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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-87663
PART ONE: DISCLOSURE DOCUMENT
15,000 UNITS OF LIMITED PARTNERSHIP INTEREST
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P.
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THE FUND
Salomon Smith Barney Diversified 2000 Futures Fund L.P. is a limited partnership
that will speculatively trade commodity interests including futures, options on
futures and forward contracts.
The Fund's general partner, Smith Barney Futures Management LLC, allocates the
Fund's assets to professional commodity trading advisors and has selected Beacon
Management Corporation, Bridgewater Associates, Inc., Campbell & Company, Inc.
and Rabar Market Research, Inc. as the Fund's initial advisors.
THE OFFERING
Salomon Smith Barney Inc. is the selling agent. It is not required to sell any
specific number of units but will use its best efforts to sell the units
offered. The minimum number of units required to be sold in order for the Fund
to begin trading is 15,000 ($15,000,000). The maximum number of units that the
Fund is authorized to sell is 150,000 ($150,000,000). No underwriting
commissions are charged. Salomon Smith Barney may pay underwriting commissions
out of its own funds of up to $50 per unit.
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. If 15,000 units are not sold during the initial
offering period, your subscription will be returned to you. After the initial
offering period, units will be continuously offered. Subscription funds will be
held on your behalf in an escrow account until they are returned to you or
invested in the Fund.
MINIMUM INVESTMENT
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FIRST TIME INVESTORS: EMPLOYEE BENEFIT PLANS
$5,000 for initial INCLUDING INDIVIDUAL
investments RETIREMENT ACCOUNTS:
$1,000 or more for $2,000 for initial
additional investments investments
$1,000 or more for
additional investments
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THE RISKS
These are speculative securities. BEFORE YOU DECIDE TO INVEST, READ THIS ENTIRE
PROSPECTUS CAREFULLY AND CONSIDER "THE RISKS YOU FACE" ON PAGE 7.
- - The Fund is speculative and its performance may be volatile. Commodity
interest trading is highly leveraged.
- - You could lose all of your investment in the Fund.
- - Substantial expenses may not be offset by trading profits and interest income.
At its minimum size of $15,000,000, the Fund must generate trading profits of
11.02% per year to break even.
- - Your ability to redeem units is limited and no market exists for the units.
You may only redeem units after an initial three month holding period and then
only on a monthly basis.
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You are required to make representations and warranties in connection with this
investment. You are encouraged to discuss the investment with your individual
financial, legal and tax advisors.
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.
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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.
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SALOMON SMITH BARNEY INC. SMITH BARNEY FUTURES MANAGEMENT LLC
SELLING AGENT GENERAL PARTNER
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THE DATE OF THIS PROSPECTUS AND DISCLOSURE DOCUMENT IS JANUARY 31, 2000
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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 19 AND A
STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER
THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 22.
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 7-13.
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.
UNTIL APRIL 30, 2000 (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.
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SMITH BARNEY FUTURES MANAGEMENT LLC
GENERAL PARTNER
390 GREENWICH STREET
NEW YORK, NEW YORK 10013
(212) 723-5424
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TABLE OF CONTENTS
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PART ONE -- DISCLOSURE DOCUMENT
Summary of the Prospectus........... 1
Investing in the Fund............. 1
Summary of Risks You Should
Consider Before Investing in
the Fund....................... 2
Investment Factors You Should
Consider Before Investing in
the Fund....................... 3
General Partner................... 4
Trading Advisors for the Fund..... 4
Fees and Expenses of the Fund..... 5
Breakeven Threshold............... 6
Redemptions....................... 6
An investment in the Fund should
be considered at least a two
year commitment................ 6
Federal Income Tax Aspects........ 6
The Risks You Face.................. 7
Commodity Trading Risks........... 7
You may lose all of your
investment.................. 7
As a result of leverage, small
changes in the price of the
Fund's positions may result
in major losses............. 7
Investing in units might not
provide the desired
diversification of your
overall portfolio........... 7
Illiquid markets could make it
impossible for the Fund's
advisors to realize profits
or limit losses............. 7
Foreign exchanges are less
regulated than U.S. markets
and trading is subject to
exchange rate, market
practice and political
risks....................... 8
Forward foreign currency and
spot contracts are not
regulated and are subject to
credit risk................. 9
Purchasing and writing options
could result in trading
losses...................... 9
Swaps are subject to credit
risks....................... 9
Trading Advisor Risks............... 9
Past performance is no assurance
of future results.............. 9
Descriptions of advisors'
strategies may not be
applicable in the future....... 10
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Speculative position and trading
limits may reduce
profitability.................. 10
Fund performance may be hindered
by increased competition for
positions...................... 10
You will not have access to the
Fund's positions and must rely
on the general partner to
monitor the advisors........... 10
Fund Structure and Organization
Risks............................. 10
The Fund will pay substantial fees
and expenses regardless of
profitability.................. 10
Conflicts of interest exist....... 11
Your ability to redeem or transfer
units is limited............... 11
You will not participate in
management of the Fund's
business....................... 11
Expiration or termination of
management agreements with the
advisors could increase fees
paid to advisors............... 11
The Fund may terminate before you
achieve your investment
objective...................... 11
The offering of units has not been
subject to independent review
or review on your behalf....... 11
You cannot determine the expected
results of this Fund from the
performance history of other
funds operated by the general
partner........................ 12
Potential risk to trading and
reporting of results because of
computer problems associated
with the year 2000............. 12
Tax and Other Regulatory Risks...... 12
Your tax liability may exceed cash
distributions.................. 12
You could owe tax on your share of
the Fund's ordinary income
despite overall losses......... 12
Non-U.S. investors may face
exchange risk and local tax
consequences................... 13
You will not have the protections
provided to regulated mutual
funds.......................... 13
Deregistration of the commodity
pool operators and commodity
trading advisors could disrupt
operations..................... 13
Regulatory changes could restrict
the Fund's operations.......... 13
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Potential Benefits of Investing in
Salomon Smith Barney Diversified
2000.............................. 14
Conflicts of Interest............... 17
Relationship Between the General
Partner and the Commodity
Broker......................... 17
Accounts of Salomon Smith Barney,
the General Partner and Their
Affiliates..................... 17
Control of Other Accounts by the
Advisors....................... 17
Other Activities of Salomon Smith
Barney......................... 18
Fees and Expenses of the Fund....... 19
Advisors.......................... 19
Commodity Broker.................. 20
Other............................. 21
Caps on Fees...................... 21
Break-even Analysis............... 22
Trading Policies.................... 23
The General Partner................. 23
Background........................ 23
Principals........................ 24
Legal Actions..................... 25
Investment by General Partner..... 25
Business and Practices of General
Partner........................ 26
Duties of the General Partner..... 26
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 26
Risk of Computer System Failure
(Year 2000 Issue).............. 27
Performance History of the Fund... 28
Other Pools Operated by the
General Partner................ 28
The Advisors........................ 33
Sectors and Contracts Traded by
Advisors....................... 33
Advisor Descriptions.............. 35
Beacon Management Corporation..... 41
Bridgewater Associates, Inc....... 45
Campbell & Company, Inc........... 54
Rabar Market Research, Inc........ 66
Management Agreements............. 73
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The Commodity Broker................ 74
Brokerage Agreement............... 74
Litigation........................ 75
Use of Proceeds..................... 77
Commodity Trading Accounts........ 77
Interest Income................... 77
Investing in the Fund............... 77
The Offering...................... 77
Who May Invest.................... 78
How to Invest..................... 78
Escrow Arrangements............... 79
Rejection or Revocation of
Subscriptions.................. 79
ERISA Considerations................ 79
General........................... 79
Special Investment
Consideration.................. 79
The Fund Should Not Be Deemed to
Hold "Plan Assets"............. 80
Ineligible Purchasers............. 80
How to Redeem Units................. 81
Federal Income Tax Aspects.......... 81
The Fund's Partnership Tax
Status......................... 81
Taxation of Limited Partners on
Profits and Losses of the
Fund........................... 81
Fund Losses by Limited Partners... 82
Passive-Activity Loss Rules and
Their Effect on the Treatment
of Income and Loss............. 82
Cash Distributions and Unit
Redemptions.................... 82
Gain or Loss on Section 1256
Contracts and Non-Section 1256
Contracts...................... 82
Tax on Capital Gains and Losses... 82
Limited Deductions for Certain
Expenses....................... 83
Interest Income................... 83
Syndication Fees.................. 83
Investment Interest Deductibility
Limitations.................... 83
IRS Audits of the Fund and its
Limited Partners............... 83
State and Other Taxes............. 83
Broker Reporting and Backup
Withholding.................... 83
Exempt Organizations.............. 83
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Organization and Limited
Liability...................... 84
Management of Partnership
Affairs........................ 84
Fiduciary Responsibility of the
General Partner................ 84
Sharing of Profits and Losses..... 84
Additional Partners............... 84
Restrictions on Transfer or
Assignment..................... 85
Dissolution and Termination of the
Fund........................... 85
Removal or Admission of General
Partner........................ 85
Amendments and Meetings........... 85
Reports to Limited Partners....... 86
Indemnification of the General
Partner........................ 86
Enforcing Your Rights as a Limited
Partner........................ 86
Legal Matters....................... 87
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Experts............................. 87
Financial Statements................ 88
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PART TWO -- STATEMENT OF ADDITIONAL
INFORMATION
Diversifying Your Portfolio With
Managed Futures................... 105
Individual Advisor Performance...... 112
Table C-Hypothetical Composite
Performance....................... 118
Commodity Markets................... 121
Glossary............................ 126
Limited Partnership Agreement --
Exhibit A......................... A-1
Subscription Agreement -- Exhibit
B................................. B-1
Suitability Requirements --
Exhibit C......................... C-1
Subscription Agreement -- Execution
Copy.............................. Back
Cover
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SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
STRUCTURE AND PRINCIPAL PARTICIPANTS
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CITIGROUP INC.
SALOMON SMITH BARNEY
HOLDINGS INC.
SELLING AGENT GENERAL PARTNER
COMMODITY BROKER
Salomon Smith Barney Inc. Smith Barney
Futures Management LLC
Selling Agreement General Partnership
Brokerage Agreement Interest
FUND
Salomon Smith Barney
Diversified 2000 Limited Partnership Other commodity pools
Futures Fund L.P. Interest operated by Smith Barney
Futures Management LLC(1)
Management Agreements
COMMODITY TRADING ADVISORS
LIMITED PARTNERS
1) Beacon Management Corporation
2) Bridgewater Associates, Inc.
3) Campbell & Company, Inc.
4) Rabar Market Research, Inc.
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(1) The commodity pools currently operated or managed by the general partner
appear on page 29. The general partner performs the same administrative
functions for all the pools it operates or manages.
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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.
Diversification of a portfolio with an investment that produces independent,
positive results tends to improve the overall return of the portfolio while
reducing its volatility.
The Fund will attempt to accomplish its objectives through speculative trading
in U.S. and international markets for currencies, interest rates, stock indices,
agricultural and energy products and precious and base metals. The Fund may
employ futures, options and forward contracts in those markets.
Futures contracts are contracts made on a commodity exchange which provide
generally for the future delivery of various agricultural commodities,
industrial commodities, foreign currencies or financial instruments in standard
amounts at a specified date, time and place.
Options are contracts 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. Options may be traded on exchanges or privately
negotiated. The Fund will trade only exchange-traded options.
A forward contract is a contract for the purchase and sale of a commodity for
delivery at a future date. It is not traded on an exchange and it contains terms
and conditions specifically negotiated by the parties. The Fund intends to enter
into forward contracts on foreign currencies.
The Fund may also engage in trading in spot and swap contracts. Spot contracts
are cash market transactions in which the buyer and seller agree to the
immediate purchase and sale of a specific commodity, usually with a two-day
settlement. Swap contracts generally involve an exchange of a stream of payments
between the contracting parties. Swap and spot contracts are not uniform and are
not exchange-traded.
The markets and contracts traded by the Fund are referred to collectively as
"commodity interests" in this document.
Smith Barney Futures Management LLC is the Fund's general partner. Beacon
Management Corporation, Bridgewater Associates, Inc., Campbell & Company Inc.
and Rabar Market Research Inc. 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 LLC, 390 Greenwich
Street, New York, New York 10013.
The Commodity Futures Trading Commission, the U.S. government agency that
regulates the futures markets, and the National Futures Association, a self-
regulatory membership organization, are referred to throughout this document as
"CFTC" and "NFA."
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.
IS AN INVESTMENT IN THE FUND SUITABLE FOR YOU?
You should consider investing in the Fund if you are interested in its potential
to produce, over the long-term, returns that are generally independent of the
returns of stocks and bonds and you are prepared to risk the loss of all of your
investment.
An investment in the Fund is speculative and involves a high degree of risk. The
Fund is
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not a complete investment nor is it suitable for all investors. The Fund is not
suitable for investors seeking consistent returns, income, or tax benefits.
The Fund is offered as a diversification opportunity for an investor's entire
portfolio and therefore an investment in the Fund should represent only a
limited portion of an investor's overall portfolio.
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. See Exhibit C for suitability requirements.
Your Salomon Smith Barney financial consultant can assist you in deciding
whether an investment in the Fund is suitable for you.
HOW TO INVEST
- Read this prospectus carefully and discuss with your financial consultant
any questions you have about the Fund.
- 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. If 15,000 units
are not sold during the initial offering period, your subscription will be
returned to you. Your subscription amount will be held on your behalf in an
escrow account at a bank until it is returned to you or invested in the
Fund.
- 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. The net asset value per unit is determined by dividing the total net
asset value of the Fund by the number of units issued. Net asset value is
all of the Fund's assets including the market value of commodity interest
contracts less brokerage and advisory fees and all other liabilities of the
Fund. You must submit your signed subscription agreement at least five days
before 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.
SUMMARY OF 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 trading is speculative, volatile and involves
a high degree of leverage. You could lose all 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.
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- 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.
- Your ability to redeem units is limited and no market exists for the units.
You may only redeem units after an initial three month holding period and
then only 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 may trade in commodity interests for their own accounts;
and
3) your Salomon Smith Barney financial consultant will receive ongoing
compensation for providing services to your account.
See pages 7 through 13 for a complete description of risks of this investment.
INVESTMENT FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN THE FUND
- The Fund will trade a diversified portfolio of futures, options on futures,
spot and forward contracts in U.S. and international markets for currencies,
interest rates, stock indices, agricultural and energy products and precious
and base metals.
- 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 diversify a stock and bond portfolio by producing positive
returns that are independent of stock and bond markets. The Fund may produce
independent returns due to its trading in global futures markets and the
ability of its advisors to take both long and short positions with equal
ease. The potential result would be to improve the return of the overall
portfolio and lower its volatility.
- Investors in the Fund get the advantage of highly leveraged trading in a
limited liability structure which ensures that you will not be individually
subject to margin calls or demands for cash with respect to the Fund's
account. While it is possible in theory to lose your entire investment, the
general partner has 20 years of experience in managing commodity pools and
carefully monitors pre-established loss limits for each pool. Therefore,
absent a catastrophic event, it is extremely unlikely for the Fund's assets
(or yours) to be entirely depleted.
- Salomon Smith Barney will pay the Fund interest at the 30-day U.S. Treasury
bill rate on 80% of the average daily balance maintained in cash in the
Fund's commodity trading accounts. Other commodity funds typically also earn
interest on cash balances. Small, individual commodity trading accounts
often do not earn interest.
- The Fund provides you with services designed to simplify the administrative
details involved in engaging directly in commodity interest transactions,
such as posting margin (the good faith deposit needed to maintain a futures
contract position) and responding to margin calls (requests from the
commodity broker for
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additional margin amounts), monitoring positions and tracking performance
daily.
GENERAL PARTNER
Smith Barney Futures Management LLC 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, 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 October 31,
1999, the general partner acts as general partner or trading manager to 28 other
active public, private and offshore pools with assets in excess of $850 million.
TRADING ADVISORS FOR THE FUND
The Fund will initially employ four advisors to trade the Fund's assets. Each of
the advisors has developed and employs proprietary strategies. Each advisor's
objective is to attempt to participate in major increases or decreases in
prices, which are also referred to as price trends.
Beacon, Campbell and Rabar will generally use computerized, trend-following
trading strategies based on technical analysis of market prices. Bridgewater's
trading strategy employs both technical and fundamental analysis.
Technical analysis focuses primarily on statistical research of past market
prices. Trend-following uses mathematical models that generate trading signals
based on the technical analysis of past market prices. Fundamental analysis
applies the theory that prices are primarily determined by the economic forces
of supply and demand.
BEACON MANAGEMENT CORPORATION
Beacon Management Corporation has been operating its trading systems since July
1980. Beacon will trade its Meka Program on behalf of the Fund. The Meka Program
aggressively invests a broadly diversified portfolio using proprietary,
computerized trend-following systems and portfolio allocation software. Its
diversified portfolio includes trading in U.S. and international interest rate
contracts, foreign currencies, stock market indices, agricultural and energy
products, and precious and base metals. The Meka Program began trading client
assets in 1995. As of October 31, 1999, Beacon managed approximately $99 million
in its Meka program and $118 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.
Bridgewater will trade its Aggressive Pure Alpha Futures Only Program on behalf
of the Fund. The Aggressive Pure Alpha Futures Only Program uses both
fundamental and technical systems, with fundamental readings given a heavier
weighting in determining position sizes. This program focuses on U.S. and
international interest rate contracts, foreign currencies, stock market indices
and copper. It began trading client accounts in August 1998.
As of October 31, 1999, Bridgewater managed approximately $14 million in its
Aggressive Pure Alpha Futures Only Program and $25.5 billion in total assets. Of
the $25.5 billion total, $8.8 billion is attributed to accounts that trade
futures and $16.7 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
risk management and portfolio management
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principles. Campbell will initially use its Financial, Metals and Energy Small
Portfolio in trading the Fund's assets. If Campbell's allocation exceeds $10
million, Campbell will trade its Financial, Metals and Energy Large Portfolio.
This program trades the same contracts as the Small Portfolio, however, it adds
certain forward foreign currency contracts that do not have futures equivalents.
The FME Small and Large Portfolios concentrate trading in U.S. and international
interest rate contracts, foreign currencies, and stock market indices with a
secondary emphasis on energy products and precious and base metals.
As of October 31, 1999, Campbell managed approximately $165 million in the FME
Small Portfolio, $1.3 billion in the FME Large Portfolio and $1.7 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 market indices, energy and agricultural products and
precious and base metals.
As of October 31, 1999, Rabar managed approximately $245 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 fees and expenses that must be offset by trading
gains and interest income in order to avoid depletion of the Fund's assets.
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TYPE OF FEE OR EXPENSE AMOUNT
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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, which are
trading profits net of expenses other than
organizational and offering expenses
Trading Fees
Brokerage fee 5.4% per year of net assets payable monthly
(0.45% 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)
</TABLE>
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<TABLE>
<CAPTION>
TYPE OF FEE OR EXPENSE AMOUNT
- ------------------------------------------------ ----------------------------------------------
<S> <C>
Other Operating Expenses
Reimbursement of offering and organizational Actual expenses estimated at $750,000 plus
expenses of the initial offering period interest in 24 equal monthly installments to
Salomon Smith Barney
Expenses of the continuous offering Actual expenses estimated at $150,000 per
year. At the Fund's initial minimum size of
$15 million, this would equal 1% of the Fund's
net assets; at a Fund size of $150 million,
this would equal 0.1% of net assets.
Periodic legal, accounting, filing and Actual expenses estimated at $150,000 per
reporting fees year. At the Fund's initial minimum size of
$15 million, this would equal 1% of the Fund's
net assets; at a Fund size of $150 million,
this would equal 0.1% of net assets.
</TABLE>
------------------------
BREAKEVEN THRESHOLD
At the initial minimum size of $15,000,000, an investment of $5,000 must earn
profits of $551.00 in order to "break even" at the end of one year of trading.
REDEMPTIONS
You may redeem your units as of the end of any month after a three month initial
holding period. You must give notice to the general partner at least 10 days
before the end of the month in which you wish to redeem. Because the net asset
value of your units can vary significantly from day to day, you cannot know the
redemption value of your investment at the time you submit your request to
redeem. The Fund will not redeem, or may delay redemption of units, if the Fund
does not have enough cash available to pay the redemption or if a limited
partner would own fewer than three units after redemption.
AN INVESTMENT IN THE FUND SHOULD BE CONSIDERED AT LEAST A TWO YEAR COMMITMENT
The market conditions in which the Fund has the best opportunity to recognize
significant profits occur infrequently. Therefore, you should plan to hold units
for long enough to have a realistic opportunity for a number of sustained price
movements to develop. The general partner believes you should consider your
investment in units to be at least a two year commitment.
DISTRIBUTIONS
The general partner does not currently intend to make any distributions.
The Fund does not pay dividends. If the Fund is profitable, you will earn money
on your investment through appreciation in the value of your units.
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. Because the general partner does
not intend to make distributions, you will not have cash income from the Fund to
pay your taxes unless you redeem units.
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<PAGE> 13
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 ALL OF YOUR
INVESTMENT.
COMMODITY TRADING RISKS
YOU MAY LOSE ALL OF YOUR INVESTMENT.
Commodity markets are highly volatile and can be without sustained movements of
prices in one direction, up or down, for extended periods. Such movements may be
referred to as trends. The profitability of the Fund will depend to a great
extent on
- the periodic occurrence of sustained price movements of at least some of the
contracts traded by the Fund's advisors;
- the ability of the advisors to analyze the commodity markets; and
- the ability of the advisors to enter a market while a trend in one direction
exists and exit that market with a profit.
Participation in a market that is either volatile or trendless could produce
substantial losses for the Fund. Failure of the advisors to identify trends or
to exit a market position after a trend matures could also produce substantial
losses. The result of these conditions or failures could be the loss of all of
your investment.
AS A RESULT OF LEVERAGE, SMALL CHANGES IN THE PRICE OF THE FUND'S POSITIONS MAY
RESULT IN MAJOR LOSSES.
Good faith or margin deposits normally required in commodity futures trading may
range from 1% to 25% of the face value of the contract. Based on the Fund's
advisors' trading strategies, the Fund could take positions with a face value of
up to 5 to 10 times the value of the Fund's total equity. As a result of this
leverage, a small change in the market price of a contract can produce major
losses for the Fund.
INVESTING IN UNITS MIGHT NOT PROVIDE THE DESIRED DIVERSIFICATION OF YOUR OVERALL
PORTFOLIO.
One of the objectives of the Fund is to add an element of diversification to a
traditional stock and bond portfolio. Studies show that diversifying a portfolio
with investments that produce independent, positive results tends to improve the
overall return of the portfolio while reducing its volatility. Even if an
investment in the Fund reduces your portfolio's volatility, the overall
performance of your portfolio may be negative or flat.
While the Fund's performance may be largely independent of the general stock and
bond markets, there is no assurance that it will be consistently independent or
non-correlated. 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.
Moreover, investors' existing portfolios and individual risk tolerances may
differ so that the result of non-independent performance and/or negative
performance on individual portfolios will vary.
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 or
the diversification provided by the Fund is worthwhile even if the Fund is
profitable.
ILLIQUID MARKETS COULD MAKE IT IMPOSSIBLE FOR THE FUND'S ADVISORS TO REALIZE
PROFITS OR LIMIT LOSSES.
When the volume of buy and sell orders in a market is small relative to the size
of an order that an advisor wants to execute for the Fund, it is more difficult
to execute the order at the desired price or to quickly exit a losing position.
Despite the availability of trade
7
<PAGE> 14
information and price quotes, the Fund's advisors may not be able to execute
trades at or near quoted prices in low volume markets. This applies to both
exchange-traded and non-exchange-traded contracts. Although the Fund's advisors
will generally purchase and sell actively traded contracts, we cannot assure you
that orders will be executed at or near the desired price.
Factors that can contribute to market illiquidity for exchange-traded contracts
include
- exchange-imposed price fluctuation limits;
- limits on the number of contracts speculative traders may hold in most
physical commodity markets; and
- market disruptions.
The general partner expects that non-exchange traded contracts will be traded
for commodity interests for which there is generally a liquid underlying market.
Such markets, however, may experience periods of illiquidity and are also
subject to market disruptions.
Since the Fund's advisors already manage sizable assets in the commodity
markets, it is probable that the Fund will encounter illiquid situations. It is
impossible to quantify the frequency or magnitude of these risks, however,
especially because the conditions often occur unexpectedly.
FOREIGN EXCHANGES ARE LESS REGULATED THAN U.S. MARKETS AND TRADING IS SUBJECT TO
EXCHANGE RATE, MARKET PRACTICE AND POLITICAL RISKS.
The Fund may trade in commodity contracts on exchanges located outside the U.S.
Five to 15 percent of the Fund's assets may be used to margin positions traded
on non-U.S. exchanges at any point in time.
Commodity exchanges and commodity futures and options trading in the United
States are subject to regulation under the Commodity Exchange Act by the CFTC.
The function of the CFTC is to enforce the objectives of the Commodity Exchange
Act which are to prevent price manipulation and excessive speculation and
promote orderly and efficient commodity futures and options markets. Although
the CFTC permits U.S. persons to trade futures and options on futures on
non-U.S. exchanges, non-U.S. exchanges are not regulated by the CFTC. Therefore,
the Fund will not receive any benefit of U.S. government regulation for these
trading activities.
Trading on foreign exchanges involves some risks that trading on U.S. exchanges
does not, such as
- lack of investor protection regulation
The rights of the Fund in the event of the insolvency or bankruptcy of a
non-U.S. market or broker are likely to differ from rights that the Fund
would have in the U.S. and these rights may be more limited than in the case
of failures of U.S. markets or brokers.
- possible governmental intervention
A foreign government might halt trading in a market and/or take possession
of the Fund's assets maintained in its country in which case the assets may
never be recovered. The general partner might have little or no notice that
such events were happening. In such circumstances, the general partner may
not be able to obtain the Fund's assets.
- relatively new markets
Some foreign exchanges on which the Fund trades may be in developmental
stages so that prior price histories may not be indicative of current price
patterns.
- exchange-rate exposure
The Fund will be valued in U.S. dollars. Contracts on foreign exchanges are
usually traded in the local currency. The
8
<PAGE> 15
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. Changes in the value of the local currency relative
to the U.S. dollar could cause losses to the Fund even if the contract
traded is profitable.
FORWARD FOREIGN CURRENCY AND SPOT CONTRACTS ARE NOT REGULATED AND ARE SUBJECT TO
CREDIT RISK.
The Fund will trade forward contracts in foreign currencies, and may engage in
spot commodity transactions (transactions in physical commodities). These
contracts, unlike futures contracts and options on futures, are not regulated by
the CFTC. Therefore, the Fund will not receive any benefit of CFTC regulation
for these trading activities.
Furthermore, these transactions are not exchange-traded so that no clearinghouse
or exchange stands ready to meet the obligations of the contract. Thus, the Fund
faces the risk that its counterparties may not perform their obligations. This
risk may cause some or all of the Fund's gains to be unrealized.
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 premium
paid for the option. The writer, or seller, of an option has unlimited risk. An
option writer collects a premium and risks losing the difference between the
premium received and the price it would have to pay to obtain the underlying
commodity or futures contract if the option buyer exercises its option. The
advisors currently do not trade options extensively, but may do so in the
future.
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. Unlike futures and
options on futures contracts and commodities, swap contracts are not traded on
or cleared by an exchange or clearinghouse. Like forward foreign currency and
spot contracts, the Fund will be subject to the risk of counterparty default on
its swaps. 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.
See "Commodity Markets" in Part Two of this document for additional information.
TRADING ADVISOR RISKS
PAST PERFORMANCE IS NO ASSURANCE OF FUTURE RESULTS.
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 in the future 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
9
<PAGE> 16
trading objectives. In any event, past performance does not assure future
results.
DESCRIPTIONS OF ADVISORS' STRATEGIES MAY NOT BE APPLICABLE IN THE FUTURE.
Any advisor may make material changes to the trading strategy it uses in trading
the Fund's account with the consent of the general partner, who has the sole
authority to authorize any material changes. If this happens, the descriptions
in this document would no longer be useful. The general partner does not
anticipate that this will occur frequently, if at all. You will be informed of
any changes to an advisor's strategy that the general partner deems to be
material, however, you may not be notified until after a change occurs.
Non-material changes may be made by the advisors without the consent of the
general partner. These changes may nevertheless affect the Fund's performance.
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 by increasing transaction costs to liquidate positions
and limiting potential profits on the liquidated positions.
FUND PERFORMANCE MAY BE HINDERED BY INCREASED COMPETITION FOR POSITIONS.
Assets in managed futures have grown from an estimated $500 million in 1980 to
an estimated $40 billion in 1998. This increase has occurred primarily among
trend-following advisors like the initial advisors to the Fund. Further, because
they trade independently, the advisors to the Fund may take similar positions
contemporaneously. These factors mean increased trading competition. Since
futures are traded in an auction-like market, the more competition there is for
the same contracts, the more difficult it is for the Fund's advisors to obtain
the best prices for the Fund. The advisors are required to use an allocation
methodology that is fair to all of their customers.
YOU WILL NOT HAVE ACCESS TO THE FUND'S POSITIONS AND MUST RELY ON THE GENERAL
PARTNER TO MONITOR THE ADVISORS.
As limited partners, you will not have access to the Fund's trading positions.
Consequently, you will not know whether the Fund's advisors are adhering to the
Fund's trading policies and must rely on the ability of the general partner to
monitor trading and protect your investment.
FUND STRUCTURE AND ORGANIZATION RISKS
THE FUND WILL PAY SUBSTANTIAL FEES AND EXPENSES 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. Furthermore, it is possible that the advisors
could take positions opposite each other, compounding transaction fees for
little benefit to the Fund as a whole.
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<PAGE> 17
A $5,000 investment would have to increase between 11.02% (assuming 15,000 units
are sold) and 5.79% (assuming 150,000 units are sold) in one year of trading
operations, that is, between $551.00 and $289.41, to equal $5,000 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. See "Fees and Expenses of the Fund."
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, the Fund's commodity broker,
are affiliates and brokerage fees have not been set at arm's length;
(2) each of the Fund's advisors, the Fund's commodity broker and their
principals, affiliates or customers 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 providing
services to your account and therefore has a conflict of interest in
advising you when and whether to purchase or redeem units.
See "Conflicts of Interest."
YOUR ABILITY TO REDEEM OR TRANSFER UNITS IS LIMITED.
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.
YOU WILL NOT PARTICIPATE IN MANAGEMENT OF THE FUND'S BUSINESS.
You are not permitted to 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 FEES PAID TO ADVISORS.
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, it
will be paid incentive fees on new trading profits it generates without regard
to trading losses generated by the prior advisor. The advisory fees payable by
the Fund could increase according to the terms of a new management agreement or
if a new advisor were selected.
THE FUND MAY TERMINATE BEFORE YOU ACHIEVE YOUR INVESTMENT OBJECTIVE.
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 resulting in the loss of all of
your investment.
THE OFFERING OF UNITS HAS NOT BEEN SUBJECT TO INDEPENDENT REVIEW OR REVIEW ON
YOUR BEHALF.
One law firm represents the Fund, the general partner and the commodity broker.
The Fund's advisors are each represented by themselves or their own legal
counsel. You do
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<PAGE> 18
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.
YOU CANNOT DETERMINE THE EXPECTED RESULTS OF THIS FUND FROM THE PERFORMANCE
HISTORY OF OTHER FUNDS OPERATED BY THE GENERAL PARTNER.
The Fund has not yet begun trading. The general partner currently operates over
21 other active commodity pools; however, the performance of this Fund will
differ from the performance history of the other funds. Although the advisors to
the Fund, with the exception of Bridgewater, currently manage other funds for
the general partner, the general partner has not employed this same combination
of advisors in any previous fund.
Furthermore while the advisors' trading strategies used in this Fund, with the
exception of Bridgewater, are the same as those employed in existing funds
operated by the general partner, the strategies used for this Fund and the
others may vary in the future. Therefore, the performance of the Fund will be
different from the performance of other funds managed by the general partner.
POTENTIAL RISK TO TRADING AND REPORTING OF RESULTS BECAUSE OF COMPUTER PROBLEMS
ASSOCIATED WITH THE YEAR 2000
If the computer systems upon which the Fund's general partner, commodity broker,
advisors and other service providers rely are unable to distinguish the year
2000 from 1900, the Fund could incur losses. Although the year change occurred
without incident, and as of the date of this prospectus the general partner
knows of no Year 2000 problem that will impact the Fund, computer experts
caution that Year 2000 issues may still arise in the future. The general
partner's Year 2000 contingency plan remains in effect.
The Fund's general partner and commodity broker have provided assurances to the
Fund that their computer systems have been modified, tested and are prepared to
operate in the year 2000. The risks that are outside of the Fund's and the
general partner's control are those associated with the Fund's advisors and with
the exchanges on which the Fund's advisors trade.
If the Year 2000 problem is systemic, for example, if the exchanges, banks, and
public utilities are unable to function, then the Fund may have to halt trading,
suspend daily net asset value calculations or suspend redemptions and
subscriptions.
A further discussion appears under "The General Partner -- Risk of Computer
System Failure (Year 2000 Issue)."
TAX AND OTHER REGULATORY RISKS
YOUR 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 each year, however, whether or not any cash has been
distributed. The only way for you to obtain income earned on your investment is
to redeem units. 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.
Gain or loss on futures and options on futures as well as on most foreign
currency contracts will be taxed as capital gains or losses. Capital losses can
only be used to offset capital gains plus $3000 of ordinary income each year.
Interest income, periodic income on swaps and gain on some foreign futures
contracts are ordinary income. Therefore, you may be required to pay tax on your
allocable share of the Fund's ordinary income, even though the Fund incurs
overall losses.
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<PAGE> 19
NON-U.S. INVESTORS MAY FACE EXCHANGE RISK AND LOCAL TAX CONSEQUENCES.
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
their investment to decrease or to increase. Non-U.S. investors should consult
their own tax advisors concerning local tax implications of this investment.
YOU WILL NOT HAVE THE PROTECTIONS PROVIDED TO REGULATED MUTUAL FUNDS.
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 were 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 were 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 the
general partner or any of the advisors.
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.
A further discussion appears under "Federal Income Tax Aspects."
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<PAGE> 20
POTENTIAL BENEFITS OF INVESTING IN
SALOMON SMITH BARNEY DIVERSIFIED 2000
MULTI-ADVISOR TRADING
The general partner has selected four 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. Losses,
however, may entirely offset profits in the same manner.
ABILITY TO ESTABLISH LONG OR SHORT POSITIONS WITH EQUAL EASE
Unlike traditional portfolios that hold predominantly long positions, the Fund's
advisors can take both long and short positions with equal ease. For example,
there is no requirement in futures to sell short only on a price up-tick as
there is in U.S. stock exchange trading. Nor is the Fund required to hold
securities or set aside cash or cash equivalents to cover short positions as
registered investment companies must do. Thus the Fund can participate in
declining markets as well as rising markets.
PROFESSIONAL MANAGEMENT
Smith Barney Futures Management LLC, the general partner, has used a rigorous
due diligence process to select the four advisors that will initially trade on
behalf of the Fund. The general partner believes that the 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 October 31, 1999, the aggregate funds under management by the advisors in
commodity interest accounts were $9.7 billion (excluding notional funds) and
$10.8 billion (including notional funds). Notional funds means the difference
between the nominal size of an account as agreed between the advisor and the
client and the actual amount of funds held in the client's account at the
commodity broker.
GLOBAL MARKET INVESTING WITH LIMITED EXCHANGE RATE RISK
Based on prior trading by the Fund's initial advisors, five to 15 per cent of
the Fund's assets may be used for trading contracts on non-U.S. exchanges.
Substantially all of these contracts are denominated in non-U.S. currencies. The
advisors are able to convert foreign currency balances for non-U.S. contracts to
U.S. dollars at least monthly in highly liquid markets at competitive prices.
Thus, the Fund's overall risk associated with the conversion to and from foreign
currency is limited.
The percentage allocated to trading non-U.S. contracts is subject to change by
the advisors. The advisors may change the weightings within their existing
portfolios at their discretion. If, however, the Fund's advisors wish to add
contracts to their portfolios not previously approved by the general partner,
they must first receive the general partner's permission.
DIVERSIFICATION WITHIN A SINGLE INVESTMENT
The advisors in the Fund will trade a broad range of global markets, including
foreign currencies, U.S. and international interest rates and stock indices,
precious and base metals, and agricultural and energy products.
RISK OF DEFAULT FROM TRADING PARTNERS IS LIMITED
Approximately 90% to 95% of the Fund's trading will be in futures contracts on
regulated exchanges. In futures trading, risk is limited by the use of
clearinghouses to the exchanges, which take the other side of every customer's
futures contract and stand ready to meet the obligations of the futures
contract. The clearinghouse, as counterparty to every customer, facilitates
trades between buyers and sellers who remain anonymous to one another. The
credit risk that either the buyer
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<PAGE> 21
or the seller will default on a futures obligation is therefore limited.
Approximately 5% to 10% of the Fund's trading, however, may be in foreign
exchange forward, spot and swap contracts that are not traded on exchanges. For
these trades, the Fund is subject to credit risk of the counterparty defaulting.
In order to reduce this risk, the Fund intends to contract with Salomon Smith
Barney and other well-capitalized institutions.
TRANSPARENCY AND MONITORING
The Fund's commodity broker, Salomon Smith Barney, is an affiliate of the
general partner, Smith Barney Futures Management. This allows the general
partner to view the Fund's trades executed through Salomon Smith Barney during
the trading day and maintain an ongoing monitoring process. An unaffiliated
general partner would be able to view those positions only as of the end of the
trading day. In a fund that invests in other funds rather than trading directly,
the general partner has little or no knowledge of the underlying funds'
positions.
LIMITED LIABILITY
If you traded commodities on your own, you would be subject to margin calls.
There would also be potential for unlimited loss in excess of the amount of your
initial cash investment. As an investor in the Fund, you will not be subject to
margin calls or to demands for cash in excess of your initial investment.
You will, however, be subject to ongoing taxes on your investment in the Fund.
Therefore, your total losses, including taxes paid on profits earned, could
exceed your initial investment.
LOW MINIMUM INVESTMENT AND POTENTIALLY LOWER BROKERAGE AND ADVISOR FEES
Neither the Fund's advisors nor Salomon Smith Barney accept commodity accounts
for $5,000. In addition, brokerage and advisor fees associated with the Fund may
be lower than what you would pay if you opened an account with one of the Fund's
trading advisors using Salomon Smith Barney as commodity broker. Typically, the
Fund's advisors require minimum investment amounts in excess of $1,000,000 in
order to open an individual account. These accounts usually pay higher
management and incentive fees to the advisors than those charged by the Fund. In
addition, brokerage fees and services for an individual managed account must be
individually negotiated. Brokerage fees for individual accounts typically exceed
those paid by the Fund.
INTEREST INCOME ON 80% OF FUND'S CASH
Salomon Smith Barney will pay the Fund interest at the 30-day U.S. Treasury bill
rate on 80% of the average daily balance maintained in cash in the Fund's
trading accounts with Salomon Smith Barney. If you traded your own futures
account, you would generally not receive interest on the funds in your account
unless you committed substantially more than the $5,000 minimum investment
required by the Fund.
The general partner expects that between 95% and 100% of the Fund's total assets
will typically be cash. The amount of the Fund's assets earning interest income
will vary based on the trading activity and profits and losses of the Fund. The
Fund will not earn interest on unrealized gains, nor will interest income be
reduced by unrealized losses, on open forward, commodity option and certain
foreign futures positions since such gains or losses are not collected or paid
until the positions are closed out.
ADMINISTRATIVE CONVENIENCE
In addition to execution and clearing, the Fund will receive several
administrative services, including account reconciliation, payment of fees and
expenses, crediting of
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<PAGE> 22
interest income and assistance with regulatory filings and monthly reports.
A daily estimate of the Fund's net asset value per unit and the value of your
investment is available on the Internet to Salomon Smith Barney clients who
subscribe to Salomon Smith Barney Access(SM). The general partner also issues
monthly and annual reports to investors as well as information necessary for
completing individual federal tax returns.
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<PAGE> 23
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. The brokerage fees to be paid by the Fund
are similar to those paid by other publicly offered funds.
- The general partner, in its sole discretion, determines whether any
distributions are made. To the extent that profits are retained by the Fund
rather than distributed, net assets and therefore the amount of fees paid to
the general partner's affiliate, 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.
- Your financial consultant has a financial incentive to recommend that you
purchase and not redeem units even when it is not in your best interest to
remain invested in the Fund because he or she will receive ongoing
compensation for providing service to your account.
ACCOUNTS OF SALOMON SMITH BARNEY, THE GENERAL PARTNER AND THEIR AFFILIATES
Salomon Smith Barney and its officers, directors and employees 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 approximately 40 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 by limited
partners. Neither will the general partner have access to such records, except
for those of accounts that it operates or manages. CFTC regulations require that
Salomon Smith Barney transmit to the floor each futures or options order
received from the Fund executable at or near the market price before any
competing order for any of its own proprietary accounts. Transactions in
forward, spot and swap contracts are not governed by any similar regulations.
CONTROL OF OTHER ACCOUNTS BY THE ADVISORS
The advisors manage and operate the accounts of clients other than the Fund,
17
<PAGE> 24
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.
Trading ahead of the Fund presents a conflict because the trade first
executed may receive a more favorable price than the same trade later
executed for the Fund.
- The advisors have financial incentives to favor other accounts over the
Fund. Each of the advisors currently trades other client accounts that pay
higher advisory fees than the Fund. Accounts managed by the advisors in the
future may pay higher fees as well.
- Other individual and pooled accounts traded by the advisors will compete
with the Fund, and the advisors may compete with each other, in entering
into and liquidating contracts for the Fund. When similar orders are entered
at the same time, the prices at which the Fund's trades are filled may be
less favorable than the prices allocated to the other accounts. Some orders
may be difficult or impossible to execute in markets with limited liquidity
where prices may rise or fall sharply in response to orders entered.
Furthermore, if the price of a futures contract has moved to and is locked
at its permitted one-day price move limit, the advisor may be unable to
liquidate winning or losing positions without incurring additional losses.
Each advisor is required to use an allocation methodology that is fair to
all of its customers. Each advisor attempts to minimize the impact of
different prices received on orders.
- An advisor for the Fund may be required to revise trading orders as a result
of the aggregation for speculative position limit purposes of all accounts
traded, owned or controlled by that advisor. The more accounts the advisor
has under management, the more likely the advisor is to be constrained by
position limits. In this case, the advisor will modify its orders in a
manner that will not disproportionately affect the Fund.
As a limited partner, you will not have access to the trading records of the
other accounts managed by the advisors through Salomon Smith Barney nor the
records of trading accounts managed by the advisors at other commodity brokers.
The general partner, however, does have access to the trading accounts managed
by the Fund's advisors on behalf of other funds for which it acts as general
partner or trading manager. The general partner will not have access to the
accounts traded by the advisors at other commodity brokers or on behalf of other
general partners or trading managers.
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.
18
<PAGE> 25
FEES AND EXPENSES OF THE FUND
<TABLE>
<CAPTION>
TYPE OF FEE OR EXPENSE AMOUNT
- ----------------------------------------- -----------------------------------------
<S> <C>
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 fees 20% of new trading profits earned by each
advisor for the Fund in each year, which
are trading profits net of expenses other
than organizational and offering expenses
Trading Fees
Brokerage fee 5.4% per year of net assets payable
monthly (0.45% per month) to Salomon
Smith Barney (up to 36.66% 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 of Actual expenses estimated at $750,000
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 per
year. At the Fund's initial minimum size
of $15 million, this would equal 1% of
the Fund's net assets; at a Fund size of
$150 million, this would equal 0.1% of
net assets.
Ongoing Expenses: periodic legal, Actual expenses estimated at $150,000 per
accounting, filing and reporting year. At the Fund's initial minimum size
fees of $15 million, this would equal 1% of
the Fund's net assets; at a Fund size of
$150 million, this would equal 0.1% of
net assets.
</TABLE>
-------------------------
DISCUSSION OF FEES
All fees are calculated by the general partner.
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
19
<PAGE> 26
reduce Bridgewater's portion of net assets in calculating its management fee).
Ongoing expenses attributed to each advisor will not include management fees of
any other advisor to the Fund 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 and paid as of December 31 of each year. The first incentive fee will be
based on new trading profits earned from the commencement of trading through
December 31 of that year. From that point on, incentive fees will be based on
new trading profits earned during each calendar year (or shorter period in the
case of an earlier termination of an advisor).
New trading profits are the excess, if any, of net assets managed by the advisor
at the end of the calendar year 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
calendar year.
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 recovers the net loss incurred and earns additional new trading profits
for the Fund. If net assets allocated to the advisor are reduced due to net
redemptions, distributions or reallocations, any loss that the advisor must
recover before another incentive fee is paid will be proportionately reduced.
COMMODITY BROKER
Salomon Smith Barney, as the Fund's commodity broker, clears and may execute all
trades for the Fund. The Fund has agreed to pay Salomon Smith Barney a brokerage
fee equal to 5.4% per year of net assets allocated to the advisors (.45% payable
monthly). 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 (commodity interest contracts that have not been closed) 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 Fund's brokerage
fee may be substantially higher than the fees that Salomon Smith Barney charges
certain other institutional customers. Brokerage fees will be paid for the life
of the Fund although the amount paid per month 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
that reflect a price differential or spread 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. All trades with Salomon Smith Barney
or one of its affiliates 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 spot, forward or swap transaction.
The Fund may also enter into spot, forward and swap transactions with dealers
unaffiliated with Salomon Smith Barney whose price quotes include a spread. Such
unaffiliated dealers also may charge a mark-up and/or commissions. The spread
plus any mark up or
20
<PAGE> 27
commissions are in addition to the monthly brokerage fee paid to Salomon Smith
Barney.
Salomon Smith Barney will pay a portion of its brokerage fees (up to 36.66%) 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.
The banks do not pay interest on these accounts; however, Salomon Smith Barney
will pay the Fund interest at the 30-day U.S. Treasury bill rate on 80% of the
Fund's cash. 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. There is no benefit to the Fund as a result of Salomon
Smith Barney's overdraft privileges.
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 as detailed below. At the Fund's initial minimum size of $15
million, this would equal 2% of the Fund's net assets per year; at a Fund size
of $150 million, this would equal 0.2% of net assets per year.
<TABLE>
<S> <C>
Legal Expenses.................... $ 40,000
Accounting Expenses............... $ 60,000
Other Expenses (such as filing and
reporting fees)................. $ 50,000
Continuous Offering Expenses...... $150,000
Total............................. $300,000
</TABLE>
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 as described in the following sentence 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 management fees and customary and
routine administrative expenses of the Fund as well as periodic filing and
reporting fees. Aggregate incentive fees may not exceed 15% of new trading
profits. An additional 2% incentive fee, however, may
21
<PAGE> 28
be paid for each 1% by which the Fund's aggregate fees and 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.
Under its current fee structure, the Fund will pay less than 7% of net assets
per year for brokerage and related transactional fees. Such fees may change in
the future.
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. This provision does not affect the payment of the fees
and expenses described above.
-------------------------
BREAK-EVEN ANALYSIS
In order to "break even" at the end of one year of trading, each $5,000 you
invest must earn profits of $551.00 (at the Fund's minimum size of $15,000,000)
or $289.41 (at a Fund size of $150,000,000). The estimated fees and expenses
that determine these amounts are shown below.
<TABLE>
<CAPTION>
ESTIMATED FUND SIZE
-------------------
<S> <C> <C> <C> <C>
$15,000,000 $150,000,000
Minimum Investment.............................. $5,000.00 $5,000.00
($2,000 for IRAs)
</TABLE>
<TABLE>
<CAPTION>
DOLLAR AMOUNT PERCENTAGE DOLLAR AMOUNT PERCENTAGE
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Advisors' Management Fee(1)..................... $ 85.44 1.71% $ 88.95 1.78%
Advisors' Incentive Fee(2)...................... $ 58.99 1.18% $ 5.89 0.12%
Brokerage Fees.................................. $ 279.07 5.58% $ 279.07 5.58%
Transaction Fees................................ $ 60.00 1.20% $ 60.00 1.20%
Initial Offering and Organizational Expenses.... $ 135.50 2.71% $ 13.50 0.27%
Operating Expenses.............................. $ 100.00 2.00% $ 10.00 0.20%
-------- ----- -------- -----
Total Fees................................. $ 719.00 14.38% $ 457.41 9.15%
Interest Income Credit(3)....................... $(168.00) (3.36)% $(168.00) (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...... $ 551.00 $ 289.41
======== ========
Percentage of Selling Price per Unit............ 11.02% 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).
(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 and operating expenses.
(3) Interest income to be paid by Salomon Smith Barney 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 19.
22
<PAGE> 29
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 interest 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 deemed
relevant by the general partner based on contemporaneous market conditions,
including the performance of various futures markets, advisors, and the risks
associated with modified trading policies. 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. For additional discussion of the trading policies
and your rights, see "Reports to Limited Partners" beginning on page 86.
THE GENERAL PARTNER
BACKGROUND
Smith Barney Futures Management LLC is the general partner of the Fund. It is a
Delaware limited liability company that is, like Salomon Smith Barney, wholly
owned by Salomon Smith Barney Holdings Inc. The general partner changed its form
of organization from a corporation to a Delaware limited liability company
effective October 1, 1999. 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
23
<PAGE> 30
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 commodity trading advisor
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 the general partner since October 1995. From
October 1988 through July 1993, Mr. Keltz was employed by SLB as First Vice
President and Associate General
24
<PAGE> 31
Counsel where he provided legal counsel to various derivative products
businesses. Mr. Keltz was Vice President, Product Manager-Futures and an
Associate General Counsel for 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 within the
past five years against the general partner or any of its individual principals
and no such actions are currently pending.
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
25
<PAGE> 32
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. The general partner
receives no compensation for thirteen of these funds. For eight of the funds,
the general partner receives fees ranging from .5% to 1.0% of net assets per
year. 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 Fund allocated to it.
Each advisor will trade independently of the others.
The general partner has an extensive track record in the managed futures
industry and ranks among the top tier of similar general partners in terms of
money under management (based upon data collected from Managed Account Reports,
Inc., a managed futures industry publisher).
Over the past 20 years, the general partner and its predecessor firms have
sponsored and established more than 50 commodity pools and programs with
aggregate assets in excess of $2 billion. As of October 31, 1999, the general
partner acts as general partner or trading manager to 28 other active public,
private and offshore pools with assets in excess of $850 million. The
performance of these other pools through October 31, 1999 appears beginning on
page 29. The general partner and Salomon Smith Barney also administer and
supervise approximately $165 million in individual managed accounts and
institutional programs.
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.
The provisions in the Limited Partnership Agreement relating to the fiduciary
duty of the general partner are discussed under "The Limited Partnership
Agreement -- Fiduciary Responsibility of the General Partner."
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
26
<PAGE> 33
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. By enforcing the trading policies the general
partner attempts to minimize market risk. The general partner monitors and
attempts to minimize the Fund's credit risk by permitting the Fund to contract
only with Salomon Smith Barney and other well-capitalized dealers in forward,
spot and swap transactions.
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 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.
RISK OF COMPUTER SYSTEM FAILURE
(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. If not corrected, many
computer applications could fail or create erroneous results in the year 2000.
The general partner administers the business of the Fund through various systems
and processes maintained by Salomon Smith Barney Holdings Inc. 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, Salomon Smith Barney Holdings and
their parent organization Citigroup Inc. have completed all compliance and
certification work and, as of the date of this prospectus, no material Year 2000
problems have arisen.
The combined Year 2000 program at Salomon Smith Barney has cost approximately
$140 million over the four years from 1996 through 1999, and has involved over
450 people. The systems and components supporting the general partner's business
that require remediation have been brought into Year 2000 compliance.
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 programs.
In the event that Year 2000 problems occur after the date of this prospectus,
the most likely and most significant risk to the Fund 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
27
<PAGE> 34
the Fund at some point in time and would make effecting purchases or redemptions
of units in the Fund infeasible until such valuation was determinable.
It is possible that problems may occur that would require some time to repair.
Moreover, it is possible that problems will occur outside Salomon Smith Barney
Holdings for which Salomon Smith Barney Holdings could experience a secondary
effect. Salomon Smith Barney Holdings has prepared comprehensive, written
contingency plans so that alternative procedures and a framework for critical
decisions are defined before any 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 counterparty. Planning
work was completed in January 1999, and alternative procedures are in place as
of the date of this prospectus.
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 LLC 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. The investment
objective of each of the pools is capital appreciation through speculative
trading. Tables 1, 2 and 3 below set forth the performance of the other pools
that the general partner has operated or managed during the past five years.
Table 1 sets forth the performance of commodity pools that the general partner
currently operates or manages for the period January 1994 through October 31,
1999. Table 2 sets forth the performance of commodity pools that the general
partner previously operated for the period January 1994 through October 31,
1999, which have ceased trading operations as of October 31, 1999. Table 3 sets
forth the performance of commodity pools that the general partner previously
operated for the period January 1994 through October 31, 1999 for which the
general partner no longer acts as the pool operator as of October 31, 1999.
The general partner performs the same administrative duties for each of the
pools that it operates or manages. As of October 31, 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 Diversified Futures Fund II, Smith Barney
Great Lakes Futures Fund, Smith Barney Westport Futures Fund, Smith Barney
Telesis Futures Fund, Salomon Smith Barney Global Diversified Futures Fund and
Salomon Smith Barney Orion 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.
28
<PAGE> 35
TABLE 1
CAPSULE PERFORMANCE OF OTHER POOLS CURRENTLY OPERATED OR MANAGED BY
SMITH BARNEY FUTURES MANAGEMENT LLC
FOR THE PERIOD JANUARY 1994 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
LARGEST MONTHLY LARGEST PEAK-TO-VALLEY
PERCENTAGE DRAW-DOWN
DRAW-DOWN
CURRENT
TYPE INCEPTION AGGREGATE TOTAL
OF OF SUBSCRIPTIONS NAV PERCENT PERCENT
NAME OF POOL POOL TRADING $(000) $(000) (%) DATE (%) TIME PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shearson Select
Advisors Futures
Fund............... A Jul-87 50,507 4,213 9.72 (May-97) 22.59 (Aug-93 to Jan-95)
Hutton Investors
Futures Fund II.... A Jul-87 30,304 19,731 8.17 (Nov-98) 15.48 (Jul-99 to Oct-99*)
Shearson Mid-West
Futures Fund....... 1 Dec-91 60,804 47,742 9.18 (May-97) 20.40 (Jan-98 to Jul-98)
Smith Barney
International
Advisors Currency
Fund............... A Mar-92 32,312 2,786 5.72 (May-97) 24.08 (Oct-93 to Feb-96)
Smith Barney Global
Markets Futures
Fund............... 1,A Aug-93 20,226 8,431 9.19 (Aug-97) 12.08 (Dec-96 to May-97)
- ----------------------------------------------------------------------------------------------------------------------------------
Smith Barney
Diversified Futures
Fund............... A Jan-94 256,942 117,148 9.22 (Oct-99) 14.50 (Jun-95 to Oct-95)
F-1000 Futures Fund
Michigan Series
I.................. 1,2,A May-94 10,697 12,946 5.86 (Feb-96) 11.09 (Oct-98 to Oct-99*)
Smith Barney
Mid-West Futures
Fund II............ 1 Sep-94 103,473 80,459 9.23 (May-97) 20.66 (Jan-98 to Jul-98)
F-1000 Futures Fund
Michigan Series
II................. 1,2,A Jun-95 20,490 24,920 5.08 (Feb-96) 10.29 (Oct-98 to Oct-99*)
Smith Barney
Tidewater Futures
Fund (i)........... 1 Jul-95 28,468 19,422 18.24 (Aug-97) 28.25 (Sept-98 to Oct-99*)
- ----------------------------------------------------------------------------------------------------------------------------------
Smith Barney
Principal Plus
Futures Fund....... 2,A Nov-95 37,507 28,369 5.94 (Feb-96) 8.85 (Feb-99 to Oct-99*)
Smith Barney
Diversified Futures
Fund II............ A Jan-96 161,874 103,634 11.40 (Oct-99) 20.59 (May-99 to Oct-99*)
SB/Michigan Futures
Fund............... 1,A Jul-96 11,591 13,170 8.67 (Apr-98) 11.77 (Aug-97 to Jul-98)
Smith Barney
Principal Plus
Futures Fund II.... 2,A Aug-96 22,581 19,342 7.90 (Oct-99) 12.14 (Oct-98 to Oct-99*)
Smith Barney Great
Lakes Futures
Fund............... 1 Jan-97 10,102 9,485 7.62 (Aug-97) 11.82 (Mar-97 to Apr-98)
- ----------------------------------------------------------------------------------------------------------------------------------
Smith Barney
Westport Futures
Fund............... Aug-97 118,820 104,354 9.79 (Nov-98) 16.15 (Jul-99 to Oct-99*)
Smith Barney Potomac
Futures Fund(i).... 1 Oct-97 7,498 7,631 6.35 (Apr-98) 7.58 (Apr-98 to Jul-98)
Smith Barney Telesis
Futures Fund(i).... 1 Feb-98 14,506 5,750 7.58 (Aug-99) 27.26 (Oct-98 to Oct-99*)
Smith Barney AAA
Futures Fund....... 1 Mar-98 72,248 90,905 10.58 (Sept-99) 11.51 (Jun-99 to Sept-99*)
Salomon Smith Barney
Global Diversified
Futures Fund....... A Feb-99 81,078 73,983 4.78 (Oct-99) 9.06 (May-99 to Oct-99*)
- ----------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney
Orion Futures Fund
(ii)............... 1,A Jun-99 15,110 11,174 11.56 (Jul-99) 28.15 (Jun-99 to Oct-99*)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF POOL 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shearson Select
Advisors Futures
Fund............... (13.96) 26.91 21.57 13.06 4.10 (15.76)
Hutton Investors
Futures Fund II.... (4.66) 41.78 29.11 17.82 11.52 (11.01)
Shearson Mid-West
Futures Fund....... (8.64) 36.24 26.76 12.95 3.55 (15.83)
Smith Barney
International
Advisors Currency
Fund............... (10.40) (5.04) 22.68 18.51 0.25 (8.29)
Smith Barney Global
Markets Futures
Fund............... (7.19) 20.91 17.70 4.13 21.58 (6.76)
- -----------------------------------------------------------------------------
Smith Barney
Diversified Futures
Fund............... (3.29) 12.86 14.54 3.83 7.65 (9.77)
F-1000 Futures Fund
Michigan Series
I.................. 1.38 14.25 2.79 10.47 10.13 (9.18)
Smith Barney
Mid-West Futures
Fund II............ (7.54) 31.74 26.26 12.72 3.13 (15.70)
F-1000 Futures Fund
Michigan Series
II................. -- 2.25 9.49 11.61 9.65 (8.13)
Smith Barney
Tidewater Futures
Fund (i)........... -- (1.25) 7.83 6.12 19.92 (19.60)
- -----------------------------------------------------------------------------
Smith Barney
Principal Plus
Futures Fund....... -- 5.75 4.37 10.45 8.97 (11.46)
Smith Barney
Diversified Futures
Fund II............ -- -- 12.51 (0.10) 8.48 (18.64)
SB/Michigan Futures
Fund............... -- -- 18.58 5.90 12.06 (7.20)
Smith Barney
Principal Plus
Futures Fund II.... -- -- 12.97 4.45 15.42 (9.87)
Smith Barney Great
Lakes Futures
Fund............... -- -- -- 2.67 1.81 (7.56)
- -----------------------------------------------------------------------------
Smith Barney
Westport Futures
Fund............... -- -- -- 1.15 8.22 (12.20)
Smith Barney Potomac
Futures Fund(i).... -- -- -- 2.95 8.36 0.68
Smith Barney Telesis
Futures Fund(i).... -- -- -- -- (3.24)
Smith Barney AAA
Futures Fund....... -- -- -- -- 18.44 14.83
Salomon Smith Barney
Global Diversified
Futures Fund....... -- -- -- -- -- (6.57)
- -----------------------------------------------------------------------------
Salomon Smith Barney
Orion Futures Fund
(ii)............... -- -- -- -- -- (28.15)
- -----------------------------------------------------------------------------
</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 LLC became
trading manager for these pools.
(ii) SFG Global Investments, Inc. is the general partner and commodity pool
operator and Smith Barney Futures Management LLC is the trading manager for
this pool.
* Indicates the pool is in a current draw-down. See Notes following Table 3.
TYPE OF POOL LEGEND
1 -- Privately Offered
2 -- Principal Protected
3 -- Multi-Advisor
A -- More than one trading advisor but not a multi-advisor pool as that term is
defined in Part 4 of the regulations of the CFTC.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
29
<PAGE> 36
TABLE 2
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT LLC
FOR THE PERIOD JANUARY 1994 THROUGH OCTOBER 31, 1999
AND WHICH HAVE CEASED TRADING OPERATIONS AS OF OCTOBER 31, 1999
<TABLE>
<CAPTION>
LARGEST MONTHLY
PERCENT
DRAW-DOWN
NAV
INCEPTION AGGREGATE BEFORE
TYPE OF TERMINATION SUBSCRIPTIONS TERMINATION PERCENT
NAME OF POOL OF 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)
- ----------------------------------------------------------------------------------------------------------------
<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 (10.14) -- --
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
* Indicates the pool was in a current draw-down at the termination date. See
Notes following Table 3.
<TABLE>
<S> <C> <C>
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.
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
30
<PAGE> 37
TABLE 3
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT LLC
FOR THE PERIOD JANUARY 1994 THROUGH OCTOBER 31, 1999
AND FOR WHICH SMITH BARNEY FUTURES MANAGEMENT LLC NO LONGER ACTS AS COMMODITY
POOL OPERATOR AS OF OCTOBER 31, 1999
<TABLE>
<CAPTION>
NAV
TYPE INCEPTION AGGREGATE BEFORE
OF OF TRANSFER SUBSCRIPTIONS TRANSFER
NAME OF POOL POOL TRADING DATE $(000) $(000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commodity Trend Timing Fund................................. Jan-80 May-95 16,625 1,275
Commodity Trend Timing Fund II.............................. Dec-82 Apr-95 34,428 1,412
Harbourer Futures Fund...................................... 3 May-93 Dec-94 25,003 12,657
Greenbrier Futures Fund..................................... 1 Jul-92 Dec-96 24,678 26,716
<CAPTION>
LARGEST MONTHLY LARGEST PEAK-TO-VALLEY
PERCENT DRAW-DOWN DRAW-DOWN
PERCENT PERCENT
NAME OF POOL (%) DATE (%) TIME PERIOD
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commodity Trend Timing Fund................................. 14.67 (Feb-94) 54.35 (Aug-93 to
Feb-95*)
Commodity Trend Timing Fund II.............................. 14.48 (Feb-94) 54.67 (Aug-93 to
Feb-95*)
Harbourer Futures Fund...................................... 5.10 (Feb-94) 5.10 (Feb-94 to
Feb-94)
Greenbrier Futures Fund..................................... 10.23 (Aug-94) 15.48 (Aug-94 to
Jun-95)
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF POOL 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commodity Trend Timing Fund................................. (50.55) (5.08) -- -- -- --
Commodity Trend Timing Fund II.............................. (50.43) (6.86) -- -- -- --
Harbourer Futures Fund...................................... 39.20 -- -- -- -- --
Greenbrier Futures Fund..................................... 16.74 (1.09) 17.60 -- -- --
</TABLE>
- --------------------
* Indicates the pool was in a current draw-down at the transfer date. See Notes
following 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.
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
31
<PAGE> 38
NOTES TO TABLES 1, 2 AND 3
POOLS OPERATED BY SMITH BARNEY FUTURES MANAGEMENT LLC
(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 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> 39
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
[PIE CHART]
<TABLE>
<S> <C>
Interest Rates 31.8%
- --------------------------------------------
Currencies 29.9%
- --------------------------------------------
Stock Indices 12.0%
- --------------------------------------------
Agriculture 11.8%
- --------------------------------------------
Metals 7.5%
- --------------------------------------------
Energy 7.0%
- --------------------------------------------
Total 100%
- --------------------------------------------
</TABLE>
The market sector distribution is based on the advisors' allocation of risk
exposure as of October 31, 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> 40
As of October 31, 1999, the advisors monitored and may trade futures and other
derivative contracts in the following markets. Markets monitored and traded may
change in the future.
LONG-TERM INTEREST RATES
U.S.
Treasury Notes (5-Year)
Treasury Notes (10-Year)
Treasury Bonds (30-Year)
Muni Bonds
Canada
Canadian 10-Year Bonds
Europe
Euro-BOBL (5-Year)
Euro-Bund (10-Year)
UK Long Gilt
Italian Government Bond (BTP)
Euro Notional Bond (10-Year)
Spanish Bond (10-Year)
Asia/Pacific
Australian Bond (3-Year)
Australian Bond (10-Year)
Japanese Government Bond
STOCK INDICES
S&P 500 Index
S&P Mid Cap 400
E-Mini S&P
Russell 2000
Dow Jones Index
NASDAQ 100
London FT-SE
DAX (Germany)
CAC-40 (France)
OM Index (Sweden)
MSCI (Taiwan)
Ibex (Spain)
MIB 30 (Italy)
All Ordinaries Index (Australia)
Hang Seng Index (Hong Kong)
Nikkei Index (Japan)
TOPIX (France)
Toronto 35 Index
CURRENCY CROSS RATES
British Pound/South African Rand
British Pound/Japanese Yen
British Pound/Swiss Franc
Euro/Japanese Yen
Euro/British Pound
Swiss Franc/Japanese Yen
Canadian Dollar/Japanese Yen
Australian Dollar/Japanese Yen
Australian Dollar/Canadian Dollar
SHORT-TERM INTEREST RATES
U.S.
Eurodollar
Europe
Short Sterling
Euroswiss
Euribor (Europe)
Eurolibor (U.K.)
Schatz (Germany)
Sweden 2-Year Bond
Canada
Canadian Banker's Acceptance
Notes
Canadian 90-Day
Asia/Pacific
Euroyen
Australian Banks Bills
Australian 90-Day
AGRICULTURE
Grains/Oilseed
Soybeans
Soybean Oil
Soybean Meal
Corn
Wheat
Softs
Coffee
Cocoa
Sugar
Orange Juice
Cotton
Livestock
Lean Hogs
Live Cattle
Pork Bellies
ENERGY
Crude Oil (West Texas)
Crude Oil Brent
Gas Oil
Natural Gas
Heating Oil
Unleaded Gasoline
CURRENCIES
U.S./Americas
Dollar Index
Canadian Dollar
Mexican Peso
Europe
British Pound
Euro
Norwegian Krone
Swedish Krona
Swiss Franc
Asia/Pacific
Australian Dollar
Hong Kong Dollar
Japanese Yen
New Zealand Dollar
Singapore Dollar
Africa
South African Rand
METALS
Precious
Gold
Silver
Platinum
Base
Aluminum
Copper
Lead
Tin
Nickel
Zinc
34
<PAGE> 41
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 and analysis of the strategies may prove difficult or
impossible. Since each advisor's trading strategies are proprietary and
confidential, their descriptions here are general in nature. The general
partner, however, has evaluated the merits of each advisor's trading strategies
and results in the course of its due diligence process. The investment objective
of each of the advisors' programs is capital appreciation through speculative
trading. The advisors utilize different strategies among their programs in
attempting to achieve this objective.
There have been no material administrative, civil or criminal actions within the
past five years against any advisor or its principals and no such actions are
currently pending.
Actual performance records for each advisor are presented as one or more Tables
A in each advisor's section.
Tables B 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,
which was when client trading began in the program to be traded for the Fund)
through October 31, 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 118 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 October 31, 1999, the common period of time during which all programs
have traded.
As required by Commodity Futures Trading Commission regulations, the rates of
return presented are net of all fees, charges and other payments made by
accounts presented.
As of October 31, 1999, the aggregate funds under management by the advisors in
commodity interest accounts were $9.7 billion (excluding notional funds) and
$10.8 billion (including notional funds).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
35
<PAGE> 42
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 NFA. 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 NFA.
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 which is similar to the Fund's is to use diversification and
leverage to earn returns over the long term from a variety of futures and
forward 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. Positions 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> 43
TRADING PROGRAMS
Based on the Meka portfolio as of October 31, 1999, the distribution of risk
exposure by market sector for the Meka program is:
<TABLE>
<S> <C> <C>
global equity indices including U.S. large and small 14%
cap, Japanese, Australian, and
European markets
global bonds including U.S. long and 14%
intermediate treasuries, Japanese
government bonds, and European
bonds
foreign currencies and currency including the U.S. dollar vs. the
cross rates Japanese Yen, the Euro, and the 17%
British Pound
energy markets including crude oil, gasoline, 7%
and natural gas
metals including gold, silver, and 14%
copper
world commodity markets including grains, meats, coffee 34%
and sugar
Total 100%
</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 October 31, 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> 44
TABLE A-1
BEACON MANAGEMENT CORPORATION
MEKA TRADING SYSTEM
AUGUST 1995 (INCEPTION OF CLIENT TRADING) THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
Percentage monthly rate of return
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <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.............................................. (12.58) 11.60 16.52 (14.14) -
August............................................ (7.15) 3.46 (13.39) (2.43) 9.98
September......................................... (12.11) 4.11 6.48 8.42 (6.06)
October........................................... (12.02) 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................. (33.28)% 70.24% 52.51% 39.80% 19.46%
- ------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (8/95-10/31/99) 28.40%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Inception of Trading by CTA: July 1980
Inception of Trading in Program: August 1995
Number of Open Accounts as of October 31, 1999: 10
Aggregate Assets in all Programs: $117,786,411 (10/99)
Aggregate Assets in Program: $98,966,411 (10/99)
Largest Monthly Draw-Down: 16.51% (2/96)
Largest Peak-to-Valley Draw-Down: 45.77% (5/99-10/99)
- ----------------------------------------------------------------------------------
</TABLE>
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
38
<PAGE> 45
TABLE A-2
OTHER TRADING PROGRAMS DIRECTED BY BEACON MANAGEMENT CORPORATION
FOR THE PERIOD JANUARY 1994 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
INCEPTION NUMBER AGGREGATE ASSETS AGGREGATE ASSETS LARGEST
OF OF IN PROGRAM IN PROGRAM LARGEST PEAK-TO-
NAME OF TRADING OPEN OCTOBER 31, 1999 OCTOBER 31, 1999 MONTHLY VALLEY
PROGRAM PROGRAM ACCOUNTS (EXCLUDING NOTIONAL) (INCLUDING NOTIONAL) DRAW-DOWN DRAW-DOWN
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eurodollar Mar-96 1 $18,820,000 $18,820,000 1.00% (8/97) 3.88% (5/96-7/98)
Beacon Jul-80 N/A-Closed N/A-Closed N/A-Closed 9.10% (8/96) 22.34% (4/95-11/95)
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
NAME OF (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
PROGRAM 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Eurodollar (1.74) 1.98 (1.51) (0.52) -- --
(10 Months) (10 Months)
Beacon 11.29 10.61 29.39 (1.29) (7.23) 9.17
(9 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 $118 million as of
October 31, 1999.
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
39
<PAGE> 46
TABLE A-3
OTHER TRADING PROGRAMS DIRECTED BY AFFILIATES OF BEACON MANAGEMENT CORPORATION
FOR THE PERIOD JANUARY 1994 THROUGH JULY 31, 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 JULY 31, 1999 JULY 31, 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) 6.24% (3/99) 6.24% (3/99-3/99)
Leveraged MLM Index May-96 N/A(1) N/A(1) N/A(1) 15.41% (3/99) 14.00% (7/97-11/97)
- -------------------------------------------------------------------------------------------------------------------------------
<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 0.15 13.79 5.13 2.67 3.80 11.23
(7 Months)
Leveraged MLM Index (6.38) 29.49 3.83 12.47 -- --
(7 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 JULY 31, 1999 JULY 31, 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) 10.83% (5/95) 11.40% (5/95-7/95)
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 5.33 14.86 31.16 10.40 22.90 4.95
(7 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> 47
NOTES TO BEACON 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 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 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 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 on a composite
basis 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. Monthly ROR is calculated using the
time-weighting method if or when material additions or withdrawals are made
other than at the beginning or end of the month.
41
<PAGE> 48
TABLE B-1
BEACON MANAGEMENT CORPORATION
PRO FORMA PERFORMANCE
MEKA TRADING PROGRAM
AUGUST 1995 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January............................................. (3.15) 1.56 13.38 2.89 -
February............................................ 9.82 13.48 7.75 (18.26) -
March............................................... (3.79) 13.57 (5.50) 4.56 -
April............................................... 17.49 3.78 6.27 17.31 -
May................................................. (12.27) 0.04 0.86 (8.12) -
June................................................ (1.52) (2.40) (7.29) 9.09 -
July................................................ (13.57) 10.87 16.69 (15.85) -
August.............................................. (7.85) 2.94 (14.51) (3.92) 10.02
September........................................... (13.24) 4.21 6.31 8.83 (7.12)
October............................................. (12.16) 3.56 (7.91) 18.89 (7.43)
November............................................ - 7.42 6.64 19.82 7.79
December............................................ - (6.12) 14.07 (2.57) 14.57
Annual (or Period) Rate of Return................... (36.95%) 64.74% 36.29% 26.28% 16.82%
- ----------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (8/95-10/31/99) 18.92%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Largest Monthly Draw-Down: 18.26% (2/96)
Largest Peak-to-Valley Draw-Down: 47.56% (5/99-10/99*)
- -------------------------------------------------------------------------------------
</TABLE>
- --------------------
Notes appear below. Table based on partnership size of $15 million.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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 $15 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
42
<PAGE> 49
(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 (except for Bridgewater whose proportionate share of initial and
continuous offering expenses will not be deducted for management fee
purposes) 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 1/6 of 1%. 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. The Fund's incentive fee will be paid as of the end of each
calendar year. The pro forma reflects such end of year payments, if
earned.
5. Pro forma interest income has been calculated by: (a) taking the Average
Equity amount (the estimated cash balance on which the Fund is expected to
earn interest income), (b) multiplying it by 80% and (c) multiplying the
result by the monthly historical 30-day Treasury bill rate. For purposes
of calculating 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 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
43
<PAGE> 50
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. In the case where the
program is in a current draw-down, the month of the lowest net asset value
of such draw-down is marked by an asterisk (*).
44
<PAGE> 51
BRIDGEWATER ASSOCIATES, INC.
Bridgewater Associates, Inc. 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 CFTC; and (2) 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. Bridgewater
employs 80 people and manages approximately $25.5 billion in investment assets
($8.8 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 CFTC since May 1992, and is a member of NFA.
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
45
<PAGE> 52
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 in 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 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 NFA.
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. 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 Bill yields. As shown, changes in the
numbers of manufacturing employees tend to precede changes in Treasury Bill
yields. As a result, changes in the number of manufacturing employees can be
used as a leading indicator of changes in Treasury Bill yields.
46
<PAGE> 53
[Comparison of U.S. Manufacturing Employees & 3 Month U.S. Treasury Bill Yields
Chart]
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 interest rates 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 affect 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
(the number of commodity interest contracts outstanding). 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.
47
<PAGE> 54
The Interaction Between the Fundamental and Technical Systems: Both the
fundamental and technical systems quantitatively express the 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, which Bridgewater will trade on
behalf of the Fund, is a systematic trading program. The objective of this
program, consistent with the Fund's objective, is to achieve capital
appreciation through the speculative trading of commodity interests.
Bridgewater began trading the Aggressive Pure Alpha Futures Only System in
August 1998. The Aggressive Pure Alpha Futures Only System is a modification of
Bridgewater's Pure Alpha Strategy, a system that has been trading since December
1991. The Aggressive Pure Alpha Futures Only System, as distinct from the Pure
Alpha Strategy,
(1) trades only futures and forward contracts on currencies;
(2) is traded at 1.5 times the actual funds allocated to trading, while the
Pure Alpha System uses different leverage; and
(3) excludes cash bonds from the portfolio mix. Capital allocated to cash
bonds in the Pure Alpha Strategy will be reallocated in the Aggressive
Pure Alpha Futures Only System to the other markets Bridgewater trades in
an attempt to realize the same overall portfolio return that the strategy
would produce if the portfolio traded cash bonds.
Information on the Pure Alpha Strategy is included so you may consider the
longer term results of a similar program. See Bridgewater's Table A-2 below.
Past performance, however, is not necessarily indicative future results. The
programs have had different performance results in the past and may continue to
have different performance results in the future.
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 futures on other stock market indices and sovereign debt instruments,
Bridgewater expects to trade such instuments for the Fund upon approval by the
general partner.
The ratio of margin to account equity of the Aggressive Pure Alpha Futures Only
System tends to fluctuate between 5% and 30%, typically being in the range of
7.5% to 15%.
The current allocation of risk exposure for the Aggressive Pure Alpha Futures
Only Program is:
<TABLE>
<S> <C>
Global interest rates: 50%
Foreign currencies and Cross
rates: 40%
Equity indices: 9%
Metals 1%
---
Total 100%
</TABLE>
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 October 31, 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.
48
<PAGE> 55
TABLE A-1
BRIDGEWATER ASSOCIATES, INC.
AGGRESSIVE PURE ALPHA FUTURES ONLY
AUGUST 1998 (INCEPTION OF CLIENT TRADING) THROUGH OCTOBER 31, 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........................................................ 0.75 -
August...................................................... (1.50) (0.56)
September................................................... (1.39) 2.78
October..................................................... (2.16) 10.18
November.................................................... - 2.19
December.................................................... - 5.83
Annual (or Period) Rate of Return........................... 0.15% 21.78%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Compound Average Annual Rate of
Return(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Inception of Trading by CTA: June 1985
Inception of Trading in Program: August 1998
Number of Open Accounts as of October 31, 1999: 1
Aggregate Assets (Excluding "Notional" Equity) in all CTA
Programs: $7,700,000,000 (10/99)
Aggregate Assets (Including "Notional" Equity) in all CTA
Programs: $8,800,000,000 (10/99)
Aggregate Assets (Excluding "Notional" Equity) in Program: $ 14,000,000 (10/99)
Aggregate Assets (Including "Notional" Equity) in Program: $ 14,000,000 (10/99)
Largest Monthly Draw-Down: 1.91% (3/99)
Largest Peak-to-Valley Draw-Down: 4.99% (8/99-10/99)
- --------------------------------------------------------------------------------------------------------
</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
49
<PAGE> 56
TABLE A-2
OTHER TRADING PROGRAMS DIRECTED BY BRIDGEWATER ASSOCIATES, INC.
FOR THE PERIOD JANUARY 1994 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
AGGREGATE ASSETS AGGREGATE ASSETS
INCEPTION NUMBER IN PROGRAM IN PROGRAM LARGEST
OF OF OCTOBER 1999 OCTOBER 1999 LARGEST PEAK-TO-
TRADING OPEN (EXCLUDING (INCLUDING MONTHLY VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS NOTIONAL) NOTIONAL) DRAW-DOWN DRAW-DOWN
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pure Alpha(1)............ Dec-91 3 $172,000,000 $258,000,000 4.49% (2/94) 16.31% (1/94-6/95)
Aggressive Pure Alpha
Futures Only-B(1)....... Sept-99 1 $50,000,000 $50,000,000 0.49% (10/99) 0.60% (9/99-10/99)
Pure Alpha Futures
Only-A(1)............... Jan-98 8 $56,900,000 $82,100,000 2.01% (7/98) 5.13% (4/98-7/98)
Pure Alpha Futures
Only-B(1)............... May-99 2 $1,500,000 $32,600,000 1.24% (10/99) 2.35% (8/99-10/99)
Pure Alpha Futures
Only-C(1)............... Jan-99 3 $81,200,000 $98,800,000 1.18% (10/99) 2.15% (8/99-10/99)
Pure Alpha Bond &
Currency Only(1)........ Jul-97 2 $29,000,000 $200,000,000 0.68% (7/98) 1.87% (4/98-7/98)
Constrained Pure
Alpha(1)................ Jan-89 3 $175,000,000 $203,000,000 17.51% (2/94) 43.89% (2/94-10/94)
Institutional Account
with Global Bond and
Equity Benchmark(1)..... Mar-94 1 $612,000,000 $612,000,000 6.36% (3/97) 7.09% (5/98-8/98)
Global Bond and
Currency(1)............. Feb-90 20 $4,900,000,000 $5,500,000,000 13.26% (2/94) 41.99% (1/94-9/94)
Diversified Global
Bond(1)................. Mar-96 2 $670,000,000 $670,000,000 4.03% (3/97) 4.03% (3/97-3/97)
Long Duration Global
Bond(1)................. Aug-95 2 $250,000,000 $250,000,000 16.11% (2/96) 24.47% (2/96-5/96)
Long Term Emerging
Markets(1).............. May-96 2 $69,000,000 $69,000,000 25.55% (8/98) 28.48% (5/98-8/98)
Inflation Linked Bonds
and Nominal
Bonds-Unleveraged(1).... Aug-97 9 $549,000,000 $549,000,000 2.75% (4/99) 8.44% (1/99-6/99)
Index Overlay............ Jul-98 1 $15,000,000 $113,000,000 15.03% (8/98) 20.97% (7/98-9/98)
Global Tactical Asset
Allocation.............. May-99 1 $6,000,000 $106,000,000 0.29% (9/99) 0.57% (7/99-10/99)
Global Bond Overlay(1)... May-95 N/A-Closed N/A-Closed N/A-Closed 1.68% (3/97) 2.44% (12/96-3/97)
Short Term Emerging
Markets(1).............. Apr-97 N/A-Closed N/A-Closed N/A-Closed 4.30% (8/97) 17.58% (7/97-1/98)
Inflation Indexed Linked
Bond
Accounts-Leveraged(1)... Apr-94 N/A-Closed N/A-Closed N/A-Closed 7.15% (2/96) 13.21% (4/94-9/94)
Inflation Linked
Bonds(1)................ Jan-97 N/A-Closed N/A-Closed N/A-Closed 2.54% (8/97) 4.56% (2/97-4/97)
U.S. Bond Group.......... Aug-90 N/A-Closed N/A-Closed N/A-Closed 8.06% (2/95) 8.06% (2/95-2/95)
<CAPTION>
PERCENTAGE ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
RATE
OF
RETURN
CALCULATION
NAME OF PROGRAM METHOD 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pure Alpha(1)............ FFS (A) 6.28 26.74 15.07 24.37 (4.55) (3.43)
(10 Months)
Aggressive Pure Alpha
Futures Only-B(1)....... BE (0.60) -- -- -- -- --
(2 Months)
Pure Alpha Futures
Only-A(1)............... FFS (B) (0.11) 19.71 -- -- -- --
(10 Months)
Pure Alpha Futures
Only-B(1)............... BE (C) 0.04 -- -- -- -- --
(6 Months)
Pure Alpha Futures
Only-C(1)............... BE (C) 1.99 -- -- -- -- --
(10 Months)
Pure Alpha Bond &
Currency Only(1)........ FFS (D) 2.98 9.04 1.94 -- -- --
(10 Months) (6 Months)
Constrained Pure
Alpha(1)................ FFS 4.77 8.80 5.41 4.21 5.05 (5.88)
(10 Months)
Institutional Account
with Global Bond and
Equity Benchmark(1)..... TW 6.94 54.74 32.43 35.98 12.36 5.82
(10 Months) (10 Months)
Global Bond and
Currency(1)............. FFS (0.50) 17.35 8.94 12.02 19.23 (17.83)
(10 Months)
Diversified Global
Bond(1)................. OAT (2.56) 10.68 14.77 18.52 -- --
(10 Months) (10 Months)
Long Duration Global
Bond(1)................. BE (18.57) 50.31 34.74 11.85 34.03 --
(10 Months) (5 Months)
Long Term Emerging
Markets(1).............. BE 9.41 (0.13) 17.41 21.77 -- --
(10 Months) (8 Months)
Inflation Linked Bonds
and Nominal
Bonds-Unleveraged(1).... OAT (1.60) 14.36 9.23 -- -- --
(10 Months) (5 Months)
Index Overlay............ BE (C) (3.02) (5.96) -- -- -- --
(10 Months) (6 Months)
Global Tactical Asset
Allocation.............. BE (C) (0.47) -- -- -- -- --
(6 Months)
Global Bond Overlay(1)... FFS (E) -- 0.50 0.40 4.87 1.07 --
(1 Month) (8 Months)
Short Term Emerging
Markets(1).............. FFS (F) -- 4.61 (11.55) -- -- --
(7 Months) (9 Months)
Inflation Indexed Linked
Bond
Accounts-Leveraged(1)... FFS -- 4.00 11.84 15.21 23.09 (8.73)
(3 Months) (9 Months)
Inflation Linked
Bonds(1)................ OAT -- 8.80 8.25 -- -- --
(11 Months)
U.S. Bond Group.......... TW -- -- -- -- (7.88) 4.37
(2 Months)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Aggregate assets in all Bridgewater programs was approximately $7.7 billion
(excluding notional equity) and $8.8 billion (including notional equity) as of
October 31, 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
50
<PAGE> 57
TABLE A-3
TRADING PROGRAMS DIRECTED BY BRIDGEWATER S.A., INC.
FOR THE PERIOD JANUARY 1994 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
AGGREGATE ASSETS AGGREGATE ASSETS
INCEPTION NUMBER IN PROGRAM IN PROGRAM LARGEST RATE
OF OF OCTOBER 1999 OCTOBER 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
- ----------------------------------------------------------------------------------------------------------------------------------
<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)........... 4.91 66.67 14.58 -- -- --
(10 Months) (6 Months)
Global Asset
Allocation
Speculative(1)..... 5.02 19.04 10.99 17.64 7.00 (7.73)
(10 Months)
Global Bond and
Currency(1)........ 1.51 18.84 7.11 -- -- --
(4 Months) (6 Months)
- -----------------------------------------------------------------------------------------------
</TABLE>
Aggregate assets in all Bridgewater programs was approximately $7.7 billion
(excluding notional equity) and $8.8 billion (including notional equity) as of
October 31, 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
51
<PAGE> 58
NOTES TO BRIDGEWATER 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" 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 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).
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 the 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
52
<PAGE> 59
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.
------------------------
TABLE B-1
BRIDGEWATER ASSOCIATES, INC.
PRO FORMA PERFORMANCE
AGGRESSIVE PURE ALPHA FUTURES ONLY PROGRAM
AUGUST 1998 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January.................................................... 0.24 -
February................................................... 3.37 -
March...................................................... (2.22) -
April...................................................... (0.89) -
May........................................................ 1.51 -
June....................................................... 0.10 -
July....................................................... 0.32 -
August..................................................... (1.66) (1.30)
September.................................................. (1.54) 2.44
October.................................................... (2.55) 9.39
November................................................... - 1.71
December................................................... - 5.33
Annual (or Period) Rate of Return.......................... (3.42%) 18.49%
- ------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1)
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Largest Monthly Draw-Down: 2.55% (10/99)
Largest Peak-to-Valley Draw-Down: 6.79% (3/99-10/99*)
- ---------------------------------------------------------------------------------
</TABLE>
- --------------------
Notes appear at pages 42-44. Table based on partnership size of $15 million.
(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
53
<PAGE> 60
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 CFTC as a Commodity Trading Advisor since May 1978 and a
Commodity Pool Operator since September 1982, and is a member of the NFA in such
capacities.
PRINCIPALS
Below is biographical information on the principals of Campbell in alphabetical
order.
Richard M. Bell, 47, 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 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 in 1978, was President until January 1, 1994
and Chief Executive Officer until December 1997. 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.
54
<PAGE> 61
Xiaohua Hu, 36, 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, Mr. Hu
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 commodity pool operator and registered
broker-dealer. 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
55
<PAGE> 62
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 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. From January 1991-November 1992,
Mr. York was the Global Foreign 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. The models are technical methods of analyzing 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. Each of
Campbell's portfolios employs multiple models. Portfolios determine what markets
are traded; models determine how and when those markets are traded.
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 will initially trade its Financial Metal & Energy Small Portfolio for
the Fund until Campbell's allocation from the Fund reaches $10 million. At that
time, Campbell will begin trading its Financial Metal & Energy Large Portfolio
on behalf of the Fund. The objective of both Portfolios is the same and is
consistent with the Fund's objective of seeking positive returns from the
speculative
56
<PAGE> 63
trading of a portfolio of futures and forward contracts.
Campbell's trading models are designed to detect and exploit medium-term to
long-term price changes, while also applying 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-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.
57
<PAGE> 64
MARKET SECTORS
Distribution of markets traded by volatility weighting (i.e. risk exposure) as
of October 31, 1999:
<TABLE>
<CAPTION>
FME-SMALL FME-LARGE
--------- ---------
<S> <C> <C>
Interest rates 37% 36%
Currencies 34% 35%
Stock indices 14% 14%
Energy 10% 11%
Precious and base
metals 5% 4%
Total 100% 100%
</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 October 31, 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 October 31, 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.
58
<PAGE> 65
TABLE A-1
CAMPBELL & COMPANY, INC.
FINANCIAL, METAL & ENERGY SMALL PORTFOLIO(1)
APRIL 1983 (INCEPTION OF TRADING PROGRAM) THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January...................................... (4.61) 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........................................ 1.60 5.81 (1.75) 4.33 9.75 7.00
April........................................ 5.20 (5.99) (3.03) 2.57 1.01 (1.77)
May.......................................... (3.15) 4.21 (3.01) (2.11) (1.42) (2.78)
June......................................... 4.95 1.51 3.62 1.41 (2.46) 5.24
July......................................... (0.62) (4.04) 8.81 (1.71) (2.76) (4.36)
August....................................... 1.19 9.95 (5.94) 3.52 7.12 (3.79)
September.................................... 1.55 3.68 4.53 1.92 (5.78) 6.91
October...................................... (3.88) 5.52 2.32 12.85 1.54 0.36
November..................................... (0.91) 0.59 12.11 0.15 (7.02)
December..................................... 1.10 5.41 (4.12) 7.81 (5.08)
Annual (or Period) Rate of Return............ 3.09% 22.16% 17.30% 37.83% 14.89% (16.76)%
- ------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/94-10/31/99) 12.10%
- ------------------------------------------------------------------------------------------------------------------------------
</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 (4/83-10/31/99) 15.50%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Inception of Trading by CTA: January 1972
Inception of Trading in Program: April 1983(1)
Number of Open Accounts as of October 31, 1999: 33
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $1,637,951,455 (10/99)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $1,685,559,610 (10/99)
Aggregate Assets (Excluding "Notional" Equity) in
Program: $ 151,436,796 (10/99)
Aggregate Assets (Including "Notional" Equity) in
Program: $ 164,549,598 (10/99)
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
59
<PAGE> 66
TABLE A-2
CAMPBELL & COMPANY, INC.
FINANCIAL, METAL & ENERGY LARGE PORTFOLIO
APRIL 1983 (INCEPTION OF TRADING PROGRAM) THROUGH OCTOBER 31, 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.......................................... (0.15) (3.68) 9.27 0.01 (4.05) (4.36)
August........................................ 1.22 9.23 (5.14) 1.78 5.83 (3.79)
September..................................... 1.75 2.97 4.23 2.47 (3.47) 6.91
October....................................... (4.25) 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............. 2.51% 20.07% 18.75% 35.96% 19.46% (16.76)%
- -------------------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/94-10/31/99) 12.39%
- -------------------------------------------------------------------------------------------------------------------------------
</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 (4/83-10/31/99) 15.60%
- --------------------------------------------------------------------------------
<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 October 31, 1999: 9
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $1,637,951,455 (10/99)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $1,685,559,610 (10/99)
Aggregate Assets (Excluding "Notional" Equity) in
Program: $1,334,812,605 (10/99)
Aggregate Assets (Including "Notional" Equity) in
Program: $1,345,108,605 (10/99)
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
60
<PAGE> 67
TABLE A-3
OTHER TRADING PROGRAMS DIRECTED BY CAMPBELL & COMPANY, INC.
FOR THE PERIOD JANUARY 1994 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
INCEPTION NUMBER AGGREGATE ASSETS AGGREGATE ASSETS LARGEST
OF OF IN PROGRAM IN PROGRAM LARGEST PEAK-TO-
TRADING OPEN OCTOBER 1999 OCTOBER 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 2 $124,250,387 $124,250,387 8.45% (2/94) 26.05% (7/93-2/94)
Global Diversified
Small Portfolio Jun-97 5 $4,353,906 $5,428,906 5.92% (4/98) 5.92% (4/98-4/98)
Foreign Exchange
Portfolio Nov-90 2 $7,454,237 $30,180,807 11.66% (11/94) 44.73% (7/93-1/95)
Interest Rates,
Stock Indices and
Commodities ("ISC")
Portfolio Feb-96 1 $12,959,744 $12,959,744 6.73% (12/9) 9.94% (12/96-4/97)
The Ark Portfolio Sep-96 14 $2,683,780 $3,081,563 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 (0.03) 12.47 14.95 26.78 6.52 9.61
(10 Months)
Global Diversified
Small Portfolio (1.37) 17.50 13.85 -- -- --
(10 Months) (7 Months)
Foreign Exchange
Portfolio 4.45 4.25 18.19 43.04 26.36 (21.19)
(10 Months)
Interest Rates,
Stock Indices and
Commodities ("ISC")
Portfolio 1.38 27.08 20.52 25.73 -- --
(10 Months) (11 Months)
The Ark Portfolio 22.10 2.48 20.49 19.94 -- --
(10 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 $1.7 billion as of
October 31, 1999.
- --------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
61
<PAGE> 68
NOTES TO CAMPBELL 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 draw-downs which are materially larger
than the largest composite monthly draw-down. 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
draw-down. A small number of accounts in the portfolio composites have
experienced peak-to-valley draw-downs which are materially larger than the
largest composite peak-to-valley draw-down. 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)
62
<PAGE> 69
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 that 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 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 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 that had material
intra-month additions or withdrawals and accounts that 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
63
<PAGE> 70
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.
64
<PAGE> 71
TABLE B-1
CAMPBELL & COMPANY, INC.
PRO FORMA PERFORMANCE
FINANCIAL, METAL & ENERGY SMALL PORTFOLIO
JANUARY 1, 1994 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January........................... (4.92) 2.35 3.48 9.13 (1)(4.88) (5.44)
February.......................... 1.12 (3.13) 0.98 (5.72) 4.55 (7.46)
March............................. 1.28 5.68 (1.82) 4.20 9.35 6.23
April............................. 4.98 (5.59) (3.03) 2.27 0.74 (2.71)
May............................... (3.97) 3.89 (3.29) (2.84) (1.63) (3.49)
June.............................. 4.80 1.19 3.13 1.02 (2.45) 4.51
July.............................. (0.58) (4.14) 8.07 (2.06) (3.05) (5.11)
August............................ 0.89 9.05 (6.25) 2.92 7.04 (4.18)
September......................... 1.33 3.15 4.03 1.86 (5.98) 6.07
October........................... (3.61) 4.73 1.59 12.77 1.17 (0.44)
November.......................... - (1.26) 0.11 10.98 (0.31) (7.66)
December.......................... - 0.92 4.71 (3.97) 7.27 (5.91)
Annual (or Period) Rate of 0.79% 17.02% 11.37% 32.80% 10.97% (23.90)%
Return..........................
- ----------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/94-10/31/99) 6.87%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Largest Monthly Draw-Down: 7.66% (11/94)
Largest Peak-to-Valley Draw-Down: 27.62% (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 42 - 44. Table based on partnership size of $15 million.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
65
<PAGE> 72
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 NFA. 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, Rabar's president, 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 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 NFA. 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
66
<PAGE> 73
(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.
THE TRADING PROGRAM
MARKETS TRADED
Consistent with the Fund's objectives, the objective of Rabar's trading program
is to achieve appreciation of its clients' assets through the speculative
trading of a portfolio 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.
Contracts traded by Rabar include, but are not necessarily limited to, U.S. and
international interest rates, currencies, stock indices, agricultural and energy
products and precious and base metals. Rabar may also engage in 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%
U.S........................... 7.4%
Non-U.S....................... 25.8%
CURRENCIES.................... 20.2%
Major currencies.............. 11.1%
Minor currencies.............. 5.3%
Cross rates (Non-U.S. currency
against non-U.S.
currency)................... 3.8%
STOCK MARKET INDICES.......... 13.1%
U.S........................... 6.5%
Non-U.S....................... 6.6%
AGRICULTURAL PRODUCTS......... 12.5%
Grains/oilseeds............... 8.4%
Softs......................... 3.2%
(coffee, sugar, cocoa, orange
juice and cotton)
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%
TOTAL.................... 100%
</TABLE>
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.
67
<PAGE> 74
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 October 31, 1999.
68
<PAGE> 75
TABLE A-1
RABAR MARKET RESEARCH, INC.
DIVERSIFIED PROGRAM
JANUARY 1989 (INCEPTION OF CLIENT TRADING) THROUGH OCTOBER 31, 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........................................... (3.04) 1.17 14.83 (2.11) (9.37) (4.65)
August......................................... (0.46) 20.95 (7.78) (1.33) (8.57) (4.55)
September...................................... 0.05 6.25 3.01 3.78 (9.24) 3.33
October........................................ (6.12) (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.............. (15.45)% 25.87% 11.53% 0.49% 13.27% 33.63%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return (1/94-10/31/99) 10.66%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION-ANNUAL RATES OF RETURN FOR PRIOR YEARS
- ------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
49.57% (4.43)% (5.70)% 122.51% 10.00%
- ------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return (1/89-10/31/99) 17.91%
- --------------------------------------------------------------------------------
<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 October 31, 1999: 25
Aggregate Assets (Excluding "Notional" Equity) in
all Programs: $195,976,050 (10/99)
Aggregate Assets (Including "Notional" Equity) in
all Programs: $245,300,272 (10/99)
Aggregate Assets (Excluding "Notional" Equity) in
Program: $195,976,050 (10/99)
Aggregate Assets (Including "Notional" Equity) in
Program: $245,300,272 (10/99)
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
69
<PAGE> 76
NOTES TO RABAR 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 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 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,
70
<PAGE> 77
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.
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.
71
<PAGE> 78
TABLE B-1
RABAR MARKET RESEARCH, INC.
PRO FORMA PERFORMANCE
DIVERSIFIED TRADING PROGRAM
JANUARY 1, 1994 THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January................................. (2.08) 1.82 5.09 (0.27) (10.44) (10.70)
February................................ 3.60 1.21 4.24 (9.76) 14.12 (6.05)
March................................... (4.33) (0.03) (0.67) (1.72) 15.51 19.48
April................................... 3.14 (6.10) (5.97) 3.18 5.92 2.25
May..................................... (7.38) 4.02 (2.37) (3.68) 8.83 11.24
June.................................... (0.11) 1.82 (0.21) 1.32 (2.72) 17.84
July.................................... (3.39) 0.89 13.35 (2.33) (7.86) (4.15)
August.................................. (0.76) 18.70 (7.22) (1.47) (7.10) (3.86)
September............................... (0.11) 5.89 2.71 3.51 (7.60) 2.62
October................................. (6.41) (3.80) (3.29) 10.68 (5.00) (3.58)
November................................ -- (3.34) 0.29 5.56 2.31 8.73
December................................ -- 1.28 3.91 (5.09) 11.92 (1.27)
Annual (or Period) Rate of Return....... (16.99)% 22.36% 8.51% (1.62)% 13.90% 31.51%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return (1/1/94-10/31/99) 8.67%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Largest Monthly Draw-Down: 10.70% (1/94)
Largest Peak-to-Valley Draw-Down: 28.26% (6/95-8/96)
</TABLE>
- --------------------
Notes appear at pages 42-44. Table based on partnership size of $15 million.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
72
<PAGE> 79
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.
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
73
<PAGE> 80
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 who
provide services to client accounts with assets in excess of $840 billion.
All of the Fund's futures and options on futures 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 the 30-day Treasury bill rate determined weekly;
- 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.
74
<PAGE> 81
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 material administrative, civil or criminal actions within the
past five years against Salomon Smith Barney or any of its individual principals
and no such actions are currently pending, except as follows.
In September 1992, Harris Trust and Savings Bank (as trustee for Ameritech
Pension Trust), Ameritech Corporation, and an officer of Ameritech sued Salomon
Brothers Inc and Salomon Brothers Realty Corporation 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 complaint alleged that purchases by Ameritech Pension Trust
from the Salomon entities of approximately $20.9 million in participations in a
portfolio of motels owned by Motels of America, Inc. and Best Inns, Inc.
violated the Employee Retirement Income Security Act ("ERISA"), the Racketeer
Influenced and Corrupt Organization Act ("RICO") and state law. Salomon Brothers
Inc had acquired the participations issued by Motels of America and Best Inns to
finance purchases of motel portfolios and sold 95% of three such issues and 100%
of one such issue to Ameritech Pension Trust. Ameritech Pension Trust's
complaint sought (1) approximately $20.9 million on the ERISA claim, and (2) in
excess of $70 million on the RICO and state law claims as well as other relief.
In various decisions between August 1993 and July 1999, the courts hearing the
case have dismissed all of the allegations in the complaint against the Salomon
entities. In October 1999, Ameritech appealed to the U.S. Supreme Court and in
January 2000, the Supreme Court agreed to hear the case. The appeal seeks review
of the decision of the U.S. Court of Appeals for the Seventh Circuit that
dismissed the sole remaining ERISA claim against the Salomon entities.
Both the Department of Labor and the Internal Revenue Service have advised
Salomon Brothers Inc that they were or are reviewing the transactions in which
Ameritech Pension Trust acquired such participations. With respect to the
Internal Revenue Service review, Salomon Smith Barney Holdings, Salomon Brothers
Inc and Salomon Brothers Realty 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 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. (County of Orange et al. v. Bear Stearns & Co. Inc. et al.) The
complaint alleged, among other things, that the brokerage firms recommended and
sold unsuitable securities to Orange County. Smith Barney and the remaining
brokerage firms settled with Orange County in mid 1999.
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In June 1998, complaints were filed in the U.S. District Court for the Eastern
District of Louisiana in two actions (Board of Liquidations, City Debt of the
City of New Orleans v. Smith Barney Inc. et ano. and The City of New Orleans v.
Smith Barney Inc. et ano.), in which the City of New Orleans seeks a
determination that Smith Barney Inc. and another underwriter will be responsible
for any damages that the City may incur in the event the Internal Revenue
Service denies tax exempt status to the City's General Obligation Refunding
Bonds Series 1991. The complaints were subsequently amended. Salomon Smith
Barney has asked the court to dismiss the amended complaints.
In November 1998, a class action complaint was filed in the United States
District Court for the Middle District of Florida (Dwight Brock as Clerk for
Collier County v. Merrill Lynch, et al.). The complaint alleged that, pursuant
to a nationwide conspiracy, 17 broker-dealer defendants, including Salomon Smith
Barney, charged excessive mark-ups in connection with advanced refunding
transactions. Among other relief, plaintiffs sought compensatory and punitive
damages, restitution and/or rescission of the transactions and disgorgement of
alleged excessive profits. In October 1999, the plaintiff filed a second amended
complaint. Salomon Smith Barney has asked the court to dismiss the amended
complaint and intends to contest this complaint vigorously.
In connection with the Louisiana and Florida matters, the IRS and SEC have been
conducting an industry-wide investigation into the pricing of Treasury
securities in advanced refunding transactions.
In December 1998, Salomon Smith Barney was one of twenty-eight market making
firms that reached a settlement with the SEC in the matter titled In the Matter
of Certain Market Making Activities on NASDAQ. As part of the settlement of that
matter, Salomon Smith Barney, without admitting or denying the factual
allegations, agreed to an order which required that it: (i) cease and desist
from committing or causing any violations of Sections 15(c)(1) and (2) of the
Securities Exchange Act of 1934 and Rules 15c1-2, 15c2-7 and 17a-3 thereunder,
(ii) pay penalties totaling approximately $760,000, and (iii) submit certain
policies and procedures to an independent consultant for review.
In March 1999, a complaint seeking in excess of $250 million was filed by a
hedge fund and its investment advisor against Salomon Smith Barney in the
Supreme Court of the State of New York, County of New York (MKP Master Fund, LDC
et al. v. Salomon Smith Barney Inc.). The complaint included allegations that,
while acting as prime broker for the hedge fund, Salomon Smith Barney breached
its contracts with plaintiffs, misused their monies, and engaged in tortious
(wrongful) conduct, including breaching its fiduciary duties. Salomon Smith
Barney asked the court to dismiss the complaint in full. In October 1999, the
court dismissed the tort claims, including the breach of fiduciary duty claims.
The court allowed the breach of contract and conversion claims to stand. Salomon
Smith Barney will continue to contest this lawsuit vigorously.
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.
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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 85-95% 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 15% and 35% 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.
INVESTING IN THE FUND
THE OFFERING
The Fund offers 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.
Salomon Smith Barney may pay underwriting commissions out of its own funds of up
to $50 per unit. The total compensation paid to Salomon Smith Barney and its
employees in connection with the distribution of units may not exceed 10% of the
proceeds of the offering. For this purpose, "total compensation" does not
include brokerage fees. This limitation is imposed by the NASD and is included
in the 15% limit on offering and organizational expenses described under "Fees
and Expenses of the Fund -- Caps on Fees."
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,
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unless the general partner ends the period earlier or extends it 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, including the determination of
the suitability of the Fund as an investment for you.
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 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
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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 on your
behalf 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
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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 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
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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 that 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.
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 securities 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,
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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 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.
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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 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.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS BEFORE DECIDING
WHETHER TO INVEST.
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THE LIMITED PARTNERSHIP AGREEMENT
The Fund's Limited Partnership Agreement appears as Exhibit A. The material
terms of the agreement 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 the limited partner's capital
contribution and share of any assets and undistributed profits. The New York Act
provides that
- 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.
- a limited partner who participates in the control of the Partnership's
business may become liable as a general partner to persons who transact
business with the Partnership reasonably believing, based upon the limited
partner's conduct, that the limited partner is a general partner.
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.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
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 a fiduciary responsibility to the limited partners
1) for the safekeeping of the Fund's assets; and
2) in the use of all funds and assets of the Fund.
The limited partners may not contract away this fiduciary obligation.
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 or her capital
contribution. Each partner's balance will be adjusted monthly to reflect his or
her pro rata share of the Fund's gain or loss, fees and expenses.
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
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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;
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.
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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 OF THE GENERAL PARTNER
The Fund will 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. The New York Act
prohibits indemnification of a general partner in a derivative action if a
judgment or other final decision adverse to the general partner establishes that
the general partner's acts were committed in bad faith or were the result of
intentional misconduct. 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).
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 "Indemnification of the General
Partner" above.
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.
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
86
<PAGE> 93
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.
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 September 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.
87
<PAGE> 94
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 10, 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 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.
PricewaterhouseCoopers LLP
New York, New York
September 15, 1999
88
<PAGE> 95
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 10, 1999
<TABLE>
<S> <C>
ASSETS
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.
89
<PAGE> 96
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 (1) maintain a cash investment in the Fund at
least equal to the greater of an amount that will entitle the general partner to
an interest of at least 1% in each material item of the Fund's income, gain,
loss, deduction or credit and (2) 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.
The General Partner intends to change its form of organization from a
corporation to a Delaware limited liability company in the near future.
2. SIGNIFICANT 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.
90
<PAGE> 97
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
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.
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 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).
91
<PAGE> 98
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
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 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.
92
<PAGE> 99
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
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.
93
<PAGE> 100
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 LLP
New York, New York
March 15, 1999
94
<PAGE> 101
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SALOMON SMITH BARNEY HOLDINGS INC.)
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Receivable from limited partnerships....................... $ 5,065,410 $ 4,635,696
Receivable from affiliate.................................. 4,804,704 6,527,944
Investments in limited partnerships, at equity............. 11,610,753 11,159,677
Other assets............................................... 494,159 47,981
------------ ------------
Total Assets..................................... $ 21,975,026 $ 22,371,298
============ ============
LIABILITIES & STOCKHOLDER'S EQUITY
Dividend payable to Salomon Smith Barney Holdings.......... $ 2,000,000 $ 4,000,000
Accounts payable and accrued liabilities................... 143,964 433,593
------------ ------------
Total Liabilities................................ 2,143,964 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.......................................... 10,417,216 8,523,859
------------ ------------
77,831,062 75,937,705
Less: Note receivable from Salomon Smith Barney Holdings... (58,000,000) (58,000,000)
------------ ------------
19,831,062 17,937,705
------------ ------------
Total Liabilities & Stockholder's Equity......... $ 21,975,026 $ 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
95
<PAGE> 102
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 is no longer the general partner
of three Limited Partnerships as of 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 CFTC.
At September 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 $898,172,316 (unaudited) and
$885,267,009, total liabilities of $44,675,035 (unaudited) and $21,514,812 and
total partners' capital of $853,497,281 (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
judgment 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
96
<PAGE> 103
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SALOMON SMITH BARNEY HOLDINGS INC.)
NOTES TO STATEMENT OF FINANCIAL CONDITION -- (CONTINUED)
disclosed in each limited partnership agreement. The Company is required to make
a capital contribution to each such Limited Partnership. The limited partnership
agreements generally require the general partner to maintain a cash investment
in the Limited Partnerships equal to the greater of (i) an amount which will
entitle the general partner to an interest of 1% in each material item of
partnership income, gain, loss, deduction or credit or (ii) the greater of (a)
1% of the aggregate capital contributions of all partners or (b) a minimum of
$25,000. While it is the general partner thereof, 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 September 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 September 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 September 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 September 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
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<PAGE> 104
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SALOMON SMITH BARNEY HOLDINGS INC.)
NOTES TO STATEMENT OF FINANCIAL CONDITION -- (CONTINUED)
agreement with SSBHI, the Company remits taxes to SSBHI. As of September 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.
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 September 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.
98
<PAGE> 105
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 nine
month period ended September 30, 1999 and for the years ending December 31,
1998, December 31, 1997 and December 31, 1996.
99
<PAGE> 106
SALOMON SMITH BARNEY HOLDINGS INC.
SUMMARY FINANCIAL INFORMATION
The selected financial data set forth below for the Company as of December 31,
1998, 1997, and 1996 and for each of the three years in the period ended
December 31, 1998 are derived from the audited financial statements.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------- ------------ ------------ ------------
(UNAUDITED)
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Income Statement Data
Revenues.............................. $ 17,280 $ 20,673 $ 21,477 $ 18,843
Income from Continuing Operations
before Income Taxes and cumulative
effect of change in accounting
principle.......................... $ 3,298 $ 1,316 $ 1,820 $ 3,064
Net Income............................ $ 2,063 $ 818 $ 1,145 $ 1,500
Balance Sheet Data
Total Assets.......................... $212,837 $211,901 $276,620 $246,114
Stockholder's Equity.................. $ 9,879 $ 8,768 $ 8,518 $ 7,615
Total Liabilities and Stockholder's
Equity................................ $212,837 $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.
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<PAGE> 107
SALOMON SMITH BARNEY INC. AND SUBSIDIARIES
CONDENSED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1998
The selected financial data set forth below for Salomon Smith Barney Inc. and
subsidiaries as of December 31, 1998 is derived from the audited financial
statements.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 581
Cash and securities segregated and on deposit with clearing
organizations............................................. 2,244
Collateralized financing agreements......................... 68,914
Financial instruments owned and contractual commitments..... 35,912
Receivables................................................. 19,056
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization of $579......... 673
Other assets................................................ 1,519
--------
Total assets................................................ $128,899
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term borrowings....................................... $ 82
Payable to affiliates....................................... 11,861
Collateralized financing agreements......................... 56,833
Financial instruments sold, not yet purchased, and
contractual commitments................................... 26,831
Payables and accrued liabilities............................ 23,738
Notes payable to SSBH....................................... 195
Subordinated indebtedness................................... 3,695
--------
Total liabilities........................................... 123,235
Total stockholder's equity.................................. 5,664
--------
Total liabilities and stockholder's equity.................. $128,899
========
</TABLE>
The General Partner will provide a complete copy of Salomon Smith Barney Inc.'s
Consolidated Statement of Financial Condition to any limited partner requesting
it.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN
SALOMON SMITH BARNEY INC.
101
<PAGE> 108
(This page has been left blank intentionally.)
102
<PAGE> 109
PART TWO: STATEMENT OF ADDITIONAL INFORMATION
15,000 UNITS OF LIMITED PARTNERSHIP INTEREST
SALOMON SMITH BARNEY
DIVERSIFIED 2000 FUTURES FUND L.P.
------------------------
THESE ARE SPECULATIVE SECURITIES.
BEFORE YOU DECIDE WHETHER TO INVEST, READ THE PROSPECTUS CAREFULLY
AND CONSIDER "THE RISKS YOU FACE" ON PAGE 7 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.
UNDER NO CIRCUMSTANCES MAY THE TWO PARTS OF
THIS PROSPECTUS BE DISTRIBUTED SEPARATELY.
------------------------
SALOMON SMITH BARNEY INC.
SELLING AGENT
SMITH BARNEY FUTURES MANAGEMENT LLC
GENERAL PARTNER
103
<PAGE> 110
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
Diversifying Your Portfolio With Managed Futures............ 105
Individual Advisor Performance.............................. 112
Table C-Hypothetical Composite Performance.................. 118
Commodity Markets........................................... 121
Glossary.................................................... 126
Limited Partnership Agreement -- Exhibit A.................. A-1
Subscription Agreement -- Exhibit B......................... B-1
Suitability Requirements -- Exhibit C....................... C-1
Subscription Agreement -- Execution Copy.................... Back Cover
</TABLE>
104
<PAGE> 111
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.
MANAGED FUTURES ASSESTS UNDER MANAGEMENT
1980 - 1998
[CHART]
<TABLE>
<CAPTION>
GROWTH OF MANAGED FUTURES ASSETS
--------------------------------
<S> <C>
1980 0.50
1983 0.75
1986 2.00
1989 6.00
1992 19.00
1995 21.00
1996 25.80
1997 34.70
1998 40.00
</TABLE>
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 protected 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. Futures trading originated in the 1800's in the United States,
primarily in agricultural commodities, such as soybeans, grains, cotton and
coffee. 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.
105
<PAGE> 112
CHART 2
FUTURES VOLUME BY MARKET SECTOR
<TABLE>
<CAPTION>
INTEREST RATES ENERGY METALS OTHER AGRICULTURE CURRENCIES
-------------- ------ ------ ----- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1980 13.5 0.3 16.3 1.1 64.2 4.6
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATES ENERGY METALS OTHER AGRICULTURE STOCK INDICES CURRENCIES
-------------- ------ ------ ----- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 53.2 5.7 6.6 0.1 8.2 22.3 4.0
</TABLE>
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 chart above. 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$1.5
trillion in 1998. Source: Bank for International Settlements
POTENTIAL RETURNS INDEPENDENT OF STOCK AND BOND MARKETS
Chart 3 compares a managed futures index, the Managed Account Reports Trading
Advisor Qualified Universe Index (dollar weighted version, referred to hereafter
as "MAR CTA-$"), with a U.S. stock market index, the S&P 500 Stock Index
(assuming the reinvestment of all dividends).
Managed Account Reports, Inc., a managed futures industry publisher, creates and
monitors several managed futures indices that track performance of managed
futures advisors and funds. The MAR CTA-$ Index is a dollar-weighted index of
the returns of approximately 350 commodity trading advisors. To qualify for the
MAR CTA-$ Index, a commodity trading advisor must have at least $500,000 under
management and 12 months of trading client assets, or act as a commodity trading
advisor in a public fund that is listed in MAR's fund tables. The MAR CTA-$
Index is reported net of all fees and expenses.
106
<PAGE> 113
CHART 3
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
JANUARY 1986-OCTOBER 1999
[LINE GRAPH]
<TABLE>
<CAPTION>
MAR CTA-$ S&P 500
--------- -------
<S> <C> <C>
1000.00 1000.00
Jan-86 1012.00 1006.00
Feb-86 1132.00 1081.00
Mar-86 1226.00 1141.00
Apr-86 1155.00 1128.00
May-86 1109.00 1188.00
Jun-86 1078.00 1208.00
Jul-86 1113.00 1141.00
Aug-86 1150.00 1225.00
Sep-86 1102.00 1124.00
Oct-86 1058.00 1189.00
Nov-86 1036.00 1218.00
Dec-86 1031.00 1187.00
Jan-87 1161.00 1347.00
Feb-87 1165.00 1400.00
Mar-87 1197.00 1440.00
Apr-87 1346.00 1428.00
May-87 1336.00 1440.00
Jun-87 1345.00 1512.00
Jul-87 1410.00 1589.00
Aug-87 1398.00 1648.00
Sep-87 1354.00 1612.00
Oct-87 1390.00 1265.00
Nov-87 1516.00 1160.00
Dec-87 1626.00 1249.00
Jan-88 1539.00 1303.00
Feb-88 1565.00 1362.00
Mar-88 1546.00 1320.00
Apr-88 1500.00 1336.00
May-88 1608.00 1345.00
Jun-88 1922.00 1407.00
Jul-88 1826.00 1404.00
Aug-88 1857.00 1354.00
Sep-88 1871.00 1412.00
Oct-88 1899.00 1453.00
Nov-88 1902.00 1430.00
Dec-88 1864.00 1456.00
Jan-89 1934.00 1564.00
Feb-89 1874.00 1523.00
Mar-89 1914.00 1560.00
Apr-89 1890.00 1643.00
May-89 2083.00 1706.00
Jun-89 2073.00 1697.00
Jul-89 2094.00 1852.00
Aug-89 2015.00 1886.00
Sep-89 1969.00 1879.00
Oct-89 1881.00 1837.00
Nov-89 1930.00 1872.00
Dec-89 1999.00 1918.00
Jan-90 2063.00 1791.00
Feb-90 2106.00 1811.00
Mar-90 2169.00 1861.00
Apr-90 2269.00 1816.00
May-90 2133.00 1989.00
Jun-90 2162.00 1976.00
Jul-90 2283.00 1972.00
Aug-90 2431.00 1791.00
Sep-90 2502.00 1705.00
Oct-90 2548.00 1699.00
Nov-90 2568.00 1807.00
Dec-90 2545.00 1858.00
Jan-91 2446.00 1941.00
Feb-91 2437.00 2077.00
Mar-91 2576.00 2129.00
Apr-91 2567.00 2136.00
May-91 2544.00 2224.00
Jun-91 2594.00 2123.00
Jul-91 2500.00 2225.00
Aug-91 2502.00 2274.00
Sep-91 2608.00 2236.00
Oct-91 2591.00 2269.00
Nov-91 2597.00 2175.00
Dec-91 2973.00 2424.00
Jan-92 2807.00 2382.00
Feb-92 2724.00 2410.00
Mar-92 2717.00 2364.00
Apr-92 2655.00 2436.00
May-92 2667.00 2444.00
Jun-92 2822.00 2408.00
Jul-92 3054.00 2509.00
Aug-92 3176.00 2455.00
Sep-92 3194.00 2484.00
Oct-92 3268.00 2495.00
Nov-92 3309.00 2577.00
Dec-92 3268.00 2610.00
Jan-93 3293.00 2634.00
Feb-93 3530.00 2668.00
Mar-93 3482.00 2724.00
Apr-93 3595.00 2661.00
May-93 3635.00 2728.00
Jun-93 3731.00 2736.00
Jul-93 3904.00 2728.00
Aug-93 3893.00 2829.00
Sep-93 3854.00 2807.00
Oct-93 3849.00 2868.00
Nov-93 3833.00 2837.00
Dec-93 3917.00 2873.00
Jan-94 3810.00 2973.00
Feb-94 3714.00 2889.00
Mar-94 3820.00 2764.00
Apr-94 3771.00 2802.00
May-94 3881.00 2844.00
Jun-94 4023.00 2774.00
Jul-94 3938.00 2868.00
Aug-94 3815.00 2984.00
Sep-94 3874.00 2910.00
Oct-94 3874.00 2978.00
Nov-94 3936.00 2867.00
Dec-94 3889.00 2909.00
Jan-95 3807.00 2987.00
Feb-95 3967.00 3102.00
Mar-95 4292.00 3194.00
Apr-95 4364.00 3290.00
May-95 4404.00 3418.00
Jun-95 4335.00 3498.00
Jul-95 4248.00 3616.00
Aug-95 4304.00 3623.00
Sep-95 4239.00 3776.00
Oct-95 4254.00 3765.00
Nov-95 4322.00 3927.00
Dec-95 4478.00 4003.00
Jan-96 4627.00 4142.00
Feb-96 4407.00 4178.00
Mar-96 4439.00 4219.00
Apr-96 4649.00 4284.00
May-96 4566.00 4390.00
Jun-96 4598.00 4408.00
Jul-96 4538.00 4214.00
Aug-96 4552.00 4302.00
Sep-96 4670.00 4543.00
Oct-96 4935.00 4670.00
Nov-96 5216.00 5021.00
Dec-96 5134.00 4922.00
Jan-97 5288.00 5232.00
Feb-97 5419.00 5271.00
Mar-97 5413.00 5054.00
Apr-97 5345.00 5358.00
May-97 5291.00 5681.00
Jun-97 5310.00 5937.00
Jul-97 5595.00 6410.00
Aug-97 5367.00 6050.00
Sep-97 5438.00 6380.00
Oct-97 5404.00 6169.00
Nov-97 5491.00 6452.00
Dec-97 5650.00 6563.00
Jan-98 5697.00 6639.00
Feb-98 5633.00 7115.00
Mar-98 5699.00 7480.00
Apr-98 5526.00 7557.00
May-98 5626.00 7423.00
Jun-98 5631.00 7725.00
Jul-98 5651.00 7645.00
Aug-98 5955.00 6538.00
Sep-98 6150.00 6955.00
Oct-98 6110.00 7524.00
Nov-98 6034.00 7978.00
Dec-98 6180.00 8438.00
Jan-99 6095.00 8793.00
Feb-99 6187.00 8518.00
Mar-99 6182.00 8859.00
Apr-99 6315.00 9205.00
May-99 6265.00 8984.00
Jun-99 6392.00 9483.00
Jul-99 6361.00 9189.00
Aug-99 6356.00 9141.00
Sep-99 6362.00 8889.00
Oct-99 6144.00 9455.00
<CAPTION>
MANAGED FUTURES INDEX S&P 500 INDEX
--------------------- -------------
<S> <C> <C>
Sep-Dec 1987 (Stock Market Correction) 16% -24%
Aug-Dec 1990 (Mid-East Oil Crisis) 11% -6%
Mar-Jun 1994 (Global Bond Market Reversal) 8% -4%
Aug-Sep 1998 (International Market Uncertainty) 9% -9%
</TABLE>
In Chart 3, periods of significant stock market decline are highlighted.
Historically, the MAR CTA-$ Index has, at times, moved in tandem with the S&P
500 Index. At other times, its performance has diverged. For example, in the
third quarter of 1998, the managed futures index rose 9% while the S&P 500 Index
decreased by 9%.
Account fees associated with the composite of the advisors in the MAR CTA-$
Index vary widely and may be higher or lower than the Fund's fees.
Campbell, Rabar, & Beacon are included in the MAR CTA-$ Index, Bridgewater is
not. The collective performance of these four advisors will likely be different
than the composite of the 350 advisors in the MAR CTA-$ Index. Similarly, the
blended performance of four stocks included in the S&P 500 Index would not
necessarily have the same performance as the S&P 500 Index itself. In addition,
the advisors in the MAR CTA-$ Index may have different trading styles and trade
different markets than the advisors in the Fund. It is not possible to invest in
a managed futures product that tracks the MAR CTA-$ Index. Therefore,
performance of the Fund is likely to differ from the MAR CTA-$ Index.
Past performance, including past non-correlation patterns, is not necessarily
indicative of future results. There have been periods when the MAR CTA-$ Index
performed negatively and the S&P 500 Index performed negatively. There is no
assurance that an investment in Salomon Smith Barney Diversified 2000 Futures
Fund will have the results illustrated in Chart 3.
The potential of managed futures to produce returns independent of the stock
market is also illustrated in Table 1. Table 1 shows the annual rates of return
of a managed futures index
107
<PAGE> 114
(MAR CTA- $ Index) compared to the annual rates of return of indices for U.S.
stocks and international stocks.
TABLE 1
RETURNS INDEPENDENT OF US AND INTERNATIONAL STOCKS
AVERAGE ANNUAL RATES OF RETURN
1987-1999
<TABLE>
<CAPTION>
MANAGED U.S. INT'L
FUTURES (%) STOCKS (%) STOCKS (%)
----------- ---------- ----------
<S> <C> <C> <C>
1987............................................. 57.8 5.2 16.8
1988............................................. 14.6 16.5 24.0
1989............................................. 7.3 31.7 17.2
1990............................................. 27.3 -3.1 -16.5
1991............................................. 16.8 30.5 19.0
1992............................................. 9.9 7.6 -4.7
1993............................................. 19.9 10.1 23.1
1994............................................. 0.7 1.3 5.6
1995............................................. 15.2 37.6 21.3
1996............................................. 14.6 23.0 14.0
1997............................................. 10.1 33.4 16.2
1998............................................. 9.4 28.8 24.8
1999*............................................ -0.6 12.1 12.8
AVERAGE ANNUAL RETURN............................ 14.9 17.6 12.9
ANNUALIZED STANDARD DEVIATION.................... 13.1 15.0 14.7
</TABLE>
- --------------------
* January-October
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ABILITY TO REGISTER POSITIVE RETURNS IN UP AND DOWN MARKETS
Historically, the MAR CTA-$ 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.
To demonstrate this, the monthly returns of the S&P 500 Stock Index for the
period January 1987 through October 1999 (a total of 154 months) were sorted
lowest to highest and then segmented into 14 month groups. 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 MAR CTA-$ Index. For the stock market's worst group of
months (Group 1), the average return was -7.1%, while the managed futures
index's average monthly return for the same months was +2.3%. For the stock
market's best monthly group (Group 11), the average monthly return was +8.3% and
the average monthly return of the managed futures index was +3.1%.
108
<PAGE> 115
Chart 5 uses the same methodology as Chart 4. The monthly returns of the managed
futures index for the period January 1987 though October 1999 were sorted lowest
to highest, and then segmented into 14-month groups. 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 Chart 5, the average monthly return for the managed futures index worst group
of months was -4.2%, while the S&P 500 Index average monthly return for the same
months was +1.5%. 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 VERRSUS MAR CTA -$ INDEX
14 MONTH GROUPINGS: AVERAGE MONTHLY RETURNS
1/87 - 10/99
[BAR CHART]
<TABLE>
<CAPTION>
MAR CTA-$ S&P 500
--------- -------
<S> <C> <C>
1 (worst) 2.3279 -7.0929
2 -0.12 -2.66
3 1.5243 -1.3736
4 1.3514 0.0257
5 0.0736 1.0757
6 0.4857 1.7979
7 1.9436 2.6250
8 0.9943 3.5600
9 -0.1386 4.2800
10 2.0857 5.4836
11 (best) 3.0464 8.2586
</TABLE>
CHART 5
MAR CTA-$ INDEX VERSUS S&P 500
14 MONTH GROUPINGS: AVERAGE MONTHLY RETURNS
1/87 - 10/99
[BAR CHART]
<TABLE>
<CAPTION>
S&P 500 MAR CTA-$
------- ---------
<S> <C> <C>
1 (worst) 1.5421 -4.235
2 1.4914 -2.2807
3 2.6457 -1.2436
4 1.5571 -0.605
5 0.3764 0.0693
6 2.8429 0.7186
7 1.4193 1.4907
8 1.6043 2.2314
9 -0.7364 3.0879
10 0.53 4.7379
11 (best) 2.7071 9.6029
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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.
In Chart 6, an investment in managed futures, represented by the MAR CTA-$
Index, is added in increments to a traditional portfolio of 55% U.S. stocks and
5% international stocks, represented by the S&P 500 Index and the Morgan Stanley
Capital International (MSCI) World Index, respectively, and 40% bonds,
represented by the Lehman Brothers Bond Index (LBBI). The addition of managed
futures to the portfolio lowers the overall standard deviation, a statistical
measure of risk, and increases the rate of return. If suitable for your
investment
109
<PAGE> 116
objectives, Salomon Smith Barney recommends an allocation to managed futures of
5%-15% of your portfolio.
Standard deviation, expressed as a percentage, is a measure of the volatility or
variation of an investment's return around the average return of that
investment. A high standard deviation implies high volatility, which means that
an investment is less likely to realize its average return.
CHART 6
ILLUSTRATION OF THE HYPOTHETICAL IMPACT OF ADDING MANAGED
FUTURES TO A TRADITIONAL PORTFOLIO
JANUARY 1987 - OCTOBER 1999
[CHART]
<TABLE>
<CAPTION>
COMPOUNDED ANNUAL ROR ANNUALIZED STANDARD DEVIATION
- --------------------- -----------------------------
<S> <C>
14.49 10.70
14.51 10.08
14.53 9.58
14.55 9.18
14.58 8.89
14.62 8.63
14.66 8.74
14.71 9.13
</TABLE>
There is no assurance that an investment in a portfolio that includes managed
futures will have these results, nor that an investment in the 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.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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 commodity trading advisor 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.
110
<PAGE> 117
Managed futures funds also offer investors access to more than one commodity
trading advisor combined in one investment.
DEFINITIONS
S&P 500 STOCK INDEX (or U.S. Stocks) consists of 500 U.S. stocks representing a
broad range of various industry groups and assumes dividend reinvestment.
BONDS are represented by the Lehman Brothers Bond Index, which is comprised of
fixed rate debt issues rated investment grade or higher by Moody's, S&P or Fitch
and includes interest. 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) which 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 used.
111
<PAGE> 118
INDIVIDUAL ADVISOR PERFORMANCE
The following charts are based on the monthly pro forma returns (adjusted for
fees and expenses to be charged to the Fund) for each program to be traded in
the Fund. The charts and graphs show the history of returns and the degree of
volatility for the composite accounts of each program.
The results shown here do not represent an investment in the Fund. They are
based on an assumed, or hypothetical, investment of $1,000 with each advisor.
The rates of return are actual for the composite of accounts of each advisor,
but no representation is made that any one account experienced all of the
returns presented. In addition, the Fund is a combination of four advisors so
the Fund's actual performance will reflect the results of all four advisors'
programs working together.
NOTES TO ADVISOR CHARTS:
The performance illustrated was derived from Table B-1, Pro Forma Performance
for each advisor.
The following terms are used in the 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 is a measure of volatility or variation of an
investment's return around the average return of that investment. A high
standard deviation implies high volatility, which means that an investment is
less likely to realize its average 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 measure of the amount of return per unit of 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 Qualified Universe Index
(equal weighted version, referred to as "MAR CTA-E"), is an equal 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 fund tables.
112
<PAGE> 119
BEACON MANAGEMENT CORPORATION
MEKA PROGRAM
PRO FORMA PERFORMANCE
AUGUST 1995 - OCTOBER 1999
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
[LINE GRAPH]
<TABLE>
<CAPTION>
BEACON MEKA PF MARCTA-E
-------------- --------
<S> <C> <C>
Jul-95 1000.00 1000.00
Aug-95 1100.00 1018.00
Sep-95 1022.00 1016.00
Oct-95 946.00 1015.00
Nov-95 1020.00 1027.00
Dec-95 1168.00 1064.00
Jan-96 1202.00 1093.00
Feb-96 982.00 1048.00
Mar-96 1027.00 1057.00
Apr-96 1205.00 1114.00
May-96 1107.00 1096.00
Jun-96 1208.00 1097.00
Jul-96 1016.00 1079.00
Aug-96 977.00 1072.00
Sep-96 1063.00 1100.00
Oct-96 1264.00 1164.00
Nov-96 1514.00 1210.00
Dec-96 1475.00 1196.00
Jan-97 1673.00 1247.00
Feb-97 1802.00 1284.00
Mar-97 1703.00 1277.00
Apr-97 1810.00 1249.00
May-97 1825.00 1258.00
Jun-97 1692.00 1264.00
Jul-97 1975.00 1341.00
Aug-97 1688.00 1293.00
Sep-97 1795.00 1309.00
Oct-97 1653.00 1296.00
Nov-97 1762.00 1311.00
Dec-97 2010.00 1361.00
Jan-98 2042.00 1378.00
Feb-98 2317.00 1364.00
Mar-98 2632.00 1379.00
Apr-98 2731.00 1332.00
May-98 2732.00 1345.00
Jun-98 2667.00 1347.00
Jul-98 2956.00 1343.00
Aug-98 3043.00 1440.00
Sep-98 3171.00 1505.00
Oct-98 3284.00 1505.00
Nov-98 3528.00 1485.00
Dec-98 3312.00 1505.00
Jan-99 3208.00 1486.00
Feb-99 3523.00 1545.00
Mar-99 3389.00 1533.00
Apr-99 3982.00 1566.00
May-99 3493.00 1551.00
Jun-99 3440.00 1574.00
Jul-99 2973.00 1560.00
Aug-99 2740.00 1553.00
Sep-99 2377.00 1560.00
Oct-99 2088.00 1491.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Compounded Average Annual Rate of Return.... 18.92% Maximum Drawdown............................ -47.56%
Annual Standard Deviation................... 34.90% Sharpe Ratio................................ 0.53
Average Monthly Rate of Return.............. 1.45% High Month.................................. 19.82%
Percentage of Positive Months............... 58.82% Low Month................................... -18.26%
Percentage of Negative Months............... 41.18% Average Positive Monthly Return............. 9.15%
Average Negative Monthly Return............. -8.31%
</TABLE>
12 MONTH ROLLING WINDOWS
[BAR GRAPH]
<TABLE>
<CAPTION>
BEACON PF MARCTA-E
--------- --------
<S> <C> <C>
Jul-96 1.64 7.88
Aug-96 -11.23 5.33
Sep-96 4.01 8.20
Oct-96 33.58 14.73
Nov-96 48.49 17.88
Dec-96 26.28 12.48
Jan-97 39.15 14.08
Feb-97 83.43 22.55
Mar-97 65.78 20.85
Apr-97 50.18 12.13
May-97 64.86 14.86
Jun-97 40.10 15.21
Jul-97 94.28 24.27
Aug-97 72.86 20.59
Sep-97 68.86 19.00
Oct-97 30.80 11.37
Nov-97 16.41 8.32
Dec-97 36.29 13.74
Jan-98 22.08 10.52
Feb-98 28.58 6.19
Mar-98 54.52 7.96
Apr-98 50.90 6.64
May-98 49.67 6.88
Jun-98 57.57 6.58
Jul-98 49.71 0.18
Aug-98 80.27 11.39
Sep-98 76.71 15.00
Oct-98 98.72 16.10
Nov-98 100.17 13.27
Dec-98 64.74 10.60
Jan-99 57.10 7.84
Feb-99 52.03 13.34
Mar-99 28.79 11.22
Apr-99 45.81 17.61
May-99 27.87 15.30
Jun-99 29.02 16.83
Jul-99 0.58 16.13
Aug-99 -9.96 7.89
Sep-99 -25.04 3.70
Oct-99 -36.42 -0.94
</TABLE>
24 MONTH ROLLING WINDOWS
[BAR GRAPH]
<TABLE>
<CAPTION>
BEACON PF MARCTA-E
--------- --------
<S> <C> <C>
Jul-97 97.47 34.07
Aug-97 53.44 27.02
Sep-97 75.63 28.75
Oct-97 74.72 27.78
Nov-97 72.86 27.69
Dec-97 72.10 27.94
Jan-98 69.88 26.08
Feb-98 135.84 30.13
Mar-98 156.16 30.47
Apr-98 126.62 19.58
May-98 146.75 22.76
Jun-98 120.76 22.80
Jul-98 190.85 24.50
Aug-98 211.62 34.33
Sep-98 198.39 36.85
Oct-98 159.92 29.31
Nov-98 133.02 22.69
Dec-98 124.53 25.80
Jan-99 91.79 19.19
Feb-99 95.48 20.35
Mar-99 99.01 20.07
Apr-99 120.03 25.41
May-99 91.38 23.23
Jun-99 103.29 24.52
Jul-99 50.58 16.34
Aug-99 62.31 20.18
Sep-99 32.46 19.25
Oct-99 26.35 15.01
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
113
<PAGE> 120
BRIDGEWATER ASSOCIATES, INC.
AGGRESSIVE PURE ALPHA FUTURES ONLY PROGRAM
PRO FORMA PERFORMANCE
AUGUST 1998 - OCTOBER 1999
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
[LINE GRAPH]
<TABLE>
<CAPTION>
BRIDGEWATER PF MARCTA-E
-------------- --------
<S> <C> <C>
Jul-98 1000.00 1000.00
Aug-98 987.00 1072.00
Sep-98 1011.00 1120.00
Oct-98 1106.00 1121.00
Nov-98 1125.00 1106.00
Dec-98 1185.00 1120.00
Jan-99 1188.00 1106.00
Feb-99 1228.00 1151.00
Mar-99 1201.00 1142.00
Apr-99 1190.00 1166.00
May-99 1208.00 1155.00
Jun-99 1209.00 1172.00
Jul-99 1213.00 1161.00
Aug-99 1193.00 1157.00
Sep-99 1174.00 1162.00
Oct-99 1144.00 1110.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Compounded Average Annual Rate of Return.... 11.39% Maximum Drawdown............................ -6.79%
Annual Standard Deviation................... 10.76% Sharpe Ratio................................ 0.63
Average Monthly Rate of Return.............. 0.90% High Month.................................. 9.39%
Percentage of Positive Months............... 60.00% Low Month................................... -2.55%
Percentage of Negative Months............... 40.00% Average Positive Monthly Return............. 2.71%
Average Negative Monthly Return............. -1.69%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
114
<PAGE> 121
CAMPBELL & COMPANY, INC.
FINANCIAL, METALS AND ENERGY SMALL PORTFOLIO
PRO FORMA PERFORMANCE
JANUARY 1994 - OCTOBER 1999
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
[LINE GRAPH]
<TABLE>
<CAPTION>
CAMPBELL FME PF MARCTA-E
--------------- --------
<S> <C> <C>
1000.00 1000.00
Jan-94 946.00 971.00
Feb-94 875.00 961.00
Mar-94 930.00 985.00
Apr-94 904.00 968.00
May-94 873.00 986.00
Jun-94 912.00 1011.00
Jul-94 866.00 997.00
Aug-94 829.00 967.00
Sep-94 880.00 977.00
Oct-94 876.00 980.00
Nov-94 809.00 1002.00
Dec-94 761.00 1000.00
Jan-95 724.00 981.00
Feb-95 757.00 1010.00
Mar-95 828.00 1068.00
Apr-95 834.00 1077.00
May-95 820.00 1087.00
Jun-95 800.00 1075.00
Jul-95 776.00 1057.00
Aug-95 830.00 1076.00
Sep-95 781.00 1074.00
Oct-95 790.00 1072.00
Nov-95 787.00 1085.00
Dec-95 844.00 1124.00
Jan-96 922.00 1155.00
Feb-96 869.00 1107.00
Mar-96 905.00 1117.00
Apr-96 926.00 1177.00
May-96 900.00 1158.00
Jun-96 909.00 1159.00
Jul-96 890.00 1140.00
Aug-96 916.00 1133.00
Sep-96 933.00 1162.00
Oct-96 1052.00 1230.00
Nov-96 1168.00 1279.00
Dec-96 1121.00 1264.00
Jan-97 1160.00 1318.00
Feb-97 1172.00 1357.00
Mar-97 1150.00 1349.00
Apr-97 1116.00 1320.00
May-97 1079.00 1330.00
Jun-97 1113.00 1336.00
Jul-97 1202.00 1417.00
Aug-97 1127.00 1366.00
Sep-97 1173.00 1383.00
Oct-97 1191.00 1370.00
Nov-97 1193.00 1385.00
Dec-97 1249.00 1438.00
Jan-98 1278.00 1456.00
Feb-98 1238.00 1441.00
Mar-98 1309.00 1457.00
Apr-98 1235.00 1407.00
May-98 1283.00 1421.00
Jun-98 1299.00 1424.00
Jul-98 1245.00 1419.00
Aug-98 1358.00 1522.00
Sep-98 1400.00 1590.00
Oct-98 1467.00 1591.00
Nov-98 1448.00 1569.00
Dec-98 1461.00 1590.00
Jan-99 1390.00 1571.00
Feb-99 1405.00 1633.00
Mar-99 1423.00 1620.00
Apr-99 1494.00 1655.00
May-99 1435.00 1639.00
Jun-99 1504.00 1663.00
Jul-99 1495.00 1648.00
Aug-99 1508.00 1642.00
Sep-99 1528.00 1649.00
Oct-99 1473.00 1576.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Compounded Average Annual Rate of Return.... 6.87% Maximum Drawdown............................ -27.72%
Annual Standard Deviation................... 16.50% Sharpe Ratio................................ 0.19
Average Monthly Rate of Return.............. 0.55% High Month.................................. 12.77%
Percentage of Positive Months............... 55.71% Low Month................................... -7.66%
Percentage of Negative Months............... 44.29% Average Positive Monthly Return............. 4.19%
Average Negative Monthly Return............. -3.77%
</TABLE>
12 MONTH ROLLING WINDOWS
[BAR GRAPH]
<TABLE>
<CAPTION>
CAMPBELL PF MARCTA-E
----------- --------
<S> <C> <C>
Dec-94 -23.9 -0.04
Jan-95 -23.45 1.06
Feb-95 -13.52 5.11
Mar-95 -10.98 8.42
Apr-95 -7.82 11.27
May-95 -6.04 10.21
Jun-95 -12.3 6.30
Jul-95 -10.4 6.01
Aug-95 0.09 11.27
Sep-95 -11.28 9.90
Oct-95 -9.84 9.39
Nov-95 -2.67 8.27
Dec-95 10.97 12.46
Jan-96 27.31 17.69
Feb-96 14.81 9.64
Mar-96 9.40 4.54
Apr-96 11.06 9.32
May-96 9.70 6.55
Jun-96 13.60 7.86
Jul-96 14.76 7.88
Aug-96 10.34 5.33
Sep-96 19.54 8.20
Oct-96 33.25 14.73
Nov-96 48.34 17.88
Dec-96 32.80 12.48
Jan-97 25.92 14.08
Feb-97 34.87 22.55
Mar-97 27.08 20.85
Apr-97 20.49 12.13
May-97 19.93 14.86
Jun-97 22.44 15.21
Jul-97 35.10 24.27
Aug-97 23.06 20.59
Sep-97 25.69 19.00
Oct-97 13.23 11.37
Nov-97 2.14 8.32
Dec-97 11.37 13.74
Jan-98 10.15 10.52
Feb-98 5.67 6.19
Mar-98 13.74 7.96
Apr-98 10.74 6.64
May-98 18.96 6.88
Jun-98 16.72 6.58
Jul-98 3.53 0.18
Aug-98 20.43 11.39
Sep-98 19.41 15.00
Oct-98 23.10 16.10
Nov-98 21.42 13.27
Dec-98 17.02 10.60
Jan-99 8.71 7.84
Feb-99 13.48 13.34
Mar-99 8.76 11.22
Apr-99 20.93 17.61
May-99 11.78 15.30
Jun-99 15.77 16.83
Jul-99 20.07 16.13
Aug-99 11.09 7.89
Sep-99 9.13 3.70
Oct-99 0.44 -0.94
</TABLE>
24 MONTH ROLLING WINDOWS
[BAR GRAPH]
<TABLE>
<CAPTION>
CAMPBELL PF MARCTA-E
----------- --------
<S> <C> <C>
Dec-95 -15.56 12.41
Jan-96 -2.54 18.93
Feb-96 -0.71 15.24
Mar-96 -2.61 13.34
Apr-96 2.38 21.64
May-96 3.07 17.43
Jun-96 -0.38 14.66
Jul-96 2.83 14.37
Aug-96 10.45 17.20
Sep-96 6.06 18.91
Oct-96 20.13 25.50
Nov-96 44.39 27.63
Dec-96 47.36 26.49
Jan-97 60.31 34.26
Feb-97 54.84 34.36
Mar-97 39.02 26.33
Apr-97 33.82 22.58
May-97 31.56 22.38
Jun-97 39.09 24.27
Jul-97 55.04 34.07
Aug-97 35.79 27.02
Sep-97 50.25 28.75
Oct-97 50.87 27.78
Nov-97 51.51 27.69
Dec-97 47.89 27.94
Jan-98 38.70 26.08
Feb-98 42.51 30.13
Mar-98 44.54 30.47
Apr-98 33.43 19.58
May-98 42.67 22.76
Jun-98 42.91 22.80
Jul-98 39.88 24.50
Aug-98 48.21 34.33
Sep-98 50.08 36.85
Oct-98 39.38 29.31
Nov-98 24.01 22.69
Dec-98 30.33 25.80
Jan-99 19.75 19.19
Feb-99 19.91 20.35
Mar-99 23.70 20.07
Apr-99 33.92 25.41
May-99 32.98 23.23
Jun-99 35.13 24.52
Jul-99 24.31 16.34
Aug-99 33.78 20.18
Sep-99 30.31 19.25
Oct-99 23.64 15.01
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
115
<PAGE> 122
RABAR MARKET RESEARCH
DIVERSIFIED PROGRAM
PRO FORMA PERFORMANCE
JANUARY 1994 - OCTOBER 1999
VALUE OF HYPOTHETICAL $1,000 INVESTMENTS
[LINE GRAPH]
<TABLE>
<CAPTION>
RABAR PF MARCTA-E
-------- --------
<S> <C> <C>
1000.00 1000.00
Jan-94 893.00 971.00
Feb-94 839.00 961.00
Mar-94 1002.00 985.00
Apr-94 1025.00 968.00
May-94 1140.00 986.00
Jun-94 1344.00 1011.00
Jul-94 1288.00 997.00
Aug-94 1238.00 967.00
Sep-94 1271.00 977.00
Oct-94 1225.00 980.00
Nov-94 1332.00 1002.00
Dec-94 1315.00 1000.00
Jan-95 1178.00 981.00
Feb-95 1344.00 1010.00
Mar-95 1553.00 1068.00
Apr-95 1644.00 1077.00
May-95 1790.00 1087.00
Jun-95 1741.00 1075.00
Jul-95 1604.00 1057.00
Aug-95 1490.00 1076.00
Sep-95 1377.00 1074.00
Oct-95 1308.00 1072.00
Nov-95 1338.00 1085.00
Dec-95 1498.00 1124.00
Jan-96 1494.00 1155.00
Feb-96 1348.00 1107.00
Mar-96 1325.00 1117.00
Apr-96 1367.00 1177.00
May-96 1317.00 1158.00
Jun-96 1334.00 1159.00
Jul-96 1303.00 1140.00
Aug-96 1284.00 1133.00
Sep-96 1329.00 1162.00
Oct-96 1471.00 1230.00
Nov-96 1553.00 1279.00
Dec-96 1474.00 1264.00
Jan-97 1549.00 1318.00
Feb-97 1614.00 1357.00
Mar-97 1603.00 1349.00
Apr-97 1508.00 1320.00
May-97 1472.00 1330.00
Jun-97 1469.00 1336.00
Jul-97 1665.00 1417.00
Aug-97 1545.00 1366.00
Sep-97 1587.00 1383.00
Oct-97 1534.00 1370.00
Nov-97 1539.00 1385.00
Dec-97 1599.00 1438.00
Jan-98 1628.00 1456.00
Feb-98 1648.00 1441.00
Mar-98 1647.00 1457.00
Apr-98 1547.00 1407.00
May-98 1609.00 1421.00
Jun-98 1638.00 1424.00
Jul-98 1653.00 1419.00
Aug-98 1962.00 1522.00
Sep-98 2078.00 1590.00
Oct-98 1999.00 1591.00
Nov-98 1932.00 1569.00
Dec-98 1957.00 1590.00
Jan-99 1916.00 1571.00
Feb-99 1985.00 1633.00
Mar-99 1899.00 1620.00
Apr-99 1959.00 1655.00
May-99 1814.00 1639.00
Jun-99 1812.00 1663.00
Jul-99 1751.00 1648.00
Aug-99 1737.00 1642.00
Sep-99 1735.00 1649.00
Oct-99 1624.00 1576.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Compounded Average Annual Rate of Return.... 8.67% Maximum Drawdown............................ -28.26%
Annual Standard Deviation................... 23.98% Sharpe Ratio................................ 0.26
Average Monthly Rate of Return.............. 0.70% High Month.................................. 19.48%
Percentage of Positive Months............... 47.14% Low Month................................... -10.70%
Percentage of Negative Months............... 52.86% Average Positive Monthly Return............. 6.58%
Average Negative Monthly Return............. -4.11%
</TABLE>
12 MONTH ROLLING WINDOWS
[BAR GRAPH]
<TABLE>
<CAPTION>
RABAR PF MARCTA-E
-------- --------
<S> <C> <C>
Dec-94 31.51 -0.04
Jan-95 31.89 1.06
Feb-95 60.21 5.11
Mar-95 54.88 8.42
Apr-95 60.44 11.27
May-95 56.97 10.21
Jun-95 29.58 6.30
Jul-95 24.56 6.01
Aug-95 20.37 11.27
Sep-95 8.38 9.90
Oct-95 6.78 9.39
Nov-95 0.48 8.27
Dec-95 13.90 12.46
Jan-96 26.84 17.69
Feb-96 0.30 9.64
Mar-96 -14.67 4.54
Apr-96 -16.87 9.32
May-96 -26.43 6.55
Jun-96 -23.37 7.86
Jul-96 -18.77 7.88
Aug-96 -13.85 5.33
Sep-96 -3.49 8.20
Oct-96 12.44 14.73
Nov-96 16.01 17.88
Dec-96 -1.62 12.48
Jan-97 3.66 14.08
Feb-97 19.75 22.55
Mar-97 21.03 20.85
Apr-97 10.29 12.13
May-97 11.79 14.86
Jun-97 10.10 15.21
Jul-97 27.78 24.27
Aug-97 20.32 20.59
Sep-97 19.39 19.00
Oct-97 4.32 11.37
Nov-97 -0.88 8.32
Dec-97 8.51 13.74
Jan-98 5.14 10.52
Feb-98 2.08 6.19
Mar-98 2.74 7.96
Apr-98 2.60 6.64
May-98 9.31 6.88
Jun-98 11.54 6.58
Jul-98 -0.72 0.18
Aug-98 27.01 11.39
Sep-98 30.94 15.00
Oct-98 30.25 16.10
Nov-98 25.54 13.27
Dec-98 22.36 10.60
Jan-99 17.67 7.84
Feb-99 20.45 13.34
Mar-99 15.27 11.22
Apr-99 26.61 17.61
May-99 12.74 15.30
Jun-99 10.60 16.83
Jul-99 5.91 16.13
Aug-99 -11.45 7.89
Sep-99 -16.47 3.70
Oct-99 -18.74 -0.94
</TABLE>
24 MONTH ROLLING WINDOWS
[BAR GRAPH]
<TABLE>
<CAPTION>
RABAR PF MARCTA-E
-------- --------
<S> <C> <C>
Dec-95 49.79 12.41
Jan-96 67.29 18.93
Feb-96 60.68 15.24
Mar-96 32.17 13.34
Apr-96 33.37 21.64
May-96 15.48 17.43
Jun-96 -0.71 14.66
Jul-96 1.18 14.37
Aug-96 3.69 17.20
Sep-96 4.59 18.91
Oct-96 20.06 25.50
Nov-96 16.56 27.63
Dec-96 12.05 26.49
Jan-97 31.48 34.26
Feb-97 20.10 34.36
Mar-97 3.28 26.33
Apr-97 -8.32 22.58
May-97 -17.75 22.38
Jun-97 -15.63 24.27
Jul-97 3.79 34.07
Aug-97 3.66 27.02
Sep-97 15.22 28.75
Oct-97 17.30 27.78
Nov-97 14.98 27.69
Dec-97 6.75 27.94
Jan-98 8.99 26.08
Feb-98 22.24 30.13
Mar-98 24.34 30.47
Apr-98 13.16 19.58
May-98 22.20 22.76
Jun-98 22.81 22.80
Jul-98 26.86 24.50
Aug-98 52.82 34.33
Sep-98 56.34 36.85
Oct-98 35.88 29.31
Nov-98 24.43 22.69
Dec-98 32.78 25.80
Jan-99 23.72 19.19
Feb-99 22.96 20.35
Mar-99 18.43 20.07
Apr-99 29.90 25.41
May-99 23.24 23.23
Jun-99 23.36 24.52
Jul-99 5.14 16.34
Aug-99 12.46 20.18
Sep-99 9.38 19.25
Oct-99 5.85 15.01
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
116
<PAGE> 123
CORRELATION MATRIX
COMMODITY TRADING ADVISORS
AUGUST 1995-OCTOBER 1999
<TABLE>
<CAPTION>
S&P 500 MSCI WORLD LBBI
CAMPBELL PF RABAR PF BEACON PF INDEX INDEX INDEX
<S> <C> <C> <C> <C> <C> <C>
Campbell Pro forma 1.00
Rabar Pro forma 0.69 1.00
Beacon Pro forma 0.57 0.60 1.00
S&P 500 Index 0.10 -0.05 0.38 1.00
MSCI World Index 0.07 -0.08 0.33 0.93 1.00
LBBI Index 0.47 0.50 0.35 0.25 0.12 1.00
</TABLE>
Note: Bridgewater is not included in the table because the Aggressive Pure Alpha
Future Only Program did not begin trading until August 1998.
The Correlation Matrix above illustrates the correlation of three of the Fund's
advisors to U.S. and international stock market indices and a U.S. bond index.
CORRELATION is a statistical measure of the extent to which two or more
variables move together (in this case, rates of return 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.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
117
<PAGE> 124
TABLE C
HYPOTHETICAL COMPOSITE ADJUSTED PERFORMANCE RECORD
FOR THE PERIOD AUGUST 1998 THROUGH OCTOBER 31, 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 8.65% 1,087
September............. 4.45 1,147 4.12 1,131
October............... 2.82 1,180 2.50 1,160
November.............. 0.43 1,185 0.32 1,163
December.............. 0.72 1,193 19.32% 0.44 1,168 16.84%
1999
January............... (2.22) 1,167 (2.67) 1,137
February.............. 4.28 1,217 4.01 1,183
March................. (2.03) 1,192 (2.18) 1,157
April................. 5.97 1,263 5.69 1,223
May................... (5.25) 1,197 (5.72) 1,153
June.................. 1.32 1,213 1.12 1,166
July.................. (3.39) 1,172 (3.78) 1,122
August................ (1.36) 1,156 (1.70) 1,103
September............. (1.83) 1,134 (2.15) 1,079
October............... (5.38) 1,073 (10.04) (5.47) 1,020 (12.71)
</TABLE>
Table based on partnership size of $15 million.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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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, Beacon's Pro Forma
Monthly Rate of Return was 2.94% 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 $1,087, an increase of 8.65% 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 composite 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
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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. 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 October 31, 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.
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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.
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.
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 Fund 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 cash settlements of
unrealized profit or loss are made in the case of open forward contract
positions. Unrealized profit or loss, however, will be reflected daily in the
Fund's net assets.
Commodity futures and forward transactions are highly leveraged and 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.
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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 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
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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 CFTC Act of 1974, the CFTC has become the governmental agency
having responsibility for regulation of U.S. commodity exchanges and commodity
futures trading. The function of the CFTC is to implement the objectives of the
CEA of preventing price manipulation and excessive speculation and promoting
orderly and efficient commodity futures markets. Such regulation, among other
things, provides that futures trading in commodities must be upon exchanges
designated as "contract markets", and that all trading on such exchanges must be
done by or through exchange members. Under the 1974 amendments to the CEA,
futures trading in all commodities traded on domestic exchanges is regulated. In
addition, on September 8, 1981, the CFTC adopted rules regulating trading of
commodity options 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
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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 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 -- Illiquid markets could make it
impossible for the Fund's advisors to realize profits or limit losses" 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 rules with respect to the treatment of positions held by a commodity
pool, such as the Fund, for purposes of determining compliance with speculative
position limits. Futures positions of the Fund are allocated only to the person
or entity controlling trading decisions for the
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Fund and not to the limited partners. Currently, all of the positions held by
all 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.
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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.
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.
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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, 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. The difference between the nominal size of an account as agreed
between the advisor and the client and the actual amount of funds held in the
client's account at the commodity broker.
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.
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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 clearinghouse 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 clearinghouse.
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.
Valuation Period. A regular period of time between Valuation Dates.
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EXHIBIT A
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH AND SUBJECT PAGE
- --------------------- ----
<C> <S> <C>
1. Formation and Name.......................................... A-1
2. Principal Office............................................ A-1
3. Business.................................................... A-1
4. Term, Dissolution and Fiscal Year........................... A-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-3
7. Allocation of Profits and Losses............................ A-4
Capital Accounts............................................ A-4
Allocations................................................. A-4
Allocation of Profit and Loss for Federal Income Tax A-4
Purposes....................................................
Definitions................................................. A-4
Expenses and Limitation Thereof............................. A-6
Limited Liability of Limited Partners....................... A-6
Return of Limited Partners' Capital Contribution............ A-6
Distributions............................................... A-6
8. Management of the Partnership............................... A-7
9. Audits and Reports to Limited Partners...................... A-9
10. Transfer and Redemption of Units............................ A-10
Initial Limited Partner..................................... A-10
Transfer.................................................... A-10
Redemption.................................................. A-11
11. Public Offering of Units of Limited Partnership Interest.... A-12
12. Admission of Additional Partners............................ A-12
13. Special Power of Attorney................................... A-12
14. Withdrawal of a Partner..................................... A-12
15. No Personal Liability for Return of Capital................. A-13
16. Indemnification............................................. A-13
17. Amendments; Meetings........................................ A-14
Amendments with Consent of the General Partner.............. A-14
Meetings.................................................... A-14
Amendments and Actions without Consent of the General A-14
Partner.....................................................
Continuation................................................ A-15
18. Governing Law............................................... A-15
19. Miscellaneous............................................... A-15
Priority among Limited Partners............................. A-15
Notices..................................................... A-15
Binding Effect.............................................. A-15
Captions.................................................... A-15
</TABLE>
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<PAGE> 137
EXHIBIT A
LIMITED PARTNERSHIP AGREEMENT
This Limited Partnership Agreement dated as of August 25, 1999, and amended
and restated as of October 1, 1999 by and between Smith Barney Futures
Management LLC, 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"),
W I T N E S S E T H :
WHEREAS, the parties hereto desire to form and continue a limited
partnership for the purpose of trading in commodity interests including futures
contracts, options and forward contracts;
NOW, THEREFORE, the parties hereto agree as follows:
1. FORMATION AND NAME.
The parties hereto hereby form a limited partnership under the New York
Uniform Limited Partnership Act. The name of the limited partnership is 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, directly or indirectly, 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
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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.
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
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modification will not adversely affect the classification of the Partnership as
a partnership for federal income tax purposes and will not violate any state
securities or blue sky laws to which the Partnership may be subject from time to
time.
6. CAPITAL CONTRIBUTIONS AND UNITS OF PARTNERSHIP INTEREST.
The General Partner shall contribute to the Partnership, immediately prior
to the time the Partnership commences trading activities and as necessary
thereafter, an amount which shall at least equal the greater of (a) 1% of
capital contributions or (b) $25,000. The General Partner's contribution shall
be evidenced by "Units of General Partnership Interest." The General Partner may
not make any transfer or withdrawal of its contribution to the Partnership while
it is General Partner which would reduce its percentage interest in the
Partnership to less than such required interest in the Partnership. Any
withdrawal of any such excess interest by the General Partner may be made only
upon not less than 30 days' notice to the Limited Partners prior to the end of a
fiscal quarter.
Interests in the Partnership, other than those of the General Partner,
shall be evidenced by "Units of Limited Partnership Interest" which the General
Partner on behalf of the Partnership shall, in accordance with the Prospectus
included in the Registration Statement referred to in Paragraph 11, sell to
persons desiring to become Limited Partners. For each Unit of Limited
Partnership Interest purchased prior to the commencement of trading operations,
a Limited Partner shall contribute $1,000 to the capital of the Partnership. For
any Unit (or partial unit rounded to four decimal places) of Limited Partnership
Interest purchased thereafter, a Limited Partner shall contribute to the capital
of the Partnership an amount equal to 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 canceled. 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.
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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.
(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
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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.
(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
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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.
(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.
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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 will not raise the incentive fee cap regardless of whether there
is an increase in the fee cap set forth in the NASAA Guidelines for the
Registration of Commodity Pool Programs while the Units of Limited Partnership
Interest are registered in any jurisdiction that imposes the lower fee cap in
the Guidelines as of the date of this Agreement.
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 National Futures Association 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
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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
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 not rely solely on the rates charged by other major commodity pools
to make its determinations. 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
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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 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.
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10. TRANSFER AND REDEMPTION OF UNITS.
(a) Initial Limited Partner. As of the day after trading commences, the
Initial Limited Partner may redeem his Unit for $1,000 and withdraw from the
Partnership.
(b) Transfer. Each Limited Partner expressly agrees that he will not
assign, transfer or dispose of, by gift or otherwise, any of his Units of
Limited Partnership interest or any part or all of his right, title and interest
in the capital or profits of the Partnership without giving written notice of
the assignment, transfer or disposition to the General Partner and that no
assignment, transfer or disposition shall be effective against the Partnership
or the General Partner until the first day of the month next succeeding the
month in which the General Partner receives the written notice described below.
Any assignment, transfer or disposition by an assignee of Units of Limited
Partnership Interest of his interest in the capital or profits of the
Partnership shall not be effective against the Partnership or the General
Partner until the first day of the month next succeeding the month in which the
General Partner receives the written notice described below. If the General
Partner receives an opinion of counsel to the effect that a transfer should be
prohibited in order to protect against treatment as a publicly traded
partnership, such transfer shall be prohibited. Upon advice of counsel, the
General Partner shall eliminate or modify any restrictions on substitutions or
assignment at such time as the restriction is no longer necessary. If an
assignment, transfer or disposition occurs by reason of the death of a Limited
Partner or assignee, such written notice may be given by the duly authorized
representative of the estate of the Limited Partner or assignee and shall be
supported by such proof of legal authority and valid assignment as may
reasonably be requested by the General Partner. The written notice required by
this paragraph shall specify the name and residence address of the assignee, the
date of assignment, shall include a statement by the assignee that he agrees to
give the above-described written notice to the General Partner upon any
subsequent assignment, and shall be signed by the assignor and assignee. The
General Partner may, in its sole discretion, waive receipt of the
above-described notice or waive any defect therein. Any such assignee shall
become a substituted Limited Partner only upon the consent of the General
Partner (which consent may only be withheld for the purpose of preserving the
Partnership's tax status or to avoid adverse legal consequences to the
Partnership), upon the execution of a Power of Attorney by such assignee
appointing the General Partner as his attorney-in-fact in the form contained in
paragraph 13 hereof. The estate or any beneficiary of a deceased Limited Partner
or assignee shall have no right to withdraw any capital or profits from the
Partnership except by redemption of Units of Limited Partnership Interest. Upon
the death of a Limited Partner, his estate shall have any rights of inventory,
accounting, appraisal or examination of Partnership records as are granted by
law. A substituted Limited Partner shall have all the rights and powers and
shall be subject to all the restrictions and liabilities of a Limited Partner of
the Partnership. A substituted Limited Partner is also liable for the
obligations of his assignor to make contributions to the Partnership, but shall
not be liable for the obligations of his assignor under the Partnership Act to
return distributions received by the assignor, provided, however, that a
substituted Limited Partner shall not be obligated for liabilities unknown to
him at the time he became a substituted Limited Partner and 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
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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.
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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.
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
A-12
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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.
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.
A-13
<PAGE> 150
(e) The provision of advances from Partnership funds to the General Partner
and its Affiliates for legal expenses and other costs incurred as a result of
any legal action initiated against the General Partner or its Affiliates is
prohibited.
(f) Indemnification under this Agreement is recoverable from the assets of
the Partnership and not from the Limited Partners.
17. AMENDMENTS; MEETINGS.
(a) Amendments with Consent of the General Partner. If at any time during
the term of the Partnership the General Partner shall deem it necessary or
desirable to amend this Agreement (including the Partnership's basic investment
policies set forth in paragraph 3(b) hereof) such amendment shall be effective
only if approved in writing by the General Partner and by Limited Partners
owning more than 50% of the Units of Limited Partnership Interest then
outstanding and if made in accordance with the Partnership Act. Any such
supplemental or amendatory agreement shall be adhered to and have the same
effect from and after its effective date as if the same had originally been
embodied in and formed a part of this Agreement. The General Partner may amend
this Limited Partnership Agreement without the consent of the Limited Partners
in order to (i) clarify any clerical inaccuracy or ambiguity or reconcile any
inconsistency (including any inconsistency between this Limited Partnership
Agreement and the Prospectus); (ii) delete or add any provision of or to the
Limited Partnership Agreement required to be deleted or added by the staff of
any federal or state agency; or (iii) make any amendment to the Limited
Partnership Agreement which the General Partner deems advisable (including but
not limited to amendments necessary to effect the allocations 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.
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(d) Continuation. Upon the assignment by the General Partner of all of its
interest in the Partnership, the withdrawal, removal, bankruptcy or any other
event that causes the General Partner to cease to be a general partner under the
Partnership Act, the Partnership is not dissolved and is not required to be
wound up by reason of such event if, within 90 days after such event, all
remaining Partners agree in writing to continue the business of the Partnership
and to the appointment, effective as of the date of such event, of a successor
General Partner. In the event of the withdrawal by the General Partner and the
continuation of the Partnership pursuant to this paragraph, the General Partner
shall pay all expenses incurred as a result of its withdrawal.
18. GOVERNING LAW.
The validity and construction of this Agreement shall be governed by and
construed in accordance with the laws of the State of New York including,
specifically, the New York Revised Uniform Partnership Act, as amended (without
regard to its choice of law principles); provided, however, that causes of
action for violations of federal or state securities laws shall not be governed
by this Section 18.
19. MISCELLANEOUS.
(a) Priority among Limited Partners. No Limited Partner shall be entitled
to any priority or preference over any other Limited Partner with regard to the
return of contributions of capital or to the distribution of any profits or
otherwise in the affairs of the Partnership.
(b) Notices. All notices under this Agreement, other than reports by the
General Partner to the Limited Partners, shall be in writing and shall be
effective upon personal delivery, or, if sent by registered or certified mail,
postage prepaid, addressed to the last known address of the party to whom such
notice is to be given, upon the deposit of such notice in the United States
mail. Reports by the General Partner to the Limited Partners shall be in writing
and shall be sent by first class mail to the last known address of each Limited
Partner.
(c) Binding Effect. This Agreement shall inure to and be binding upon all
the parties, their successors, permitted assigns, custodians, estates, heirs and
personal representatives. For purposes of determining the rights of any Partner
or assignee hereunder, the Partnership and the General Partner may rely upon the
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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first written above.
<TABLE>
<S> <C>
General Partner: Initial Limited Partner:
SMITH BARNEY /s/ DAVID J. VOGEL
FUTURES MANAGEMENT LLC -----------------------------------------------------
By: /s/ DAVID J. VOGEL David J. Vogel
- ------------------------------------------------- Limited Partners:
David J. Vogel, President 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 LLC
Attorney-in-Fact
By: /s/ DAVID J. VOGEL
------------------------------------------------
David J. Vogel, President
</TABLE>
A-16
<PAGE> 153
EXHIBIT
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 minimums 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 LLC,
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 LLC, 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.
B-1
<PAGE> 154
EXHIBIT
SALOMON SMITH BARNEY DIVERSIFIED 2000 EXHIBIT B
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
<TABLE>
<S> <C>
ACCOUNT NAME
----------------------------------------------------------------------
----------------------------------------------------------------------
STATE OR COUNTRY
OF RESIDENCE ----------------------------------------------------------------------
</TABLE>
CIRCLE APPLICABLE ACCOUNT TYPE BELOW
<TABLE>
<S> <C> <C>
1 INDIVIDUAL ACCOUNT 3 CORPORATION 6 IRA, KEOGH, SEP
2 JOINT ACCOUNT 4 PARTNERSHIP 7 EMPLOYEE BENEFIT PLAN
5 TRUST 8 OTHER
---------------
</TABLE>
PAYMENT
PAYMENT FOR SUBSCRIPTIONS MAY BE MADE BY AUTHORIZING YOUR FINANCIAL CONSULTANT
TO DEBIT YOUR 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
------------ ------------
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------- --------------------------------------- ---------------------
FINANCIAL CONSULTANT NAME TELEPHONE NO. WIRE CODE
</TABLE>
Send completed Subscription Agreement to:
Smith Barney Futures Management LLC
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 JANUARY 31,
2000
B-2
<PAGE> 155
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 $60,000 NW and $60,000 TI
Pennsylvania......... $175,000 NW and (2) or $100,000 NW and $50,000 AI and (2)
South Dakota......... $225,000 NW or $60,000 NW and $60,000 Annual Gross Income
Tennessee............ $225,000 NW or $60,000 NW and $60,000 AI
Texas................ $225,000 NW or $60,000 NW and $60,000 TI
</TABLE>
- --------------------
(1) In addition, my investment will represent no more than 10% of my net worth
less the value of any other investments in limited partnership interests.
(2) In addition, if my net worth is less than $1,000,000, my investment will
represent no more than 10% of my net worth less the value of any other
investments in limited partnership interests.
(c) [Iowa Individual Retirement Accounts only]. I understand that my
investment in the Partnership must be for a minimum of $3,000.
(d) [For all Maine Residents including employee-benefit plans]. Your
investment in the Partnership, whether in the initial or continuous offering,
must be for a minimum of $5,000.
(e) [Ohio Residents only]. I understand that my investment will represent
no more than 10% of my net worth less the value of any other investment in
limited partnership interests.
(f) [For Arizona, New Mexico and South Dakota investors]. IN THE CASE OF
SALES TO FIDUCIARY ACCOUNTS, THE MINIMUM INCOME AND NET WORTH STANDARDS FOR
ARIZONA, NEW MEXICO 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> 156
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<PAGE> 157
(This page has been left blank intentionally.)
<PAGE> 158
(This page has been left blank intentionally.)
<PAGE> 159
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 minimums 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 LLC,
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 LLC, 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.
<PAGE> 160
SALOMON SMITH BARNEY DIVERSIFIED 2000 EXECUTION COPY
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
<TABLE>
<S> <C>
ACCOUNT NAME
----------------------------------------------------------------------
----------------------------------------------------------------------
STATE OR COUNTRY
OF RESIDENCE ----------------------------------------------------------------------
</TABLE>
CIRCLE APPLICABLE ACCOUNT TYPE BELOW
<TABLE>
<S> <C> <C>
1 INDIVIDUAL ACCOUNT 3 CORPORATION 6 IRA, KEOGH, SEP
2 JOINT ACCOUNT 4 PARTNERSHIP 7 EMPLOYEE BENEFIT PLAN
5 TRUST 8 OTHER
------------------
</TABLE>
PAYMENT
PAYMENT FOR SUBSCRIPTIONS MAY BE MADE BY AUTHORIZING YOUR FINANCIAL CONSULTANT
TO DEBIT YOUR 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
------------ ------------
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------- --------------------------------------- ---------------------
FINANCIAL CONSULTANT NAME TELEPHONE NO. WIRE CODE
</TABLE>
Send completed Subscription Agreement to:
Smith Barney Futures Management LLC
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 JANUARY 31,
2000
