated to each limited
partner in proportion to his capital account. Each limited partner will be
responsible for his share of the taxes.
Gains and Losses will be allocated among those who are partners when positions
are closed and the gains or losses are realized. Therefore, if a partner's
proportionate interest increases as a result of redemption by others between the
time an unrealized gain occurs and the time the gain is realized, the partner's
share of taxable gain for the year may exceed his economic gain.
Each limited partner's tax basis in his units is increased by the taxable income
allocated to him and reduced by any distributions received and losses allocated
to him.
Upon the Fund's liquidation, each limited partner will receive his proportionate
share of the assets of the Fund.
ADDITIONAL PARTNERS
The general partner may, in its discretion, offer additional units or admit
additional limited partners. There is no limit on the number of outstanding
units. All units offered after trading begins must be sold at the Fund's then
current net asset value per unit (plus selling commissions, if any).
RESTRICTIONS ON TRANSFER OR ASSIGNMENT
A limited partner may transfer or assign his units upon notice to the general
partner. The assignment will be effective at the beginning of the next month
after the general partner receives this notice. An assignee may not become a
limited partner without the consent of the general partner. The general partner
will not consent if it determines that the admission of the assignee to the Fund
would endanger the Fund's tax status as a partnership or otherwise have adverse
legal consequences. An assignee not admitted to the Fund as a limited partner
will share the profits and capital of the Fund, but will not be entitled to
vote, to an accounting of Fund transactions, to receive tax information, or to
inspect the books and records of the Fund. An assigning limited partner will
remain liable to the Fund for any amounts for which he may be liable.
DISSOLUTION AND TERMINATION OF THE FUND
The Fund will be terminated and dissolved upon the first to occur of:
1) December 31, 2019;
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<PAGE> 80
2) limited partners owning more than 50% of the outstanding units vote to
dissolve the Fund;
3) Smith Barney Futures Management ceases to be general partner (by
assignment of its interest, withdrawal, removal, bankruptcy or other
event) and no new general partner is appointed;
4) the continued existence of the Fund becomes unlawful; or
5) net asset value per unit falls below $400 as of the end of any trading
day.
REMOVAL OR ADMISSION OF GENERAL PARTNER
The general partner may be removed and successor general partners may be
admitted by the vote of a majority of outstanding units.
AMENDMENTS AND MEETINGS
The limited partnership agreement may be amended if Smith Barney Futures
Management and limited partners owning more than 50% of the outstanding units
agree. Smith Barney Futures Management may amend the limited partnership
agreement without the approval of the limited partners in order to clarify
inaccuracies or ambiguities, make changes required by regulators or by law or
make any other changes the general partner deems advisable so long as they are
not adverse to limited partners.
Any limited partner may request in writing a list of the names and addresses of
all limited partners and the number of units held by each. Limited partners
owning at least 10% of the outstanding units can require the general partner to
call a meeting of the Fund. At the meeting, the limited partners owning a
majority of the outstanding units may vote to:
1) amend the limited partnership agreement without the consent of Smith
Barney Futures Management;
2) dissolve the Fund;
3) remove and replace Smith Barney Futures Management as general partner;
4) admit a new general partner prior to the withdrawal of Smith Barney
Futures Management;
5) terminate contracts with any trading advisor; and
6) approve the sale of all of the Fund's assets.
REPORTS TO LIMITED PARTNERS
The limited partners may see and copy the Fund's books and records during
reasonable business hours.
The general partner will provide these reports and statements to the limited
partners:
1) a monthly statement, including an unaudited balance sheet and income
statement of the prior month's activities;
2) an annual report, including audited financial statements; and
3) tax information necessary for the preparation of the limited partners'
annual federal income tax returns.
In addition, notice will be mailed to each limited partner within seven business
days of any of the following events:
1) a decrease in the net asset value of a unit to 50% or less of the net
asset value most recently reported;
2) any change in advisors, commodity brokers or the general partner; and
3) any material change in the Fund's trading policies or any material
change in an advisor's trading strategies.
INDEMNIFICATION
The Fund agrees to indemnify the general partner or any of its affiliates for
actions taken on behalf of the Fund, provided that the person acted in good
faith and in the best interests of the Fund and the conduct was not the result
of negligence or misconduct. No indemnification is available for losses
resulting from a violation of the Securities Act of 1933 or any State securities
law or if indemnification would be inconsistent with the New York Act. Under the
Limited Partnership Agreement, the general partner is not personally liable for
the return or repayment of the capital or profits of any partner (or assignee).
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<PAGE> 81
LEGAL MATTERS
Willkie Farr & Gallagher, New York, New York, has advised the Fund, Salomon
Smith Barney and the general partner on the offering of the units.
EXPERTS
The statements under "Federal Income Tax Aspects" have been reviewed by Willkie
Farr & Gallagher and are included in reliance on its authority as an expert in
tax law.
The statement of financial condition of the Fund at September 10, 1999 and the
statement of financial condition of the general partner at December 31, 1998
included in this prospectus have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their reports. These financial
statements are included in reliance upon those reports, respectively, given upon
their authority as experts in accounting and auditing.
The balance sheet of the general partner as of June 30, 1999 is unaudited. In
the opinion of the general partner, such unaudited statements reflect all
adjustments that were of a normal and recurring nature, necessary for a fair
presentation of financial position and results of operations.
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<PAGE> 82
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Salomon Smith Barney Diversified 2000 Futures Fund L.P.:
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Salomon Smith Barney
Diversified 2000 Futures Fund L.P. ("the Fund") at September 15, 1999, in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Fund's management; our responsibility is
to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
September 15, 1999
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<PAGE> 83
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 10, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash................................................... $ 2,000
---------
Total assets......................................... $ 2,000
=========
PARTNERS' CAPITAL
Partners' capital...................................... $ 2,000
---------
$ 2,000
=========
</TABLE>
The accompanying notes are an integral part of this statement of financial
condition.
83
<PAGE> 84
NOTES TO FINANCIAL STATEMENT
1. PARTNERSHIP ORGANIZATION:
Salomon Smith Barney Diversified 2000 Futures Fund L.P. (the "Partnership")
is a limited partnership which was organized on August 25, 1999 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, forward contracts and physicals. The commodity interests that will be
traded by the Partnership are volatile and involve a high degree of market risk.
The Partnership has not yet commenced operations. The only transactions to date
are the original capital contributions of $1,000 by the General Partner, Smith
Barney Futures Management Inc. and $1,000 by the Initial Limited Partner. The
General Partner has agreed to make capital contributions so that its General
Partnership interest will be the greater of (i) 1% of the partners'
contributions to the Partnership or (ii) $25,000. The Limited Partnership
Agreement provides that 15,000 units of limited partnership interest ("Units")
must be sold at $1,000 per Unit prior to commencement of trading activities. All
subscriptions plus interest earned thereon are to be refunded should less than
15,000 Units be sold during the subscription period or extension thereof. The
minimum subscription is $5,000 except that subscriptions for employee benefit
plans can be made for a minimum of $2,000. The Partnership is authorized to sell
150,000 Units.
The General Partner is an affiliate of Salomon Smith Barney Inc. ("Salomon
Smith Barney"), the Partnership's commodity broker (see Note 3c). The General
Partner and each limited partner will 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 to occur of the
following: December 31, 2019; the net asset value of a Unit decreases to less
than $400 as of a close of any business day; or under certain other
circumstances as defined in the Limited Partnership Agreement.
2. ACCOUNTING POLICIES:
a. All commodity interests (including derivative financial instruments and
derivative commodity instruments) will be used for trading purposes. The
commodity interests will be recorded on trade date and open contracts will be
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 period. Investments in commodity interests
denominated in foreign currency will be translated into U.S. dollars at the
exchange rates prevailing on the last business day of the period. Realized gain
(loss) and changes in unrealized values on commodity interests will be
recognized in the period in which the contract is closed or the changes occur
and will be included in net gains (losses) on trading of commodity interests.
b. Income taxes will not be 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> 85
b. Management Agreements:
The General Partner, on behalf of the Partnership, has entered into
Management Agreements with Beacon Management Corporation ("Beacon"), Bridgewater
Associates, Inc. ("Bridgewater"), Campbell & Company, Inc. ("Campbell"), and
Rabar Market Research, Inc. ("Rabar") (collectively, the "Advisors"), registered
commodity trading advisors. The Advisors are not affiliated with one another and
none is affiliated with the General Partner or Salomon Smith Barney and are not
responsible for the organization or operation of the Partnership. The
Partnership will pay each Advisor a monthly management fee equal to 1/6 of 1%
(2% per year) of month-end Net Assets allocated to the Advisor (except
Bridgewater, whose management fee will be 1.25% of Net Assets per year payable
monthly). In addition, the Partnership is obligated to pay each Advisor an
incentive fee payable annually equal to 20% of the New Trading Profits earned by
each Advisor for the Partnership.
c. Customer Agreement:
The Partnership has entered into a Customer Agreement which provides that
the Partnership will pay Salomon Smith Barney a brokerage fee equal to 5.4% per
year calculated and paid monthly based on .45% of month-end Net Assets, as
defined. Salomon Smith Barney will pay a portion of brokerage fees to its
financial consultants who have sold Units in this Partnership. Brokerage fees
will be paid for the life of the Partnership, although the rate at which such
fees are paid may be changed. The Partnership will pay for National Futures
Association ("NFA") fees, exchange, clearing, user, give-up and floor brokerage
fees. Salomon Smith Barney has agreed to pay the Partnership interest on 80% of
the average daily equity maintained in cash in the Partnership's account during
each month at a 30-day U.S. Treasury bill rate determined weekly by Salomon
Smith Barney 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 provides
that Salomon Smith Barney 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. The
Customer Agreement may be terminated upon notice by either party. The
Partnership will reimburse Salomon Smith Barney for the Partnership's
organizational and offering expenses in equal installments over the first 24
months of trading (see Note 5).
4. 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. A
limited partner may require the Partnership to redeem his Units at their
Redemption Net Asset Value as of the last day of each month ending at least 3
months after their issuance on 10 days' notice to the General Partner. No fee
will be charged for redemptions. Redemption Net Asset Value differs from Net
Asset Value calculated for financial reporting purposes in that the accrued
liability for reimbursement of offering and organization expenses will not be
included in the calculation of Redemption Net Asset Value.
5. ORGANIZATION AND OFFERING EXPENSES:
Salomon Smith Barney will initially bear the Partnership's organization and
offering expenses (estimated at $750,000) incurred in connection with the
issuance and distribution during the Initial Offering Period of the securities
being registered. Salomon Smith Barney will be reimbursed the offering and
organization expenses (together with interest at the prime rate quoted by The
Chase Manhattan Bank) by the Partnership in equal installments over the first 24
months of trading. These expenses will be charged to Partners' Capital upon the
commencement of operations; however, 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.
6. TRADING ACTIVITIES AND FINANCIAL INSTRUMENT RISK
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. All of the commodity interests
85
<PAGE> 86
owned by the Partnership will be held for trading purposes; however, the
Partnership has not yet commenced operations and currently owns no commodity
interests.
The Partnership may be 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, options and physicals, 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. The Partnership
expects that its sole counterparty with respect to OTC contracts will be Salomon
Smith Barney. 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 will have concentration risk because the sole
broker with respect to the Partnership's assets will be Salomon Smith Barney.
The General Partner will monitor and control 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 will be 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.
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<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Smith Barney Futures Management Inc.:
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Smith Barney Futures
Management Inc. (the "Company", a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc.) at December 3l, 1998, in conformity with generally
accepted accounting principles. This financial statement 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 of
this statement in accordance with generally accepted auditing standards which
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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLC
New York, New York
March 15, 1999
87
<PAGE> 88
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SALOMON SMITH BARNEY HOLDINGS INC.)
STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
----------------- ----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Receivable from limited partnerships................................. $ 5,041,742 $ 4,635,696
Receivable from affiliate............................................ 4,757,511 6,527,944
Investments in limited partnerships, at equity....................... 12,072,520 11,159,677
Other assets......................................................... 33,049 47,981
----------------- ----------------
Total Assets............................................... $ 21,904,822 $ 22,371,298
================= ================
LIABILITIES & STOCKHOLDER'S EQUITY
Dividend payable to Salomon Smith Barney Holdings.................... $ 3,000,000 $ 4,000,000
Accounts payable and accrued liabilities............................. 122,763 433,593
----------------- ----------------
Total Liabilities.......................................... 3,122,763 4,433,593
----------------- ----------------
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.................................................... 9,368,213 8,523,859
----------------- ----------------
76,782,059 75,937,705
Less: Note receivable from Salomon Smith Barney Holdings............. (58,000,000) (58,000,000)
----------------- ----------------
18,782,059 17,937,705
----------------- ----------------
Total Liabilities & Stockholder's Equity................... $ 21,904,822 $ 22,371,298
================= ================
</TABLE>
The accompanying notes are an integral part of this statement of financial
condition.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN
SMITH BARNEY FUTURES MANAGEMENT INC.
88
<PAGE> 89
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"). On October 8, 1998,
Citicorp Inc. merged with and into a newly formed, wholly-owned subsidiary of
Travelers Group Inc. ("Travelers"), the Company's ultimate parent. Following the
merger, Travelers changed its name to Citigroup Inc. ("Citigroup"). On November
28, 1997, Smith Barney Holdings Inc. was merged with Salomon Inc to form SSBHI.
The Company does not believe that its compliance with applicable law as a result
of the Citigroup merger will have a material adverse effect on its ability to
continue to operate the business in which it is presently engaged except, as
more fully disclosed in footnote 8, the Company will no longer be the general
partner of three Limited Partnerships subsequent to March 1, 1999, due to
restrictions imposed resulting from this merger.
The Company was organized and is authorized to act as a general partner for the
management of investment funds and is registered as a commodity pool operator
with the Commodity Futures Trading Commission.
At June 30, 1999 and December 31, 1998, the Company was the general partner or
trading manager for 21 and 20 Limited Partnerships, respectively, (the "Limited
Partnerships") with total assets of $938,488,855 (unaudited) and $885,267,009,
total liabilities of $30,050,226 (unaudited) and $21,514,812 and total partners'
capital of $908,438,629 (unaudited) and $863,752,197, respectively. 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.
The Company is also the Trading Manager for 7 offshore funds. As Trading
Manager, the Company will select trading advisors who in the Trading Manager's
opinion, have demonstrated a high degree of skill in trading commodity interest
contracts to manage the assets of the funds. For these services, the Company
receives management fees. The Company does not have an equity investment in
these offshore funds.
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
judgement and estimates. Estimates may vary from actual results.
The carrying values of financial instruments in the statement of financial
condition approximate their fair values as they are either short-term in nature
or interest-bearing at floating rates
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.
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
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<PAGE> 90
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, the Company 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 June 30, 1999 (unaudited) and December 31, 1998.
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 reimbursed by the Limited Partnerships to the Company 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 reimbursable at June 30, 1999 and December 31, 1998 were
$621,170 (unaudited) and $633,659, respectively. Repayment of these costs is not
contingent upon the operating results of the 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 commissions receivable at June 30, 1999 and December 31,
1998 were $3,595,861 (unaudited) and $4,002,037, respectively.
3. NOTE RECEIVABLE FROM SSBHI
The note receivable consists of a $58,000,000 demand note dated June 22, 1994
which is non-interest bearing and is included in additional paid-in-capital as
of June 30, 1999 (unaudited) and December 31, 1998. 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 Salomon 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 Citigroup, 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 Citigroup's consolidated
income tax returns. Under the tax sharing agreement with SSBHI, the Company
remits taxes to SSBHI. As of June 30, 1999 (unaudited) and December 31, 1998,
all taxes have been remitted to SSBHI.
6. EMPLOYEE BENEFIT PLANS
The Company participates in a noncontributory defined benefit pension plan with
Citigroup which covers substantially all U.S. employees.
The Company, through Citigroup, 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 Citigroup is purchased for subsequent
distribution to employees, subject to vesting requirements.
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<PAGE> 91
7. STOCKHOLDER'S EQUITY
The Company declared dividends of $3,000,000 (unaudited) and $8,000,000 (and
distributed $4,000,000) through the period ended June 30, 1999 (unaudited) and
the year ended December 31, 1998, respectively, on its outstanding common stock.
Other than net income there were no other changes to stockholder's equity.
8. SUBSEQUENT EVENTS
As of March 1, 1999, SFG Global Investments, Inc. is the general partner of
Smith Barney Telesis Futures Fund L.P., Smith Barney Potomac Futures Fund L.P.,
and Smith Barney Tidewater Futures Fund L.P. The Company acts as Trading Manager
of these funds. The Company intends to keep 1% interest in these funds as a
Limited Partner.
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SALOMON SMITH BARNEY HOLDINGS INC.
Salomon Smith Barney Holdings Inc. ("Salomon Smith Barney Holdings")
provides investment banking, securities and commodities trading, brokerage,
asset management and other financial services through its subsidiaries. As used
herein, "Company" refers to Salomon Smith Barney Holdings and its consolidated
subsidiaries. Investment banking and securities trading activities are
principally conducted by Salomon Brothers Holding Company Inc. ("SBHC") and
Salomon Smith Barney Inc. ("Salomon 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.), Salomon 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 Salomon Smith Barney Holdings 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.
Citigroup Inc., formed on October 8, 1998 by the merger of Citicorp and
Travelers Group Inc., consists of businesses that produce a broad range of
financial services -- asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading -- and use
diverse channels to make them available to consumer and corporate customers
around the world.
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 unaudited summary information for the Company for the
quarter ended June 30, 1999 and audited summary information for the Company for
the years ending December 31, 1998, December 31, 1997 and December 31, 1996.
SUMMARY FINANCIAL INFORMATION
(AMOUNTS IN MILLIONS, EXCEPT WHERE INDICATED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1999 1998 1997 1996
------------------- ----------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income Statement Data
Revenues.......................... $ 11,787 $ 20,673 $ 21,477 $ 18,843
Income from Continuing
Operations before Income
Taxes [and cumulative effect of
change in accounting principle].... $ 1,540 $ 1,316 $ 1,820 $ 3,064
Net Income........................ $ 1,525 $ 818 $ 1,145 $ 1,500
Balance Sheet Data
Total Assets...................... $ 217,565 $ 211,901 $ 276,620 $ 246,114
Stockholder's Equity.............. $ 9,585 $ 8,768 $ 8,518 $ 7,615
Total Liabilities and Stockholder's
Equity............................ $ 217,565 $ 211,901 $ 276,620 $ 246,114
</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.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN
SALOMON SMITH BARNEY HOLDINGS INC.
92
<PAGE> 93
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P.
15,000 UNITS OF LIMITED PARTNERSHIP INTEREST
---------------
THESE ARE SPECULATIVE SECURITIES.
BEFORE YOU DECIDE WHETHER TO INVEST, READ THE PROSPECTUS CAREFULLY
AND CONSIDER "THE RISKS YOU FACE" ON PAGE 11 IN PART ONE.
---------------
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT
AND A STATEMENT OF ADDITIONAL INFORMATION.
THESE PARTS ARE BOUND TOGETHER, AND
BOTH CONTAIN IMPORTANT INFORMATION.
---------------
SALOMON SMITH BARNEY INC.
SELLING AGENT
SMITH BARNEY FUTURES MANAGEMENT INC.
GENERAL PARTNER
<PAGE> 94
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
Diversifying Your Portfolio With Managed Futures...................................1
Commodity Markets..................................................................5
Glossary...........................................................................9
Limited Partnership Agreement -- Exhibit A.......................................A-1
Subscription Agreement -- Exhibit B.............................................B-1
Suitability Requirements -- Exhibit C...........................................C-1
</TABLE>
<PAGE> 95
DIVERSIFYING YOUR PORTFOLIO WITH MANAGED FUTURES
WHAT IS MANAGED FUTURES?
Managed futures is one of today's growing investment areas. As an alternative
investment, it offers you access to the dynamic global futures markets through
the use of professional money managers called Commodity Trading Advisors.
Commodity Trading Advisors use tested trading methods and money management
techniques to help investors achieve potential profits and control risk. Trading
occurs 24 hours a day in commodity, foreign currency and financial instruments
around the world.
SUBSTANTIAL INVESTOR PARTICIPATION
Worldwide assets invested in managed futures have grown from an estimated $500
million in 1980 to approximately $40 billion in 1998 - an average growth rate of
28% per year.
CHART 1
MANAGED FUTURES ASSETS UNDER MANAGEMENT
[GRAPHIC]
The assets categorized above as invested in managed futures are invested in a
wide range of different products, including single-advisor and multi-advisor
funds, "funds of funds," "principal protection pools" (in which only a fraction
of the assets invested are committed to trading) and individual managed
accounts. Source: Managed Account Reports, Inc.
INCREASING PARTICIPATION IN GLOBAL MARKETS
Unlike the stock and bond markets, the managed futures industry has a relatively
short history of performance. Futures trading originated in the 1800's in the
United States, primarily in agricultural commodities, such as soybeans, grains,
cotton and coffee. The modern day futures markets effectively began in the late
1970s. Over the past two decades, global futures trading has shifted from
traditional commodities to predominantly financial futures, such as interest
rates, currencies and stock market indices.
CHART 2
FUTURES VOLUME BY MARKET SECTOR
1980
Agriculture 64.2%
Currencies 4.6%
Energy 0.3%
Interest Rates 13.5%
Metals 16.3%
Other 1.1%
1998
Agriculture 8%
Currencies 4%
Energy 6%
Interest Rates 53%
Metals 7%
Other 22%
The futures volume figures and market sector distributions presented above
include both speculative and hedging transactions, as well as options on
futures. Source: Futures Industry Association. A significant portion of currency
trading is done in the forward rather than in the futures markets, and,
accordingly, is not reflected in the foregoing chart.
The average daily turnover of traditional foreign exchange instruments (spot
currency transactions, outright forwards and foreign exchange swaps) was
estimated to be US$590 billion in 1989. It increased to an estimated US$1.5
trillions in 1998. Source: Bank for International Settlements
1
<PAGE> 96
POTENTIAL RETURNS INDEPENDENT OF STOCK AND BOND MARKETS
Chart 3 compares a managed futures index, the Managed Account Reports Trading
Advisor Qualified Universe Index, with a stock market index, the S&P500 Stock
Index (assuming the reinvestment of all dividends). The chart begins with $1,000
as the arbitrary starting point for both indices and tracks the monthly rate of
return for each.
Periods of significant stock market decline are highlighted. Historically, the
managed futures index has, at times, moved in tandem with the S&P 500 Index. At
other times, its performance diverged. For example, in the third quarter of
1998, the managed futures index rose 9% while the S&P 500 Index decreased by 9%.
Past performance, including past non-correlation patterns, is not necessarily
indicative of future results.
CHART 3
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
[GRAPHIC]
January 1987 - June 1999
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Please note: There are periods when the managed futures index performed
negatively and the S&P 500 Index performed positively. There is no assurance
that an investment in Salomon Smith Barney Diversified 2000 Futures Fund will
have the results illustrated above.
The potential of managed futures to produce returns independent of the stock
market is also illustrated in Table 1. This table shows the annual returns of
the managed futures index compared to the annual returns of indices for U.S.
stocks and international stocks.
TABLE 1
ANNUAL RETURNS
<TABLE>
<CAPTION>
MANAGED U.S.
FUTURES STOCKS INT'I STOCKS
(%) (%) (%)
-------------------------------------------------------------------
<S> <C> <C> <C>
1987 57.8 5.2 10.1
-------------------------------------------------------------------
1988 14.6 16.5 26.7
-------------------------------------------------------------------
1989 7.3 31.7 10.8
-------------------------------------------------------------------
1990 27.3 -3.1 -23.2
-------------------------------------------------------------------
1991 16.8 30.5 12.5
-------------------------------------------------------------------
1992 9.9 7.6 -11.9
-------------------------------------------------------------------
1993 19.9 10.1 32.9
-------------------------------------------------------------------
1994 -0.7 1.3 8.1
-------------------------------------------------------------------
1995 15.2 37.6 11.6
-------------------------------------------------------------------
1996 14.6 23.0 6.3
-------------------------------------------------------------------
1997 11.1 33.4 2.1
-------------------------------------------------------------------
1998 9.4 28.8 20.3
-------------------------------------------------------------------
1999* 3.4 12.4 5.8
-------------------------------------------------------------------
-------------------------------------------------------------------
Average. 15.7 18.1 12.9
Annual
Return
-------------------------------------------------------------------
Annualized 13.2 15.0 14.8
Standard
Deviation
-------------------------------------------------------------------
</TABLE>
*January - June
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ABILITY TO REGISTER POSITIVE RETURNS IN UP AND DOWN MARKETS
Historically, the managed futures index has performed positively both when the
S&P 500 Index performed positively and also when it performed negatively. This
potential to register positive returns in both rising and declining stock market
environments is seen as one of the positive attributes of managed futures.
2
<PAGE> 97
To demonstrate this, the monthly returns of the S&P 500 Stock Index for the
period January 1987 through May 1999 (a total of 150 months) were sorted lowest
to highest and then segmented into 15 month groups (10% each of the total). The
monthly returns for the managed futures index for the corresponding months were
then gathered and the average monthly return calculated for each grouping of
months.
Chart 4 illustrates one feature of the relationship between returns of the S&P
500 Stock Index and the managed futures index. For the periods selected, the
managed futures index experienced positive average monthly returns, regardless
of whether the stock market was up or down. For example, for the stock market's
worst group of months (Group 1), the average return was -6.8%, while the managed
futures index's average monthly return for the same months was +2.1%. For the
stock market's best monthly group (Group 10), the average monthly return was
+8.1% and the average monthly return of the managed futures index was +3.2%.
Chart 5 uses the same methodology as Chart 4. The monthly returns of the managed
futures index for the period January 1987 though May 1999 were sorted lowest to
highest, and then segmented into 15 month groups (10% of total months in each
group). The monthly returns of the S&P 500 Index for the corresponding months
were then gathered. The monthly average return was calculated for each group.
In this chart, the average monthly return for the managed futures index worst
group of months was -4.1%, while the S&P 500 Index average monthly return for
the same months was 1.2%. For the managed futures index best monthly group, the
average monthly return was 9.6% and the average return of the S&P 500 Index was
2.7%.
CHART 4
S&P 500 Index versus Managed Futures Index
15 Month Groupings: Average Monthly Returns 1/87 - 5/99
[GRAPHIC]
CHART 5
Managed Futures Index versus S&P 500 Index
15 Month Groupings: Average Monthly Returns 1/87 - 5/99
[GRAPHIC]
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Please note: Independent or non-correlated performance, should not be confused
with negatively correlated performance. Non-correlation means only that managed
futures' performance will likely have no relation to the performance of stocks
and bonds. The general partner does not expect the Fund's performance to be
consistently non-correlated with general stock and bond markets.
MANAGED FUTURES AS PART OF A WELL DIVERSIFIED PORTFOLIO
The potential to produce returns independent of stocks and bonds forms the
rationale for including managed futures in a traditional stock and bond
portfolio. Diversification among portfolio assets has evolved from a concept
called "Modern Portfolio Theory." Dr. Harry Markowitz was awarded the Nobel
Prize for Economics in 1990 for developing this theory. The underlying premise
of Modern Portfolio Theory is that the inherent risk of a portfolio can be
substantially reduced by holding a number of unrelated and positive performing
investments. Therefore, by diversifying a traditional stock and bond portfolio
with other types of positively performing and non-correlated investments, it may
be possible to improve the total rate of return and reduce the overall risk of
that portfolio.
3
<PAGE> 98
In Chart 6, managed futures is added in increments to a traditional portfolio of
60% stocks as represented here by the S&P500 Index and 40% bonds as represented
here by the Lehman Brothers Bond Index (LBBI). The addition of managed futures
to the portfolio lowers the overall standard deviation, a measure of risk, and
increases the rate of return. [If suitable for your investment objectives,
Salomon Smith Barney recommends an allocation to managed futures of 5% - 15% of
your portfolio.]
CHART 6
ILLUSTRATION OF THE HYPOTHETICAL IMPACT OF ADDING MANAGED FUTURES TO A
TRADITIONAL PORTFOLIO
JANUARY 1987 - JUNE 1999
[GRAPHIC]
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Please note: There is no assurance that an investment in a portfolio that
includes managed futures will have these results, nor that an investment in
Salomon Smith Barney Diversified 2000 Futures Fund will have the results
represented by the indices. An investor's portfolio will only realize these
benefits if the advisors' strategies are successful. Additionally, although
adding managed futures to a portfolio may provide diversification, managed
futures is not a hedging mechanism and there is no guarantee that managed
futures will appreciate during periods of inflation or stock and bond market
declines.
HOW TO INVEST IN MANAGED FUTURES
Investors may participate in managed futures through an individually managed
account or a fund structure.
Managed accounts allow investors to select a futures money manager who meets
their preferences for market sectors, trading styles and risk/reward
characteristics. This custom-tailored approach is however, balanced, by the
potential for unlimited loss.
Managed accounts generally require a minimum investment of $1 million or more.
Managed futures funds are more accessible to individual investors since minimum
investment requirements are as low as $5,000 ($2,000 for IRAs). In addition,
managed futures funds offer a limited liability structure that allows you to
participate in a well-capitalized portfolio while limiting risk.
Managed futures funds also offer investors access to more than one Commodity
Trading Advisor combined in one investment.
DEFINITIONS
Following are definitions of indices used in the charts illustrated thus far:
S&P500 STOCK INDEX (or U.S. Stocks) consists of 500 U.S. stocks representing a
broad range of various industry groups and assumes dividend reinvestment.
MANAGED FUTURES are represented by the Managed Account Reports (MAR QT-$)
Trading Advisor Qualified Universe Index, a dollar weighted index of
approximately 350 advisor returns. To qualify for the Index, a trading advisor
must have at least $500,000 under management and 12 months of trading client
assets, or act as a trading advisor in a public fund that is listed in MAR's
funds table. It is not possible to invest in a managed futures product that
tracks the MAR QT-$ Index. Performance of Salomon Smith Barney Diversified 2000
Futures Fund is likely to differ from that of the Index.
BONDS are represented by the Lehman Government Bond Index,which is comprised of
fixed rate debt issues rated investment grade or higher by Moody's, S&P or Fitch
and includes dividends. All issues have at least one year to maturity and an
outstanding par value of at least $100 million.
INTERNATIONAL STOCKS are represented by the Morgan Stanley Capital International
World Index (MSCI) consists of over 1,500 stocks representing a broad range of
industry groups in over 22 countries and is calculated in U.S. dollars.
Salomon Smith Barney does not guarantee the accuracy of the indices reported.
4
<PAGE> 99
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND
BEACON MANAGEMENT CORPORATION
PRO FORMA PERFORMANCE AUGUST 1995 THROUGH JUNE 1999
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
<TABLE>
<CAPTION>
BEACON MEKA PF MARCTA-E
-------------- --------
<S> <C> <C>
Jul-95 $1000.00 $1000.00
Aug-95 1103.00 1018.00
Sep-95 1027.00 1016.00
Oct-95 954.00 1015.00
Nov-95 1031.00 1027.00
Dec-95 1184.00 1064.00
Jan-96 1221.00 1093.00
Feb-96 1002.00 1048.00
Mar-96 1049.00 1057.00
Apr-96 1234.00 1114.00
May-96 1137.00 1096.00
Jun-96 1243.00 1097.00
Jul-96 1051.00 1079.00
Aug-96 1013.00 1072.00
Sep-96 1103.00 1100.00
Oct-96 1313.00 1164.00
Nov-96 1576.00 1210.00
Dec-96 1538.00 1196.00
Jan-97 1747.00 1247.00
Feb-97 1886.00 1284.00
Mar-97 1785.00 1277.00
Apr-97 1900.00 1249.00
May-97 1921.00 1258.00
Jun-97 1775.00 1264.00
Jul-97 2074.00 1341.00
Aug-97 1776.00 1293.00
Sep-97 1889.00 1309.00
Oct-97 1743.00 1296.00
Nov-97 1859.00 1311.00
Dec-97 2125.00 1361.00
Jan-98 2161.00 1378.00
Feb-98 2454.00 1364.00
Mar-98 2791.00 1379.00
Apr-98 2900.00 1332.00
May-98 2905.00 1345.00
Jun-98 2839.00 1347.00
Jul-98 3150.00 1343.00
Aug-98 3247.00 1440.00
Sep-98 3387.00 1505.00
Oct-98 3511.00 1505.00
Nov-98 3776.00 1485.00
Dec-98 3548.00 1505.00
Jan-99 3443.00 1486.00
Feb-99 3785.00 1545.00
Mar-99 3645.00 1533.00
Apr-99 4287.00 1566.00
May-99 3766.00 1551.00
Jun-99 3712.00 1582.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Average Annual Rate of Return................ 39.78% Maximum Drawdown............................. -18.56%
Annual Standard Deviation.................... 33.32% Sharpe Ratio................................. 1.04
Average Monthly Rate of Return............... 2.83% High Month................................... 20.01%
Percentage of Positive Months................ 63.83% Low Month.................................... -17.97%
Percentage of Negative Months................ 36.17% Average Positive Monthly Return.............. 9.31%
Average Negative Monthly Return.............. -7.35%
</TABLE>
12 MONTH ROLLING WINDOWS
<TABLE>
<CAPTION>
BEACON PF MARCTA-E
--------- --------
<S> <C> <C>
Jul-96 5.08 7.88
Aug-96 -8.19 5.33
Sep-96 7.34 8.20
Oct-96 37.60 14.73
Nov-96 52.86 17.88
Dec-96 29.92 12.48
Jan-97 43.07 14.08
Feb-97 88.26 22.55
Mar-97 70.16 20.85
Apr-97 54.03 12.13
May-97 68.95 14.86
Jun-97 42.74 15.21
Jul-97 97.39 24.27
Aug-97 75.35 20.59
Sep-97 71.31 19.00
Oct-97 32.70 11.37
Nov-97 17.97 8.32
Dec-97 38.17 13.74
Jan-98 23.69 10.52
Feb-98 30.17 6.19
Mar-98 56.35 7.96
Apr-98 52.62 6.64
May-98 51.24 6.88
Jun-98 59.95 6.58
Jul-98 51.89 0.18
Aug-98 82.83 11.39
Sep-98 79.28 15.00
Oct-98 101.49 16.10
Nov-98 103.10 13.27
Dec-98 66.96 10.60
Jan-99 59.34 7.84
Feb-99 54.19 13.34
Mar-99 30.58 11.22
Apr-99 47.80 17.61
May-99 29.61 15.30
Jun-99 30.78 17.41
</TABLE>
24 MONTH ROLLING WINDOWS
<TABLE>
<CAPTION>
BEACON PF MARCTA-E
--------- --------
<S> <C> <C>
Jul-97 107.41 34.07
Aug-97 61.00 27.02
Sep-97 83.88 28.75
Oct-97 82.60 27.78
Nov-97 80.33 27.69
Dec-97 79.50 27.94
Jan-98 76.96 26.08
Feb-98 145.06 30.13
Mar-98 166.05 30.47
Apr-98 135.07 19.58
May-98 155.53 22.76
Jun-98 128.31 22.80
Jul-98 199.82 24.50
Aug-98 220.60 34.33
Sep-98 207.12 36.85
Oct-98 167.38 29.31
Nov-98 139.59 22.69
Dec-98 130.68 25.80
Jan-99 97.08 19.19
Feb-99 100.72 20.35
Mar-99 104.15 20.07
Apr-99 125.58 25.41
May-99 96.03 23.23
Jun-99 109.18 25.14
</TABLE>
<PAGE> 100
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND
BRIDGEWATER ASSOCIATES, INC.
ALPHA PROGRAM 1X LEVERAGE
PRO FORMA PERFORMANCE AUGUST 1998 THROUGH JUNE 1999
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
<TABLE>
<CAPTION>
BRIDGEWATER PF MARCTA-E
-------------- --------
<S> <C> <C>
Jul-98 $1000.00 $1000.00
Aug-98 989.00 1072.00
Sep-98 1015.00 1120.00
Oct-98 1114.00 1121.00
Nov-98 1136.00 1106.00
Dec-98 1199.00 1120.00
Jan-99 1206.00 1106.00
Feb-99 1250.00 1151.00
Mar-99 1225.00 1142.00
Apr-99 1218.00 1166.00
May-99 1240.00 1155.00
Jun-99 1245.00 1178.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Compounded Rate of Return.................... 24.50% Maximum Drawdown............................. -2.52%
Annual Standard Deviation.................... 11.07% Sharpe Ratio................................. N/A
Average Monthly Rate of Return............... 2.01% High Month................................... 9.69%
Percentage of Positive Months................ 72.73% Low Month.................................... -1.94%
Percentage of Negative Months................ 27.27% Average Positive Monthly Return.............. 3.29%
Average Negative Monthly Return.............. -1.22%
</TABLE>
Less than one year of data
<PAGE> 101
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND
CAMPBELL & COMPANY, INC.
FINANCIAL, METALS AND ENERGY PORTFOLIO
PRO FORMA PERFORMANCE JANUARY 1994 THROUGH JUNE 1999
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
<TABLE>
<CAPTION>
CAMPBELL FME PF MARCTA-E
--------------- --------
<S> <C> <C>
$1000.00 $1000.00
Jan-94 948.00 971.00
Feb-94 880.00 961.00
Mar-94 938.00 985.00
Apr-94 915.00 968.00
May-94 885.00 986.00
Jun-94 928.00 1011.00
Jul-94 883.00 997.00
Aug-94 848.00 967.00
Sep-94 902.00 977.00
Oct-94 900.00 980.00
Nov-94 834.00 1002.00
Dec-94 787.00 1000.00
Jan-95 750.00 981.00
Feb-95 784.00 1010.00
Mar-95 858.00 1068.00
Apr-95 864.00 1077.00
May-95 849.00 1087.00
Jun-95 828.00 1075.00
Jul-95 802.00 1057.00
Aug-95 858.00 1076.00
Sep-95 806.00 1074.00
Oct-95 815.00 1072.00
Nov-95 812.00 1085.00
Dec-95 871.00 1124.00
Jan-96 952.00 1155.00
Feb-96 898.00 1107.00
Mar-96 937.00 1117.00
Apr-96 959.00 1177.00
May-96 933.00 1158.00
Jun-96 944.00 1159.00
Jul-96 926.00 1140.00
Aug-96 954.00 1133.00
Sep-96 973.00 1162.00
Oct-96 1095.00 1230.00
Nov-96 1216.00 1279.00
Dec-96 1169.00 1264.00
Jan-97 1211.00 1318.00
Feb-97 1224.00 1357.00
Mar-97 1203.00 1349.00
Apr-97 1169.00 1320.00
May-97 1131.00 1330.00
Jun-97 1168.00 1336.00
Jul-97 1263.00 1417.00
Aug-97 1186.00 1366.00
Sep-97 1235.00 1383.00
Oct-97 1255.00 1370.00
Nov-97 1258.00 1385.00
Dec-97 1319.00 1438.00
Jan-98 1351.00 1456.00
Feb-98 1311.00 1441.00
Mar-98 1386.00 1457.00
Apr-98 1311.00 1407.00
May-98 1363.00 1421.00
Jun-98 1380.00 1424.00
Jul-98 1325.00 1419.00
Aug-98 1446.00 1522.00
Sep-98 1493.00 1590.00
Oct-98 1565.00 1591.00
Nov-98 1547.00 1569.00
Dec-98 1563.00 1590.00
Jan-99 1487.00 1571.00
Feb-99 1506.00 1633.00
Mar-99 1527.00 1620.00
Apr-99 1604.00 1655.00
May-99 1543.00 1639.00
Jun-99 1628.00 1672.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Average Annual Rate of Return................ 9.26% Maximum Drawdown............................. -24.98%
Annual Standard Deviation.................... 16.77% Sharpe Ratio................................. 0.32
Average Monthly Rate of Return............... 0.74% High Month................................... 12.57%
Percentage of Positive Months................ 56.06% Low Month.................................... -7.40%
Percentage of Negative Months................ 43.94% Average Positive Monthly Return.............. 4.46%
Average Negative Monthly Return.............. -3.74%
</TABLE>
12 MONTH ROLLING WINDOWS
<TABLE>
<CAPTION>
CAMPBELL PF MARCTA-E
----------- --------
<S> <C> <C>
Dec-94 -21.31 -0.04
Jan-95 -20.89 1.06
Feb-95 -10.89 5.11
Mar-95 -8.53 8.42
Apr-95 -5.57 11.27
May-95 -4.05 10.21
Jun-95 -10.73 6.30
Jul-95 -9.13 6.01
Aug-95 1.16 11.27
Sep-95 -10.62 9.90
Oct-95 -9.47 9.39
Nov-95 -2.57 8.27
Dec-95 10.70 12.46
Jan-96 26.84 17.69
Feb-96 14.53 9.64
Mar-96 9.26 4.54
Apr-96 11.06 9.32
May-96 9.88 6.55
Jun-96 13.99 7.86
Jul-96 15.41 7.88
Aug-96 11.18 5.33
Sep-96 20.65 8.20
Oct-96 34.31 14.73
Nov-96 49.73 17.88
Dec-96 34.24 12.48
Jan-97 27.29 14.08
Feb-97 36.32 22.55
Mar-97 28.43 20.85
Apr-97 21.82 12.13
May-97 21.22 14.86
Jun-97 23.75 15.21
Jul-97 36.44 24.27
Aug-97 24.39 20.59
Sep-97 26.93 19.00
Oct-97 14.66 11.37
Nov-97 3.42 8.32
Dec-97 12.75 13.74
Jan-98 11.53 10.52
Feb-98 7.03 6.19
Mar-98 15.20 7.96
Apr-98 12.14 6.64
May-98 20.43 6.88
Jun-98 18.17 6.58
Jul-98 4.93 0.18
Aug-98 21.87 11.39
Sep-98 20.94 15.00
Oct-98 24.66 16.10
Nov-98 22.97 13.27
Dec-98 18.55 10.60
Jan-99 10.10 7.84
Feb-99 14.90 13.34
Mar-99 10.15 11.22
Apr-99 22.39 17.61
May-99 13.25 15.30
Jun-99 17.90 17.41
</TABLE>
24 MONTH ROLLING WINDOWS
<TABLE>
<CAPTION>
CAMPBELL PF MARCTA-E
----------- --------
<S> <C> <C>
Dec-95 -12.89 12.41
Jan-96 0.35 18.93
Feb-96 2.06 15.24
Mar-96 -0.06 13.34
Apr-96 4.88 21.64
May-96 5.43 17.43
Jun-96 1.76 14.66
Jul-96 4.88 14.37
Aug-96 12.48 17.20
Sep-96 7.84 18.91
Oct-96 21.59 25.50
Nov-96 45.88 27.63
Dec-96 48.61 26.49
Jan-97 61.46 34.26
Feb-97 56.13 34.36
Mar-97 40.32 26.33
Apr-97 35.29 22.58
May-97 33.19 22.38
Jun-97 41.06 24.27
Jul-97 57.47 34.07
Aug-97 38.30 27.02
Sep-97 53.14 28.75
Oct-97 54.00 27.78
Nov-97 54.85 27.69
Dec-97 51.36 27.94
Jan-98 41.96 26.08
Feb-98 45.90 30.13
Mar-98 47.95 30.47
Apr-98 36.60 19.58
May-98 45.98 22.76
Jun-98 46.23 22.80
Jul-98 43.17 24.50
Aug-98 51.59 34.33
Sep-98 53.51 36.85
Oct-98 42.94 29.31
Nov-98 27.18 22.69
Dec-98 33.66 25.80
Jan-99 22.80 19.19
Feb-99 22.98 20.35
Mar-99 26.88 20.07
Apr-99 37.24 25.41
May-99 36.39 23.23
Jun-99 39.33 25.14
</TABLE>
<PAGE> 102
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND
RABAR MARKET RESEARCH
DIVERSIFIED PROGRAM
PRO FORMA PERFORMANCE JANUARY 1994 THROUGH JUNE 1999
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
<TABLE>
<CAPTION>
RABAR PF MARCTA-E
-------- --------
<S> <C> <C>
$1000.00 $1000.00
Jan-94 896.00 971.00
Feb-94 844.00 961.00
Mar-94 1011.00 985.00
Apr-94 1036.00 968.00
May-94 1155.00 986.00
Jun-94 1365.00 1011.00
Jul-94 1312.00 997.00
Aug-94 1265.00 967.00
Sep-94 1302.00 977.00
Oct-94 1259.00 980.00
Nov-94 1372.00 1002.00
Dec-94 1359.00 1000.00
Jan-95 1221.00 981.00
Feb-95 1397.00 1010.00
Mar-95 1616.00 1068.00
Apr-95 1715.00 1077.00
May-95 1870.00 1087.00
Jun-95 1823.00 1075.00
Jul-95 1683.00 1057.00
Aug-95 1567.00 1076.00
Sep-95 1451.00 1074.00
Oct-95 1382.00 1072.00
Nov-95 1417.00 1085.00
Dec-95 1587.00 1124.00
Jan-96 1585.00 1155.00
Feb-96 1432.00 1107.00
Mar-96 1409.00 1117.00
Apr-96 1456.00 1177.00
May-96 1404.00 1158.00
Jun-96 1424.00 1159.00
Jul-96 1392.00 1140.00
Aug-96 1373.00 1133.00
Sep-96 1423.00 1162.00
Oct-96 1576.00 1230.00
Nov-96 1664.00 1279.00
Dec-96 1583.00 1264.00
Jan-97 1663.00 1318.00
Feb-97 1736.00 1357.00
Mar-97 1726.00 1349.00
Apr-97 1627.00 1320.00
May-97 1590.00 1330.00
Jun-97 1589.00 1336.00
Jul-97 1799.00 1417.00
Aug-97 1675.00 1366.00
Sep-97 1718.00 1383.00
Oct-97 1668.00 1370.00
Nov-97 1675.00 1385.00
Dec-97 1738.00 1438.00
Jan-98 1771.00 1456.00
Feb-98 1794.00 1441.00
Mar-98 1796.00 1457.00
Apr-98 1689.00 1407.00
May-98 1759.00 1421.00
Jun-98 1791.00 1424.00
Jul-98 1809.00 1419.00
Aug-98 2150.00 1522.00
Sep-98 2279.00 1590.00
Oct-98 2195.00 1591.00
Nov-98 2124.00 1569.00
Dec-98 2153.00 1590.00
Jan-99 2111.00 1571.00
Feb-99 2189.00 1633.00
Mar-99 2097.00 1620.00
Apr-99 2165.00 1655.00
May-99 2008.00 1639.00
Jun-99 2008.00 1672.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Average Annual Rate of Return................ 13.52% Maximum Drawdown............................. -26.58%
Annual Standard Deviation.................... 24.34% Sharpe Ratio................................. 0.44
Average Monthly Rate of Return............... 1.06% High Month................................... 19.75%
Percentage of Positive Months................ 53.03% Low Month.................................... -10.43%
Percentage of Negative Months................ 46.97% Average Positive Monthly Return.............. 6.32%
Average Negative Monthly Return.............. -4.37%
</TABLE>
12 MONTH ROLLING WINDOWS
<TABLE>
<CAPTION>
RABAR PF MARCTA-E
-------- --------
<S> <C> <C>
Dec-94 35.89 -0.04
Jan-95 36.36 1.06
Feb-95 65.48 5.11
Mar-95 59.94 8.42
Apr-95 65.56 11.27
May-95 61.88 10.21
Jun-95 33.58 6.30
Jul-95 28.31 6.01
Aug-95 23.87 11.27
Sep-95 11.43 9.90
Oct-95 9.83 9.39
Nov-95 3.28 8.27
Dec-95 16.81 12.46
Jan-96 29.77 17.69
Feb-96 2.54 9.64
Mar-96 -12.8 4.54
Apr-96 -15.15 9.32
May-96 -24.95 6.55
Jun-96 -21.91 7.86
Jul-96 15.41 7.88
Aug-96 -12.36 5.33
Sep-96 -1.91 8.20
Oct-96 14.03 14.73
Nov-96 17.41 17.88
Dec-96 -0.27 12.48
Jan-97 4.93 14.08
Feb-97 21.19 22.55
Mar-97 22.47 20.85
Apr-97 11.79 12.13
May-97 13.32 14.86
Jun-97 11.61 15.21
Jul-97 29.27 24.27
Aug-97 21.98 20.59
Sep-97 20.78 19.00
Oct-97 5.79 11.37
Nov-97 0.63 8.32
Dec-97 9.77 13.74
Jan-98 6.49 10.52
Feb-98 3.39 6.19
Mar-98 4.05 7.96
Apr-98 3.79 6.64
May-98 10.57 6.88
Jun-98 12.75 6.58
Jul-98 0.56 0.18
Aug-98 28.37 11.39
Sep-98 32.63 15.00
Oct-98 31.60 16.10
Nov-98 26.82 13.27
Dec-98 23.91 10.60
Jan-99 19.18 7.84
Feb-99 21.99 13.34
Mar-99 16.80 11.22
Apr-99 28.23 17.61
May-99 14.19 15.30
Jun-99 12.10 17.41
</TABLE>
24 MONTH ROLLING WINDOWS
<TABLE>
<CAPTION>
RABAR PF MARCTA-E
-------- --------
<S> <C> <C>
Dec-95 58.74 12.41
Jan-96 76.96 18.93
Feb-96 69.69 15.24
Mar-96 39.42 13.34
Apr-96 40.48 21.64
May-96 21.49 17.43
Jun-96 4.31 14.66
Jul-96 6.11 14.37
Aug-96 8.56 17.20
Sep-96 9.30 18.91
Oct-96 25.24 25.50
Nov-96 21.27 27.63
Dec-96 16.49 26.49
Jan-97 36.17 34.26
Feb-97 24.27 34.36
Mar-97 6.76 26.33
Apr-97 -5.14 22.58
May-97 -14.96 22.38
Jun-97 -12.85 24.27
Jul-97 6.90 34.07
Aug-97 6.90 27.02
Sep-97 18.47 28.75
Oct-97 20.63 27.78
Nov-97 18.15 27.69
Dec-97 9.47 27.94
Jan-98 11.74 26.08
Feb-98 25.29 30.13
Mar-98 27.43 30.47
Apr-98 16.02 19.58
May-98 25.30 22.76
Jun-98 25.84 22.80
Jul-98 29.99 24.50
Aug-98 56.59 34.33
Sep-98 60.19 36.85
Oct-98 39.22 29.31
Nov-98 27.62 22.69
Dec-98 36.02 25.80
Jan-99 26.91 19.19
Feb-99 26.12 20.35
Mar-99 21.53 20.07
Apr-99 33.08 25.41
May-99 26.26 23.23
Jun-99 26.40 25.14
</TABLE>
<PAGE> 103
CORRELATION MATRIX
COMMODITY TRADING ADVISORS AUGUST 1995 THROUGH JUNE 1999
<TABLE>
<CAPTION>
JP MORGAN
S&P 500 DRI MSCI & WORLD GLOB GOVT LBB
CORRELATION MATRIX CAMPBELL PF RABAR PF BEACON MEKA PF INDEX DRI INDEX BOND GOVT/CORP.
<S> <C> <C> <C> <C> <C> <C> <C>
Campbell F/M/&E PF 1.00
Rabar PF 0.68 1.00
Beacon Meka PF 0.57 0.60 1.00
S&P 500 DRI Index 0.12 -0.06 0.36 1.00
MSCI & World DRI Index 0.09 -0.07 0.35 0.93 1.00
JP Morgan Glob Govt Bond 0.07 0.23 -0.09 0.05 0.08 1.00
LBBI Govt/Corp 0.46 0.50 0.35 0.25 0.13 0.52 1.00
</TABLE>
<PAGE> 104
NOTES TO ADVISOR CHARTS:
The performance illustrated was derived from Table B-1, Pro Forma Performance
for each advisor.
The following terms are referred to in those charts:
The charts entitled VALUE OF HYPOTHETICAL $1,000 INVESTMENTS represent the value
of a hypothetical $1,000 investment with monthly returns based on the composite
pro forma performance of the advisor's program as presented in each advisor's
Table B. The chart does not represent performance of any one account.
LARGEST PEAK-TO-VALLEY DRAW-DOWN (defined in notes to each advisor's tables)
ANNUAL STANDARD DEVIATION, a measure of risk or volatility, is the expected
range of both positive and negative variance from the average monthly rate of
return. Two-thirds of expected returns will fall within the range of the average
monthly return plus or minus the standard deviation.
SHARPE RATIO is a reward to risk ratio expressing the amount of return per one
unit of risk, using standard deviation to measure risk. It is calculated by
subtracting the risk-free rate of return (90 day Treasury bill rate) from the
advisor's annual compound rate of return and dividing the result by the Annual
Standard Deviation.
In the 12 MONTH ROLLING WINDOWS chart, each bar illustrates the compounded
return for a 12 month period. Each consecutive 12 month period is derived by
eliminating the first month of the prior 12 month period and adding the month
following the last month of the prior 12 month period. The 24 MONTH ROLLING
WINDOWS chart uses the same concept as the 12 Month Rolling Windows chart, only
using 24 month periods.
MAR CTA-E, the Managed Account Reports' Trading Advisor Index, is an equal
weighted index of approximately 400 advisor returns. To qualify for the Index, a
trading advisor must have at least $500,000 under management and 12 months of
trading client assets, or act as a trading advisor in a public fund that is
listed in MAR's funds table.
CORRELATION is a statistical measure that takes a [time series] of two or more
variables and measures the similarity of their movements on a point-by-point
basis. This measure is then adjusted for volatility of the two series as
measured by their standard deviation. What emerges is a variable which will
range from +1.00 to -1.00 and is a statistical measurement tool by which to
judge the standardized historical relative return movement (e.g. correlation).
A value of +1.00 indicates perfect positive movement and a value of -1.00
indicates perfect negative movement in terms of the direction and standardized
magnitude of historic returns. A value of zero indicates no consistent
similarity in movement between the variables or non-correlation. In general, a
rating less than 0.50 indicates a certain degree of non-correlation.
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 2000 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 2000 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.
5
<PAGE> 105
Futures 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.
Futures exchanges have expanded throughout the world in response to the
globalization of the world's economy. This gives investors the opportunity to
participate in global markets and economic trends.
Since 1980, the presence of financial futures traded on futures exchanges has
dramatically increased as illustrated in the chart below. Financial futures,
which include interest rates, currencies and stock indices, has increased from
18.10% in 1980 to 79% in 1998, reflecting the importance of capital flows in
today's economy.
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 futures 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 that may occur
because of price fluctuations. For example, a merchandiser or processor may
hedge against price fluctuations between the time it makes a contract to sell a
raw or processed commodity and the time it must perform the contract as follows:
at the time the merchandiser or processor contracts to sell the commodity at a
future date, it simultaneously enters into futures contracts to buy the
necessary equivalent quantity of the commodity and, at the time for performance
of the contract, either accepts delivery under its futures contracts or buys the
actual commodity and closes out the 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 that
the hedger expects to earn from farming, merchandising or processing operations,
rather than to profit from 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 that the
hedger seeks to avoid. Speculators rarely take delivery of the physical
commodity but usually close out their futures positions by entering into
offsetting
6
<PAGE> 106
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 Fund
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
Fund's.
OPTIONS
The CFTC permits domestic exchanges to apply for licensing for the trading of
options on futures contracts and on physical commodities. The Fund may trade in
such commodity options as are established on domestic exchanges. Trading
policies of the Fund place no limitation on the percentage of Net Assets that
may be invested in options, and the Fund may write options. The Fund 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.
SWAPS
Swap transactions generally involve contracts with a counterparty to exchange a
stream of payments computed by reference to a notional amount and the price of
the asset that is the subject of the swap. Swap contracts are not guaranteed by
an exchange or clearing house.
The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Swaps do not generally involve the
delivery of underlying assets or principal. Accordingly, the risk of loss with
respect to swaps is generally limited to the net amount of payments that the
Fund is contractually obligated to make. In some of the Fund's swap transactions
the counterparty may require the Fund to deposit collateral to support the
Fund's obligation under the swap agreement. If the counterparty to such a swap
defaults, the Fund's risk of loss consists of the net amount of payments that
the Fund is contractually entitled to receive in addition to any collateral
deposits made with the counterparty.
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
Commodity Exchange Act (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
7
<PAGE> 107
commodity options that 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 were indicted and some were 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
all of the advisors are registered as commodity trading advisors. 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 imposes 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.
Salomon Smith Barney, the commodity broker/dealer for the Fund, 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.
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 that 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 that 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
"The Risk You Face -- Commodity Trading Risks -- Illiquidity of the Fund's
Investments " in Part One of this prospectus.
The CFTC and U.S. exchanges have established limits, referred to as "position
limits", on the maximum net long or net short position that 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 Fund, 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
Fund are allocated only to the person or entity controlling trading decisions
for the Fund and not to the limited partners. Currently, all of the positions
held by all
8
<PAGE> 108
accounts owned or controlled directly or indirectly by the advisors and their
principals will be aggregated with the Fund's positions. Depending upon the
total amount of assets being managed in both the Fund's account and other
accounts controlled directly or indirectly by the advisors, such position
limits may affect the ability of the advisor to establish particular positions
in certain commodities for the Fund 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 advisors, the general
partner and Salomon Smith Barney 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
Congress. Furthermore, the fact of CFTC registration of the general partner and
Salomon Smith Barney does not imply that the CFTC has passed upon or approved
this offering or their qualifications to act as described in this prospectus.
MARGINS
Commodity futures contracts are customarily bought and sold on margin deposits
that 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 that are
greater than are customary in other forms of investment or speculation. Margin
is the minimum amount of funds that must be deposited by the commodity futures
trader with the commodity broker in order to initiate futures trading or to
maintain 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. Because 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 with respect 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. Salomon Smith Barney intends to require the Fund 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 Fund's trading, the Fund, and
not the limited partners personally, will be subject to the margin calls.
Salomon Smith Barney will not require the Fund to meet and maintain margin on
its forward contracts.
GLOSSARY
The following glossary may assist the prospective investor in understanding the
terms used in this prospectus.
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.
CFTC. Commodity Futures Trading Commission.
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<PAGE> 109
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. Salomon Smith Barney charges most customers, but not the
Fund, commissions per futures contract on a "round-turn" basis, that is, 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, sugar, cotton,
lumber, copper, silver, gold, T-Bills, stock indices and foreign currency.
Commodity Broker. Any person who engages in the business of effecting
transactions in commodity contracts for the account of others or for his or her
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.
Continuous Offering. Offers and sales of Units after the initial offering
period.
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.
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.
NFA. National Futures Association.
Net Assets. The total assets of the Fund including all cash, plus Treasury
securities at accrued interest and the market value of all open commodity
positions maintained by the Fund, less brokerage charges accrued and less all
other liabilities of the Fund, 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.
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,
10
<PAGE> 110
earned on Fund assets during the period, whether the assets are held separately
or in margin accounts. Net Assets will also be adjusted to eliminate the effect
of organizational and offering expenses.
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 Fund in
connection with and in preparing the Fund 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, NFA 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.
Salomon Smith Barney standard public customer rates. Brokerage commissions that
Salomon Smith Barney charges to its public customers, including individuals,
which rates change from time to time.
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 Fund
or any person who will manage or participate in the management of the Fund,
including a commodity broker who pays any portion of the organizational
expenses of the Fund, the general partner and any other person who regularly
performs or selects the persons who perform services for the Fund. 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.
Swaps. Swap transactions generally involve contracts with a counterparty to
exchange a stream of payments computed by reference to a notional amount and
the price of the asset that is the subject of the swap. Swap contracts are not
guaranteed by an exchange or clearing house.
Unrealized profit or loss. The profit or loss that 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 Fund are
determined.
11
<PAGE> 111
Valuation Period. A regular period of time between Valuation Dates.
12
<PAGE> 112
TABLE C
HYPOTHETICAL COMPOSITE ADJUSTED PERFORMANCE RECORD
FOR THE PERIOD AUGUST 1998 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
HYPOTHETICAL COMPOSITE HYPOTHETICAL
COMPOSITE OF COMPOUND WEIGHTED AVERAGE COMPOUND
ACTUAL MONTHLY HYPOTHETICAL ANNUAL PRO FORMA HYPOTHETICAL ANNUAL
PERIOD ENDING RATE OF RETURN $1,000 UNIT RATE OF RETURN RATE OF RETURN $1,000 UNIT RATE OF RETURN
------------- -------------- ------------ -------------- ---------------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
1998................. $1,000 $1,000
August............... 9.84% 1,098 8.76% 1,088
September............ 4.45 1,147 4.26 1,134
October.............. 2.82 1,180 2.63 1,164
November............. 0.43 1,185 0.46 1,169
December............. 0.72 1,193 19.32% 0.59 1,176 17.60%
1999
January.............. (2.22) 1,167 (2.52) 1,146
February............. 4.28 1,217 4.15 1,194
March................ (2.02) 1,192 (2.02) 1,170
April................ 5.97 1,263 5.82 1,238
May.................. (5.26) 1,197 (5.54) 1,169
June................. 1.32 1,212 1.62% 1.43 1,186 0.85%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
13
<PAGE> 113
NOTES TO TABLE C
The Compound Annual Rate of Return and the Hypothetical Compound Annual Rate of
Return for each year is calculated by applying on a compound basis each of the
Composite of Actual Monthly Rates of Return and 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. For purposes of this table,
August 1998 was used as the starting month since it was the common date that
all programs (that will be traded for the Fund) were trading.
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 Advisors' programs to be used
for the Fund 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 Fund as opposed to the corresponding
fees, expenses or income actually charged or earned in the historical
performance records (For purposes of the calculation of Fund interest income,
historical 30-day Treasury bill rates of the time period presented on Tables
B-1 were used. Such rates may be higher than current 30-day Treasury bill rates
that will be used to calculate Fund interest income. The application of
historical rates may compare more closely to the Advisors' interest income
which was most likely earned at the prevailing interest rates of a particular
time period), (b) assuming the following initial allocation of Fund assets is
made to the Advisors: Beacon -- 20%; Bridgewater -- 20%; Campbell -- 30% and
Rabar -- 30%, (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, Beacon's
initial allotment of $200 to the Meka Trading System was multiplied by its Pro
Forma Monthly Rate of Return from Table B-1. In August 1998, Campbell's Pro
Forma Monthly Rate of Return was 3.05% which resulted in an increase of $6 for
the first month and a corresponding increase to its trading allotment to $206.
Next, this process was repeated for each program or portfolio traded by the
Advisors for the Fund, then added to reach a net asset value as of the end of
the month of $1,088, an increase of 8.76% 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. The
Composite of Actual Monthly Rates of Return is similarly calculated using each
of the Advisor's actual performance data for the same period.
The Hypothetical Composite Adjusted Performance Record does not reflect how the
Fund 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 Advisors' 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 Advisors utilizing all four programs in the same
proportions as the Fund's 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 ADVISORS' 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.
14
<PAGE> 114
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 DIFFERENCES 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 Advisors -- Notes to Tables B-1 for all Advisors." The
Hypothetical Composite Adjusted Performance Record, for the period August 1998
through June 30, 1999, has been calculated on the basis of Pro Forma Monthly
Rate of Return 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 Fund 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 Fund, prospective investors must carefully
consider its limitations.
15
<PAGE> 115
EXHIBIT A
---------------
LIMITED PARTNERSHIP AGREEMENT
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH AND SUBJECT PAGE
------------------------------------------------- ---------------
<S> <C> <C>
1. Formation and Name A-1
2. Principal Office A-1
3. Business A-1
4. Term, Dissolution and
Fiscal Year A-2
Term A-2
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 Partners'
Capital Contribution A-5
Distributions A-5
8. Management of the Partnership A-5
9. Audits and Reports to Limited
Partners A-7
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-11
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
LIMITED PARTNERSHIP AGREEMENT
This Limited Partnership Agreement dated as of August 25, 1999, 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 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"),
WITNESSETH:
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 Salomon
Smith Barney Diversified 2000 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.
(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 or swap dealer nor obtaining and drawing on a line of
credit with respect to forward contracts or swaps shall constitute borrowing;
or
(3) permit the churning of its account.
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<PAGE> 118
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, 2019; (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 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 but excluding its capital contribution to the Partnership)
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.
A-2
<PAGE> 119
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 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 15,000 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 15,000 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.
(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.
A-3
<PAGE> 120
(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 Partnership through the end of the month 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 month next
succeeding the month 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 an
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.
Net Assets will also be adjusted to eliminate the effect of organizational and
offering expenses.
(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.
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(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 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.
(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
Salomon Smith Barney 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 Partners' 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.
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(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 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 for the investment of
the Partnership's assets to one or more qualified trading advisors and may
delegate trading discretion to such persons, provided that the General Partner
shall retain the ability to allocate and reallocate assets among advisors and
the right to override decisions and take such other actions as may be necessary
or desirable to liquidate accounts or protect the Partnership. The General
Partner may negotiate and enter into one or more management agreements with the
advisor(s) on behalf of the Partnership. 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 Salomon Smith Barney Inc. ("Salomon Smith Barney")
described in the Prospectus and to cause the Partnership to pay Salomon Smith
Barney a monthly brokerage fee equal to up to .45% of month-end Net Assets
(5.4% 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 Interest. 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
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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 may in its discretion, acting in the best interests of the Partnership,
negotiate with Salomon Smith Barney 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 that 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
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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 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) 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; (iii) any change in commodity brokers
or any change to payment or brokerage commissions on a round turn basis; (iv)
any change in the General Partner; or (v) any material change in the
Partnership's trading policies or in any advisor's trading strategies; and (vi)
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.
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
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Limited Partner and 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 three full months after the purchase of a
Unit, 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. As used
herein, "request for redemption" shall mean a written 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 selling agreement
with Salomon Smith Barney as an agent of the Partnership for the offer and sale
of the Units of Limited Partnership Interest as contemplated in the Prospectus.
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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 or dissolution of the
Partnership in accordance with the terms of this Agreement; (iii) Certificates
of Assumed Name; and (iv) Customer Agreements with Salomon Smith Barney 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 in 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
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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.
(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
A-12
<PAGE> 129
any Partner or assignee hereunder, the Partnership and the General Partner may
rely upon the 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.
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
A-13
<PAGE> 130
(This page has been left blank intentionally.)
A-14
<PAGE> 131
EXHIBIT B
SALOMON SMITH BARNEY DIVERSIFIED 2000
FUTURES FUND L.P.
SUBSCRIPTION AGREEMENT
Dear Sirs:
A. Subscriber Provisions.
1. Subscription for Units. I subscribe for the amount indicated below of
units of limited partnership interest ("Units") of SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P. (the "Fund") at $1,000 per Unit during the
Initial Offering Period and at Net Asset Value per Unit during the Continuous
Offering (as those terms are defined in the Fund's Prospectus and Disclosure
Document) (with a minimum investment of $5,000, except $2,000 for
employee-benefit plans, subject to higher minimum in certain states). A
SUBSCRIPTION MAY BE REVOKED BY A SUBSCRIBER FOR FIVE BUSINESS DAYS FOLLOWING
THE INVESTOR'S SUBSCRIPTION DURING THE INITIAL OFFERING PERIOD FOR ANY REASON.
DURING THE CONTINUOUS OFFERING A SUBSCRIPTION MAY BE REVOKED BY A SUBSCRIBER
FOR FIVE BUSINESS DAYS FOLLOWING THE INVESTOR'S SUBSCRIPTION IF THE GENERAL
PARTNER DETERMINES NOT TO OFFER UNITS AS OF THE END OF A QUARTER.
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 Fund to sell me
the Units for which I have subscribed, I (either in my individual capacity or
as an authorized representative of an entity, if applicable) represent and
warrant to the General Partner and the Fund as follows:
(a) I HAVE RECEIVED A COPY OF THE PROSPECTUS AND DISCLOSURE DOCUMENT OF THE
FUND, 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, IF I AM A COLLECTIVE INVESTMENT VEHICLE, I AM IN
COMPLIANCE WITH ALL APPLICABLE FEDERAL REGULATORY REQUIREMENTS INCLUDING THE
REGISTRATION RULES OF THE COMMODITY FUTURES TRADING COMMISSION AND I 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 consent to the execution and delivery of the Customer Agreement
between the Fund and Salomon Smith Barney Inc. ("Salomon Smith Barney") and to
the payment to Salomon Smith Barney 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 Salomon Smith Barney 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 Salomon Smith Barney 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 Salomon Smith Barney 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 Fund is being
made by the Fiduciary from a portion of Plan assets with respect to which such
relationship does not exist.
(b) Although a Salomon Smith Barney Financial Consultant may have
suggested that the Director consider the investment in the Fund, 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
apply to become a limited partner as of the date the sale of my Units becomes
effective, and I agree to each and every term of the Limited Partnership
Agreement as if my signature were subscribed therein.
B-1
<PAGE> 132
I irrevocably constitute and appoint Smith Barney Futures Management Inc.,
the General Partner of the Fund, 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 Fund and a Certificate of
Limited Partnership, including amendments and restatements thereto; (ii) all
instruments that 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 Fund; (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 Fund is speculative and includes the risks summarized
under "The Risks You Face" in the Prospectus. Each investor must be able to
afford the risks of an investment in the Fund.
2. Smith Barney Futures Management Inc., is an affiliate of Salomon Smith
Barney. Salomon Smith Barney is the Selling Agent and the Commodity Broker and
recipient of brokerage fees. Therefore, conflicts of interest exist as
described the Prospectus. Salomon Smith Barney will receive substantial
brokerage fees from the Fund regardless of the Fund's trading performance (see
"Fees and Expenses to the Fund" in the Prospectus).
3. An Investor may redeem his Units only as of the last day of a calendar
month and only after three months from their issuance.
4. The offering of Units is made solely on the information in the
Prospectus and Disclosure Document including the Exhibits thereto. No person is
authorized to make any other representations.
B-2
<PAGE> 133
EXHIBIT B
SALOMON SMITH BARNEY DIVERSIFIED 2000
FUTURES FUND L.P.
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.)
$ -- -- -- --
SALOMON SMITH BARNEY ACCOUNT NUMBER
ACCOUNT NAME
STATE OR COUNTRY
OF RESIDENCE
CIRCLE APPLICABLE ACCOUNT TYPE BELOW
1 Individual Account 3 Corporation 6 IRA, Keogh, SEP
2 Joint Account 4 Partnership 7 Employee Benefit Plan
5 Trust 8 Other
PAYMENT
PAYMENT FOR SUBSCRIPTIONS MAY BE MADE BY AUTHORIZING YOUR FINANCIAL CONSULTANT
TO DEBIT YOUR SALOMON SMITH BARNEY INC. SECURITIES ACCOUNT IN THE AMOUNT OF
YOUR SUBSCRIPTION. SUBSCRIBERS WHO AUTHORIZE SALOMON 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 THE SETTLEMENT
DATE WHICH WILL OCCUR NOT LATER THAN 5 BUSINESS DAYS FOLLOWING NOTIFICATION TO
SALOMON SMITH BARNEY INC. AND 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>
- ------------------------------------------- -------------------------------------------
DATE DATE
- ------------------------------------------- -------------------------------------------
SUBSCRIBER'S SIGNATURE SUBSCRIBER'S SIGNATURE
- ------------------------------------------- -------------------------------------------
TITLE (IF APPLICABLE) TITLE (IF APPLICABLE)
</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 the NASD's Conduct Rule 2810, 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 BOM NAME:
-----------------------------------------------
- ------------------------------------------------------------------------------
FOR BRANCH USE PLEASE COMPLETE
ENTER IOI FOR SECURITY NO. (CHECK ONE): 8952000 8952005
---------- ---------
FINANCIAL CONSULTANT NAME TELEPHONE NO. WIRE CODE
B-3
<PAGE> 134
Send completed Subscription Agreement to:
Smith Barney Futures Management Inc.
390 Greenwich Street -- 1st Floor
New York, New York 10013
TEL (212) 723-4976
PHOTOCOPIES OR FAXES NOT ACCEPTABLE
SUBSCRIPTION AGREEMENT TO PROSPECTUS AND DISCLOSURE DOCUMENT DATED [ ], 1999
B-4
<PAGE> 135
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
Oregon............... $225,000 NW or $60,000NW 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 Arizona and South Dakota investors]. IN THE CASE OF SALES TO
FIDUCIARY ACCOUNTS, THE MINIMUM INCOME AND NET WORTH STANDARDS FOR ARIZONA AND
SOUTH DAKOTA AS SPECIFIED IN ITEM (b) ABOVE 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.
C-1
<PAGE> 136
(This page has been left blank intentionally.)
C-2
<PAGE> 137
EXECUTION COPY
SALOMON SMITH BARNEY DIVERSIFIED 2000
FUTURES FUND L.P.
SUBSCRIPTION AGREEMENT
Dear Sirs:
A. Subscriber Provisions.
1. Subscription for Units. I subscribe for the amount indicated below of
units of limited partnership interest ("Units") of SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P. (the "Fund") at $1,000 per Unit during the
Initial Offering Period and at Net Asset Value per Unit during the Continuous
Offering (as those terms are defined in the Fund's Prospectus and Disclosure
Document) (with a minimum investment of $5,000, except $2,000 for
employee-benefit plans, subject to higher minimum in certain states). A
SUBSCRIPTION MAY BE REVOKED BY A SUBSCRIBER FOR FIVE BUSINESS DAYS FOLLOWING
THE INVESTOR'S SUBSCRIPTION DURING THE INITIAL OFFERING PERIOD FOR ANY REASON.
DURING THE CONTINUOUS OFFERING A SUBSCRIPTION MAY BE REVOKED BY A SUBSCRIBER
FOR FIVE BUSINESS DAYS FOLLOWING THE INVESTOR'S SUBSCRIPTION IF THE GENERAL
PARTNER DETERMINES NOT TO OFFER UNITS AS OF THE END OF A QUARTER.
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 Fund to sell me
the Units for which I have subscribed, I (either in my individual capacity or
as an authorized representative of an entity, if applicable) represent and
warrant to the General Partner and the Fund as follows:
(a) I HAVE RECEIVED A COPY OF THE PROSPECTUS AND DISCLOSURE DOCUMENT OF
THE FUND, 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, IF I AM A COLLECTIVE INVESTMENT VEHICLE, I AM IN
COMPLIANCE WITH ALL APPLICABLE FEDERAL REGULATORY REQUIREMENTS INCLUDING THE
REGISTRATION RULES OF THE COMMODITY FUTURES TRADING COMMISSION AND I 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 consent to the execution and delivery of the Customer Agreement
between the Fund and Salomon Smith Barney Inc. ("Salomon Smith Barney") and to
the payment to Salomon Smith Barney 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 Salomon Smith Barney 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 Salomon Smith Barney 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 Salomon Smith Barney 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 Fund is being
made by the Fiduciary from a portion of Plan assets with respect to which such
relationship does not exist.
(b) Although a Salomon Smith Barney Financial Consultant may have
suggested that the Director consider the investment in the Fund, 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
apply to become a limited partner as of the date the sale of my Units becomes
effective, and I agree to each and every term of the Limited Partnership
Agreement as if my signature were subscribed therein.
I irrevocably constitute and appoint Smith Barney Futures Management Inc.,
the General Partner of the Fund, 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 Fund and a Certificate of
Limited Partnership, including amendments and
1
<PAGE> 138
restatements thereto; (ii) all instruments that 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 Fund; (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 Fund is speculative and includes the risks summarized
under "The Risks You Face" in the Prospectus. Each investor must be able to
afford the risks of an investment in the Fund.
2. Smith Barney Futures Management Inc., is an affiliate of Salomon Smith
Barney. Salomon Smith Barney is the Selling Agent and the Commodity Broker and
recipient of brokerage fees. Therefore, conflicts of interest exist as
described in the Prospectus. Salomon Smith Barney will receive substantial
brokerage fees from the Fund regardless of the Fund's trading performance (see
"Fees and Expenses to the Fund" in the Prospectus).
3. An Investor may redeem his Units only as of the last day of a calendar
month and only after three months from their issuance.
4. The offering of Units is made solely on the information in the
Prospectus and Disclosure Document including the Exhibits thereto. No person is
authorized to make any other representations.
2
<PAGE> 139
EXECUTION COPY
SALOMON SMITH BARNEY DIVERSIFIED 2000
FUTURES FUND L.P.
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.)
$ -- -- -- --
SALOMON SMITH BARNEY ACCOUNT NUMBER
ACCOUNT NAME
STATE OR COUNTRY
OF RESIDENCE
CIRCLE APPLICABLE ACCOUNT TYPE BELOW
1 Individual Account 3 Corporation 6 IRA, Keogh, SEP
2 Joint Account 4 Partnership 7 Employee Benefit Plan
5 Trust 8 Other
PAYMENT
PAYMENT FOR SUBSCRIPTIONS MAY BE MADE BY AUTHORIZING YOUR FINANCIAL CONSULTANT
TO DEBIT YOUR SALOMON SMITH BARNEY INC. SECURITIES ACCOUNT IN THE AMOUNT OF
YOUR SUBSCRIPTION. SUBSCRIBERS WHO AUTHORIZE SALOMON 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 THE SETTLEMENT
DATE WHICH WILL OCCUR NOT LATER THAN 5 BUSINESS DAYS FOLLOWING NOTIFICATION TO
SALOMON SMITH BARNEY INC. AND 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>
- ------------------------------------------- -------------------------------------------
DATE DATE
- ------------------------------------------- -------------------------------------------
SUBSCRIBER'S SIGNATURE SUBSCRIBER'S SIGNATURE
- ------------------------------------------- -------------------------------------------
TITLE (IF APPLICABLE) TITLE (IF APPLICABLE)
</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 the NASD's Conduct Rule 2810, 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 BOM NAME:
----------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FOR BRANCH USE PLEASE COMPLETE
ENTER IOI FOR SECURITY NO. (CHECK ONE): 8952000 8952005
-------- ---------
FINANCIAL CONSULTANT NAME TELEPHONE NO. WIRE CODE
</TABLE>
3
<PAGE> 140
Send completed Subscription Agreement to:
Smith Barney Futures Management Inc.
390 Greenwich Street -- 1st Floor
New York, New York 10013
TEL (212) 723-4976
PHOTOCOPIES OR FAXES NOT ACCEPTABLE
SUBSCRIPTION AGREEMENT TO PROSPECTUS AND DISCLOSURE DOCUMENT DATED [ ], 1999
4
<PAGE> 141
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Filing Fee -- Securities and Exchange Commission (1933
Act)........................................................ $41,700
Filing Fee -- National Association of Securities Dealers,
Inc......................................................... $15,500
Printing Expenses.............................................. $200,000*
Legal Fees............................... $250,000*
Blue Sky Fees and Expenses (excluding legal fees).............. $75,000*
Accounting Fees................................................ $30,000*
Marketing...................................................... $135,000*
Miscellaneous.................................................. $2,800
------
Total..................................................... $750,000*
=========
</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 Selling Agreement provides for indemnification of the
Registrant by Salomon Smith Barney 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
Salomon Smith Barney 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 Salomon Smith Barney, 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
Salomon Smith Barney 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 Salomon Smith Barney 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 Salomon Smith Barney 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, Salomon Smith Barney 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 each of the Management Agreements 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
5
<PAGE> 142
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 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, 10.4, 10.5, 10.6 and 10.7
contain certain indemnity provisions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On August 25, 1999, 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>
<S> <C>
1.1 -- Form of Selling Agreement between Registrant
and Salomon 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 Salomon Smith Barney Inc.
10.2 -- Form of Subscription Agreement (included as
Exhibit B to the Prospectus)
10.3 -- Form of Escrow Agreement between Smith Barney
Futures Management Inc. and the Escrow Agent relating
to the escrow of subscription funds
10.4 -- Management Agreement between Smith Barney
Futures Management Inc., and Beacon Management Corp.
10.5 -- Management Agreement between Smith Barney
Futures Management Inc. and Bridgewater Associates, Inc.
10.6 -- Management Agreement between Smith Barney
Futures Management Inc. and Campbell & Co., Inc.
10.7 -- Management Agreement between Smith Barney
Futures Management Inc. and Rabar Market Research, Inc.
23.1 -- Consent of Independent Accountants (included in
Part II of this Registration Statement)
23.2 -- Consent of Counsel (included in their opinions
filed as Exhibit 5.1 and Exhibit 8.1 hereto)
</TABLE>
- ----------
(b) FINANCIAL STATEMENT SCHEDULES:
Not Applicable.
6
<PAGE> 143
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 1993 (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.
7
<PAGE> 144
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 22nd DAY OF SEPTEMBER, 1999.
SALOMON SMITH BARNEY
DIVERSIFIED 2000 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>
<S> <C> <C>
SIGNATURE TITLE DATE
-------------------------------- -------------------- -------------------
SMITH BARNEY FUTURES General Partner September 22, 1999
MANAGEMENT INC.
/s/ DAVID J. VOGEL Director, Principal Executive September 22, 1999
------------------------ Officer and President
DAVID J. VOGEL
/s/ MICHAEL R. SCHAEFER Director September 22, 1999
----------------------------
MICHAEL SCHAEFER
/s/ STEVEN J. KELTZ Secretary and Director September 22, 1999
--------------------------
STEVEN J. KELTZ
/s/ JACK H. LEHMAN III Chairman and Director September 22, 1999
----------------------------
JACK H. LEHMAN III
/s/ DANIEL A. DANTUONO Treasurer, Chief Financial September 22, 1999
--------------------------- Officer and Director
......DANIEL A. DANTUONO
/s/ DANIEL R. MCAULIFFE, JR. Director September 22, 1999
----------------------------------
DANIEL R. MCAULIFFE,JR.
..... /s/ SHELLEY ULLMAN Director September 22, 1999
--------------------------
SHELLEY ULLMAN
</TABLE>
8
<PAGE> 145
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 to
be used in registering, under the Securities Act of 1933, 15,000 Units of
Limited Partnership Interest of (i) our report dated March 15, 1999
accompanying the statement of financial condition of Smith Barney Futures
Management Inc. and (ii) our report dated September 15, 1999 accompanying the
statement of financial condition of Salomon Smith Barney Diversified 2000
Futures Fund L.P.
We also consent to the reference to our firm under the caption "Experts"
in the Prospectus.
/s/ PricewaterhouseCoopers LLP
New York, New York
September 22, 1999
9
<PAGE> 146
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------------ --------------------------------------------------------- -----------------
<S> <C> <C>
1.1 -- Form of Selling Agreement between Registrant
and Salomon 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 Salomon Smith Barney Inc.
10.2 -- Form of Subscription Agreement (included as
Exhibit B to the Prospectus)
10.3 -- Form of Escrow Agreement between Smith Barney
Futures Management Inc. and the Escrow Agent relating
to the escrow of subscription funds
10.4 -- Management Agreement between Smith Barney
Futures Management Inc., and Beacon Management Corp..
10.5 -- Management Agreement between Smith Barney
Futures Management Inc. and Bridgewater Associates, Inc.
10.6 -- Management Agreement between Smith Barney
Futures Management Inc. and Campbell & Co., Inc.
10.7 -- Management Agreement between Smith Barney
Futures Management Inc. and Rabar Market Research, Inc.
23.1 -- Consent of Independent Accountants (included in
Part II of this Registration Statement)
23.2 -- Consent of Counsel (included in their opinions filed as
Exhibit 5.1 and Exhibit 8.1 hereto)
</TABLE>
11
<PAGE> 1
EXHIBIT 1.1
SELLING AGREEMENT
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
150,000 Units of Limited Partnership Interest
AGREEMENT made as of the ___ day of September, 1999, by and
among SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P., a New York
limited partnership (the "Partnership"), SMITH BARNEY FUTURES MANAGEMENT INC., a
Delaware corporation ("SBFM") and SALOMON SMITH BARNEY INC., a Delaware
corporation ("SSB").
W I T N E S S E T H :
WHEREAS, the Partnership has filed a registration statement on
Form S-1 (File No. 333-________) 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
as a part thereof a form of preliminary prospectus relating to the offer and
sale of up to 150,000 Units of Limited Partnership Interest in the Partnership
(the "Units") (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
WHEREAS, the Partnership intends to enter into management
agreements with each of Beacon Management Corporation, Bridgewater Associates,
Inc., Campbell & Company, Inc. and Rabar Market Research, Inc. (each an
"Advisor," collectively, the "Advisors") and SBFM, (the "Management
Agreements"), pursuant to which commodity trading decisions will be made by the
Advisors as described in the Prospectus; and
WHEREAS, SSB has agreed to assist in the offer and sale of the
Units upon the terms and in reliance upon the representations, warranties and
agreements set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE> 2
1. Appointment of Selling Agent
(a) (i) The Partnership hereby appoints SSB 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 during the initial offering period
(the "Initial Offering Period"), a period of 90 days commencing on the date the
Registration Statement is declared effective by the SEC, unless SBFM, the
general partner of the Partnership, terminates the offering at an earlier date
or extends the Initial Offering Period for up to an additional 60 days by
written notice to SSB. As described in the Prospectus, 15,000 Units must be sold
during the Initial Offering Period for the Partnership to commence its trading
activities; if fewer than 15,000 Units are sold during the Initial Offering
Period, proceeds will be promptly returned to subscribers at the termination
thereof.
(ii) The Partnership hereby also appoints SSB 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 during a period commencing
on the date of termination of the Initial Offering Period (assuming 15,000 Units
are sold) and ending upon the earlier of the date two years from the date the
Registration Statement is declared effective and the date on which 150,000 Units
are sold (the "Continuous Offering", and, together with the Initial Offering
Period, the "Offering Period").
(b) SSB hereby accepts appointment as selling agent for the
Partnership to effect sales of up to 150,000 Units as provided herein, in the
Registration Statement and in the Prospectus. SSB 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. SSB agrees that SBFM has the right
to reject any subscription for Units for any reason and to suspend sales of
Units during the Offering Period.
(c) SSB agrees initially to bear all expenses of the Partnership in
connection with the Initial Offering Period (estimated at $750,000), including,
without limitation, fees and expenses of its counsel, SEC and other filing fees,
blue sky fees and expenses, printing expenses, fees and expenses of independent
public accountants and escrow fees.
(d) SSB agrees that all funds received by SSB from subscribers shall
be promptly delivered to European American Bank as escrow agent for the benefit
of the subscribers by noon of the second business day after receipt.
Furthermore, SSB will require all Soliciting Dealers to forward to SSB, for
delivery to the escrow agent, all checks received by them from subscribers for
Units by noon of the next business day after their receipt of the
-2-
<PAGE> 3
checks. SSB represents and hereby confirms that if it receives checks from
customers it will act as processing broker-dealer in accordance with Rule 15c2-4
under the Securities Exchange Act of 1934 and NASD Notices to Members 84-7 and
84-64.
(e) SSB 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 SSB 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 and shall be an associate member of
the NFA (qualified 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).
2. Agreements of the Partnership. The Partnership agrees with SSB as
follows:
(a) The Partnership will advise SSB, 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 SSB, 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 SSB
shall not previously have been advised or to which SSB shall reasonably object
in writing.
(d) The Partnership will furnish SSB 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
-3-
<PAGE> 4
will notify SSB 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 the Prospectus which will correct such statement
or omission or effect such compliance.
(e) The Partnership will take such action as SSB 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
may be necessary to complete the distribution.
3. Representations and Warranties.
The Partnership represents and warrants to SSB 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 up to the termination of the Offering Period, 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 SSB 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 to qualify to do business as a foreign organization in any
jurisdiction.
-4-
<PAGE> 5
(d) The offer and sale of the Units 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 offer and sale of the Units and 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 will be opened at European American Bank
(the "Escrow Agent") and maintained for all funds received from subscribers for
Units. All payments received from persons desiring to purchase Units will be
deposited in such account and held in accordance with the terms of such Escrow
Agreement.
(g) PricewaterhouseCoopers LLP, who have certified certain financial
statements contained in the Registration Statement, are independent public
accountants as required by the Act.
4. Conditions of Closing. The obligations of the parties hereunder
shall at all times be subject to the continued accuracy of all representations
and warranties of the parties contained herein as though such representations
and warranties had been made at and as of such times, and the following
additional conditions:
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the SEC; and all requests for additional information on the part
of the SEC shall have been complied with;
(b) SSB shall have received an opinion of Willkie Farr & Gallagher,
dated the Closing Date (as defined in Paragraph 7 below), in form and substance
satisfactory to it, to the effect that:
(i) The Partnership has been duly formed and is validly
existing as a limited partnership under the Partnership Law with full
partnership power and authority to carry out its obligations under this
Agreement and the Partnership Agreement,
-5-
<PAGE> 6
and to conduct its business as described in the Prospectus, and, to the best of
the knowledge of such counsel, the Partnership conducts no business and owns or
leases no properties which would require it to qualify to do business as a
foreign organization in any jurisdiction;
(ii) The offer and sale of the Units 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;
(iii) The offer and sale of the Units and 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 the Partnership
Certificate or Partnership Agreement, or, to the best of the knowledge of such
counsel, any agreement to which the Partnership is a party or by which it is
bound;
(iv) To the best of the knowledge of such counsel, there is
no action, suit, litigation or proceeding before or by any court or governmental
agency, federal, state or local, pending or threatened against, or affecting or
involving the property or business of SBFM, or the business of the Partnership,
that would materially and adversely affect the condition (financial or
otherwise), business or prospects of SBFM or the Partnership; and
(v) The Registration Statement has become effective under the
Act, and, to the best of the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued nor has any
proceeding for the issuance of such an order been initiated or threatened.
5. Indemnification.
SSB 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 SSB 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
-6-
<PAGE> 7
statement or omission was made in reliance upon and in conformity with
information furnished to the Partnership by SSB, 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 SSB, 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 Section 4 hereof
shall not have been fulfilled when and as required by this Agreement to be
fulfilled.
(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. Closing Date.
The Closing Date shall not be later than ten business days following
the termination of the Initial Offering Period to which reference is made in
Section 1(a)(i) above.
8. 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:
-7-
<PAGE> 8
Salomon Smith Barney Diversified 2000
Futures Fund L. P.
c/o Smith Barney Futures Management Inc.
390 Greenwich Street
New York, New York 10013
If to SSB to:
Salomon 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 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.
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L. P.
By: Smith Barney
Futures Management Inc.,
(General Partner)
By:
-------------------------------------
SMITH BARNEY
FUTURES MANAGEMENT INC.
By:
-------------------------------------
SALOMON 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.
(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
-9-
<PAGE> 10
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 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.
-10-
<PAGE> 11
(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 3.2
CERTIFICATE OF LIMITED PARTNERSHIP
OF
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
UNDER SECTION 121-201 OF
THE REVISED LIMITED PARTNERSHIP ACT
THE UNDERSIGNED, for the purpose of forming a limited partnership
pursuant to Section 121-201 of the Revised Limited Partnership Act of New York,
does hereby certify:
1. The name of the limited partnership is as follows:
Salomon Smith Barney Diversified 2000 Futures Fund L.P.
2. The county within this state, in which the office of the limited
partnership is to be located is:
New York.
3. The Secretary of State of the State of New York is hereby designated
the agent of the limited partnership upon whom process served against the
limited partnership may be served. The post office address within or without New
York State to which the Secretary will mail a copy of any process against the
limited partnership served upon him is:
Smith Barney Futures Management Inc.
390 Greenwich Street - 1st floor
New York, New York 10013
Attention: David J. Vogel.
4. CT Corporation System, having a business address at 1633 Broadway, New
York, New York 10019, is hereby designated pursuant to section 121-105 of the
Revised Limited Partnership Act of New York, the registered agent of the limited
partnership upon whom process against the limited partnership may be served.
5. The name and business or residence address of each general partner is
as follows:
Smith Barney Futures Management Inc.
390 Greenwich Street - 1st floor
New York, New York 10013
6. The latest date upon which the limited partnership is to dissolve is:
<PAGE> 2
December 31, 2019
7. Additional information determined by the general partner to be
included:
None.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
25th day of August 1999, and affirms that the statements contained herein are
true under penalty of perjury.
General Partner
Smith Barney Futures Management Inc.
By: /s/ David J. Vogel
----------------------
David J. Vogel
President
-2-
<PAGE> 1
EXHIBIT 4.1
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L. P.
A NEW YORK LIMITED PARTNERSHIP
CERTIFICATE OF LIMITED PARTNERSHIP INTEREST
This is to certify that
is the owner of UNITS
of Limited Partnership interest in Salomon Smith Barney Diversified 2000 Futures
Fund L.P., a limited partnership organized and existing under the laws of the
State of New York, and that such Units are held pursuant to an Agreement of
Limited Partnership and are issued, owned, held and transferable subject to the
limitations, conditions and provisions of the Agreement of Limited Partnership
of the Partnership. No assignee or transferee of the Units of Limited
Partnership Interest represented hereby may become a substituted limited partner
in Salomon Smith Barney Diversified 2000 Futures Fund L. P. without the consent
of the General Partner, which consent may be withheld in the General Partner's
sole and absolute discretion.
IN WITNESS WHEREOF, Salomon Smith Barney Diversified 2000 Futures Fund L.
P. by its General Partner has issued this Certificate as evidence of the
ownership of the aforesaid Units of Limited Partnership Interest this day
of , 199 .
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L. P.
By: Smith Barney Futures Management Inc., its General Partner
<PAGE> 1
EXHIBIT 5.1
September 23, 1999
Salomon Smith Barney Diversified 2000 Futures Fund L. P.
c/o Smith Barney Futures Management Inc.
390 Greenwich Street - 1st Floor
New York, New York 10013
Re: Salomon Smith Barney Diversified 2000 Futures Fund L. P.
Ladies and Gentlemen:
We have acted as counsel for Salomon Smith Barney Diversified 2000 Futures Fund
L. P. (the "Partnership"), a limited partnership organized under the New York
Revised Limited Partnership Act (the "Act") in connection with the preparation
and filing with the Securities Exchange Commission under the Securities Act of
1933, as amended, of a Registration Statement on Form S-1 (the "Registration
Statement"), relating to 150,000 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 limited partners of the Partnership,
(iii) the payment by each Limited Partner to the Partnership of the full
consideration due from him or 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
<PAGE> 2
Salomon Smith Barney
Diversified 2000 Futures Fund L.P.
September 23, 1999
Page 2
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 issued 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,
/s/ Willkie Farr & Gallagher
<PAGE> 1
EXHIBIT 8.1
September 23, 1999
Salomon Smith Barney Diversified 2000 Futures Fund L.P.
c/o Smith Barney Futures Management Inc.
390 Greenwich Street - 1st floor
New York, New York 10013
Re: Salomon Smith Barney Diversified 2000 Futures Fund L.P.
Ladies and Gentlemen:
We have acted as counsel for Salomon Smith Barney Diversified 2000 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 150,000 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 will 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 "Federal 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. No tax ruling has been obtained
from the Internal Revenue Service confirming this treatment and the general
partner of the Partnership does not intend to request such a ruling.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
EXHIBIT 10.1
CUSTOMER AGREEMENT
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L. P.
This Agreement made and entered into as of the ____ day of
September, 1999, by and between SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES
FUND L. P., a New York limited partnership (the "Partnership"), and SALOMON
SMITH BARNEY INC., a Delaware corporation ("SSB").
W I T N E S S E T H :
WHEREAS, the Partnership has been organized to engage in the
speculative trading of commodity interests, including, but not limited to,
futures contracts, options and forward contracts; and
WHEREAS, the Partnership and SSB wish to enter into this
Agreement setting forth the terms and conditions upon which SSB will perform
brokerage and other services for the Partnership;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, it is agreed as follows:
1. Appointment of Broker/Dealer and Opening of Account. The
Partnership hereby appoints SSB as its commodity broker/dealer through whom the
Partnership will execute trades in commodity interests including futures
contracts, options and forward contracts. As soon as practicable following the
conclusion of the Initial Offering Period (as defined in the Selling Agreement)
of the units of limited partnership interest in the Partnership (the "Units"),
provided at least 15,000 Units are sold, the Partnership shall deposit or cause
to be deposited the partners' capital contributions in a commodity brokerage
account with SSB, and will maintain all of its assets, as they from time to time
exist, in such account except for such amounts as may be necessary or desirable
to be maintained in a bank account to facilitate the payment of Partnership
expenses, redemptions or distributions. The Partnership shall execute such other
documents as shall be necessary or appropriate to permit SSB to perform its
services hereunder.
2. Services of SSB. SSB agrees to use its best efforts to
effect transactions for the Partnership's account and agrees to assist the
Partnership or its general partner, Smith Barney Futures Management Inc. (the
"General Partner"), in (a) calculating the Partnership's Net Assets and Net
Asset Value (as such terms are defined in the Partnership's Limited Partnership
Agreement) at such times as may be required, (b) calculating any fees due the
Partnership's trading advisors (the "Advisors"; each individually an "Advisor"),
(c) preparing and confirming financial information for annual or interim audits
and reports and (d) establishing procedures for effecting redemptions, cash
<PAGE> 2
distributions and the liquidation of the Partnership upon termination. SSB
further agrees to furnish clerical and bookkeeping support for the
administration of the Partnership.
3. (a) Brokerage and Other Fees. The Partnership shall pay to
SSB a monthly brokerage fee equal to 9/20 of 1% of month-end Net Assets of the
Partnership allocated to the Advisors (5.4% per year) in lieu of brokerage
commissions on a per trade basis. The Partnership shall also pay all National
Futures Association, exchange, clearing, user, give-up, and floor brokerage
fees, or shall reimburse SSB for all such fees previously paid by SSB on behalf
of the Partnership. This fee may be increased or decreased at any time at SSB's
discretion upon notice to the Partnership.
(b) Reimbursement of Offering Expenses. The Partnership shall
reimburse SSB for the total amount of the offering and organizational expenses
of the Initial Offering Period, plus interest at the prime rate quoted by The
Chase Manhattan Bank in equal installments over the first 24 months after
trading commences.
4. Payment of Interest. All of the assets of the Partnership
which are deposited in the Partnership's accounts at SSB will be deposited and
maintained in cash. During the term of this Agreement, SSB will, within ten (10)
days following the end of each calendar month, credit the Partnership's
brokerage accounts with a sum representing interest on eighty percent (80%) of
the average daily equity maintained in cash in such accounts during such 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 SSB 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 equity maintained in
cash in the account on Saturdays, Sundays and holidays shall be the equity
maintained in cash in the account as of the close of business on the next
preceding business day.
5. Trading Authorization. The General Partner has entered into
Management Agreements with each of Beacon Management Corporation, Bridgewater
Associates, Inc., Campbell & Company Inc. and Rabar Market Research as the
Partnership's Advisors pursuant to which the Advisor shall have discretion to
order purchases and sales of commodity interests including futures contracts,
options and forward contracts. SSB is hereby authorized to execute all orders
placed by the Advisors for the account of the Partnership until notified by the
General Partner to the contrary, and shall have no obligation to inquire into
the reason for or method of determining such orders, nor any obligation to
monitor such orders in relation to the Partnership's trading policies. The
provisions of this Paragraph
2
<PAGE> 3
5 shall apply with equal force and effect to any other commodity trading advisor
designated in the future by the General Partner.
6. Terms of the Account. The following terms and conditions
shall be applicable to the Partnership's account:
(a) The word "property" is used herein to mean securities of
all kinds, monies, options, commodities and contracts for the future delivery
of, or otherwise relating to, commodities or securities and all property usually
and customarily dealt in by brokerage firms.
(b) All transactions for the Partnership's account shall be
subject to the regulations of all applicable federal, state and self-regulatory
agencies including, but not limited to, the various commodity exchanges and the
constitution, rules and customs, as the same may be constituted from time to
time, of the exchange or market (and its clearing house, if any) where executed.
Actual deliveries are intended on all transactions. The Partnership also agrees
not to exceed the speculative position limits for its own account, acting alone
or in concert with others, and promptly to advise SSB if it is required to file
reports of its commodity positions with the Commodity Futures Trading
Commission.
(c) Any and all property belonging to the Partnership, or in
which it may have an interest, held by SSB or carried in the Partnership's
account (either individually or jointly with others) shall be subject to a
general lien for the discharge of the Partnership's obligations to SSB, wherever
or however arising and without regard to whether or not SSB has made advances
with respect to such property, and SSB is hereby authorized to sell and/or
purchase any and all property in the Partnership's account without notice to
satisfy such general lien.
(d) The Partnership agrees to maintain such collateral and/or
margin as SSB may, in its discretion, require from time to time and will pay on
demand any amount owing with respect to its account. Against a "short" position
in any commodity contract, prior to the maturity thereof, the Partnership will
give SSB instructions to cover, or furnish SSB with all necessary delivery
documents, and in default thereof, SSB may, without demand or notice, cover the
contracts, or if an order to buy in such contracts cannot be executed under
prevailing conditions, SSB may procure the actual commodity and make delivery
thereof upon any terms and by any method which may be feasible. It is further
agreed that if the Partnership fails to receive sufficient funds to pay for any
commodities and commodity futures contracts and/or to satisfy any demands for
original and/or variation margin, SSB may, without prior demand and notice, sell
any property held by it in the Partnership's account and any loss resulting
therefrom will be charged to the Partnership's account.
3
<PAGE> 4
(e) SSB may, whenever in its discretion it considers it
necessary for its protection, sell any or all property held in the Partnership's
account, cancel any open orders for the purchase or sale of any property with or
without notice to the Partnership, and SSB may borrow or buy in any property
required to make delivery against any sales, including a short sale, effected
for the Partnership. Such sale or purchase may be public or private and may be
made without advertising or notice to the Partnership and in such manner as SSB
may, in its discretion, determine, and no demands, calls, tenders or notices
which SSB may make or give in any one or more instances shall invalidate the
aforesaid waiver on the Partnership's part. At any such sale SSB may purchase
the property free of any right of redemption and the Partnership shall be liable
for any deficiency in its account.
(f) SSB and the Partnership agree that the parties shall 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.
(g) The Partnership agrees to pay service fees and/or
interest charges upon its account monthly at the prevailing and/or allowable
rates according to the laws of the State of New York, as determined by SSB at
the time of the acceptance of this Agreement in its New York office and
thereafter.
(h) If any provisions herein are or should become
inconsistent with any present or future law, rule or regulation of any sovereign
government or a regulatory body having jurisdiction over the subject matter of
this Agreement, such provision shall be deemed to be rescinded or modified in
accordance with any such law, rule or regulation. In all other respects, this
Agreement shall continue and remain in full force and effect.
(i) The Fund hereby consents that SSB, its agents, or floor
brokers handling SSB orders, may, without prior notice, execute the Fund's
orders in which SSB's directors, officers, employees, agents, or the floor
broker, may directly or indirectly, become the buyer to Fund's sell order or the
seller to Fund's buy order, provided that such executions are made in accordance
with applicable exchange rules and any applicable provisions of the Commodity
Exchange Act or regulations of the CFTC.
7. Indemnification. (a) In any action, suit, or proceeding to
which SSB was or is a party or is threatened to be made a party by reason of the
fact that it is or was the commodity broker for the Partnership (other than an
action by or in the right of the Partnership), the Partnership shall indemnify
and hold harmless SSB, subject to subparagraph (c), against any loss, liability,
damage, cost, expense (including attorneys' fees and accountants' fees),
judgments and amounts paid in settlement
4
<PAGE> 5
actually and reasonably incurred by it in connection with such action, suit or
proceeding if SSB acted in good faith and in a manner it reasonably believed to
be in the best interests of the Partnership, except that no indemnification
shall be made in respect of any claim, issue or matter which as to SSB
constituted negligence, misconduct or breach of its fiduciary obligations to the
Partnership, 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, SSB 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 Partnership if such indemnification is prohibited by Section
16 of the Partnership Agreement. The termination of any action, suit or
proceeding by judgment, order or settlement shall not, of itself, create a
presumption that SSB did not act in good faith, and in a manner which it
reasonably believed to be in or not opposed to the best interests of the
Partnership.
(b) To the extent that SSB has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subparagraph (a) above, or in defense of any claim, issue or matter therein, the
Partnership shall indemnify it against the expenses, including attorneys' fees,
actually and reasonably incurred by it in connection therewith.
(c) Any indemnification under subparagraph (a) above, unless
ordered by a court, shall be made by the Partnership only as authorized in the
specific case and only upon a determination by independent legal counsel in a
written opinion that indemnification is proper in the circumstances because SSB
has met the applicable standard of conduct set forth in subparagraph (a) above.
(d) The term SSB as used in this Paragraph 7 shall include
SSB, its officers, directors, stockholders, employees and affiliates.
8. Termination. This Agreement may be terminated at any time
by either party hereto upon notice to the other, in which event the brokerage
accounts shall be closed and all positions open at such time shall be liquidated
or shall be transferred to another broker as directed by the Partnership.
5
<PAGE> 6
9. Miscellaneous. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. This Agreement shall be governed by the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above written.
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND
L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By:
-------------------------------------
David J. Vogel
President and Director
SALOMON SMITH BARNEY INC.
By:
-------------------------------------
Name:
Title:
6
<PAGE> 1
EXHIBIT 10.3
ESCROW AGREEMENT
TO: European American Bank
335 Madison Avenue
New York, New York 10017
Attention: Financial Institutions North America
The following property is to be deposited with you as Escrow
Agent in one or more Money Market Accounts which shall be entitled "Salomon
Smith Barney Diversified 2000 Futures Fund L.P." (Escrow Accounts):
All proceeds of subscriptions (the "Escrow Property") for
Units of Limited Partnership Interest ("Units") in SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P., a New York limited partnership (the
"Partnership"), received by Salomon Smith Barney Inc. ("SSB"), Selling Agent for
the Partnership, or additional selling agents appointed by SSB. SSB shall
deliver to all such prospective subscribers interim receipts for the amount of
the funds deposited in this escrow.
As Escrow Agent, you are hereby directed to hold, deal with
and dispose of the Escrow Property and any other property at any time held by
you hereunder subject to the terms and conditions hereinafter set forth:
1. During the Initial Offering Period (as defined in Paragraph
6 below), all Escrow Property (up to the collected balances in the account or
accounts and as the balances become collected in the account or accounts)
deposited with the Escrow Agent and any interest earned thereon (which shall
also be part of the Escrow Property) shall be paid over and delivered to the
Partnership as directed by written notice by Smith Barney Futures Management
Inc., general partner of the Partnership (the "General Partner"), as soon as
practicable after receipt by the Escrow Agent of such written notice in
accordance with Paragraph 2 below. In the event the General Partner has directed
you to operate two bank money market accounts for the Partnership, such request
shall specify the account from which the Escrow Property should be paid over and
delivered to the Partnership.
2. If subscriptions for Units in the aggregate value of
$15,000,000 have been received during the Initial Offering Period (as defined in
Paragraph 6 below), as evidenced by an affidavit of the General Partner
attesting to said fact, the Escrow Property shall be paid over and delivered to
the Partnership as soon as practicable after the receipt of the written request
of the General Partner. Any interest earned on the Escrow Property (which shall
also be part of the Escrow Property) shall be returned by the General Partner
directly to each subscriber in proportion to their respective subscriptions and
to the period their respective subscriptions were held in escrow. During the
Continuous Offering Period (as defined in Paragraph 6 below), all Escrow
Property deposited with the Escrow
<PAGE> 2
Agent and any interest earned thereon (which shall also be part of the Escrow
Property) shall be paid over and delivered to the Partnership on the first day
of the month succeeding the request. Any such request shall be made sufficiently
in advance of the first day of a month to provide sufficient time for the Escrow
Agent to process the request for delivery to the Partnership on the first day of
the month. If subscriptions for Units in the aggregate value of $15,000,000 have
not been received during the Initial Offering Period, as evidenced by an
affidavit of the General Partner attesting to said fact, the Escrow Property
will be paid over and delivered by the Escrow Agent directly to subscribers as
soon as practicable after receipt of written directions from the General
Partner.
3. Prior to delivery of the Escrow Property to the Partnership
as described in Paragraph 2 above, the Partnership 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 the
Partnership.
4. The Escrow Agent shall cause all funds deposited with it
pursuant to this Escrow Agreement to be maintained and invested as the General
Partner shall from time to time direct by written instructions delivered to the
Escrow Agent, in an interest-bearing money market account or accounts, which can
be readily liquidated on twenty-four hours notice, in an amount equal to the
collected balances in the account or accounts, as permitted under the Securities
and Exchange Commission's Rule 240.15c2-4.
5. Within 15 days of receipt of a subscription agreement, the
General Partner may notify the Escrow Agent that a subscription agreement of a
subscriber has not been accepted, and the General Partner may direct the Escrow
Agent by written instruction to return any funds held in the escrow for the
benefit of such subscriber directly to such subscriber, together with such
subscriber's proportionate share of any interest earned on the Escrow Property
during the period such funds were held in the escrow.
6. The Initial Offering Period for the Units shall mean a
period of 90 days commencing on the date the Partnership's Registration
Statement is declared effective unless the General Partner terminates the
offering at an earlier date or extends the Initial Offering Period for up to an
additional 60 days in which case the Initial Offering Period shall mean such
period as so terminated or extended. The General Partner shall provide the
Escrow Agent with prompt written notice of any such termination or extension.
The Continuous Offering Period for the Units shall mean a period commencing on
the termination of the Initial Offering Period (if at least 15,000 Units are
sold during the Initial Offering Period) and ending upon the sale of 150,000
Units.
-2-
<PAGE> 3
7. Any of the persons whose names and signatures appear on
Schedule 1 annexed hereto are authorized by the General Partner to deliver any
instruction or notice to the Escrow Agent required or permitted by this Escrow
Agreement.
8. (a) As Escrow Agent hereunder, you shall have no duties or
responsibilities except those expressly set forth herein. The Escrow Agent shall
act hereunder merely as a depository and in a ministerial capacity. The Escrow
Agent shall not be deemed to be a trustee for any person. In the event checks
are received which represent proceeds of subscriptions, Escrow Agent will
deposit the checks for collection, but shall be under no duty to enforce the
collection of any check. The Escrow Agent shall not be responsible for the form,
terms, validity or negotiability of the checks, the validity of any signature on
any check, or the authority of any person to sign or issue any check.
(b) The Escrow Agent may consult with counsel and shall be
fully protected with respect to any action taken or omitted by it in good faith
on advice of counsel and you shall have no liability hereunder except for your
bad faith or negligence. You shall have no responsibility as to the validity or
value of the Escrow Property and you may rely on any certificate, statement,
request, consent, agreement or other instrument which you believe to be genuine
and to have been signed or presented by a proper person or persons. You shall
not be bound by any modification of this Escrow Agreement unless in writing and
signed by all parties hereto and actually received by you and, if your duties as
Escrow Agent hereunder are affected, unless you shall have given prior written
consent thereto. In the event that you shall be uncertain as to your duties or
rights hereunder or shall receive instructions from any of the undersigned with
respect to the Escrow Property which, in your opinion, are in conflict with any
of the provisions of this Escrow Agreement, you shall be entitled to refrain
from taking any action other than to retain the Escrow Property until you shall
be directed otherwise in writing by the unanimous consent of the parties hereto
or by final order of a court of competent jurisdiction.
(c) The Escrow Agent may, at its own discretion, refuse to
accept any deposits lacking the required documentation or containing
discrepancies.
(d) In any event when the Escrow Agent receives disbursement
instructions, it is expressly understood and agreed that the Escrow Agent shall
not be required to make any such disbursement until such amount is, to the
Escrow Agent's satisfaction, available in cleared funds. Further, in no event
shall the aggregate amount of payments made by the Escrow Agent exceed the
amount of Escrow Property.
9. Any notice which the Escrow Agent is required or desires to
give hereunder to any of the undersigned shall be in
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<PAGE> 4
writing and shall be deemed to have been duly given on the date of service if
served personally on the party to whom notice is to be given, on the following
day if given by telegram, or on the third day after mailing if mailed to the
party to whom notice is to be given by first class mail, registered or certified
with return receipt requested, postage prepaid, and properly addressed as
follows:
To: Salomon Smith Barney Diversified 2000 Futures Fund L.P. and
Smith Barney Futures Management Inc.
390 Greenwich Street - 1st floor
New York, New York 10013
Attention: Mr. David J. Vogel
To: Salomon Smith Barney Inc.
390 Greenwich Street - 1st floor
New York, New York 10013
Attention: Mr. David J. Vogel
Notices to the Escrow Agent shall be in writing and shall not be deemed to be
given until actually received by the Escrow Agent. Whenever under the terms
hereof the time for giving a notice or performing an act falls upon a Saturday,
Sunday or bank holiday, such time shall be extended to the Escrow Agent's next
business day.
10. If any property subject hereto is at any time attached,
garnished or levied upon, shall become or be the subject of any court order, or
in case the payment, assignment, transfer, conveyance or delivery of the Escrow
Property shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by any court affecting such
property, or any part thereof, then in any of such events the Escrow Agent is
authorized, in its sole discretion, to rely upon and comply with any such order,
writ, judgment or decree, which it is advised by legal counsel of its own
choosing, is binding upon it, and if it complies with any such order, writ,
judgment or decree, it shall not be liable to any of the parties hereto or to
any other person, firm, or corporation for any losses, claims, costs, payments
or expenses by reason of such compliance, even though such order, writ, judgment
or decree may be subsequently reversed, modified, annulled, set aside or
vacated.
11. The Escrow Agent may resign by giving ten (10) days'
written notice to the undersigned, and thereafter shall deliver the Escrow
Property to a successor escrow agent acceptable to all parties hereto, which
acceptance shall be evidenced by the joint written and signed order of the
undersigned. If no such order is received by the Escrow Agent by such
resignation date, the obligations of the Escrow Agent shall nevertheless cease
and terminate and the Escrow Agent is
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<PAGE> 5
unconditionally and irrevocably authorized and empowered to send the Escrow
Property by registered or certified mail to the respective subscribers thereof.
12. SSB shall reimburse the Escrow Agent for all out-of-pocket
expenses (including, without limitation, New York taxes and other governmental
charges) incurred by you in connection with your duties hereunder and shall
indemnify you against and save you harmless against any and all claims,
liabilities, costs, payments and expenses, including fees of counsel (who may be
selected by you), for anything done or omitted by you in the performance of this
Agreement, except as a result of your own negligence or bad faith, and you shall
have a lien on the Escrow Property for the amount thereof. All such fees and
expenses shall be paid by SSB.
13. In addition, SSB agrees to pay the Escrow Agent an Escrow
Agent fee of $2,500 per Escrow Account established. Additionally, SSB agrees to
pay applicable fees as set forth in Schedules 2 and 3 annexed hereto.
14. In the event that any checks or other instruments
deposited in the account or accounts established to hold the Escrow Property
prove uncollectible after the funds represented thereby have been released
pursuant to the Agreement, SSB shall promptly reimburse the Escrow Agent
therefor upon request, and the Escrow Agent shall deliver the returned checks or
other instruments to SSB.
15. Nothing in this Agreement is intended to or shall confer
upon anyone other than the parties hereto any legal or equitable right, remedy
or claim. This Agreement shall be governed by, and its provisions construed in
accordance with, the laws of the State of New York, and may be modified only in
writing executed by all parties hereto.
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<PAGE> 6
16. This Agreement may be executed in one or more
counterparts, but in such event each counterpart shall constitute an original
and all of such counterparts shall constitute one Agreement.
Dated as of September ___, 1999
Parties to the Escrow
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P.
By: Smith Barney
Futures Management Inc.,
General Partner
By
--------------------------------
SMITH BARNEY FUTURES
MANAGEMENT INC.
By
--------------------------------
SALOMON SMITH BARNEY INC.
By
--------------------------------
ACCEPTED:
EUROPEAN AMERICAN BANK
By
--------------------------------
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<PAGE> 7
SCHEDULE 1
<TABLE>
<CAPTION>
Name Title Signature
---- ----- ---------
<S> <C> <C>
David J. Vogel President and _______________
Director
Daniel R. McAuliffe, Jr. Director _______________
Daniel A. Dantuono Treasurer,
Director and Chief
Financial Officer _______________
</TABLE>
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<PAGE> 1
EXHIBIT 10.4
MANAGEMENT AGREEMENT
AGREEMENT made as of the 24th day of August 1999 among SMITH BARNEY
FUTURES MANAGEMENT INC., a Delaware corporation ("SBFM"), SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P., a New York limited partnership (the
"Partnership") and BEACON MANAGEMENT CORPORATION (USA), a Delaware corporation
(the "Advisor").
W I T N E S S E T H :
WHEREAS, SBFM is the general partner of Salomon Smith Barney Diversified
2000 Futures Fund L.P. a limited partnership organized for the purpose of
speculative trading of commodity interests, including futures contracts, options
and forward contracts with the objective of achieving substantial capital
appreciation; and
WHEREAS, the Limited Partnership Agreement establishing the Partnership
(the "Limited Partnership Agreement") permits SBFM to delegate to one or more
commodity trading advisors SBFM's authority to make trading decisions for the
Partnership; and
WHEREAS, the Advisor is registered as a commodity trading advisor with
the Commodity Futures Trading Commission ("CFTC") and is a member of the
National Futures Association ("NFA"); and
WHEREAS, SBFM is registered as a commodity pool operator with the CFTC
and is a member of the NFA; and
WHEREAS, SBFM, the Partnership and the Advisor wish to enter into this
Agreement in order to set forth the terms and conditions upon which the Advisor
will render and implement advisory services in connection with the conduct by
the Partnership of its commodity trading activities during the term of this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. DUTIES OF THE ADVISOR. (a) Upon the commencement of trading operations
by the Partnership and for the period and on the terms and conditions of this
Agreement, the Advisor shall have sole authority and responsibility, as one of
the Partnership's agents and attorneys-in-fact, for directing the investment and
reinvestment of the assets and funds of the Partnership allocated to it by the
General Partner in commodity interests, including commodity futures contracts,
options and forward contracts. All such trading on behalf of the Partnership
<PAGE> 2
shall be in accordance with the trading strategies and trading policies set
forth in the Prospectus and Disclosure Document to be dated on or about
September 1, 1999, as supplemented (the "Memorandum"), and as such trading
policies may be changed from time to time upon receipt by the Advisor of prior
written notice of such change and pursuant to the trading strategy selected by
SBFM to be utilized by the Advisor in managing the Partnership's assets. SBFM
has initially selected the Advisor's Meka Program to manage the Partnership's
assets allocated to it. Any open positions or other investments at the time of
receipt of such notice of a change in trading policy shall not be deemed to
violate the changed policy and shall be closed or sold in the ordinary course of
trading. The Advisor may not deviate from the trading policies set forth in the
Prospectus without the prior written consent of the Partnership given by SBFM.
The Advisor makes no representation or warranty that the trading to be directed
by it for the Partnership will be profitable or will not incur losses.
(b) SBFM acknowledges receipt of the Advisor's Disclosure Document dated
February 1, 1999 as filed with the NFA and the CFTC. All trades made by the
Advisor for the account of the Partnership shall be made through such commodity
broker or brokers as SBFM shall direct, and the Advisor shall have no authority
or responsibility for selecting or supervising any such broker in connection
with the execution, clearance or confirmation of transactions for the
Partnership or for the negotiation of brokerage rates charged therefor. However,
the Advisor, with the prior written permission (by either original or fax copy)
of SBFM (such permission not to be unreasonably withheld), may direct all trades
in commodity futures and options to a futures commission merchant or independent
floor broker it chooses for execution with instructions to give-up the trades to
the broker designated by SBFM, provided that the futures commission merchant or
independent floor broker and any give-up or floor brokerage fees are approved in
advance by SBFM (such permission not to be unreasonably withheld). All give-up
or similar fees relating to the foregoing shall be paid by the Partnership after
all parties have executed the relevant give-up agreements (by either original or
fax copy). SBFM will cause the Partnership's commodity brokers to provide the
Advisor with copies of all confirmation, purchase and sale, monthly and similar
statements at the time such statements are available to SBFM.
(c) The initial allocation of the Partnership's assets to the Advisor
will be made to the Advisor's Meka Program. In the event the Advisor wishes to
use a trading system or methodology other than or in addition to the system
or methodology outlined in the Prospectus in connection with its trading for
the Partnership, either in whole or in part, it may not do so unless the
Advisor gives SBFM prior written notice of its intention to utilize such
different trading system or methodology and SBFM consents thereto in writing
which consent
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<PAGE> 3
shall not be unreasonably withheld. In addition, the Advisor will provide five
days' prior written notice to SBFM of any change in the trading system or
methodology to be utilized for the Partnership which the Advisor deems material.
If the Advisor deems such change in system or methodology or in markets traded
to be material, the changed system or methodology or markets traded will not be
utilized for the Partnership without the prior written consent of SBFM which
consent shall not be unreasonably withheld. In addition, the Advisor will notify
SBFM of any changes to the trading system or methodology that would require a
change in the description of the trading strategy or methods described in the
Prospectus. Further, the Advisor will provide the Partnership with a current
list of all commodity interests to be traded for the Partnership's account. The
Advisor also agrees to provide SBFM, on a monthly basis, with a written report
of the assets under the Advisor's management in an agreed upon format together
with all other matters deemed by the Advisor to be material changes to its
business not previously reported to SBFM. The Advisor further agrees that it
will convert foreign currency balances (not required to margin positions
denominated in a foreign currency) to U.S. dollars no less frequently than
monthly. U.S. dollar equivalents in individual foreign currencies of more than
$100,000 will be converted to U.S. dollars within one business day after such
funds are no longer needed to margin foreign positions.
(d) The Advisor agrees to make all material disclosures to the
Partnership regarding itself and its principals as defined in Part 4 of the
CFTC's regulations ("principals"), shareholders, directors, officers and
employees, their trading performance and general trading methods, its customer
accounts (but not the identities of or identifying information with respect to
its customers) and otherwise as are required in the reasonable judgment of SBFM
to be made in any filings required by Federal or state law or NFA rule or order.
Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor is not
required to disclose the actual trading results of proprietary accounts of the
Advisor or its principals. The Partnership and SBFM acknowledge that the trading
advice to be provided by the Advisor is a property right belonging to the
Advisor and that they will keep all such advice confidential, and agree that
such advice shall not be disclosed to third parties without the prior written
consent of the Advisor. Nothing in this Agreement shall require the Advisor to
disclose the non-public details of its strategies.
(e) The Advisor understands and agrees that SBFM may designate other
trading advisors for the Partnership and apportion or reapportion to such other
trading advisors the management of an amount of Net Assets (as defined in
Section 3(b) hereof) as it shall determine in its absolute discretion. The
designation of other trading advisors and the apportionment or reapportionment
of Net Assets to any such trading advisors pursuant to this Section 1 shall
neither terminate this Agreement
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<PAGE> 4
nor modify in any regard the respective rights and obligations of the parties
hereunder.
(f) SBFM may, from time to time, in its absolute discretion, select
additional trading advisors and reapportion funds among the trading advisors for
the Partnership as it deems appropriate. SBFM shall use its best efforts to make
reapportionments, if any, as of the first day of a month. The Advisor agrees
that it may be called upon at any time promptly to liquidate positions in SBFM's
sole discretion so that SBFM may reallocate the Partnership's assets, meet
margin calls on the Partnership's account, fund redemptions, or for any other
reason, except that SBFM will not require the liquidation of specific positions
by the Advisor. SBFM will use its best efforts to give two days' prior notice to
the Advisor of any reallocations or liquidations and to require such
reallocations or liquidations only at month end.
(g) The Advisor will not be liable for trading losses in the
Partnership's account including losses caused by errors; provided, however, that
(i) the Advisor will be liable to the Partnership with respect to losses
incurred due solely and directly to errors committed or caused by it or any of
its principals or employees in communicating trading instructions or orders to
any broker on behalf of the Partnership and (ii) the Advisor will be liable to
the Partnership with respect to losses incurred due to errors committed or
caused by any executing broker (other than Salomon Smith Barney Inc. or any of
its affiliates) selected by the Advisor (it also being understood that SBFM,
with the assistance of the Advisor, will first attempt to recover such losses
from the executing broker).
2. INDEPENDENCE OF THE ADVISOR. For all purposes herein, the Advisor
shall be deemed to be an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Partnership in any way and shall not be deemed an agent, promoter or sponsor of
the Partnership, SBFM, or any other trading advisor. The Advisor shall not be
responsible to the Partnership, SBFM, any trading advisor or any limited
partners for any acts or omissions of any other trading advisor to the
Partnership.
3. COMPENSATION. (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 at
the end of each calendar year equal to 20% 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 1/6 of 1% (2% per year) of the
month-end Net Assets of the Partnership allocated to the Advisor.
(b) "Net Assets" shall have the meaning set forth in Paragraph 7(d)(1) of
the Limited Partnership Agreement to be
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<PAGE> 5
dated on or about August 27, 1999 and without regard to further amendments
thereto, provided that in determining the Net Assets of the Partnership on any
date, no adjustment shall be made to reflect any distributions, redemptions or
incentive fees payable as of the date of such determination.
(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 fiscal period with the highest previous ending
level 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. Ongoing expenses will be attributed to the
Advisor based on the Advisor's proportionate share of Net Assets. Ongoing
expenses above will not include expenses of litigation not involving the
activities of the Advisor on behalf of the Partnership. For purposes of
calculating New Trading Profits, ongoing expenses will not include offering and
organizational expenses of the Partnership. The first incentive fee shall be
paid as of the end of the calendar year in which trading commences, which fee
shall be based on New Trading Profits earned from the commencement of trading
operations by the Partnership through the end of the calendar year. 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, distributions or reallocations (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.
(d) Annual incentive fees and monthly management fees shall be paid
within twenty (20) business days following the end of the period, as the case
may be, for which such fee is payable. In the event of the termination of this
Agreement as of any date which shall not be the end of a fiscal year or a
calendar month, as the case may be, the annual incentive fee shall be computed
as if the effective date of termination were the last day of the then current
year and the monthly management fee shall be prorated to the effective date of
termination.
(e) The provisions of this Paragraph 3 shall survive the termination of
this Agreement.
4. RIGHT TO ENGAGE IN OTHER ACTIVITIES. (a) The services provided by the
Advisor hereunder are not to be deemed exclusive. SBFM on its own behalf and on
behalf of the
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<PAGE> 6
Partnership acknowledges that, subject to the terms of this Agreement, the
Advisor and its officers, directors, employees and shareholder(s), may render
advisory, consulting and management services to other clients and accounts. The
Advisor and its officers, directors, employees and shareholder(s) shall be free
to trade for their own accounts and to advise other investors and manage other
commodity accounts during the term of this Agreement and to use the same
information, computer programs and trading strategies, programs or formulas
which they obtain, produce or utilize in the performance of services to SBFM for
the Partnership. However, the Advisor represents, warrants and agrees that it
believes the rendering of such consulting, advisory and management services to
other accounts and entities, to the best of its present knowledge, will not
require any material change in the Advisor's basic trading strategies and will
not affect the capacity of the Advisor to continue to render services to SBFM
for the Partnership of the quality and nature contemplated by this Agreement.
(b) If, at any time during the term of this Agreement, the Advisor is
required to aggregate the Partnership's commodity positions with the positions
of any other person for purposes of applying CFTC- or exchange-imposed
speculative position limits, the Advisor agrees that it will promptly notify
SBFM if the Partnership's positions are included in an aggregate amount which
exceeds the applicable speculative position limit. The Advisor agrees that, if
its trading recommendations are altered because of the application of any
speculative position limits, it will not modify the trading instructions with
respect to the Partnership's account in such manner as to affect the Partnership
substantially disproportionately as compared with the Advisor's other accounts.
The Advisor further represents, warrants and agrees that it will not knowingly
or deliberately favor any client or account managed by it over any other client
or account in any manner, it being acknowledged, however, that different trading
strategies or methods may be utilized for differing sizes of accounts, accounts
with different trading policies, 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, and that such
differences may cause divergent trading results.
(c) It is acknowledged that the Advisor and/or its officers, employees,
directors and shareholder(s) presently act, and it is agreed that they may
continue to act, as advisor for other accounts managed by them, and may continue
to receive compensation with respect to services for such accounts in amounts
which may be more or less than the amounts received from the Partnership.
(d) The Advisor agrees that it shall make such information available to
SBFM respecting the performance of the
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<PAGE> 7
Partnership's account as compared to the performance of other pool accounts
managed by the Advisor or its principals using the same strategy as shall be
reasonably requested by SBFM. The Advisor presently believes and represents that
existing speculative position limits will not materially adversely affect its
ability to manage the Partnership's account given the potential size of the
Partnership's account and the Advisor's and its principals' current accounts and
all proposed accounts for which they have contracted to act as trading manager.
5. TERM. (a) This Agreement shall continue in effect until June 30, 2000.
SBFM may, in its sole discretion, renew this Agreement for additional one-year
periods upon notice to the Advisor not less than 30 days prior to the expiration
of the previous period. At any time during the term of this Agreement, SBFM may
terminate this Agreement at any month-end upon 30 days' notice to the Advisor.
At any time during the term of this Agreement, SBFM may elect to immediately
terminate this Agreement upon 30 days' notice to the Advisor if (i) the Net
Asset Value per Unit shall decline as of the close of business on any day to
$500 or less; (ii) the Net Assets allocated to the Advisor (adjusted for
redemptions, distributions, withdrawals or reallocations, 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 shall
vote to require SBFM to terminate this Agreement; (iv) the Advisor fails to
comply with the terms of this Agreement; (v) SBFM, in good faith, reasonably
determines that the performance of the Advisor has been such that SBFM's
fiduciary duties to the Partnership require SBFM to terminate this Agreement; or
(vi) SBFM reasonably believes that the application of speculative position
limits will substantially affect the performance of the Partnership. At any time
during the term of this Agreement, SBFM may elect immediately to terminate this
Agreement if (i) the Advisor merges, consolidates with another entity, sells a
substantial portion of its assets, or becomes bankrupt or insolvent, (ii) (ii)
Grant W. Schaumburg Jr. and Mark S. Stratton die, become incapacitated, leave
the employ of the Advisor, cease to control the Advisor or are otherwise not
managing the trading programs or systems of the Advisor, or (iii) the Advisor's
registration as a commodity trading advisor with the CFTC or its membership in
the NFA or any other regulatory authority, is terminated or suspended. This
Agreement will immediately terminate upon dissolution of the Partnership or upon
cessation of trading prior to dissolution.
(b) The Advisor may terminate this Agreement by giving not less than 30
days' notice to SBFM (i) in the event that the trading policies of the
Partnership as set forth in the Prospectus are changed in such manner that the
Advisor reasonably believes will adversely affect the performance of its trading
strategies; (ii) if liquidations are ordered pursuant to Section 1(f) above;
(iii) after June 30, 2000; (iv) in the event that SBFM or Partnership fails to
comply with the terms of this
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<PAGE> 8
Agreement; or (v) if the Advisor makes a material change in its trading strategy
or methodology used for the Partnership and SBFM does not consent to such
change. The Advisor may immediately terminate this Agreement if SBFM's
registration as a commodity pool operator or its membership in the NFA is
terminated or suspended.
(c) Except as otherwise provided in this Agreement, any termination of
this Agreement in accordance with this Paragraph 5 or Paragraph 1(e) shall be
without penalty or liability to any party, except for any fees due to the
Advisor pursuant to Section 3 hereof.
6. INDEMNIFICATION. (a)(i) In any threatened, pending or completed
action, suit, or proceeding to which the Advisor was or is a party or is
threatened to be made a party arising out of or in connection with this
Agreement or the management of the Partnership's assets by the Advisor or the
offering and sale of units in the Partnership, SBFM shall, subject to
subparagraph (a)(iii) of this Paragraph 6, indemnify and hold harmless the
Advisor against 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
Partnership, and provided that its conduct did not constitute negligence,
intentional misconduct, or a breach of its fiduciary obligations to the
Partnership as a commodity trading advisor, unless and only to the extent that
the court or administrative forum 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, 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 Partnership if such indemnification is prohibited by Section
16 of the Partnership Agreement. The termination of any action, suit or
proceeding by judgment, order or settlement shall not, of itself, create a
presumption that the Advisor did not act in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Partnership.
(ii) To the extent that the Advisor has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subparagraph (i) above, or in defense of any claim, issue or matter therein,
SBFM shall indemnify it against the expenses (including, without limitation,
attorneys' and accountants' fees) actually and reasonably incurred by it in
connection therewith.
(iii) Any indemnification under subparagraph (i) above, unless ordered by
a court or administrative forum, shall
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<PAGE> 9
be made by SBFM only as authorized in the specific case and only upon a
determination by independent legal counsel in a written opinion that such
indemnification is proper in the circumstances because the Advisor has met the
applicable standard of conduct set forth in subparagraph (i) above. Such
independent legal counsel shall be selected by SBFM in a timely manner, subject
to the Advisor's approval, which approval shall not be unreasonably withheld.
The Advisor will be deemed to have approved SBFM's selection unless the Advisor
notifies SBFM in writing, received by SBFM within five days of SBFM's
telecopying to the Advisor of the notice of SBFM's selection, that the Advisor
does not approve the selection.
(iv) In the event the Advisor is made a party to any claim, dispute or
litigation or otherwise incurs any loss or expense as a result of, or in
connection with, the Partnership's or SBFM's activities or claimed activities
unrelated to the Advisor, SBFM shall indemnify, defend and hold harmless the
Advisor against any loss, liability, damage, cost or expense (including, without
limitation, attorneys' and accountants' fees) incurred in connection therewith.
(v) As used in this Paragraph 6(a), the terms "Advisor" shall include the
Advisor, its principals, officers, directors, stockholders and employees and the
term "SBFM" shall include the Partnership.
(b)(i) The Advisor agrees to indemnify, defend and hold harmless SBFM,
the Partnership and their affiliates against any loss, liability, damage, cost
or expense (including, without limitation, attorneys' and accountants' fees),
judgments and amounts paid in settlement actually and reasonably incurred by
them (A) as a result of the material breach of any material representations and
warranties made by the Advisor in this Agreement, or (B) as a result of any act
or omission of the Advisor relating to the Partnership if there has been a final
judicial or regulatory determination or, in the event of a settlement of any
action or proceeding with the prior written consent of the Advisor, a written
opinion of an arbitrator pursuant to Paragraph 14 hereof, to the effect that
such acts or omissions violated the terms of this Agreement in any material
respect or involved negligence, bad faith, recklessness or intentional
misconduct on the part of the Advisor (except as otherwise provided in Section
1(g)).
(ii) In the event SBFM, the Partnership or any of their affiliates is
made a party to any claim, dispute or litigation or otherwise incurs any loss or
expense as a result of, or in connection with, the activities or claimed
activities of the Advisor or its principals, officers, directors, shareholder(s)
or employees unrelated to SBFM's or the Partnership's business, the Advisor
shall indemnify, defend and hold harmless SBFM, the Partnership or any of their
affiliates against any loss, liability, damage, cost or expense (including,
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<PAGE> 10
without limitation, attorneys' and accountants' fees) incurred in connection
therewith.
(c) In the event that a person entitled to indemnification under this
Paragraph 6 is made a party to an action, suit or proceeding alleging both
matters for which indemnification can be made hereunder and matters for which
indemnification may not be made hereunder, such person shall be indemnified only
for that portion of the loss, liability, damage, cost or expense incurred in
such action, suit or proceeding which relates to the matters for which
indemnification can be made.
(d) None of the indemnifications contained in this Paragraph 6 shall be
applicable with respect to default judgments, confessions of judgment or
settlements entered into by the party claiming indemnification without the prior
written consent, which shall not be unreasonably withheld, of the party
obligated to indemnify such party.
(e) The provisions of this Paragraph 6 shall survive the termination of
this Agreement.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Advisor represents and warrants that:
(i) All references to the Advisor and its principals in the Prospectus
are accurate in all material respects and as to them the Prospectus does not
contain any untrue statement of a material fact or omit to state a material fact
which is necessary to make the statements therein not misleading, except that
with respect to Table B in the Prospectus, this representation and warranty
extends only to the underlying data made available by the Advisor for the
preparation thereof and not to any hypothetical or pro forma adjustments.
Subject to such exception, all references to the Advisor and its principals in
the Prospectus will, after review and approval of such references by the Advisor
prior to the use of such Prospectus in connection with the offering of the
Partnership's units, be accurate in all material respects.
(ii) The information with respect to the Advisor set forth in the actual
performance tables in the Prospectus is based on all of the customer accounts
managed on a discretionary basis by the Advisor's principals and/or the Advisor
during the period covered by such tables and required to be disclosed therein.
(iii) The Advisor will be acting as a commodity trading advisor with
respect to the Partnership and not as a securities investment adviser and is
duly registered with the CFTC as a commodity trading advisor, is a member of the
NFA, and is in compliance with such other registration and licensing
requirements as shall be necessary to enable it to perform its
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obligations hereunder, and agrees to maintain and renew such registrations and
licenses during the term of this Agreement.
(iv) The Advisor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full power and
authority to enter into this Agreement and to provide the services required of
it hereunder.
(v) The Advisor will not, by acting as a commodity trading advisor to the
Partnership, breach or cause to be breached any undertaking, agreement,
contract, statute, rule or regulation to which it is a party or by which it is
bound which would materially limit or affect the performance of its duties under
this Agreement.
(vi) This Agreement has been duly and validly authorized, executed and
delivered by the Advisor and is a valid and binding agreement enforceable in
accordance with its terms.
(vii) At any time during the term of this Agreement that a prospectus
relating to the Units is required to be delivered in connection with the offer
and sale thereof, the Advisor agrees upon the request of SBFM to provide the
Partnership with such information as shall be necessary so that, as to the
Advisor and its principals, such prospectus is accurate.
(b) SBFM represents and warrants for itself and the Partnership that:
(i) The Prospectus (as from time to time amended or supplemented, which
amendment or supplement is approved by the Advisor as to descriptions of itself
and its actual performance) does not contain any untrue statement of a material
fact or omit to state a material fact which is necessary to make the statements
therein not misleading, except that the foregoing representation does not apply
to any statement or omission concerning the Advisor in the Prospectus, made in
reliance upon, and in conformity with, information furnished to SBFM by or on
behalf of the Advisor expressly for use in the Prospectus (it being understood
that the hypothetical and pro forma adjustments in Table B were not furnished by
the Advisor).
(ii) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to perform its obligations under this Agreement.
(iii) SBFM and the Partnership have the capacity and authority to enter
into this Agreement on behalf of the Partnership.
(iv) This Agreement has been duly and validly authorized, executed and
delivered on SBFM's and the
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Partnership's behalf and is a valid and binding agreement of SBFM and the
Partnership enforceable in accordance with its terms.
(v) SBFM will not, by acting as General Partner to the Partnership and
the Partnership will not, breach or cause to be breached any undertaking,
agreement, contract, statute, rule or regulation to which it is a party or by
which it is bound which would materially limit or affect the performance of its
duties under this Agreement.
(vi) It is registered as a commodity pool operator and is a member of the
NFA, and it will maintain and renew such registration and membership during the
term of this Agreement.
(vii) The Partnership is a limited partnership duly organized and validly
existing under the laws of the State of New York and has full power and
authority to enter into this Agreement and to perform its obligations under this
Agreement.
(c) The parties represent that they are using their best efforts to take
(and will continue to take) any necessary steps to remedy potential problems
that could occur in their respective computer applications as a result of the
change in the year from 1999 to 2000, commonly referred to as Year 2000
problems.
8. COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP.
(a) The Advisor agrees as follows:
(i) In connection with its activities on behalf of the Partnership, the
Advisor will comply with all applicable rules and regulations of the CFTC and/or
the commodity exchange on which any particular transaction is executed.
(ii) The Advisor will promptly notify SBFM of the commencement of any
material suit, action or proceeding involving it, whether or not any such suit,
action or proceeding also involves SBFM.
(iii) In the placement of orders for the Partnership's account and for
the accounts of any other client, the Advisor will utilize a pre-determined,
systematic, fair and reasonable order entry system, which shall, on an overall
basis, be no less favorable to the Partnership than to any other account managed
by the Advisor. The Advisor acknowledges its obligation to review the
Partnership's positions, prices and equity in the account managed by the Advisor
daily and within two business days to notify, in writing, the broker and SBFM
and the Partnership's brokers of (i) any error committed by the Advisor or its
principals or employees; (ii) any trade which the Advisor believes was not
executed in accordance with its instructions; and (iii) any discrepancy with a
value of $10,000 or more (due to differences in the positions, prices or equity
in the account)
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between its records and the information reported on the account's daily and
monthly broker statements.
(iv) The Advisor will demonstrate to SBFM's satisfaction its ability to
bear its responsibilities arising under this Agreement, by causing the
Promissory Note attached hereto as Rider A to be executed.
(b) SBFM agrees for itself and the Partnership that:
(i) SBFM and the Partnership will comply with all applicable laws, rules
and regulations including those of the CFTC and/or the commodity exchange on
which any particular transaction is executed.
(ii) SBFM will promptly notify the Advisor of the commencement of any
material suit, action or proceeding involving it or the Partnership, whether or
not such suit, action or proceeding also involves the Advisor.
9. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof.
10. ASSIGNMENT. This Agreement may not be assigned by any party without
the express written consent of the other parties.
11. AMENDMENT. This Agreement may not be amended except by the written
consent of the parties.
12. NOTICES. All notices, demands or requests required to be made or
delivered under this Agreement shall be in writing and delivered personally, by
facsimile or by registered or certified mail or expedited courier, return
receipt requested, postage prepaid, to the addresses below or to such other
addresses as may be designated by the party entitled to receive the same by
notice similarly given:
If to SBFM:
Smith Barney Futures Management Inc.
390 Greenwich Street
1st Floor
New York, New York 10013
Attention: David J. Vogel
If to the Advisor:
Beacon Management Corporation (USA)
47 Hulfish Street
Princeton, New Jersey 08542
Attention: Grant W. Schaumburg Jr.
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13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14. ARBITRATION. The parties agree that any dispute or controversy
arising out of or relating to this Agreement or the interpretation thereof,
shall be settled by arbitration in accordance with the rules, then in effect, of
the National Futures Association or, if the National Futures Association shall
refuse jurisdiction, then in accordance with the rules, then in effect, of the
American Arbitration Association; provided, however, that the power of the
arbitrator shall be limited to interpreting this Agreement as written and the
arbitrator shall state in writing his reasons for his award. Judgment upon any
award made by the arbitrator may be entered in any court of competent
jurisdiction.
15. NO THIRD PARTY BENEFICIARIES. There are no third party beneficiaries
to this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of
the undersigned as of the day and year first above written.
SMITH BARNEY FUTURES
MANAGEMENT INC.
By /s/ David J. Vogel
----------------------------------
David J. Vogel
President and Director
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L. P.
By: Smith Barney
Futures Management Inc.
(General Partner)
By /s/ David J. Vogel
----------------------------------
David J. Vogel
President and Director
BEACON MANAGEMENT CORPORATION (USA)
By /s/ Grant W. Schaumburg Jr.
----------------------------------
Name: Grant W. Schaumburg Jr.
Title: Chairman
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<PAGE> 15
RIDER A
PROMISSORY NOTE
Princeton, New Jersey
Date: August 24, 1999
FOR VALUE RECEIVED, the undersigned, Grant W. Schaumburg Jr. and Mark S.
Stratton, each promise to pay on demand, to the order of SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P. (the "Fund") or Smith Barney Futures
Management Inc. ("SBFM") as the Fund or SBFM shall elect, the sum of Two Hundred
Thousand Dollars ($200,000). This note shall be callable by the Fund or SBFM
only if and to the extent that Beacon Management Corporation (USA) ("Beacon"), a
Delaware corporation, does not have sufficient assets to fulfill Beacon's
obligations associated with the Management Agreement dated August 24, 1999 among
SBFM, the Fund and Beacon.
/s/ Grant W. Schaumburg Jr. /s/ Mark S. Stratton
- --------------------------- -----------------------
Grant W. Schaumburg Jr. Mark S. Stratton
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<PAGE> 1
EXHIBIT 10.5
MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of August 1999 among SMITH BARNEY FUTURES
MANAGEMENT INC., a Delaware corporation ("SBFM"), SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P., a New York limited partnership (the
"Partnership") and Bridgewater Associates, Inc., a Connecticut corporation (the
"Advisor").
W I T N E S S E T H :
WHEREAS, SBFM is the general partner of Salomon Smith Barney Diversified
2000 Futures Fund L.P. a limited partnership organized for the purpose of
speculative trading of commodity interests, including futures contracts, options
and forward contracts with the objective of achieving substantial capital
appreciation; and
WHEREAS, the Limited Partnership Agreement establishing the Partnership
(the "Limited Partnership Agreement") permits SBFM to delegate to one or more
commodity trading advisors SBFM's authority to make trading decisions for the
Partnership; and
WHEREAS, the Advisor is registered as a commodity trading advisor with the
Commodity Futures Trading Commission ("CFTC") and is a member of the National
Futures Association ("NFA"); and
WHEREAS, SBFM is registered as a commodity pool operator with the CFTC and
is a member of the NFA; and
WHEREAS, SBFM, the Partnership and the Advisor wish to enter into this
Agreement in order to set forth the terms and conditions upon which the Advisor
will render and implement advisory services in connection with the conduct by
the Partnership of its commodity trading activities during the term of this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. DUTIES OF THE ADVISOR. (a) Upon the commencement of trading operations
by the Partnership and for the period and on the terms and conditions of this
Agreement, the Advisor shall have sole authority and responsibility, as one of
the Partnership's agents and attorneys-in-fact, for directing the investment and
reinvestment of the assets and funds of the Partnership allocated to it by the
General Partner in commodity interests, including commodity futures contracts,
options and forward contracts. All such trading on behalf of the Partnership
shall be in accordance with the trading strategies and trading policies set
forth in the Prospectus and Disclosure Document to be dated on or about
September 1, 1999, as supplemented (the
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"Memorandum"), and as such trading policies may be changed from time to time
upon receipt by the Advisor of prior written notice of such change and pursuant
to the trading strategy selected by SBFM to be utilized by the Advisor in
managing the Partnership's assets. SBFM has initially selected the Advisor's
Aggressive Pure Alpha Futures Only Program to manage the Partnership's assets
allocated to it. Any open positions or other investments at the time of receipt
of such notice of a change in trading policy shall not be deemed to violate the
changed policy and shall be closed or sold in the ordinary course of trading.
The Advisor may not deviate from the trading policies set forth in the
Prospectus without the prior written consent of the Partnership given by SBFM.
The Advisor makes no representation or warranty that the trading to be directed
by it for the Partnership will be profitable or will not incur losses.
(b) SBFM acknowledges receipt of the Advisor's Disclosure Document dated
June 10, 1999 as filed with the NFA and the CFTC. All trades made by the Advisor
for the account of the Partnership shall be made through such commodity broker
or brokers as SBFM shall direct, and the Advisor shall have no authority or
responsibility for selecting or supervising any such broker in connection with
the execution, clearance or confirmation of transactions for the Partnership or
for the negotiation of brokerage rates charged therefor. However, the Advisor,
with the prior written permission (by either original or fax copy) of SBFM, may
direct all trades in commodity futures and options to a futures commission
merchant or independent floor broker it chooses for execution with instructions
to give-up the trades to the broker designated by SBFM, provided that the
futures commission merchant or independent floor broker and any give-up or floor
brokerage fees are approved in advance by SBFM. All give-up or similar fees
relating to the foregoing shall be paid by the Partnership after all parties
have executed the relevant give-up agreements (by either original or fax copy).
SBFM acknowledges that to the extent SBFM does not consent to futures give-ups
or the use of multiple foreign exchange counterparties, the Partnership may be
disadvantaged because the Advisor will execute all block orders first. In this
connection, the Advisor will have no liability for the difference in performance
among Advisor's client accounts.
(c) The initial allocation of the Partnership's assets to the Advisor will
be made to the Advisor's Aggressive Pure Alpha Futures Only Program. In the
event the Advisor wishes to use a trading system or methodology other than or in
addition to the system or methodology outlined in the Prospectus in connection
with its trading for the Partnership, either in whole or in part, it may not do
so unless the Advisor gives SBFM prior written notice of its intention to
utilize such different trading system or methodology and SBFM consents thereto
in writing. In addition, the Advisor will provide five days' prior written
notice to SBFM of any change in the trading system or methodology to be utilized
for the Partnership which the Advisor deems
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<PAGE> 3
material. If the Advisor deems such change in system or methodology or in
markets traded to be material, the changed system or methodology or markets
traded will not be utilized for the Partnership without the prior written
consent of SBFM. In addition, the Advisor will notify SBFM of any changes to the
trading system or methodology that would require a change in the description of
the trading strategy or methods described in the Prospectus. Further, the
Advisor will provide the Partnership with a current list of all commodity
interests to be traded for the Partnership's account and will not trade any
additional commodity interests for such account without providing notice thereof
to SBFM and receiving SBFM's written approval. The Advisor also agrees to notify
SBFM of all matters deemed by the Advisor to be material changes to its business
not previously reported to SBFM. The Advisor further agrees that it will convert
foreign currency balances (not required to margin positions denominated in a
foreign currency) to U.S. dollars no less frequently than monthly. U.S. dollar
equivalents in individual foreign currencies of more than $100,000 will be
converted to U.S. dollars within one business day after such funds are no longer
needed to margin foreign positions.
(d) The Advisor agrees to make all material disclosures to the Partnership
regarding itself and its principals as defined in Part 4 of the CFTC's
regulations ("principals"), shareholders, directors, officers and employees,
their trading performance and general trading methods, its customer accounts
(but not the identities of or identifying information with respect to its
customers) and otherwise as are required in the reasonable judgment of SBFM to
be made in any filings required by Federal or state law or NFA rule or order.
Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor is not
required to disclose the actual trading results of proprietary accounts of the
Advisor or its principals unless SBFM reasonably determines that such disclosure
is required in order to fulfill its fiduciary obligations to the Partnership or
the reporting, filing or other obligations imposed on it by Federal or state law
or NFA rule or order. The Partnership and SBFM acknowledge that the trading
advice (including methods, models and strategies) to be provided by the Advisor
is a property right belonging to the Advisor and that they will keep all such
information confidential. In addition, except as otherwise provided in this
agreement or required by law, the Partnership and SBFM agree not to disclose any
information regarding the Advisor without the Advisor's written consent.
Further, SBFM agrees to treat as confidential any results of proprietary
accounts and/or proprietary information with respect to trading systems obtained
from the Advisor.
(e) The Advisor understands and agrees that SBFM may designate other
trading advisors for the Partnership and apportion or reapportion to such other
trading advisors the management of an amount of Net Assets (as defined in
Section 3(b) hereof) as it shall determine in its absolute discretion. The
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<PAGE> 4
designation of other trading advisors and the apportionment or reapportionment
of Net Assets to any such trading advisors pursuant to this Section 1 shall
neither terminate this Agreement nor modify in any regard the respective rights
and obligations of the parties hereunder.
(f) SBFM may, from time to time, in its absolute discretion, select
additional trading advisors and reapportion funds among the trading advisors for
the Partnership as it deems appropriate. SBFM shall use its best efforts to make
reapportionments, if any, as of the first day of a month. The Advisor agrees
that it may be called upon at any time promptly to liquidate positions in SBFM's
sole discretion so that SBFM may reallocate the Partnership's assets, meet
margin calls on the Partnership's account, fund redemptions, or for any other
reason, except that SBFM will not require the liquidation of specific positions
by the Advisor. SBFM will use its best efforts to give two days' prior notice to
the Advisor of any reallocations or liquidations.
(g) The Advisor will not be liable for trading losses in the Partnership's
account including losses caused by errors; provided, however, that the Advisor
will be liable to the Partnership with respect to losses incurred due to errors
committed or caused by it or any of its principals or employees in communicating
improper trading instructions or orders to any broker on behalf of the
Partnership.
2. INDEPENDENCE OF THE ADVISOR. For all purposes herein, the Advisor shall
be deemed to be an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Partnership in any way and shall not be deemed an agent, promoter or sponsor of
the Partnership, SBFM, or any other trading advisor. The Advisor shall not be
responsible to the Partnership, the General Partner, any trading advisor or any
limited partners for any acts or omissions of the Partnership, the General
Partner, any trading advisor or any limited partner.
3. COMPENSATION. (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 at the end of
each calendar year equal to 20% 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 1/12 of 1.25% (1.25% per year) of the
month-end Net Assets of the Partnership allocated to the Advisor.
(b) "Net Assets" shall have the meaning set forth in Paragraph 7(d)(1) of
the Limited Partnership Agreement Limited Partnership Agreement to be dated on
or about August 27, 1999 and without regard to further amendments thereto,
provided that in determining the Net Assets of the Partnership on any date, no
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<PAGE> 5
adjustment shall be made to reflect any distributions, redemptions or incentive
fees payable as of the date of such determination.
(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.
Ongoing expenses will be attributed to the Advisor based on the Advisor's
proportionate share of Net Assets. Ongoing expenses attributable to the Advisor
will not exceed $45,000 per annum. Ongoing expenses above will not include
expenses of litigation not involving the activities of the Advisor on behalf of
the Partnership. For purposes of calculating New Trading Profits, ongoing
expenses will not include offering and organizational expenses of the
Partnership. The first incentive fee shall be paid as of the end of the calendar
year in which trading commences, which fee shall be based on New Trading Profits
earned from the commencement of trading operations by the Partnership through
the end of the calendar year. 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, distributions or
reallocations (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.
(d) Annual incentive fees and monthly management fees shall be paid within
twenty (20) business days following the end of the period, as the case may be,
for which such fee is payable. In the event of the termination of this Agreement
as of any date which shall not be the end of a fiscal year or a calendar month,
as the case may be, the annual incentive fee shall be computed as if the
effective date of termination were the last day of the then current year and the
monthly management fee shall be prorated to the effective date of termination.
If, during any month, the Partnership does not conduct business operations or
the Advisor is unable to provide the services contemplated herein for more than
two successive business days, the monthly management fee shall be prorated by
the ratio which the number of business days during which SBFM conducted the
Partnership's business operations or utilized the Advisor's services bears in
the month to the total number of business days in such month.
(e) The provisions of this Paragraph 3 shall survive the termination of
this Agreement.
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4. RIGHT TO ENGAGE IN OTHER ACTIVITIES. (a) The services provided by the
Advisor hereunder are not to be deemed exclusive. SBFM on its own behalf and on
behalf of the Partnership acknowledges that, subject to the terms of this
Agreement, the Advisor and its officers, directors, employees and
shareholder(s), may render advisory, consulting and management services to other
clients and accounts. The Advisor and its officers, directors, employees and
shareholder(s) shall be free to trade for their own accounts and to advise other
investors and manage other commodity accounts during the term of this Agreement
and to use the same information, computer programs and trading strategies,
programs or formulas which they obtain, produce or utilize in the performance of
services to SBFM for the Partnership. However, the Advisor represents, warrants
and agrees that it believes the rendering of such consulting, advisory and
management services to other accounts and entities will not require any material
change in the Advisor's basic trading strategies.
(b) If, at any time during the term of this Agreement, the Advisor is
required to aggregate the Partnership's commodity positions with the positions
of any other person for purposes of applying CFTC- or exchange-imposed
speculative position limits, the Advisor agrees that it will promptly notify
SBFM if the Partnership's positions are included in an aggregate amount which
exceeds the applicable speculative position limit. The Advisor agrees that, if
its trading recommendations are altered because of the application of any
speculative position limits, it will not modify the trading instructions with
respect to the Partnership's account in such manner as to affect the Partnership
substantially disproportionately as compared with the Advisor's other accounts.
The Advisor further represents, warrants and agrees that under no circumstances
will it knowingly or deliberately use trading strategies or methods for the
Partnership that are inferior to strategies or methods employed for any other
client or account and that it will not knowingly or deliberately favor any
client or account managed by it over any other client or account in any manner,
it being acknowledged, however, that different trading strategies or methods may
be utilized for differing sizes of accounts, accounts with different trading
policies, 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, and that such differences
may cause divergent trading results.
(c) It is acknowledged that the Advisor and/or its officers, employees,
directors and shareholder(s) presently act, and it is agreed that they may
continue to act, as advisor for other accounts managed by them, and may continue
to receive compensation with respect to services for such accounts in
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amounts which may be more or less than the amounts received from the
Partnership.
(d) The Advisor agrees that it shall make such information available to
SBFM respecting the performance of the Partnership's account as compared to the
performance of other accounts managed by the Advisor or its principals pursuant
to the same trading program as shall be reasonably requested by SBFM. The
Advisor presently believes and represents that existing speculative position
limits will not materially adversely affect its ability to manage the
Partnership's account given the potential size of the Partnership's account and
the Advisor's and its principals' current accounts and all proposed accounts for
which they have contracted to act as trading manager.
5. TERM. (a) This Agreement shall continue in effect until June 30, 2000.
SBFM may, in its sole discretion, renew this Agreement for additional one-year
periods upon notice to the Advisor not less than 30 days prior to the expiration
of the previous period. At any time during the term of this Agreement, SBFM may
terminate this Agreement at any month-end upon 30 days' notice to the Advisor.
At any time during the term of this Agreement, SBFM may elect to immediately
terminate this Agreement upon 30 days' notice to the Advisor if (i) the Net
Asset Value per Unit shall decline as of the close of business on any day to
$400 or less; (ii) the Net Assets allocated to the Advisor (adjusted for
redemptions, distributions, withdrawals or reallocations, 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 shall
vote to require SBFM to terminate this Agreement; (iv) the Advisor fails to
comply with the terms of this Agreement; (v) SBFM, in good faith, reasonably
determines that the performance of the Advisor has been such that SBFM's
fiduciary duties to the Partnership require SBFM to terminate this Agreement; or
(vi) SBFM reasonably believes that the application of speculative position
limits will substantially affect the performance of the Partnership. At any time
during the term of this Agreement, SBFM may elect immediately to terminate this
Agreement if (i) the Advisor merges, consolidates with another entity, sells a
substantial portion of its assets, or becomes bankrupt or insolvent, or (ii) the
Advisor's registration as a commodity trading advisor with the CFTC or its
membership in the NFA or any other regulatory authority, is terminated or
suspended. This Agreement will immediately terminate upon dissolution of the
Partnership or upon cessation of trading prior to dissolution.
(b) The Advisor may terminate this Agreement by giving not less than 30
days' notice to SBFM (i) in the event that the trading policies of the
Partnership as set forth in the Prospectus are changed in such manner that the
Advisor reasonably believes will adversely affect the performance of its trading
strategies; (ii) after June 30, 2000; (iii) in the event that the General
Partner or Partnership fails to comply with the terms of
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this Agreement; in the event that the (iv) Partnership fails to approve a change
in the Trading system or methodology as described in Section 1(c); (v) Advisor
ceases to manage pursuant to the Trading program; (vi) Advisor's allocation of
assets falls below $10 million; or (vii) Advisor is not able to legally fulfill
obligations as a result of a revocation of a registration or license. The
Advisor may immediately terminate this Agreement if SBFM's registration as a
commodity pool operator or its membership in the NFA is terminated or suspended.
(c) Except as otherwise provided in this Agreement, any termination of this
Agreement in accordance with this Paragraph 5 or Paragraph 1(e) shall be without
penalty or liability to any party, except for any fees due to the Advisor
pursuant to Section 3 hereof.
6. INDEMNIFICATION. (a)(i) In any threatened, pending or completed action,
suit, or proceeding to which the Advisor was or is a party or is threatened to
be made a party arising out of or in connection with this Agreement or the
management of the Partnership's assets by the Advisor or the offering and sale
of units in the Partnership, SBFM shall, subject to subparagraph (a)(iii) of
this Paragraph 6, indemnify and hold harmless the Advisor against 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 Partnership, and provided that its
conduct did not constitute negligence, intentional misconduct, or a breach of
its fiduciary obligations to the Partnership as a commodity trading advisor,
unless and only to the extent that the court or administrative forum 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, 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 Partnership if such
indemnification is prohibited by Section 16 of the Partnership Agreement. The
termination of any action, suit or proceeding by judgment, order or settlement
shall not, of itself, create a presumption that the Advisor did not act in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Partnership.
(ii) To the extent that the Advisor has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subparagraph (i) above, or in defense of any claim, issue or matter therein,
SBFM shall indemnify it against the expenses (including, without limitation,
attorneys' and accountants' fees) actually and reasonably incurred by it in
connection therewith.
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<PAGE> 9
(iii) Any indemnification under subparagraph (i) above, unless ordered by a
court or administrative forum, shall be made by SBFM only as authorized in the
specific case and only upon a determination by independent legal counsel in a
written opinion that such indemnification is proper in the circumstances because
the Advisor has met the applicable standard of conduct set forth in subparagraph
(i) above. Such independent legal counsel shall be selected by SBFM in a timely
manner, subject to the Advisor's approval, which approval shall not be
unreasonably withheld. The Advisor will be deemed to have approved SBFM's
selection unless the Advisor notifies SBFM in writing, received by SBFM within
five days of SBFM's telecopying to the Advisor of the notice of SBFM's
selection, that the Advisor does not approve the selection.
(iv) In the event the Advisor is made a party to any claim, dispute or
litigation or otherwise incurs any loss or expense as a result of, or in
connection with, the Partnership's or SBFM's activities or claimed activities
unrelated to the Advisor, SBFM shall indemnify, defend and hold harmless the
Advisor against any loss, liability, damage, cost or expense (including, without
limitation, attorneys' and accountants' fees) incurred in connection therewith.
(v) As used in this Paragraph 6(a), the terms "Advisor" shall include the
Advisor, its principals, officers, directors, stockholders and employees and the
term "SBFM" shall include the Partnership.
(b)(i) The Advisor agrees to indemnify, defend and hold harmless SBFM, the
Partnership and their affiliates against any loss, liability, damage, cost or
expense (including, without limitation, attorneys' and accountants' fees),
judgments and amounts paid in settlement actually and reasonably incurred by
them (A) as a result of the material breach of any material representations and
warranties made by the Advisor in this Agreement, or (B) as a result of any act
or omission of the Advisor relating to the Partnership if there has been a final
judicial or regulatory determination or, in the event of a settlement of any
action or proceeding with the prior written consent of the Advisor, a written
opinion of an arbitrator pursuant to Paragraph 14 hereof, to the effect that
such acts or omissions violated the terms of this Agreement in any material
respect or involved negligence, bad faith, recklessness or intentional
misconduct on the part of the Advisor (except as otherwise provided in Section
1(g)).
(ii) In the event SBFM, the Partnership or any of their affiliates is made
a party to any claim, dispute or litigation or otherwise incurs any loss or
expense as a result of, or in connection with, the activities or claimed
activities of the Advisor or its principals, officers, directors, shareholder(s)
or employees unrelated to SBFM's or the
9
<PAGE> 10
Partnership's business, the Advisor shall indemnify, defend and hold harmless
SBFM, the Partnership or any of their affiliates against any loss, liability,
damage, cost or expense (including, without limitation, attorneys' and
accountants' fees) incurred in connection therewith.
(c) In the event that a person entitled to indemnification under this
Paragraph 6 is made a party to an action, suit or proceeding alleging both
matters for which indemnification can be made hereunder and matters for which
indemnification may not be made hereunder, such person shall be indemnified only
for that portion of the loss, liability, damage, cost or expense incurred in
such action, suit or proceeding which relates to the matters for which
indemnification can be made.
(d) None of the indemnifications contained in this Paragraph 6 shall be
applicable with respect to default judgments, confessions of judgment or
settlements entered into by the party claiming indemnification without the prior
written consent, which shall not be unreasonably withheld, of the party
obligated to indemnify such party.
(e) The provisions of this Paragraph 6 shall survive the termination of
this Agreement.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Advisor represents and warrants that:
(i) All references to the Advisor and its principals in the Prospectus are
accurate in all material respects and as to them the Prospectus does not contain
any untrue statement of a material fact or omit to state a material fact which
is necessary to make the statements therein not misleading, except that with
respect to Table B in the Prospectus, this representation and warranty extends
only to the underlying data made available by the Advisor for the preparation
thereof and not to any hypothetical or pro forma adjustments. Subject to such
exception, all references to the Advisor and its principals in the Prospectus
will, after review and approval of such references by the Advisor prior to the
use of such Prospectus in connection with the offering of the Partnership's
units, be accurate in all material respects.
(ii) The information with respect to the Advisor set forth in the actual
performance tables in the Prospectus is based on all of the customer accounts
managed on a discretionary basis by the Advisor's principals and/or the Advisor
during the period covered by such tables and required to be disclosed therein.
(iii) The Advisor will be acting as a commodity trading advisor with
respect to the Partnership and not as a securities investment adviser and is
duly registered with the CFTC as a commodity trading advisor, is a member of the
NFA, and
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<PAGE> 11
is in compliance with such other registration and licensing requirements as
shall be necessary to enable it to perform its obligations hereunder, and agrees
to maintain and renew such registrations and licenses during the term of this
Agreement.
(iv) The Advisor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Connecticut and has full power and
authority to enter into this Agreement and to provide the services required of
it hereunder.
(v) The Advisor will not, by acting as a commodity trading advisor to the
Partnership, breach or cause to be breached any undertaking, agreement,
contract, statute, rule or regulation to which it is a party or by which it is
bound.
(vi) This Agreement has been duly and validly authorized, executed and
delivered by the Advisor and is a valid and binding agreement enforceable in
accordance with its terms.
(vii) At any time during the term of this Agreement that a prospectus
relating to the Units is required to be delivered in connection with the offer
and sale thereof, the Advisor agrees upon the request of SBFM to provide the
Partnership with such information as shall be necessary so that, as to the
Advisor and its principals, such prospectus is accurate.
(b) SBFM represents and warrants for itself and the Partnership that:
(i) The Prospectus (as from time to time amended or supplemented, which
amendment or supplement is approved by the Advisor as to descriptions of itself
and its actual performance) does not contain any untrue statement of a material
fact or omit to state a material fact which is necessary to make the statements
therein not misleading, except that the foregoing representation does not apply
to any statement or omission concerning the Advisor in the Prospectus, made in
reliance upon, and in conformity with, information furnished to SBFM by or on
behalf of the Advisor expressly for use in the Prospectus (it being understood
that the hypothetical and pro forma adjustments in Table B were not furnished by
the Advisor).
(ii) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to perform its obligations under this Agreement.
(iii) SBFM and the Partnership have the capacity and authority to enter
into this Agreement on behalf of the Partnership.
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<PAGE> 12
(iv) This Agreement has been duly and validly authorized, executed and
delivered on SBFM's and the Partnership's behalf and is a valid and binding
agreement of SBFM and the Partnership enforceable in accordance with its terms.
(v) SBFM will not, by acting as General Partner to the Partnership and the
Partnership will not, breach or cause to be breached any undertaking, agreement,
contract, statute, rule or regulation to which it is a party or by which it is
bound which would materially limit or affect the performance of its duties under
this Agreement.
(vi) It is registered as a commodity pool operator and is a member of the
NFA, and it will maintain and renew such registration and membership during the
term of this Agreement.
(vii) The Partnership is a limited partnership duly organized and validly
existing under the laws of the State of New York and has full power and
authority to enter into this Agreement and to perform its obligations under this
Agreement.
8. COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP.
(a) The Advisor agrees as follows:
(i) In connection with its activities on behalf of the Partnership, the
Advisor will comply with all applicable rules and regulations of the CFTC and/or
the commodity exchange on which any particular transaction is executed.
(ii) The Advisor will promptly notify SBFM of the commencement of any
material suit, action or proceeding involving it, whether or not any such suit,
action or proceeding also involves SBFM.
(iii) In the placement of orders for the Partnership's account and for the
accounts of any other client, the Advisor will utilize a pre-determined,
systematic, fair and reasonable order entry system, which shall, on an overall
basis, be no less favorable to the Partnership than to any other account managed
by the Advisor. The Advisor acknowledges its obligation to review the
Partnership's positions, prices and equity in the account managed by the Advisor
daily and promptly to notify the broker and the Partnership's broker of any
trade which the Advisor believes was not executed in accordance with its
instructions. The Advisor will also notify SBFM of any trading error committed
by the Advisor that has a material adverse economic impact.
(iv) The Advisor will maintain a net worth of not less than $750,000 during
the term of this Agreement.
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<PAGE> 13
(b) SBFM agrees for itself and the Partnership that:
(i) SBFM and the Partnership will comply with all applicable rules and
regulations of the CFTC and/or the commodity exchange on which any particular
transaction is executed.
(ii) SBFM will promptly notify the Advisor of the commencement of any
material suit, action or proceeding involving it or the Partnership, whether or
not such suit, action or proceeding also involves the Advisor.
9. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof.
10. ASSIGNMENT. This Agreement may not be assigned by any party without the
express written consent of the other parties.
11. AMENDMENT. This Agreement may not be amended except by the written
consent of the parties.
12. NOTICES. All notices, demands or requests required to be made or
delivered under this Agreement shall be in writing and delivered personally or
by registered or certified mail or expedited courier, return receipt requested,
postage prepaid, to the addresses below or to such other addresses as may be
designated by the party entitled to receive the same by notice similarly given:
If to SBFM:
Smith Barney Futures Management Inc.
390 Greenwich Street 1st Floor
New York, New York 10013
Attention: David J. Vogel
If to the Advisor:
Bridgewater Associates, Inc.
1 Glendinning Place
Westport, Connecticut 06880
Attention: Giselle Wagner
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14. ARBITRATION. The parties agree that any dispute or controversy arising
out of or relating to this Agreement or the interpretation thereof, shall be
settled by arbitration in accordance with the rules, then in effect, of the
National Futures Association or, if the National Futures Association shall
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<PAGE> 14
refuse jurisdiction, then in accordance with the rules, then in effect, of the
American Arbitration Association; provided, however, that the power of the
arbitrator shall be limited to interpreting this Agreement as written and the
arbitrator shall state in writing his reasons for his award. Judgment upon any
award made by the arbitrator may be entered in any court of competent
jurisdiction.
15. NO THIRD PARTY BENEFICIARIES. There are no third party beneficiaries to
this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of
the undersigned as of the day and year first above
written.
SMITH BARNEY FUTURES
MANAGEMENT INC.
By /s/ David J. Vogel
------------------------
David J. Vogel
President and Director
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L. P.
By: Smith Barney
Futures Management Inc.
(General Partner)
By /s/ David J. Vogel
------------------------
David J. Vogel
President and Director
BRIDGEWATER ASSOCIATES, INC.
By /s/ Giselle F. Wagner
------------------------
Name: Giselle F. Wagner
Title: Vice President and Chief
Operating Officer
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<PAGE> 1
EXHIBIT 10.6
MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of August, 1999 among SMITH BARNEY
FUTURES MANAGEMENT INC., a Delaware corporation ("SBFM"), SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P., a New York limited partnership (the
"Partnership") and CAMPBELL & COMPANY, INC., a Maryland corporation (the
"Advisor").
W I T N E S S E T H :
WHEREAS, SBFM is the general partner of Salomon Smith Barney Diversified
2000 Futures Fund L.P., a limited partnership organized for the purpose of
speculative trading of commodity interests, including futures contracts, options
and forward contracts with the objective of achieving substantial capital
appreciation; and
WHEREAS, the Limited Partnership Agreement establishing the Partnership
(the "Limited Partnership Agreement") permits SBFM to delegate to one or more
commodity trading advisors SBFM's authority to make trading decisions for the
Partnership; and
WHEREAS, the Advisor is registered as a commodity trading advisor with
the Commodity Futures Trading Commission ("CFTC") and is a member of the
National Futures Association ("NFA"); and
WHEREAS, SBFM is registered as a commodity pool operator with the CFTC
and is a member of the NFA; and
WHEREAS, SBFM, the Partnership and the Advisor wish to enter into this
Agreement in order to set forth the terms and conditions upon which the Advisor
will render and implement advisory services in connection with the conduct by
the Partnership of its commodity trading activities during the term of this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. DUTIES OF THE ADVISOR. (a) Upon the commencement of trading operations
by the Partnership and for the period and on the terms and conditions of this
Agreement, the Advisor shall have sole authority and responsibility, as one of
the Partnership's agents and attorneys-in-fact, for directing the investment and
reinvestment of the assets and funds of the Partnership allocated to it by the
General Partner in commodity interests, including commodity futures contracts,
options and forward contracts. All such trading on behalf of the Partnership
shall be in accordance with the trading strategies and trading policies set
forth in the Prospectus and Disclosure Document to be dated on or about
September 1, 1999, as supplemented (the "Prospectus"), and as such trading
policies may be changed from time to time upon receipt by the Advisor of prior
written notice
<PAGE> 2
of such change and pursuant to the trading strategy selected by SBFM to be
utilized by the Advisor in managing the Partnership's assets. SBFM has initially
selected the Advisor's Financial, Metal and Energy Small Portfolio to manage the
Partnership's assets allocated to it. Any open positions or other investments at
the time of receipt of such notice of a change in trading policy shall not be
deemed to violate the changed policy and shall be closed or sold in the ordinary
course of trading. The Advisor may not deviate from the trading policies set
forth in the Prospectus without the prior written consent of the Partnership
given by SBFM. The Advisor makes no representation or warranty that the trading
to be directed by it for the Partnership will be profitable or will not incur
losses.
(b) SBFM acknowledges receipt of the Advisor's Disclosure Document dated
April 30, 1999 as filed with the NFA and CFTC. All trades made by the Advisor
for the account of the Partnership shall be made through such commodity broker
or brokers as SBFM shall direct, and the Advisor shall have no authority or
responsibility for selecting or supervising any such broker in connection with
the execution, clearance or confirmation of transactions for the Partnership or
for the negotiation of brokerage rates charged therefor. However, the Advisor,
with the prior written permission (by either original or fax copy) of SBFM, may
direct all trades in commodity futures and options to a futures commission
merchant or independent floor broker it chooses for execution with instructions
to give-up the trades to the broker designated by SBFM, provided that the
futures commission merchant or independent floor broker and any give-up or floor
brokerage fees are approved in advance by SBFM. All give-up or similar fees
relating to the foregoing shall be paid by the Partnership after all parties
have executed the relevant give-up agreements (by either original or fax copy).
(c) The initial allocation of the Partnership's assets to the Advisor
will be made to the Advisor's Financial, Metal and Energy Small Portfolio. If
the equity in the account managed by the Advisor on behalf of the Partnership
equals or exceeds $10,000,000 the Advisor will trade the account pursuant to its
Financial, Metal and Energy Large Portfolio. In the event the Advisor wishes to
use a trading system or methodology other than or in addition to the system or
methodology outlined in the Prospectus in connection with its trading for the
Partnership, either in whole or in part, it may not do so unless the Advisor
gives SBFM prior written notice of its intention to utilize such different
trading system or methodology and SBFM consents thereto in writing. In addition,
the Advisor will provide five days' prior written notice to SBFM of any change
in the trading system or methodology to be utilized for the Partnership which
the Advisor deems material. If the Advisor deems such change in system or
methodology or in markets traded to be material, the changed system or
methodology or markets traded will not be
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<PAGE> 3
utilized for the Partnership without the prior written consent of SBFM. In
addition, the Advisor will notify SBFM of any changes to the trading system or
methodology that would require a change in the description of the trading
strategy or methods described in the Prospectus. Further, the Advisor will
provide the Partnership with a current list of all commodity interests to be
traded for the Partnership's account and will not trade any additional commodity
interests for such account without providing notice thereof to SBFM and
receiving SBFM's written approval. The Advisor also agrees to provide SBFM, on a
monthly basis, with a written report of the assets under the Advisor's
management together with all other matters deemed by the Advisor to be material
changes to its business not previously reported to SBFM. The Advisor further
agrees that it will convert foreign currency balances (not required to margin
positions denominated in a foreign currency) to U.S. dollars no less frequently
than monthly. U.S. dollar equivalents in individual foreign currencies of more
than $100,000 will be converted to U.S. dollars within one business day after
such funds are no longer needed to margin foreign positions.
(d) The Advisor agrees to make all material disclosures to the
Partnership regarding itself and its principals as defined in Part 4 of the
CFTC's regulations ("principals"), shareholders, directors, officers and
employees, their trading performance and general trading methods, its customer
accounts (but not the identities of or identifying information with respect to
its customers) and otherwise as are required in the reasonable judgment of SBFM
to be made in any filings required by Federal or state law or NFA rule or order.
Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor is not
required to disclose the actual trading results of proprietary accounts of the
Advisor or its principals unless SBFM reasonably determines that such disclosure
is required in order to fulfill its fiduciary obligations to the Partnership or
the reporting, filing or other obligations imposed on it by Federal or state law
or NFA rule or order. The Partnership and SBFM acknowledge that the trading
advice to be provided by the Advisor is a property right belonging to the
Advisor and that they will keep all such advice confidential. Further, SBFM
agrees to treat as confidential any results of proprietary accounts and/or
proprietary information with respect to trading systems obtained from the
Advisor.
(e) The Advisor understands and agrees that SBFM may designate other
trading advisors for the Partnership and apportion or reapportion to such other
trading advisors the management of an amount of Net Assets (as defined in
Section 3(b) hereof) as it shall determine in its absolute discretion. The
designation of other trading advisors and the apportionment or reapportionment
of Net Assets to any such trading advisors pursuant to this Section 1 shall
neither terminate this Agreement nor modify in any regard the respective rights
and obligations of
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<PAGE> 4
the parties hereunder. The Advisor may terminate this Agreement immediately if
the Net Assets of the Partnership managed by the Advisor fall below $500,000
(after adjustment for trading losses and redemptions).
(f) SBFM may, from time to time, in its absolute discretion, select
additional trading advisors and reapportion funds among the trading advisors for
the Partnership as it deems appropriate. SBFM shall use its best efforts to make
reapportionments, if any, as of the first day of a month. The Advisor agrees
that it may be called upon at any time promptly to liquidate positions in SBFM's
sole discretion so that SBFM may reallocate the Partnership's assets, meet
margin calls on the Partnership's account, fund redemptions, or for any other
reason, except that SBFM will not require the liquidation of specific positions
by the Advisor. SBFM will use its best efforts to give two days' prior notice to
the Advisor of any reallocations or liquidations.
(g) The Advisor will not be liable for trading losses in the
Partnership's account including losses caused by errors; provided, however, that
(i) the Advisor will be liable to the Partnership with respect to losses
incurred due to errors committed or caused by it or any of its principals or
employees in communicating improper trading instructions or orders to any broker
on behalf of the Partnership and (ii) the Advisor will be liable to the
Partnership with respect to losses incurred due to errors committed or caused by
any executing broker (other than any SBFM affiliate) selected by the Advisor;
notwithstanding the foregoing, the Advisor's liability in the aggregate shall in
no event exceed $500,000 for the errors of executing brokers selected by the
Advisor (other than SBFM affiliates), (it also being understood that SBFM, with
the assistance of the Advisor, will first attempt to recover such losses from
the executing broker). The liability limit will be subject to review and
revision (i) each June 30th; and (ii) each time an additional allocation of the
Partnership's assets is made to the Advisor.
(h) The Advisor further agrees that it will instruct Salomon Smith Barney
to convert foreign currency balances (not required to margin positions
denominated in a foreign currency) to U.S. dollars no less frequently than
monthly. Instruction will take the form of a fax transmitted monthly specifying
the account name and number using the following language:
Please convert all foreign currency balances for the account(s) specified
above that are not required to margin position denominated in the foreign
currency to U.S. dollars.
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<PAGE> 5
2. INDEPENDENCE OF THE ADVISOR. For all purposes herein, the Advisor
shall be deemed to be an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Partnership in any way and shall not be deemed an agent, promoter or sponsor of
the Partnership, SBFM, or any other trading advisor. The Advisor shall not be
responsible to the Partnership, the General Partner, any trading advisor or any
limited partners for any acts or omissions of any other trading advisor, whether
or not they are still acting as an advisor to the Partnership.
3. COMPENSATION. (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 annual incentive fee
payable at the end of each calendar year equal to 20% 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 1/6 of 1% (2% per
year) of the month-end Net Assets of the Partnership allocated to the Advisor.
(b) "Net Assets" shall have the meaning set forth in Paragraph 7(d)(1) of
the Limited Partnership Agreement to be dated on or about August 27, 1999, and
without regard to further amendments thereto, provided that in determining the
Net Assets of the Partnership on any date, no adjustment shall be made to
reflect any distributions, redemptions or incentive fees payable as of the date
of such determination.
(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.
Ongoing expenses will be attributed to the Advisor based on the Advisor's
proportionate share of Net Assets, but are not to exceed 0.5% on an annualized
basis for purposes of calculating incentive fees. Ongoing expenses above will
not include expenses of litigation not involving the activities of the Advisor
on behalf of the Partnership. For purposes of calculating New Trading Profits,
ongoing expenses will not include offering and organizational expenses of the
Partnership. The first incentive fee shall be paid as of the end of the calendar
year in which trading commences, which fee shall be based on New Trading Profits
earned from the commencement of
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<PAGE> 6
trading operations by the Partnership through the end of the calendar year.
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, distributions or reallocations (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.
(d) Annual incentive fees and monthly management fees shall be paid
within twenty (20) business days following the end of the period, as the case
may be, for which such fee is payable. In the event of the termination of this
Agreement as of any date which shall not be the end of a fiscal year or a
calendar month, as the case may be, the annually incentive fee shall be computed
as if the effective date of termination were the last day of the then current
year and the monthly management fee shall be prorated to the effective date of
termination. If, during any month, the Partnership does not conduct business
operations or the Advisor is unable to provide the services contemplated herein
for more than two successive business days, the monthly management fee shall be
prorated by the ratio which the number of business days during which SBFM
conducted the Partnership's business operations or utilized the Advisor's
services bears in the month to the total number of business days in such month.
(e) The provisions of this Paragraph 3 shall survive the termination of
this Agreement.
4. RIGHT TO ENGAGE IN OTHER ACTIVITIES. (a) The services provided by the
Advisor hereunder are not to be deemed exclusive. SBFM on its own behalf and on
behalf of the Partnership acknowledges that, subject to the terms of this
Agreement, the Advisor and its officers, directors, employees and
shareholder(s), may render advisory, consulting and management services to other
clients and accounts. The Advisor and its officers, directors, employees and
shareholder(s) shall be free to trade for their own accounts and to advise other
investors and manage other commodity accounts during the term of this Agreement
and to use the same information, computer programs and trading strategies,
programs or formulas which they obtain, produce or utilize in the performance of
services to SBFM for the Partnership. However, the Advisor represents, warrants
and agrees that it believes the rendering of such consulting, advisory and
management services to other accounts and entities will not require any material
change in the Advisor's basic trading strategies and will not affect the
capacity of the Advisor to continue to render services to SBFM for the
Partnership of the quality and nature contemplated by this Agreement.
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<PAGE> 7
(b) If, at any time during the term of this Agreement, the Advisor is
required to aggregate the Partnership's commodity positions with the positions
of any other person for purposes of applying CFTC- or exchange-imposed
speculative position limits, the Advisor agrees that it will promptly notify
SBFM if the Partnership's positions are included in an aggregate amount which
exceeds the applicable speculative position limit. The Advisor agrees that, if
its trading recommendations are altered because of the application of any
speculative position limits, it will not modify the trading instructions with
respect to the Partnership's account in such manner as to affect the Partnership
substantially disproportionately as compared with the Advisor's other accounts.
The Advisor further represents, warrants and agrees that under no circumstances
will it knowingly or deliberately use trading strategies or methods for the
Partnership that are inferior to strategies or methods employed for any other
client or account and that it will not knowingly or deliberately favor any
client or account managed by it over any other client or account in any manner,
it being acknowledged, however, that different trading strategies or methods may
be utilized for differing sizes of accounts, accounts with different trading
policies, 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, and that such differences
may cause divergent trading results.
(c) It is acknowledged that the Advisor and/or its officers, employees,
directors and shareholder(s) presently act, and it is agreed that they may
continue to act, as advisor for other accounts managed by them, and may continue
to receive compensation with respect to services for such accounts in amounts
which may be more or less than the amounts received from the Partnership.
(d) The Advisor agrees that it shall make such information available to
SBFM respecting the performance of the Partnership's account as compared to the
performance of other accounts managed by the Advisor or its principals as shall
be reasonably requested by SBFM. The Advisor presently believes and represents
that existing speculative position limits will not materially adversely affect
its ability to manage the Partnership's account given the potential size of the
Partnership's account and the Advisor's and its principals' current accounts and
all proposed accounts for which they have contracted to act as trading manager.
5. TERM. (a) This Agreement shall continue in effect until June 30, 2000.
SBFM may, in its sole discretion, renew this Agreement for additional one-year
periods upon notice to the Advisor not less than 30 days prior to the expiration
of the
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<PAGE> 8
previous period. At any time during the term of this Agreement, SBFM may
terminate this Agreement at any month-end upon 30 days' notice to the Advisor.
At any time during the term of this Agreement, SBFM may elect to immediately
terminate this Agreement upon 30 days' notice to the Advisor if (i) the Net
Asset Value per Unit shall decline as of the close of business on any day to
$400 or less; (ii) the Net Assets allocated to the Advisor (adjusted for
redemptions, distributions, withdrawals or reallocations, 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 shall
vote to require SBFM to terminate this Agreement; (iv) the Advisor fails to
comply with the terms of this Agreement; (v) SBFM, in good faith, reasonably
determines that the performance of the Advisor has been such that SBFM's
fiduciary duties to the Partnership require SBFM to terminate this Agreement; or
(vi) SBFM reasonably believes that the application of speculative position
limits will substantially affect the performance of the Partnership. At any time
during the term of this Agreement, SBFM may elect immediately to terminate this
Agreement if (i) the Advisor merges, consolidates with another entity, sells a
substantial portion of its assets, or becomes bankrupt or insolvent, except as
provided in Section 10 hereof, (ii) D. Keith Campbell dies, becomes
incapacitated, leaves the employ of the Advisor, ceases to control the Advisor
or is otherwise not managing the trading programs or systems of the Advisor, or
(iii) the Advisor's registration as a commodity trading advisor with the CFTC or
its membership in the NFA or any other regulatory authority, is terminated or
suspended. This Agreement will immediately terminate upon dissolution of the
Partnership or upon cessation of trading prior to dissolution.
(b) At any time during the term of this Agreement, the Advisor may
terminate this Agreement at any month-end upon 30 days' notice to SBFM. At any
time during the term of this Agreement, the Advisor may elect to immediately
terminate this Agreement upon 30 days' notice to SBFM (i) in the event that the
trading policies of the Partnership as set forth in the Prospectus are changed
in such manner that the Advisor reasonably believes will adversely affect the
performance of its trading strategies;(ii) after June 30, 2000; or (ii) in the
event that the General Partner or Partnership fails to comply with the terms of
this Agreement. The Advisor may immediately terminate this Agreement if SBFM's
registration as a commodity pool operator or its membership in the NFA is
terminated or suspended.
(c) Except as otherwise provided in this Agreement, any termination of
this Agreement in accordance with this Paragraph 5 or Paragraph 1(e) shall be
without penalty or liability to any party, except for any fees due to the
Advisor pursuant to Section 3 hereof.
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<PAGE> 9
6. INDEMNIFICATION. (a)(i) In any threatened, pending or completed
action, suit, or proceeding to which the Advisor was or is a party or is
threatened to be made a party arising out of or in connection with this
Agreement or the management of the Partnership's assets by the Advisor or the
offering and sale of units in the Partnership, SBFM shall, subject to
subparagraph (a)(iii) of this Paragraph 6, indemnify and hold harmless the
Advisor against 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
Partnership, and provided that its conduct did not constitute negligence,
intentional misconduct, or a breach of its fiduciary obligations to the
Partnership as a commodity trading advisor, unless and only to the extent that
the court or administrative forum 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, 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 Partnership if such indemnification is prohibited by Section
16 of the Partnership Agreement. The termination of any action, suit or
proceeding by judgment, order or settlement shall not, of itself, create a
presumption that the Advisor did not act in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Partnership.
(ii) Without limiting sub-paragraph (i) above, to the extent that the
Advisor has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subparagraph (i) above, or in defense of any
claim, issue or matter therein, SBFM shall indemnify it against the expenses
(including, without limitation, attorneys' and accountants' fees) actually and
reasonably incurred by it in connection therewith.
(iii) Any indemnification under subparagraph (i) above, unless ordered by
a court or administrative forum, shall be made by SBFM only as authorized in the
specific case and only upon a determination by independent legal counsel in a
written opinion that such indemnification is proper in the circumstances because
the Advisor has met the applicable standard of conduct set forth in subparagraph
(i) above. Such independent legal counsel shall be selected by SBFM in a timely
manner, subject to the Advisor's approval, which approval shall not be
unreasonably withheld. The Advisor will be deemed to have approved SBFM's
selection unless the Advisor notifies SBFM in writing, received by SBFM within
five days of SBFM's telecopying to the Advisor of the notice of
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<PAGE> 10
SBFM's selection, that the Advisor does not approve the selection.
(iv) In the event the Advisor is made a party to any claim, dispute or
litigation or otherwise incurs any loss or expense as a result of, or in
connection with, the Partnership's or SBFM's activities or claimed activities
unrelated to the Advisor, SBFM shall indemnify, defend and hold harmless the
Advisor against any loss, liability, damage, cost or expense (including, without
limitation, attorneys' and accountants' fees) incurred in connection therewith.
(v) As used in this Paragraph 6(a), the terms "Advisor" shall include the
Advisor, its principals, officers, directors, stockholders and employees and the
term "SBFM" shall include the Partnership.
(b)(i) The Advisor agrees to indemnify, defend and hold harmless SBFM,
the Partnership and their affiliates against any loss, liability, damage, cost
or expense (including, without limitation, attorneys' and accountants' fees),
judgments and amounts paid in settlement actually and reasonably incurred by
them (A) as a result of the material breach of any material representations and
warranties made by the Advisor in this Agreement, or (B) as a result of any act
or omission of the Advisor relating to the Partnership if there has been a final
judicial or regulatory determination or, in the event of a settlement of any
action or proceeding with the prior written consent of the Advisor, a written
opinion of an arbitrator pursuant to Paragraph 14 hereof, to the effect that
such acts or omissions violated the terms of this Agreement in any material
respect or involved negligence, bad faith, recklessness or intentional
misconduct on the part of the Advisor (except as otherwise provided in Section
1(g)).
(ii) In the event SBFM, the Partnership or any of their affiliates is
made a party to any claim, dispute or litigation or otherwise incurs any loss or
expense as a result of, or in connection with, the activities or claimed
activities of the Advisor or its principals, officers, directors, shareholder(s)
or employees unrelated to SBFM's or the Partnership's business, the Advisor
shall indemnify, defend and hold harmless SBFM, the Partnership or any of their
affiliates against any loss, liability, damage, cost or expense (including,
without limitation, attorneys' and accountants' fees) incurred in connection
therewith.
(iii) D. Keith Campbell shall have no liability to the Partnership or
SBFM or any of their respective officers, directors, employees, partners or
affiliates under this Agreement or in connection with the transactions
contemplated by this
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<PAGE> 11
Agreement except in the case of fraud or willful misconduct by D. Keith
Campbell.
(c) In the event that a person entitled to indemnification under this
Paragraph 6 is made a party to an action, suit or proceeding alleging both
matters for which indemnification can be made hereunder and matters for which
indemnification may not be made hereunder, such person shall be indemnified only
for that portion of the loss, liability, damage, cost or expense incurred in
such action, suit or proceeding which relates to the matters for which
indemnification can be made.
(d) None of the indemnifications contained in this Paragraph 6 shall be
applicable with respect to default judgments, confessions of judgment or
settlements entered into by the party claiming indemnification without the prior
written consent, which shall not be unreasonably withheld, of the party
obligated to indemnify such party.
(e) The provisions of this Paragraph 6 shall survive the termination of
this Agreement.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Advisor represents and warrants that:
(i) All references to the Advisor and its principals in the Prospectus
are accurate in all material respects and as to them the Prospectus does not
contain any untrue statement of a material fact or omit to state a material fact
which is necessary to make the statements therein not misleading, except that
with respect to Table B in the Prospectus, this representation and warranty
extends only to the underlying data made available by the Advisor for the
preparation thereof and not to any hypothetical or pro forma adjustments.
Subject to such exception, all references to the Advisor and its principals in
the Prospectus will, after review and approval of such references by the Advisor
prior to the use of such Prospectus in connection with the offering of the
Partnership's units, be accurate in all material respects.
(ii) The information with respect to the Advisor set forth in the actual
performance tables in the Prospectus is based on all of the customer accounts
managed on a discretionary basis by the Advisor's principals and/or the Advisor
during the period covered by such tables and required to be disclosed therein.
The Advisor's performance tables have been examined by an independent certified
public accountant and the report thereon has been provided to SBFM. The Advisor
will have its performance tables so examined no less frequently than annually
during the term of this Agreement.
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<PAGE> 12
(iii) The Advisor will be acting as a commodity trading advisor with
respect to the Partnership and not as a securities investment adviser and is
duly registered with the CFTC as a commodity trading advisor, is a member of the
NFA, and is in compliance with such other registration and licensing
requirements as shall be necessary to enable it to perform its obligations
hereunder, and agrees to maintain and renew such registrations and licenses
during the term of this Agreement.
(iv) The Advisor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and has full power and
authority to enter into this Agreement and to provide the services required of
it hereunder.
(v) The Advisor will not, by acting as a commodity trading advisor to the
Partnership, breach or cause to be breached any undertaking, agreement,
contract, statute, rule or regulation to which it is a party or by which it is
bound.
(vi) This Agreement has been duly and validly authorized, executed and
delivered by the Advisor and is a valid and binding agreement enforceable in
accordance with its terms.
(vii) At any time during the term of this Agreement that a prospectus
relating to the Units is required to be delivered in connection with the offer
and sale thereof, the Advisor agrees upon the request of SBFM to provide the
Partnership with such information as shall be necessary so that, as to the
Advisor and its principals, such prospectus is accurate.
(b) SBFM represents and warrants for itself and the Partnership that:
(i) The Prospectus (as from time to time amended or supplemented, which
amendment or supplement is approved by the Advisor as to descriptions of itself
and its actual performance) does not contain any untrue statement of a material
fact or omit to state a material fact which is necessary to make the statements
therein not misleading, except that the foregoing representation does not apply
to any statement or omission concerning the Advisor in the Prospectus, made in
reliance upon, and in conformity with, information furnished to SBFM by or on
behalf of the Advisor expressly for use in the Prospectus (it being understood
that the hypothetical and pro forma adjustments in Table B were not furnished by
the Advisor).
(ii) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to perform its obligations under this Agreement.
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<PAGE> 13
(iii) SBFM and the Partnership have the capacity and authority to enter
into this Agreement on behalf of the Partnership.
(iv) This Agreement has been duly and validly authorized, executed and
delivered on SBFM's and the Partnership's behalf and is a valid and binding
agreement of SBFM and the Partnership enforceable in accordance with its terms.
(v) SBFM will not, by acting as General Partner to the Partnership and
the Partnership will not, breach or cause to be breached any undertaking,
agreement, contract, statute, rule or regulation to which it is a party or by
which it is bound which would materially limit or affect the performance of its
duties under this Agreement.
(vi) It is registered as a commodity pool operator and is a member of the
NFA, and it will maintain and renew such registration and membership during the
term of this Agreement.
(vii) The Partnership is a limited partnership duly organized and validly
existing under the laws of the State of New York and has full power and
authority to enter into this Agreement and to perform its obligations under this
Agreement.
(c) The parties represent that they are using their best efforts to take
(and will continue to take) any necessary steps to remedy potential problems
that could occur in their respective computer applications as a result of the
change in the year from 1999 to 2000, commonly referred to as Year 2000
problems.
8. COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP.
(a) The Advisor agrees as follows:
(i) In connection with its activities on behalf of the Partnership, the
Advisor will comply with all applicable rules and regulations of the CFTC and/or
the commodity exchange on which any particular transaction is executed.
(ii) The Advisor will promptly notify SBFM of the commencement of any
material suit, action or proceeding involving it, whether or not any such suit,
action or proceeding also involves SBFM.
(iii) In the placement of orders for the Partnership's account and for
the accounts of any other client, the Advisor will utilize a pre-determined,
systematic, fair and reasonable order entry system, which shall, on an overall
basis, be no less favorable to the Partnership than to any other account managed
by the Advisor. The Advisor acknowledges its obligation to review
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<PAGE> 14
the Partnership's positions, prices and equity in the account managed by the
Advisor daily and within two business days to notify, in writing, the broker and
SBFM and the Partnership's brokers of (i) any error committed by the Advisor or
its principals or employees; (ii) any trade which the Advisor believes was not
executed in accordance with its instructions; and (iii) any discrepancy with a
value of $10,000 or more (due to differences in the positions, prices or equity
in the account) between its records and the information reported on the
account's daily and monthly broker statements.
(iv) The Advisor will maintain a net worth of not less than $2,000,000
during the term of this Agreement.
(b) SBFM agrees for itself and the Partnership that:
(i) SBFM and the Partnership will comply with all applicable rules and
regulations of the CFTC and/or the commodity exchange on which any particular
transaction is executed.
(ii) SBFM will promptly notify the Advisor of the commencement of any
material suit, action or proceeding involving it or the Partnership, whether or
not such suit, action or proceeding also involves the Advisor.
9. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof.
10. ASSIGNMENT. This Agreement may not be assigned by any party without
the express written consent of the other parties.
11. AMENDMENT. This Agreement may not be amended except by the written
consent of the parties.
12. NOTICES. All notices, demands or requests required to be made or
delivered under this Agreement shall be in writing and delivered personally or
by registered or certified mail or expedited courier, return receipt requested,
postage prepaid, to the addresses below or to such other addresses as may be
designated by the party entitled to receive the same by notice similarly given:
If to SBFM:
Smith Barney Futures Management Inc.
390 Greenwich Street
1st Floor
New York, New York 10013
Attention: David J. Vogel
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If to the Advisor:
Campbell & Company, Inc.
210 West Pennsylvania Avenue
Towson, Maryland 21204
Attention: Ms. Kathy Ford
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14. ARBITRATION. The parties agree that any dispute or controversy
arising out of or relating to this Agreement or the interpretation thereof,
shall be settled by arbitration in accordance with the rules, then in effect, of
the National Futures Association or, if the National Futures Association shall
refuse jurisdiction, then in accordance with the rules, then in effect, of the
American Arbitration Association; provided, however, that the power of the
arbitrator shall be limited to interpreting this Agreement as written and the
arbitrator shall state in writing his reasons for his award. Judgment upon any
award made by the arbitrator may be entered in any court of competent
jurisdiction.
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<PAGE> 16
15. NO THIRD PARTY BENEFICIARIES. There are no third party beneficiaries
to this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of
the undersigned as of the day and year first above written.
SMITH BARNEY FUTURES
MANAGEMENT INC.
By /s/ David J. Vogel
--------------------------------
David J. Vogel
President and Director
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L. P.
By: Smith Barney
Futures Management Inc.
(General Partner)
By /s/ David J. Vogel
--------------------------------
David J. Vogel
President and Director
CAMPBELL & COMPANY, INC.
By /s/ Bruce L. Cleland
--------------------------------
Bruce L. Cleland
President
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<PAGE> 1
EXHIBIT 10.7
MANAGEMENT AGREEMENT
AGREEMENT made as of the 23rd day of August, 1999 among SMITH BARNEY
FUTURES MANAGEMENT INC., a Delaware corporation ("SBFM"), SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P., a New York limited partnership (the
"Partnership") and RABAR MARKET RESEARCH, INC., an Illinois corporation (the
"Advisor").
W I T N E S S E T H :
WHEREAS, SBFM is the general partner of Salomon Smith Barney Diversified
2000 Futures Fund L.P., a limited partnership organized for the purpose of
speculative trading of commodity interests, including futures contracts, options
and forward contracts with the objective of achieving substantial capital
appreciation; and
WHEREAS, the Limited Partnership Agreement establishing the Partnership
(the "Limited Partnership Agreement") permits SBFM to delegate to one or more
commodity trading advisors SBFM's authority to make trading decisions for the
Partnership; and
WHEREAS, the Advisor is registered as a commodity trading advisor with
the Commodity Futures Trading Commission ("CFTC") and is a member of the
National Futures Association ("NFA"); and
WHEREAS, SBFM is registered as a commodity pool operator with the CFTC
and is a member of the NFA; and
WHEREAS, SBFM, the Partnership and the Advisor wish to enter into this
Agreement in order to set forth the terms and conditions upon which the Advisor
will render and implement advisory services in connection with the conduct by
the Partnership of its commodity trading activities during the term of this
Agreement.
NOW, THEREFORE, the parties agree as follows:
1. DUTIES OF THE ADVISOR. (a) Upon the commencement of trading operations
by the Partnership and for the period and on the terms and conditions of this
Agreement, the Advisor shall have sole authority and responsibility, as one of
the Partnership's agents and attorneys-in-fact, for directing the investment and
reinvestment of the assets and funds of the Partnership allocated to it by the
General Partner in commodity interests, including commodity futures contracts,
options, exchange-for-physicals, physical commodities, and spot and forward
contracts. All such trading on behalf of the Partnership shall be in accordance
with the trading strategies and trading policies set forth in the Prospectus and
Disclosure Document to
<PAGE> 2
be dated on or about September 1, 1999, as supplemented (the "Prospectus"), and
as such trading policies may be changed from time to time upon receipt by the
Advisor of prior written notice of such change and pursuant to the trading
strategy selected by SBFM to be utilized by the Advisor in managing the
Partnership's assets. Any open positions or other investments at the time of
receipt of such notice of a change in trading policy shall not be deemed to
violate the changed policy and shall be closed or sold in the ordinary course of
trading. The Advisor may not deviate from the trading policies set forth in the
Prospectus without the prior written consent of the Partnership given by SBFM.
The Advisor makes no representation or warranty that the trading to be directed
by it for the Partnership will be profitable or will not incur losses.
(b) SBFM acknowledges receipt of the Advisor's Disclosure Document dated
August 1, 1999 as filed with the NFA and CFTC. All trades made by the Advisor
for the account of the Partnership shall be made through such commodity broker
or brokers as SBFM shall direct, and the Advisor shall have no authority or
responsibility for selecting or supervising any such broker in connection with
the execution, clearance or confirmation of transactions for the Partnership or
for the negotiation or payment of brokerage rates charged therefor. However, the
Advisor may direct all trades in commodity futures and options to a futures
commission merchant or independent floor broker it chooses for execution with
instructions to give-up the trades to the broker designated by SBFM. Upon
request, the Advisor will provide SBFM with a list of all independent brokers it
utilizes, including those that are paid give-up fees (which the Advisor expects
will only be independent brokers operating on markets located in Chicago). SBFM
and the Partnership agree to maintain such list in strict confidence and not
disclose the name of any independent broker to any third party. The Advisor
agrees to consult with SBFM regarding its utilization of any such independent
broker in the event SBFM objects thereto. All give-up or similar fees relating
to the foregoing (which the Advisor does not expect will exceed $1 per side)
shall be paid by the Partnership. The Advisor will cooperate with SBFM and use
its best efforts to have its independent brokers execute give-up agreements (by
either original or fax).
(c) The initial allocation of the Partnership's assets to the Advisor
will be made to the Advisor's trading system as described in its disclosure
document. In the event the Advisor wishes to use a trading system or methodology
other than or in addition to the system or methodology outlined in the
Prospectus in connection with its trading for the Partnership, either in whole
or in part, it may not do so unless the Advisor gives SBFM
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<PAGE> 3
prior written notice of its intention to utilize such different trading system
or methodology and SBFM consents thereto in writing. In addition, the Advisor
will provide five days' prior written notice to SBFM of any change in the
trading system or methodology to be utilized for the Partnership which the
Advisor deems material. If the Advisor deems such change in system or
methodology or in markets traded to be material, the changed system or
methodology or markets traded will not be utilized for the Partnership without
the prior written consent of SBFM. In addition, the Advisor will notify SBFM of
any changes to the trading system or methodology that would require a change in
the description of the trading strategy or methods described in the Prospectus.
Further, the Advisor will provide the Partnership with a current list of all
commodity interests to be traded for the Partnership's account and will not
trade any additional commodity interests for such account without providing
written notice thereof to SBFM and receiving SBFM's written approval. However,
if SBFM does not give its approval within 5 days, it will be deemed to have
approved of such additional commodity interests. The Advisor also agrees to
provide SBFM, on a monthly basis, with a written report of the assets under the
Advisor's management together with all other matters deemed by the Advisor to be
material changes to its business not previously reported to SBFM. The Advisor
further agrees that it will convert foreign currency balances (not required to
margin positions denominated in a foreign currency) to U.S. dollars no less
frequently than monthly. U.S. dollar equivalents in individual foreign
currencies of more than $100,000 will be converted to U.S. dollars within one
business day after such funds are no longer needed to margin foreign positions.
(d) The Advisor agrees to make all material disclosures to the
Partnership regarding itself and its principals as defined in Part 4 of the
CFTC's regulations ("principals"), shareholders, directors, officers and
employees, their trading performance and general trading methods, its customer
accounts (but not the identities of or identifying information with respect to
its customers) and otherwise as are required in the reasonable judgment of SBFM
to be made in any filings required by Federal or state law or NFA rule or order.
Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor is not
required to disclose the actual trading results of proprietary accounts of the
Advisor or its principals unless SBFM reasonably determines that such disclosure
is required in order to fulfill its fiduciary obligations to the Partnership or
the reporting, filing or other obligations imposed on it by Federal or state law
or NFA rule or order. The Partnership and SBFM acknowledge that the trading
advice to be provided by the Advisor is a property right belonging to the
Advisor and that they will keep all such advice
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<PAGE> 4
confidential. Further, SBFM agrees to treat as confidential any results of
proprietary accounts and/or proprietary information with respect to trading
systems obtained from the Advisor.
(e) The Advisor understands and agrees that SBFM may designate other
trading advisors for the Partnership and apportion or reapportion to such other
trading advisors the management of an amount of Net Assets (as defined in
Section 3(b) hereof) as it shall determine in its absolute discretion. The
designation of other trading advisors and the apportionment or reapportionment
of Net Assets to any such trading advisors pursuant to this Section 1 shall
neither terminate this Agreement nor modify in any regard the respective rights
and obligations of the parties hereunder.
(f) SBFM may, from time to time, in its absolute discretion, select
additional trading advisors and reapportion funds among the trading advisors for
the Partnership as it deems appropriate. SBFM shall use its best efforts to make
reapportionments, if any, as of the first day of a month. The Advisor agrees
that it may be called upon at any time promptly to liquidate positions in SBFM's
sole discretion so that SBFM may reallocate the Partnership's assets, meet
margin calls on the Partnership's account, fund redemptions, or for any other
reason, except that SBFM will not require the liquidation of specific positions
by the Advisor. SBFM will use its best efforts to give two days' prior notice to
the Advisor of any reallocations or liquidations.
(g) The Advisor will not be liable for trading losses in the
Partnership's account including losses caused by errors; provided, however, that
the Advisor will be liable to the Partnership with respect to losses incurred
due to negligent errors committed or caused by it or any of its principals or
employees in communicating improper trading instructions or orders to any broker
on behalf of the Partnership.
2. INDEPENDENCE OF THE ADVISOR. For all purposes herein, the Advisor
shall be deemed to be an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Partnership in any way and shall not be deemed an agent, promoter or sponsor of
the Partnership, SBFM, or any other trading advisor. The Advisor shall not be
responsible to the Partnership, the General Partner, any trading advisor or any
limited partners for any acts or omissions of any other trading advisor, whether
or not they are still acting as an advisor to the Partnership.
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<PAGE> 5
3. COMPENSATION. (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 at
the end of each calendar year equal to 20% 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 1/6 of 1% (2% per year) of the
month-end Net Assets of the Partnership allocated to the Advisor.
(b) "Net Assets" shall have the meaning set forth in Paragraph 7(d)(1) of
the Limited Partnership Agreement to be dated on or about August 27, 1999, and
without regard to further amendments thereto, provided that in determining the
Net Assets of the Partnership on any date, (i) no adjustment shall be made to
reflect any distributions, redemptions or incentive fees payable as of the date
of such determination, (ii) all extraordinary liabilities of the Partnership
shall be excluded, (iii) interest accrued but not yet paid will be included and
only a pro-rata portion of the Partnership's ordinary liabilities will be
included.
(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.
Ongoing expenses will be attributed to the Advisor based on the Advisor's
proportionate share of Net Assets. Ongoing expenses above will not include
expenses of litigation not involving the activities of the Advisor on behalf of
the Partnership or any other extraordinary expenses. For purposes of calculating
New Trading Profits, ongoing expenses will not include offering and
organizational expenses of the Partnership. The first incentive fee shall be
paid as of the end of the calendar year in which trading commences, which fee
shall be based on New Trading Profits earned from the commencement of trading
operations by the Partnership through the end of the calendar year. 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, distributions or reallocations (net of additions),
there will be a corresponding proportional reduction
-5-
<PAGE> 6
in the related loss carryforward amount that must be recouped before the Advisor
is eligible to receive another incentive fee.
(d) Annual incentive fees and monthly management fees shall be paid
within twenty (20) business days following the end of the period, as the case
may be, for which such fee is payable. All such payments will be made by wire
transfer of immediately available funds as follows: The Bank of New York, One
North Lexington Avenue, White Plains, New York 10604, Branch #749, Westchester
Putnam Division, ABA #021 000 018, Phone: (914) 946-6210, For further credit to:
Rabar Market Research, Inc., Account #6701456244. In the event of the
termination of this Agreement as of any date which shall not be the end of a
fiscal year or a calendar month, as the case may be, the annual incentive fee
shall be computed as if the effective date of termination were the last day of
the then current year and the monthly management fee shall be prorated to the
effective date of termination. If, during any month, the Partnership does not
conduct business operations or the Advisor is unable to provide the services
contemplated herein for more than two successive business days, the monthly
management fee shall be prorated by the ratio which the number of business days
during which SBFM conducted the Partnership's business operations or utilized
the Advisor's services bears in the month to the total number of business days
in such month.
(e) The provisions of this Paragraph 3 shall survive the termination of
this Agreement.
4. RIGHT TO ENGAGE IN OTHER ACTIVITIES. (a) The services provided by the
Advisor hereunder are not to be deemed exclusive. SBFM on its own behalf and on
behalf of the Partnership acknowledges that, subject to the terms of this
Agreement, the Advisor and its officers, directors, employees and
shareholder(s), may render advisory, consulting and management services to other
clients and accounts. The Advisor and its officers, directors, employees and
shareholder(s) shall be free to trade for their own accounts and to advise other
investors and manage other commodity accounts during the term of this Agreement
and to use the same information, computer programs and trading strategies,
programs or formulas which they obtain, produce or utilize in the performance of
services to SBFM for the Partnership. However, the Advisor represents, warrants
and agrees that it believes the rendering of such consulting, advisory and
management services to other accounts and entities will not require any material
change in the Advisor's basic trading strategies and will not affect the
capacity of the Advisor to continue to render services to SBFM for the
-6-
<PAGE> 7
Partnership of the quality and nature contemplated by this Agreement.
(b) If, at any time during the term of this Agreement, the Advisor is
required to aggregate the Partnership's commodity positions with the positions
of any other person for purposes of applying CFTC- or exchange-imposed
speculative position limits, the Advisor agrees that it will promptly notify
SBFM if the Partnership's positions are included in an aggregate amount which
exceeds the applicable speculative position limit. The Advisor agrees that, if
its trading recommendations are altered because of the application of any
speculative position limits, it will not modify the trading instructions with
respect to the Partnership's account in such manner as to affect the Partnership
substantially disproportionately as compared with the Advisor's other accounts.
The Advisor further represents, warrants and agrees that under no circumstances
will it knowingly or deliberately use trading strategies or methods for the
Partnership that are inferior to strategies or methods employed for any other
client or account and that it will not knowingly or deliberately favor any
client or account managed by it over any other client or account in any manner,
it being acknowledged, however, that different trading strategies or methods may
be utilized for differing sizes of accounts, accounts with different trading
policies, 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, and that such differences
may cause divergent trading results.
(c) It is acknowledged that the Advisor and/or its officers, employees,
directors and shareholder(s) presently act, and it is agreed that they may
continue to act, as advisor for other accounts managed by them, and may continue
to receive compensation with respect to services for such accounts in amounts
which may be more or less than the amounts received from the Partnership.
(d) The Advisor agrees that it shall make such information available to
SBFM respecting the performance of the Partnership's account as compared to the
performance of other accounts managed by the Advisor or its principals as shall
be reasonably requested by SBFM. The Advisor presently believes and represents
that existing speculative position limits will not materially adversely affect
its ability to manage the Partnership's account given the potential size of the
Partnership's account and the Advisor's and its principals'
-7-
<PAGE> 8
current accounts and all proposed accounts for which they have contracted to act
as trading advisor.
5. TERM. (a) This Agreement shall continue in effect until June 30, 2000.
SBFM may, in its sole discretion, renew this Agreement for additional one-year
periods upon notice to the Advisor not less than 30 days prior to the expiration
of the previous period. At any time during the term of this Agreement, SBFM may
terminate this Agreement at any month-end upon 30 days' notice to the Advisor.
At any time during the term of this Agreement, SBFM may elect to immediately
terminate this Agreement upon 30 days' notice to the Advisor if (i) the Net
Asset Value per Unit shall decline as of the close of business on any day to
$400 or less; (ii) the Net Assets allocated to the Advisor (adjusted for
redemptions, distributions, withdrawals or reallocations, 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 shall
vote to require SBFM to terminate this Agreement; (iv) the Advisor fails to
comply with the terms of this Agreement; (v) SBFM, in good faith, reasonably
determines that the performance of the Advisor has been such that SBFM's
fiduciary duties to the Partnership require SBFM to terminate this Agreement; or
(vi) SBFM reasonably believes that the application of speculative position
limits will substantially affect the performance of the Partnership. At any time
during the term of this Agreement, SBFM may elect immediately to terminate this
Agreement if (i) the Advisor merges, consolidates with another entity, sells a
substantial portion of its assets, or becomes bankrupt or insolvent, (ii) Paul
Rabar dies, becomes incapacitated, leaves the employ of the Advisor, ceases to
control the Advisor or is otherwise not managing the trading programs or systems
of the Advisor, or (iii) the Advisor's registration as a commodity trading
advisor with the CFTC or its membership in the NFA or any other regulatory
authority, is terminated or suspended. This Agreement will immediately terminate
upon dissolution of the Partnership or upon cessation of trading prior to
dissolution.
(b) The Advisor may terminate this Agreement by giving not less than 30
days' notice to SBFM (i) in the event that the trading policies of the
Partnership as set forth in the Prospectus are changed in such manner that the
Advisor reasonably believes will adversely affect the performance of its trading
strategies; (ii) after June 30, 2000; or (iii) in the event that the General
Partner or Partnership fails to comply with the terms of this Agreement. The
Advisor may immediately terminate this Agreement if SBFM's registration as a
commodity pool operator or its membership in the NFA is terminated or suspended.
-8-
<PAGE> 9
(c) Except as otherwise provided in this Agreement, any termination of
this Agreement in accordance with this Paragraph 5 or Paragraph 1(e) shall be
without penalty or liability to any party, except for any fees due to the
Advisor pursuant to Section 3 hereof.
6. INDEMNIFICATION. (a)(i) In any threatened, pending or completed
action, suit, or proceeding to which the Advisor was or is a party or is
threatened to be made a party arising out of or in connection with this
Agreement or the management of the Partnership's assets by the Advisor or the
offering and sale of units in the Partnership, SBFM shall, subject to
subparagraph (a)(iii) of this Paragraph 6, indemnify and hold harmless the
Advisor against 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
Partnership, and provided that its conduct did not constitute negligence,
intentional misconduct, or a breach of its fiduciary obligations to the
Partnership as a commodity trading advisor, unless and only to the extent that
the court or administrative forum 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, 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 Partnership if such indemnification is prohibited by Section
16 of the Partnership Agreement. The termination of any action, suit or
proceeding by judgment, order or settlement shall not, of itself, create a
presumption that the Advisor did not act in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Partnership.
(ii) Without limiting sub-paragraph (i) above, to the extent that the
Advisor has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subparagraph (i) above, or in defense of any
claim, issue or matter therein, SBFM shall indemnify it against the expenses
(including, without limitation, attorneys' and accountants' fees) actually and
reasonably incurred by it in connection therewith.
(iii) Any indemnification under subparagraph (i) above, unless ordered by
a court or administrative forum, shall be made by SBFM only as authorized in the
specific case and only upon a determination by independent legal counsel in a
written opinion that such indemnification is proper in the circumstances because
the Advisor has met the applicable standard of conduct set forth in subparagraph
(i) above. Such independent legal counsel shall be selected by SBFM in a timely
manner, subject to the Advisor's
<PAGE> 10
approval, which approval shall not be unreasonably withheld. The Advisor will be
deemed to have approved SBFM's selection unless the Advisor notifies SBFM in
writing, received by SBFM within five days of SBFM's telecopying to the Advisor
of the notice of SBFM's selection, that the Advisor does not approve the
selection.
(iv) In the event the Advisor is made a party to any claim, dispute or
litigation or otherwise incurs any loss or expense as a result of, or in
connection with, the Partnership's or SBFM's activities or claimed activities
unrelated to the Advisor, SBFM shall indemnify, defend and hold harmless the
Advisor against any loss, liability, damage, cost or expense (including, without
limitation, attorneys' and accountants' fees) incurred in connection therewith.
(v) As used in this Paragraph 6(a), the terms "Advisor" shall include the
Advisor, its principals, officers, directors, stockholders and employees and the
term "SBFM" shall include the Partnership.
(b)(i) The Advisor agrees to indemnify, defend and hold harmless SBFM,
the Partnership and their affiliates against any loss, liability, damage, cost
or expense (including, without limitation, attorneys' and accountants' fees),
judgments and amounts paid in settlement actually and reasonably incurred by
them (A) as a result of the material breach of any material representations and
warranties made by the Advisor in this Agreement, or (B) as a result of any act
or omission of the Advisor relating to the Partnership if there has been a final
judicial or regulatory determination or, in the event of a settlement of any
action or proceeding with the prior written consent of the Advisor, a written
opinion of an arbitrator pursuant to Paragraph 14 hereof, to the effect that
such acts or omissions violated the terms of this Agreement in any material
respect or involved negligence, bad faith, recklessness or intentional
misconduct on the part of the Advisor (except as otherwise provided in Section
1(g)).
(ii) In the event SBFM, the Partnership or any of their affiliates is
made a party to any claim, dispute or litigation or otherwise incurs any loss or
expense as a result of, or in connection with, the activities or claimed
activities of the Advisor or its principals, officers, directors, shareholder(s)
or employees unrelated to SBFM's or the Partnership's business, the Advisor
shall indemnify, defend and hold harmless SBFM, the Partnership or any of their
affiliates against any loss, liability, damage, cost or expense (including,
without limitation, attorneys' and accountants' fees) incurred in connection
therewith.
(c) In the event that a person entitled to indemnification under this
Paragraph 6 is made a party to an
<PAGE> 11
action, suit or proceeding alleging both matters for which indemnification can
be made hereunder and matters for which indemnification may not be made
hereunder, such person shall be indemnified only for that portion of the loss,
liability, damage, cost or expense incurred in such action, suit or proceeding
which relates to the matters for which indemnification can be made.
(d) None of the indemnifications contained in this Paragraph 6 shall be
applicable with respect to default judgments, confessions of judgment or
settlements entered into by the party claiming indemnification without the prior
written consent, which shall not be unreasonably withheld, of the party
obligated to indemnify such party.
(e) The provisions of this Paragraph 6 shall survive the termination of
this Agreement.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Advisor represents and warrants that:
(i) All references to the Advisor and its principals in the Prospectus
are accurate in all material respects and as to them the Prospectus does not
contain any untrue statement of a material fact or omit to state a material fact
which is necessary to make the statements therein not misleading, except that
with respect to Table B in the Prospectus, this representation and warranty
extends only to the underlying data made available by the Advisor for the
preparation thereof and not to any hypothetical or pro forma adjustments.
Subject to such exception, all references to the Advisor and its principals in
the Prospectus will, after review and approval of such references by the Advisor
prior to the use of such Prospectus in connection with the offering of the
Partnership's units, be accurate in all material respects.
(ii) The information with respect to the Advisor set forth in the actual
performance tables in the Prospectus is based on all of the customer accounts
managed on a discretionary basis by the Advisor's principals and/or the Advisor
during the period covered by such tables and required to be disclosed therein.
(iii) The Advisor will be acting as a commodity trading advisor with
respect to the Partnership and not as a securities investment adviser and is
duly registered with the CFTC as a commodity trading advisor, is a member of the
NFA, and is in compliance with such other registration and licensing
requirements as shall be necessary to enable it to perform its obligations
hereunder, and agrees to maintain and renew such registrations and licenses
during the term of this Agreement.
(iv) The Advisor is a corporation duly organized, validly existing and in
good standing under the laws of the State
<PAGE> 12
of Illinois and has full power and authority to enter into this Agreement and to
provide the services required of it hereunder.
(v) The Advisor will not, by acting as a commodity trading advisor to the
Partnership, breach or cause to be breached any undertaking, agreement,
contract, statute, rule or regulation to which it is a party or by which it is
bound.
(vi) This Agreement has been duly and validly authorized, executed and
delivered by the Advisor and is a valid and binding agreement enforceable in
accordance with its terms.
(vii) At any time during the term of this Agreement that a prospectus
relating to the Units is required to be delivered in connection with the offer
and sale thereof, the Advisor agrees upon the request of SBFM to provide the
Partnership with such information as shall be necessary so that, as to the
Advisor and its principals, such prospectus is accurate.
(b) SBFM represents and warrants for itself and the Partnership that:
(i) The Prospectus (as from time to time amended or supplemented, which
amendment or supplement is approved by the Advisor as to descriptions of itself
and its actual performance) does not contain any untrue statement of a material
fact or omit to state a material fact which is necessary to make the statements
therein not misleading, except that the foregoing representation does not apply
to any statement or omission concerning the Advisor in the Prospectus, made in
reliance upon, and in conformity with, information furnished to SBFM by or on
behalf of the Advisor expressly for use in the Prospectus (it being understood
that the hypothetical and pro forma adjustments in Table B were not furnished by
the Advisor).
(ii) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to perform its obligations under this Agreement.
(iii) SBFM and the Partnership have the capacity and authority to enter
into this Agreement on behalf of the Partnership.
(iv) This Agreement has been duly and validly authorized, executed and
delivered on SBFM's and the Partnership's behalf and is a valid and binding
agreement of SBFM and the Partnership enforceable in accordance with its terms.
(v) SBFM will not, by acting as General Partner to the Partnership and
the Partnership will not, breach or cause to be breached any undertaking,
agreement, contract, statute, rule or
<PAGE> 13
regulation to which it is a party or by which it is bound which would materially
limit or affect the performance of its duties under this Agreement.
(vi) It is registered as a commodity pool operator and is a member of the
NFA, and it will maintain and renew such registration and membership during the
term of this Agreement.
(vii) The Partnership is a limited partnership duly organized and validly
existing under the laws of the State of New York and has full power and
authority to enter into this Agreement and to perform its obligations under this
Agreement.
(c) The parties represent that they have taken (and will continue to
take) any necessary steps to remedy potential problems that could occur in their
respective computer applications as a result of the change in the year from 1999
to 2000, commonly referred to as Year 2000 problems.
8. COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP.
(a) The Advisor agrees as follows:
(i) In connection with its activities on behalf of the Partnership, the
Advisor will comply with all applicable rules and regulations of the CFTC and/or
the commodity exchange on which any particular transaction is executed.
(ii) The Advisor will promptly notify SBFM of the commencement of any
material suit, action or proceeding involving it, whether or not any such suit,
action or proceeding also involves SBFM.
(iii) In the placement of orders for the Partnership's account and for
the accounts of any other client, the Advisor will utilize a pre-determined,
systematic, fair and reasonable order entry system, which shall, on an overall
basis, be no less favorable to the Partnership than to any other account managed
by the Advisor. The Advisor acknowledges its obligation to review the
Partnership's positions, prices and equity in the account managed by the Advisor
daily and within two business days to notify, in writing, the broker and SBFM
and the Partnership's brokers of (i) any negligent error committed by the
Advisor or its principals or employees; (ii) any trade which the Advisor
believes was not executed in accordance with its instructions; and (iii) any
discrepancy with a value of $10,000 or more (due to differences in the
positions, prices or equity in the account) between its records and the
information reported on the account's daily and monthly broker statements.
(iv) During the term of this Agreement, either (i) the Advisor will
maintain a minimum net worth of $1 million, or (ii) in the event that the net
worth of the Advisor is less than $1
<PAGE> 14
million, Paul Rabar, individually, will commit to capitalize the Advisor with an
amount equal to the difference between (A) $1 million, and (B) the net worth of
the Advisor.
(b) SBFM agrees for itself and the Partnership that:
(i) SBFM and the Partnership will comply with all applicable rules and
regulations of the CFTC and/or the commodity exchange on which any particular
transaction is executed.
(ii) SBFM will promptly notify the Advisor of the commencement of any
material suit, action or proceeding involving it or the Partnership, whether or
not such suit, action or proceeding also involves the Advisor.
9. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof.
10. ASSIGNMENT. This Agreement may not be assigned by any party without
the express written consent of the other parties.
11. AMENDMENT. This Agreement may not be amended except by the written
consent of the parties.
12. NOTICES. All notices, demands or requests required to be made or
delivered under this Agreement shall be in writing and delivered personally or
by registered or certified mail or expedited courier, return receipt requested,
postage prepaid, to the addresses below or to such other addresses as may be
designated by the party entitled to receive the same by notice similarly given:
If to SBFM:
Smith Barney Futures Management Inc.
390 Greenwich Street
1st Floor
New York, New York 10013
Attention: David J. Vogel
<PAGE> 15
If to the Advisor:
Mr. Paul Rabar
Rabar Market Research, Inc.
10 Bank Street, Suite 830
White Plains, New York 10606-1933
With a copy to:
Wesley G. Nissen
Katten Muchin & Zavis
525 W. Monroe Street
Suite 1600
Chicago, IL 60661
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14. ARBITRATION. The parties agree that any dispute or controversy
arising out of or relating to this Agreement or the interpretation thereof,
shall be settled by arbitration in accordance with the rules, then in effect, of
the National Futures Association or, if the National Futures Association shall
refuse jurisdiction, then in accordance with the rules, then in effect, of the
American Arbitration Association; provided, however, that the power of the
arbitrator shall be limited to interpreting this Agreement as written and the
arbitrator shall state in writing his reasons for his award. Judgment upon any
award made by the arbitrator may be entered in any court of competent
jurisdiction.
<PAGE> 16
15. NO THIRD PARTY BENEFICIARIES. There are no third party beneficiaries
to this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of
the undersigned as of the day and year first above written.
SMITH BARNEY FUTURES
MANAGEMENT INC.
By /s/ David J. Vogel
--------------------------------
David J. Vogel
President and Director
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P.
By: Smith Barney
Futures Management Inc.
(General Partner)
By /s/ David J. Vogel
--------------------------------
David J. Vogel
President and Director
RABAR MARKET RESEARCH, INC.
By /s/ Paul Rabar
--------------------------------
Paul Rabar
President
Paul Rabar, individually
(as to Section 8(a)(iv) only)
/s/ Paul Rabar
- ---------------------------------
Paul Rabar
